Intermediate Accounting Exam 3: Ch. 10 PP&E Acquisition

Western Company showed the following: PP&E: $100,000 (Yr. 1) $150,000 (Yr. 2) Net Sales: $1,000,000 (Yr. 1) $1,200,000 (Yr. 2) What is the fixed asset turnover for year 2?

9.6 (Net sales/average fixed assets $1,200,000/($100,000 +$150,000/2)

Donated assets should be recorded on the balance sheet at what amount?

Fair value

An asset is acquired by signing a note payable. The note does not indicate an interest rate, and the fair value of the asset cannot be reliably determined. At what amount should the asset be recorded?

Present value of the note payable discounted at the market rate.

Which of the following should be included in the cost of buildings?

Real estate commissions relating to purchase of building

Which of the following is true regarding a nonmonetary exchange of assets?

The gain or loss is recognized for the difference between the fair value and the book value of the asset given up.

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 (All costs should be capitalized to bring the asset to its intended and useful state)

When a company receives an asset from an unrelated party by a donation, the assets are valued at fair value and

a gain is recorded.

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.

The purchase price and all costs to bring an asset to its desired condition and location for use should be ____________.

capitalized

Expenditures needed to get land ready for its intended use should be:

capitalized as part of the cost of land

Expenditures needed to get land ready for its intended use should be:

capitalized as part of the cost of land.

Donated assets should be recorded on the balance sheet at what amount?

fair value

The basic principle for valuing assets in a non monetary exchange is to value the asset received at

fair value

A ratio used to measure how effectively a manager is using plant, property, and equipment is the _____________________ ratio.

fixed-asset turnover

Which of the following items should always be capitalized in the cost of equipment?

freight to deliver the equipment legal fees to establish title sales tax installation and testing of equipment

Indicate which costs would be capitalized as part of the cost of manufacturing equipment.

freight-in insurance during transit set-up cost

Which of the following items should be capitalized in the cost of equipment?

insurance on equipment during shipping purchase price installation and testing of equipment freight to deliver the equipment to its location

An asset, other than financial assets, that has no physical substance is called a(n) ___________________ asset.

intangible

Long-term assets are typically classified in one of these two categories:

intangible assets plant, property, and equipment

The distinction between land and land improvements is that:

land has an indefinite life

The fixed-asset turnover ratio is calculated as __________ divided by average fixed assets.

net sales

A company acquires equipment by signing a note payable. If the note does not bear interest, the company should record the equipment at

present value of the equipment or note.

When an asset is acquired by signing a noninterest-bearing note payable, and the estimated fair value of the asset is not known, the asset should be recorded at the fair value of the note, which is the

present value of the note discounted at the market rate.

Which of the following costs should be capitalized in the costs of acquiring a building?

purchase price legal fees to obtain title

Which of the following costs should be capitalized in the costs of acquiring a building?

realtor commissions remodeling building legal fees to obtain title

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics

revenue-producing long-lived

The fixed-asset turnover ratio indicates the level of ________ generated by each dollar of fixed assets.

sales