Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting 300 > Acct 300 Ch 10 > Flashcards

Acct 300 Ch 10 Flashcards

1
Q
  1. (T/F) Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or acquired for resale.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q
  1. (T/F) Assets classified as Property, Plant, and Equipment must be both long-term in nature and possess physical substance.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q
  1. (T/F) 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.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q
  1. (T/F) Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q
  1. (T/F) Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q
  1. (T/F) Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q
  1. (T/F) Companies should assign no portion of fixed overhead to self-constructed assets.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q
  1. (T/F) When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q
  1. (T/F) Assets under construction for a company’s own use do not qualify for interest cost capitalization.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q
  1. (T/F) Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q
  1. (T/F) 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.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q
  1. (T/F) Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q
  1. (T/F) 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.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q
  1. (T/F) If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss is recognized.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q
  1. (T/F) When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q
  1. (T/F) Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q
  1. (T/F) Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently used.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q
  1. (T/F) When an ordinary repair occurs, several periods will usually benefit.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q
  1. (T/F) Companies always treat gains or losses from an involuntary conversion as extraordinary items.
A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q
  1. (T/F) If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset’s book value.
A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q
  1. 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.
A

d. none of these.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q
  1. 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
A

b. Acquired for resale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q
  1. 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.
A

d. All of these are major characteristics of a plant asset.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q
  1. 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.
A

c. capitalized as part of the cost of the land.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q
  1. 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.
A

c. costs of improvements with limited lives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q
  1. 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.
A

c. private driveways and parking lots.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q
  1. 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.
A

d. the intention of management for the property when the building was acquired.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q
  1. 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.
A

a. the machinery account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q
  1. Fences and parking lots are reported on the balance sheet as
    a. current assets.
    b. land improvements.
    c. land.
    d. property and equipment.
A

b. land improvements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q
  1. 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 trans¬actions 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.
A

b. property, plant, and equipment items are always acquired at their original historical cost.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q
  1. 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.
A

d. allocated on a pro rata basis between the asset and normal operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q
  1. 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
A

d. Materials, labor, and overhead

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q
  1. 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.
A

d. Assets not currently undergoing the activities necessary to prepare them for their intended use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q
  1. 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.
A

a. assets under construction for a company’s own use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q
  1. 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.
A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q
  1. 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

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q
  1. Which of the following statements is true regarding capitalization of interest?
    a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account.
    b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.
    c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized.
    d. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.
A

b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q
  1. Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is
    a. 8/8.
    b. 8/12.
    c. 9/12.
    d. 11/12.
A

b. 8/12.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q
  1. When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be
    a. offset against interest cost incurred during construction.
    b. used to reduce the cost of assets being constructed.
    c. multiplied by an appropriate interest rate to determine the amount of interest to be capitalized.
    d. recognized as revenue of the period.
A

d. recognized as revenue of the period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q
  1. Interest cost that is capitalized should
    a. be written off over the remaining term of the debt.
    b. be accumulated in a separate deferred charge account and written off equally over a 40-year period.
    c. not be written off until the related asset is fully depreciated or disposed of.
    d. none of these.
A

d. none of these.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q
  1. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?
    a. Interest cost is being incurred.
    b. Expenditures for the assets have been made.
    c. The interest rate is equal to or greater than the company’s cost of capital.
    d. Activities that are necessary to get the asset ready for its intended use are in progress.
A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q
  1. Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?
    a. Capitalize only the actual interest costs incurred during construction.
    b. Charge construction with all costs of funds employed, whether identifiable or not.
    c. Capitalize no interest during construction.
    d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.
A

a. Capitalize only the actual interest costs incurred during construction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q
  1. Which of the following nonmonetary exchange transactions represents a culmination of the earning process?
    a. Exchange of assets with no difference in future cash flows.
    b. Exchange of products by companies in the same line of business with no difference in future cash flows.
    c. Exchange of assets with a difference in future cash flows.
    d. Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.
A

