ACC 304 Week 4 Quiz – Strayer NEW
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Week 4 Quiz 3: Chapter 10
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Assets
classified as Property, Plant, and Equipment can be either acquired for use in
operations, or acquired for resale.
2. Assets
classified as Property, Plant, and Equipment must be both long-term in nature
and possess physical substance.
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.
4. Insurance
on equipment purchased, while the equipment is in transit, is part of the cost
of the equipment.
5. Special
assessments for local improvements such as street lights and sewers should be
accounted for as land improvements.
6. Variable
overhead costs incurred to self-construct an asset should be included in the
cost of the asset.
7. Companies
should assign no portion of fixed overhead to self-constructed assets.
8. When
capitalizing interest during construction of an asset, an imputed interest cost
on stock financing must be included.
9. Assets
under construction for a company’s own use do not qualify for interest cost
capitalization.
10. Avoidable
interest is the amount of interest cost that a company could theoretically
avoid if it had not made expenditures for the asset.
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.
12. Assets
purchased on long-term credit contracts should be recorded at the present value
of the consideration exchanged.
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.
14. If
a nonmonetary exchange lacks commercial substance, and cash is received, a
partial gain or loss is recognized.
15. When
a company exchanges nonmonetary assets and a loss results, the company
recognizes the loss only if the exchange has commercial substance.
16. Costs
incurred subsequent to the acquisition of an asset are capitalized if they
provide future benefits.
17. Improvements
are often referred to as betterments and involve the substitution of a better
asset for the one currently used.
18. When
an ordinary repair occurs, several periods will usually benefit.
19. Companies
always treat gains or losses from an involuntary conversion as extraordinary
items.
20. If
a company scraps an asset without any cash recovery, it recognizes a loss equal
to the asset’s book value.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. 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.
22. Which of the following is not
a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Yields services over a number of years
23. Which of these is not
a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a
plant asset.
24. 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
a. depreciated over the period from acquisition
to the date the hotel is scheduled to be torn down.
b. written off as an extraordinary loss in the
year the hotel is torn down.
c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new
hotel.
25. The cost of land does not
include
a. costs of grading, filling, draining, and
clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
26. The cost of land typically includes the purchase price and all
of the following costs except
a. grading, filling, draining, and clearing
costs.
b. street lights, sewers, and drainage systems
cost.
c. private driveways and parking lots.
d. assumption of any liens or mortgages on the
property.
27. If a corporation purchases a lot and building and subsequently
tears down the building and uses the property as a parking lot, the proper
accounting treatment of the cost of the building would depend on
a. the significance of the cost allocated to the
building in relation to the combined cost of the lot and building.
b. the length of time for which the building was
held prior to its demolition.
c. the contemplated future use of the parking
lot.
d. the intention of management for the property
when the building was acquired.
28. The debit for a sales tax properly levied and paid on the
purchase of machinery preferably would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all
taxes other than those on income).
d. accumulated depreciation--machinery.
29. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.
S30. Historical cost is the basis advocated for
recording the acquisition of property, plant, and equipment for all of the
following reasons except
a. at the date of acquisition, cost reflects
fair market value.
b. property, plant, and equipment items are
always acquired at their original historical cost.
c. historical cost involves actual transactions
and, as such, is the most reliable basis.
d. gains and losses should not be anticipated
but should be recognized when the asset is sold.
S31. To be consistent with the historical cost
principle, overhead costs incurred by an enterprise constructing its own
building should be
a. allocated on the basis of lost production.
b. eliminated completely from the cost of the
asset.
c. allocated on an opportunity cost basis.
d. allocated on a pro rata basis between the
asset and normal operations.
32. Which of the following costs are capitalized for
self-constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
33. Which of the following assets do not qualify for capitalization of interest costs incurred during
construction of the assets?
a. Assets under construction for an enterprise's
own use.
b. Assets intended for sale or lease that are
produced as discrete projects.
c. Assets financed through the issuance of
long-term debt.
d. Assets not currently undergoing the
activities necessary to prepare them for their intended use.
34. Assets that qualify for interest cost capitalization include
a. assets under construction for a company's own
use.
b. assets that are ready for their intended use
in the earnings of the company.
c. assets that are not currently being used
because of excess capacity.
d. All of these assets qualify for interest cost
capitalization.
35. When computing the amount of interest cost to be capitalized,
the concept of "avoidable interest" refers to
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders'
equity.
c. that portion of total interest cost which
would not have been incurred if expenditures for asset construction had not
been made.
d. that portion of average accumulated
expenditures on which no interest cost was incurred.
36. 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.
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