AF 310_Ch 10_Wiley Practice Quiz 1

A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land. A. True B. False

*A. True *This type of one-time special assessment would be included in the cost of the land.

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

*A. the asset is substantially complete and ready for its intended use. *The period of time during which interest must be capitalized ends when the asset is substantially complete and ready for its intended use.

Burchell Company purchased land and a building for a lump sum cost of $420,000. The land has a fair market value of $160,000 and the building has a fair market value of $320,000. The cost assigned to the land is A. $0. B. $140,000. C. $160,000. D. $210,000.

*B. $140,000. *The lump sum price incurred to acquire more than one asset is allocated among them based on their relative fair market values: ($160,000/ $480,000) ($420,000) = $140,000.

Avoidable interest is the lesser of actual interest cost incurred during a fiscal period or the amount of interest cost incurred during the construction period that a company could theoretically avoid if it had not made expenditures for the asset. A. True B. False

*B. False

The entry to record the sale of a plant asset at a loss includes a credit to Accumulated Depreciation. A. True B. False

*B. False *Accumulated depreciation is a contra account with a credit balance. The entry to record the sale of a plant asset at either a gain or a loss will include a debit to Accumulated Depreciation.

Cash or other assets received in an exchange are referred to as "boot." A. True B. False

*B. False *Cash received in an exchange is referred to as "boot."

The receipt of an asset from a contribution should be recorded as additional paid-in capital. A. True B. False

*B. False *Contributions received should be recorded as revenue in the period received.

If an exchange has commercial substance all losses should be recognized immediately and all gains should be deferred. A. True B. False

*B. False *If an exchange has commercial substance, both gains and losses should be recognized immediately.

Land held for speculative purposes is classified as Property, Plant and Equipment but is not depreciated. A. True B. False

*B. False *Land held for speculative purposes is classified as an Investment.

A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at A. the nominal cost of taking title to it. B. its market value. C. one dollar (since the site cost nothing but should be included in the balance sheet). D. the value assigned to it by the company's directors.

*B. its market value. *The donated asset should be recorded at its market value.

The cost of property acquired by the issuance of securities which are actively traded on an organized exchange is equal to: A. the original cost of the securities. B. the market value of the securities. C. the par value of the securities. D. the book value of the property acquired.

*B. the market value of the securities. *Property acquired in a non-cash transaction is recorded at the market value of the item given up or the market value of the property received, whichever is more readily determinable.

Delta River Company sold manufacturing equipment with a cost of $44,000 and accumulated depreciation of $32,000 for $9,000. The journal entry to record this transaction will include: A. a credit to the Equipment account for $12,000. B. a credit to a gain account for $8,000. C. a debit to a loss account for $5,000. D. a credit to Accumulated Depreciation - Equipment for $32,000.

*C. a debit to a loss account for $5,000. *When book value exceeds disposal price, a loss has occurred. The journal entry to record the sale would include debits to Cash ($9,000), Accumulated Depreciation - Equipment ($32,000) and a loss account ($3,000). Equipment would be credited for $44,000.

The accounting for interest costs incurred during construction recommended under GAAP is to: A. capitalize no interest charges during construction. B. charge construction with all costs of funds employed, whether identifiable or not. C. capitalize the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made. D. capitalize a pro rata portion of all costs of funds employed.

*C. capitalize the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made. *Capitalizing the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made is the approach recommended under GAAP.

Cayo Casta Cabins Corporation recently purchased Ship Island Resort and Casino and the land on which it is located with the plan to tear down the resort and build a new luxury hotel on the site. Cayo Casta Cabin Corporation salvaged fixtures and wood flooring from Ship Island prior to demolishing the building. The proceeds from the sale of the salvaged materials should be A. recognized as revenue in the period of the sale. B. recognized as an extraordinary gain in the year the hotel is torn down. C. recorded as a reduction of the cost of the land. D. recorded as a reduction of the cost of the new hotel.

*C. recorded as a reduction of the cost of the land. *Proceeds from the sale of the salvaged materials should reduce the cost of the land.

Overhead costs related to self-constructed assets are accounted for by: A. allocating overhead on the basis of lost production. B. assigning a portion of all overhead to the asset. C. assigning no fixed overhead to the asset. D. assigning a pro rata portion of fixed overhead to the asset.

*D. assigning a pro rata portion of fixed overhead to the asset. *A pro rata portion of fixed overhead should be assigned to the self-constructed asset because a better matching of costs and revenues results.

Expenditures that extend the useful life of a plant asset without improving its quantity or quality are accounted for: A. as additions. B. as improvements. C. by debiting the asset account. D. by debiting Accumulated Depreciation.

*D. by debiting Accumulated Depreciation. *Expenditures that extend the useful life of a plant asset are accounted for by debiting Accumulated Depreciation.

Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the: A. face value of the note. B. fair value of the asset received. C. book value of the asset received. D. present value of the note.

*D. present value of the note. *Plant assets purchased in exchange for a zero-interest-bearing note are recorded at the present value of the note.