c. Exchange of assets with a difference in future cash flows.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q
  1. When boot is involved in an exchange having commercial substance.
    a. gains or losses are recognized in their entirely.
    b. a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up.
    c. only gains should be recognized.
    d. only losses should be recognized.
A

a. gains or losses are recognized in their entirely.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q
  1. The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at
    a. the fair value of the asset given up, and a gain or loss is recognized.
    b. the fair value of the asset given up, and a gain but not a loss may be recognized.
    c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up.
    d. 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.
A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q
  1. 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
    a. be reported in the Other Revenues and Gains section of the income statement.
    b. effectively reduce the amount to be recorded as the cost of the new asset.
    c. effectively increase the amount to be recorded as the cost of the new asset.
    d. be credited directly to the owner’s capital account.
A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q
  1. Plant assets purchased on long-term credit contracts should be accounted for at
    a. the total value of the future payments.
    b. the future amount of the future payments.
    c. the present value of the future payments.
    d. none of these.
A

c. the present value of the future payments.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q
  1. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
    a. par value of the stock.
    b. stated value of the stock.
    c. book value of the stock.
    d. market value of the stock.
A

d. market value of the stock.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q
  1. When a closely held corporation issues preferred stock for land, the land should be recorded at the
    a. total par value of the stock issued.
    b. total book value of the stock issued.
    c. total liquidating value of the stock issued.
    d. fair market value of the land.
A

d. fair market value of the land.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q
  1. 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
    a. no commercial substance and additional cash is paid.
    b. no commercial substance and additional cash is received.
    c. commercial substance and additional cash is paid.
    d. commercial substance and additional cash is received.
A

a. no commercial substance and additional cash is paid.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q
  1. For a nonmonetary exchange of plant assets, accounting recognition should not be given to
    a. a loss when the exchange has no commercial substance.
    b. a gain when the exchange has commercial substance.
    c. part of a gain when the exchange has no commercial substance and cash is paid (cash paid/received is less than 25% of the fair value of the exchange).
    d. part of a gain when the exchange has no commercial substance and cash is received (cash paid or received is less than 25% of the fair value of the exchange).
A

c. part of a gain when the exchange has no commercial substance and cash is paid (cash paid/received is less than 25% of the fair value of the exchange).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q
  1. When an enterprise is the recipient of a donated asset, the account credited may be a
    a. paid-in capital account.
    b. revenue account.
    c. deferred revenue account.
    d. all of these.
A

b. revenue account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q
  1. 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.
A

b. its market value.

54
Q
  1. In order for a cost to be capitalized (capital expenditure), the following must be present:
    a. The useful life of an asset must be increased.
    b. The quantity of assets must be increased.
    c. The quality of assets must be increased.
    d. Any one of these.
A

d. Any one of these.

55
Q
  1. An improvement made to a machine increased its fair market value and its production capacity by 25% without extending the machine’s useful life. The cost of the improvement should be
    a. expensed.
    b. debited to accumulated depreciation.
    c. capitalized in the machine account.
    d. allocated between accumulated depreciation and the machine account.
A

c. capitalized in the machine account.

56
Q
  1. Which of the following is a capital expenditure?
    a. Payment of an account payable
    b. Retirement of bonds payable
    c. Payment of Federal income taxes
    d. None of these
A

d. None of these

57
Q
  1. Which of the following is not a capital expenditure?
    a. Repairs that maintain an asset in operating condition
    b. An addition
    c. A betterment
    d. A replacement
A

a. Repairs that maintain an asset in operating condition

58
Q
  1. 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?
    a. Expenditure made to increase the efficiency or effectiveness of an existing asset
    b. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated
    c. Expenditure made to maintain an existing asset so that it can function in the manner intended
    d. Expenditure made to add new asset services
A

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

59
Q
  1. An expenditure made in connection with a machine being used by an enterprise should be
    a. expensed immediately if it merely extends the useful life but does not improve the quality.
    b. expensed immediately if it merely improves the quality but does not extend the useful life.
    c. capitalized if it maintains the machine in normal operating condition.
    d. capitalized if it increases the quantity of units produced by the machine.
A

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

60
Q
  1. When a plant asset is disposed of, a gain or loss may result. The gain or loss would be classified as an extraordinary item on the income statement if it resulted from
    a. an involuntary conversion and the conditions of the disposition are unusual and infrequent in nature.
    b. a sale prior to the completion of the estimated useful life of the asset.
    c. the sale of a fully depreciated asset.
    d. an abandonment of the asset.
A

a. an involuntary conversion and the conditions of the disposition are unusual and infrequent in nature.

