ACC 300 Chapter 10

Question 1

Step one of capitalization of interest

Answer 1

Determine which assests qualify for cap of interest

Question 2

Step 2 on capitalization of interest

Answer 2

Determine the cap period

Question 3

Step 3 of capitalization of interest

Answer 3

Identify the expenditures made during the cap period

Question 4

Step 4 of capitalization of interest

Answer 4

Compute weighted average accumulated expenditures

Question 5

Step 5 for capitalization of interest

Answer 5

Compute aviodable interest

Question 6

Step 6 in capitalization of interest

Answer 6

Compute the actual interest cost inccurred

Question 7

Step 7 of capitalization of interest

Answer 7

Determine the interest cost to be capitalized

Question 8

Qualifying assets

Answer 8

Require a period of time to get ready for their intended use

Question 9

Determine the cap period

Answer 9

Begins when expenditures for the assest have been made, necessary activities to get the asset ready for its intended use are in progress, interest cost of some kind is being incurred

Question 10

Weighted average accumulated expenditures

Answer 10

Expenditures times the fraction of the period the expenditures occured

Question 11

Compute avoidable interest

Answer 11

Identify the specific debt(construction loan) and all general debt then compute avoidable interst

Question 12

Avoidable interest

Answer 12

(Specific debt interest rate x weighted average accumulated expenditures) + (general debt intetest rate x weighted average acc expenditures)

Question 13

Determind the interest cost to be capitalized

Answer 13

Cap interst is limited to the lesser of avoidable or actual interest

Question 14

Special assessments

Answer 14

Relatively permanent improvements such as pavements and drainage systems. Included in land

Question 15

Land improvements

Answer 15

Improvements with limited life. Recorded separately and depreciated over their estimated lives

Question 16

Cost of building

Answer 16

Expenditures related directly to acquisition or construction are capitalized as part of building.

Question 17

Cost of equipment

Answer 17

Expenditures incurred in acquiring the equpimentnand preparing it for use.

Question 18

Self constructed assets

Answer 18

Assign a portion of all overhead cost or assign no fixed overhead costs

Question 19

Special issues related to interest cap

Answer 19

Interest cost incurred in purchase of land to be used for a building site are part of the buildings cost not the land, interest cost incurred on land being developed for lot sales are part of land, interest rev earned on funds borrowed to finance construction of addsts is not netted

Question 20

Cash discount

Answer 20

Assume taken. Any discount not taken should be an expense

Question 21

Deferred payment contracts

Answer 21

Accounted for at the present value of the consideration exchanged at the date transaction

Question 22

Lump sum purchases

Answer 22

Cost allocated on the basis of relative fair valie of the assets required

Question 23

Exchanges of nonmonentary assets

Answer 23

Does it have commerical substance. Compute book value of old, compute gain or loss, determine gain or loss recognized, prepare journal entry

Question 24

Disposition

Answer 24

Giving away. Effects contribution expense and gain or loss recorded

Question 25

Ordinary repairs

Answer 25

Should be expensed

Question 26

Major repairs

Answer 26

Should be treated as an addition improvement or replacement

Question 27

Commercial substance and loss realized

Answer 27

Recongize the entire loss. Recorded at fair value of new asset

Question 28

Lacks commercial substance and loss realized

Answer 28

Record entire loss and record at fair value of new asset

Question 29

Commercial substance and gain realized

Answer 29

Recognize the entire gain and record at fair value of new asset

Question 30

Lacks commercial substance and gain and no cash exhanged or cash paid

Answer 30

Recognize no gain and record fair value of new asset minus gain deferred

Question 31

Lacks commercial substance and gain and cash is recieve

Answer 31

Recognize portion of gain and record at fair value of new asset minus gain deferred

Question 32

25% rule

Answer 32

Cash recieved/(cash recieved + fair value of recieved asset)

Question 33

Portion of gain recorded when boot is recieved

Answer 33

Realized gain x (cash recieved/(cash recieved+fv of recieved asset))