Chapter 10 multiple choice

Which of these is *not* a major characteristic of a plant asset? Possesses physical substance. Acquired for use in operations. Yields services over a number of years. All of these are major characteristics of a plant asset.

All of these are major characteristics of a plant asset.

In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made? Expenditure made to maintain an existing asset so that it can function in the manner intended. Expenditure made to add new asset services. Expenditure made to increase the efficiency or effectiveness of an existing asset. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated.

Expenditure made to maintain an existing asset so that it can function in the manner intended.

Which of the following costs are capitalized for self-constructed assets? Materials, labor, and overhead Materials and overhead only Materials and labor only Labor and overhead only

Materials, labor, and overhead

Which of the following is a capital expenditure? Payment of an account payable. Retirement of bonds payable. Payment of Federal income taxes. None of these answers are correct.

None of these answers are correct.

Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset? The interest rate is equal to or greater than the company's cost of capital. Activities that are necessary to get the asset ready for its intended use are in progress. Interest cost is being incurred. Expenditures for the assets have been made.

The interest rate is equal to or greater than the company's cost of capital.

In order for a cost to be capitalized (capital expenditure), the following must be present: the useful life of an asset must be increased. the quantity of assets must be increased. the quality of assets must be increased. any of these answers are correct.

any of these answers are correct.

Assets that qualify for interest cost capitalization include assets under construction for a company's own use. assets that are ready for their intended use in the earnings of the company. assets that are not currently being used because of excess capacity. all of these assets qualify for interest cost capitalization.

assets under construction for a company's own use.

Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be depreciated over the period from acquisition to the date the hotel is scheduled to be torn down written off as a loss in the year the hotel is torn down. capitalized as part of the cost of the land. capitalized as part of the cost of the new hotel.

capitalized as part of the cost of the land.

An expenditure made in connection with a machine being used by an enterprise should be capitalized if it maintains the machine in normal operating condition. capitalized if it increases the quantity of units produced by the machine. expensed immediately if it merely extends the useful life but does not improve the quality. expensed immediately if it merely improves the quality but does not extend the useful life.

capitalized if it increases the quantity of units produced by the machine.

When a company purchases land as a site for a plant, interest costs capitalized during the period of construction are part of the: cost of acquisition. cost of the plant. cost of the land. period cost.

cost of the plant.

The cost of land does not include special assessments. costs of grading, filling, draining, and clearing. costs of removing old buildings. costs of improvements with limited lives.

costs of improvements with limited lives.

Which of the following is *not* a major characteristic of a plant asset? a. Acquired for use. b. Yields services over a number of years. c. Possesses physical substance. d. Acquired for resale.

d. Acquired for resale.

The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to accumulated depreciation--machinery. the machinery account. miscellaneous tax expense (which includes all taxes other than those on income) a separate deferred charge account.

the machinery account.

Plant assets may properly include a. deposits on machinery not yet received. b. idle equipment awaiting sale. c. land held for possible use as a future plant site. d. none of these answers are correct.

d. None of these answers are correct

Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will effectively reduce the amount to be recorded as the cost of the new asset. effectively increase the amount to be recorded as the cost of the new asset. be reported in the Other Revenues and Gains section of the income statement. be credited directly to the owner's capital account.

effectively reduce the amount to be recorded as the cost of the new asset.

Termination of an asset's service due to theft, fire, etc, is called: nonreciprocal transfers. special assessment. involuntary conversion. speculation.

involuntary conversion.

Fences and parking lots are reported on the balance sheet as property and equipment. land improvements. current assets. land.

land improvements.

When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the par value of the stock. market price of the stock. stated value of the stock. book value of the stock.

market price of the stock.

Accounting recognition should be given to some or all of the gain realized on a nonmonetary exchange of plant assets except when the exchange has no commercial substance and additional cash is received. commercial substance and additional cash is received. commercial substance and additional cash is paid. no commercial substance and additional cash is paid.

no commercial substance and additional cash is paid.

The cost of land typically includes the purchase price and all of the following costs except private driveways and parking lots. street lights, sewers, and drainage systems cost. grading, filling, draining, and clearing costs. assumption of any liens or mortgages on the property.

private driveways and parking lots.

When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to that portion of weighted-average accumulated expenditures on which no interest cost was incurred. a cost of capital charge for stockholders' equity. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made. the total interest cost actually incurred.

that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.

The period of time during which interest must be capitalized ends when no further interest cost is being incurred. the asset is substantially complete and ready for its intended use. the asset is fully depreciated. the activities that are necessary to get the asset ready for its intended use have begun.

the asset is substantially complete and ready for its intended use.

The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company. the fair value of the asset given up, and a gain or loss is recognized. the fair value of the asset given up, and a gain but not a loss may be recognized. the fair value of the asset received if it is equally reliable as the fair value of the asset given up.

the fair value of the asset given up, and a gain or loss is recognized.