61
Q
  1. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were
    a. less than current market value.
    b. greater than cost.
    c. greater than book value.
    d. less than book value.
A

d. less than book value.

62
Q
  1. Which of the following statements about involuntary conversions is false?
    a. An involuntary conversion may result from condemnation or fire.
    b. The gain or loss from an involuntary conversion may be reported as an extraordinary item.
    c. The gain or loss from an involuntary conversion should not be recognized when the enterprise reinvests in replacement assets.
    d. All of these.
A

c. The gain or loss from an involuntary conversion should not be recognized when the enterprise reinvests in replacement assets.

63
Q

Wilson Co. purchased land as a factory site for $600,000. Wilson paid $60,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect’s fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,200,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000.

  1. The cost of the land that should be recorded by Wilson Co. is
    a. $660,480.
    b. $666,880.
    c. $669,880.
    d. $676,280.
A

b. $666,880.

64
Q

Wilson Co. purchased land as a factory site for $600,000. Wilson paid $60,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect’s fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,200,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000.

  1. The cost of the building that should be recorded by Wilson Co. is
    a. $2,403,800.
    b. $2,404,840.
    c. $2,413,200.
    d. $2,414,240.
A

d. $2,414,240.

65
Q
  1. On February 1, 2010, Nelson Corporation purchased a parcel of land as a factory site for $200,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2010. Costs incurred during this period are listed below:

Demolition of old building-$20,000
Architect’s feess-$35,000
Legal fees for title investigation and purchase contract-$5,000
Construction costs-$1,090,000
(Salvaged materials resulting from demolition were sold for $10,000.)

Nelson should record the cost of the land and new building, respectively, as

a. $225,000 and $1,115,000.
b. $210,000 and $1,130,000.
c. $210,000 and $1,125,000.
d. $215,000 and $1,125,000.

A

d. $215,000 and $1,125,000.

66
Q
  1. Worthington Chandler Company purchased equipment for $10,000. Sales tax on the purchase was $500. Other costs incurred were freight charges of $200, repairs of $350 for damage during installation, and installation costs of $225. What is the cost of the equipment?
    a. $10,000
    b. $10,500
    c. $10,925
    d. $11,275
A

c. $10,925

67
Q
  1. Fogelberg Company purchased equipment for $12,000. Sales tax on the purchase was $600. Other costs incurred were freight charges of $240, repairs of $420 for damage during installation, and installation costs of $270. What is the cost of the equipment?
    a. $12,000.
    b. $12,600.
    c. $13,110.
    d. $13,530.
A

c. $13,110.

68
Q
  1. During self-construction of an asset by Samuelson Company, the following were among the costs incurred:

Fixed overhead for the year-$1,000,000
Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production-$40,000
Variable overhead attributable to self-construction-$35,000

What amount of overhead should be included in the cost of the self-constructed asset?

a. $ -0-
b. $35,000
c. $40,000
d. $75,000

A

d. $75,000

69
Q
  1. During self-construction of an asset by Richardson Company, the following were among the costs incurred:

Fixed overhead for the year-$1,000,000
Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production-$60,000
Variable overhead attributable to self-construction-$55,000

What amount of overhead should be included in the cost of the self-constructed asset?

a. $ -0-
b. $ 55,000
c. $ 60,000
d. $115,000

A

d. $115,000

70
Q
  1. Mendenhall Corporation constructed a building at a cost of $10,000,000. Average accumulated expenditures were $4,000,000, actual interest was $600,000, and avoidable interest was $300,000. If the salvage value is $800,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is
    a. $237,500.
    b. $245,000.
    c. $257,500.
    d. $337,500.
A

a. $237,500.

