ACC 301 - Ch. 10 - True/False

10. Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.

True

11. When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization.

True

12. Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.

True

13. Companies account for the exchange of nonmonetary assets on the basis of the fair value of the asset given up or the fair value of the asset received.

True

16. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits.

True

17. Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently used.

True

2. Assets classified as Property, Plant, and Equipment must be both long-term in nature and possess physical substance.

True

20. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset's book value.

True

4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.

True

6. Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset.

True

18. When an ordinary repair occurs, several periods will usually benefit.

False

19. Companies always treat gains or losses from an involuntary conversion as extraordinary items.

False

3. When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building.

False

5. Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements.

False

7. Companies should assign no portion of fixed overhead to self-constructed assets.

False

8. When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included.

False

9. Assets under construction for a company's own use do not qualify for interest cost capitalization.

False

1. Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or acquired for resale.

False

14. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss is recognized.

False

15. When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.

False