Accounting - Chapter 10
Polly Corporation purchases land for $200,000. Polly incurs the following costs associated with the land acquisition: Property taxes for current year $4,000 Delinquent property taxes 8,000 Commission to broker 14,000 Cost of grading 2,000 Cost of land improvements 12,000 What is the amount that Polly should capitalize in the land account?
$224,000 Reason: $200,000 + $8,000 + $14,000 + $2,000 = $224,000; Land improvements are in a separate land improvements account.
Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $50,000 Freight and handling 2,000 Concrete pad for equipment 5,000 Maintenance during year 3,000 Shipping insurance 400
$57,400
Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $50,000 Freight and handling 2,000 Concrete pad for equipment 5,000 Maintenance during year 3,000 Shipping insurance 400
$57,400 Purchase Price + Freight + Concrete + Shipping
Collin Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $100,000 Freight and handling 8,000 Trial runs 6,000 Maintenance during year 3,000 Employee training during year 4,000
114,000 Purchase Price + Freight & Handling + Trial Runs
Which of the following is true regarding a nonmonetary exchange of assets?
A gain or loss is recognized for the difference between the fair value and the book value of the asset given up.
Which of the following are included in research and development costs? (Select all that apply.) Allocation of indirect costs related to research General and administrative expenses for the company Materials used in the lab Salaries of researchers
Allocation of indirect costs related to research Materials used in the lab Salaries of researchers
Which items qualify for interest capitalization? (Select all that apply.) Purchased assets Assets built as discrete projects for sale or lease Franchise agreements Assets built for a company's own use Inventories routinely manufactured in large quantities
Assets built as discrete projects for sale or lease Assets built for a company's own use
Which items qualify for interest capitalization? (Select all that apply.) Inventories routinely manufactured in large quantities Assets built for a company's own use Assets built as discrete projects for sale or lease Franchise agreements Purchased assets
Assets built for a company's own use Assets built as discrete projects for sale or lease
Property, plant, and equipment typically include (Select all that apply.) Goodwill furniture patents machinery cars and trucks
Furniture Machinery Cars & Trucks
True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.
True
What are the cost components for self-constructed assets? (Select all that apply.) direct material manufacturing overhead operating expenses direct labor
direct material manufacturing overhead direct labor
Which of the following are included in research and development costs? (Select all that apply.) equipment in the lab sales commissions allocation of overhead for lab facilities administrative expenses labor costs of research personnel
equipment in the lab allocation of overhead for lab facilities labor costs of research personnel
The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at
fair value
Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.) freight-in depreciation for the first month set-up cost training of equipment operator insurance during transit
freight-in set-up cost insurance during transit
Which of the following items should be capitalized in the cost of equipment? (Select all that apply.) installation and testing of equipment insurance on equipment during shipping repair costs for first year of operations freight to deliver the equipment to its location Purchase price
installation and testing of equipment insurance on equipment during shipping freight to deliver the equipment to its location Purchase price
The rationale for capitalizing interest on a self-constructed asset is that
interest expense is incurred while getting the asset ready for its intended use and therefore, should be capitalized.
Assets that do not qualify for interest capitalization are
inventories routinely manufactured.
Which of the following are included in research and development costs? (Select all that apply.) administrative expenses labor costs of research personnel allocation of overhead for lab facilities sales commissions equipment in the lab
labor costs of research personnel allocation of overhead for lab facilities equipment in the lab
Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ______ purchase.
lump-sum
A company acquires equipment by signing a note payable. If the note does not bear interest, the company should record the equipment at the
present value of the equipment or note.
A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the
present value of the note payable, which is the face amount of the note.
A lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ______.
relative fair value
From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics short-lived revenue-producing valued at fair value long-lived
revenue-producing long-lived
A company issues its equity securities to purchase land. The common stock is publicly traded, and both the value of the stock and the land is known. The best indicator of fair value is the value of the
stock
Capitalizing interest on a self-constructed asset as a cost to get the asset ready for its intended use is consistent with
the historical cost principle.
In a lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times
the relative fair value percentages of each asset.
Expenditures needed to get land ready for its intended use should be:
capitalized as part of the cost of land
Costs of an asset that produce future benefits are ______, but costs that produce benefits only in the current period are ______.
capitalized; expensed
The cost of a major improvement that extends the useful life of an asset would be ______; the cost of maintenance that does not increase the future benefits would be ______.
capitalized; expensed
When assets are purchased in a group for a single sum, it is referred to as a
lump-sum purchase.
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.
capitalized
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? (Select all that apply.) current year's property taxes costs to remove an old building title insurance grading the land legal fees to secure title
costs to remove an old building title insurance grading the land legal fees to secure title Current Year's property taxes are related to the current period and should be expensed
A company acquires equipment by signing an interest-bearing note payable for $20,000. The interest rate is realistic so the company will record (Select all that apply.)
credit note payable $20,000 debit machine $20,000
When a company acquires assets by issuing debt or equity securities, the first indicator of fair value is the
fair value of the debt or equity securities given.
Which of the following items should be capitalized in the cost of equipment? (Select all that apply.) installation and testing of equipment Purchase price insurance on equipment during shipping repair costs for first year of operations freight to deliver the equipment to its location
installation and testing of equipment Purchase price insurance on equipment during shipping freight to deliver the equipment to its location
Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as
an expense on the income statement.
A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the
appraised value of the land.
Which of the following are noncurrent tangible assets? (Select all that apply.) equipment accounts receivable trademark property copyright
Equipment Property
Which of the following are research and development costs? (Select all that apply.) engineering follow-through in production design, construction, and testing of pre-production prototypes quality control during production research aimed at discovering new knowledge
design, construction, and testing of pre-production prototypes research aimed at discovering new knowledge
Multiple Choice Question Collin Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $100,000 Freight and handling 8,000 Trial runs 6,000 Maintenance during year 3,000 Employee training during year 4,000
$114,000
Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition: Property taxes for current year $3,000 Cost of removing old building 7,000 Title insurance 1,000 Cost of grading 4,000 Delinquent property taxes 2,000 What is the cost that Sherman should capitalize in the cost of land?
$114,000
Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition: Property taxes for current year $3,000 Cost of removing old building 7,000 Title insurance 1,000 Cost of grading 4,000 Delinquent property taxes 2,000 What is the cost that Sherman should capitalize in the cost of land?
$114,000 Purchase Price + Cost of old Building + Title + Cost of grading + Delinquent taxes
When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets.
fair