71
Q
  1. Messersmith Company is constructing a building. Construction began in 2010 and the building was completed 12/31/10. Messersmith made payments to the construction company of $1,000,000 on 7/1, $2,100,000 on 9/1, and $2,000,000 on 12/31. Average accumulated expenditures were
    a. $1,025,000.
    b. $1,200,000.
    c. $3,100,000.
    d. $5,100,000.
A

b. $1,200,000.

72
Q
  1. Huffman Corporation constructed a building at a cost of $20,000,000. Average accumulated expenditures were $8,000,000, actual interest was $1,200,000, and avoidable interest was $600,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is
    a. $475,000.
    b. $490,000.
    c. $515,000.
    d. $675,000.
A

a. $475,000.

73
Q
  1. Gutierrez Company is constructing a building. Construction began in 2010 and the building was completed 12/31/10. Gutierrez made payments to the construction company of $1,500,000 on 7/1, $3,300,000 on 9/1, and $3,000,000 on 12/31. Average accumulated expenditures were
    a. $1,575,000.
    b. $1,850,000.
    c. $4,800,000.
    d. $7,800,000.
A

b. $1,850,000.

74
Q
  1. On May 1, 2010, Goodman Company began construction of a building. Expenditures of $120,000 were incurred monthly for 5 months beginning on May 1. The building was completed and ready for occupancy on September 1, 2010. For the purpose of determining the amount of interest cost to be capitalized, the average accumulated expenditures on the building during 2010 were
    a. $100,000.
    b. $120,000.
    c. $480,000.
    d. $600,000.
A

a. $100,000.

75
Q
  1. During 2010, Kimmel Co. incurred average accumulated expenditures of $400,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2010 was a $500,000, 10%, 5-year note payable dated January 1, 2008. What is the amount of interest that should be capitalized by Kimmel during 2010?
    a. $0.
    b. $10,000.
    c. $40,000.
    d. $50,000.
A

c. $40,000.

76
Q
  1. On March 1, Felt Co. began construction of a small building. Payments of $120,000 were made monthly for three months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are
    a. $30,000.
    b. $60,000.
    c. $120,000.
    d. $240,000.
A

b. $60,000.

77
Q
  1. On March 1, Imhoff Co. began construction of a small building. Payments of $180,000 were made monthly for four months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are
    a. $90,000.
    b. $180,000.
    c. $360,000.
    d. $720,000.
A

a. $90,000.

78
Q 
On March 1, 2010, Newton Company purchased land for an office site by paying $540,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction:
Date	                     Expenditures
March 1, 2010	$   360,000
April 1, 2010	     504,000
May 1, 2010	     900,000
June 1, 2010	     1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2010 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2010 was a $300,000, 12%, 6-year note payable dated January 1, 2010.

  1. The weighted-average accumulated expenditures on the construction project during 2010 were
    a. $384,000.
    b. $2,934,000.
    c. $312,000.
    d. $696,000.
A

d. $696,000.

79
Q 
On March 1, 2010, Newton Company purchased land for an office site by paying $540,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction:
Date	                     Expenditures
March 1, 2010	$   360,000
April 1, 2010	     504,000
May 1, 2010	     900,000
June 1, 2010	     1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2010 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2010 was a $300,000, 12%, 6-year note payable dated January 1, 2010.

  1. The actual interest cost incurred during 2010 was
    a. $90,000.
    b. $100,800.
    c. $50,400.
    d. $84,000.
A

a. $90,000.

80
Q 
On March 1, 2010, Newton Company purchased land for an office site by paying $540,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction:
Date	                     Expenditures
March 1, 2010	$   360,000
April 1, 2010	     504,000
May 1, 2010	     900,000
June 1, 2010	     1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2010 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2010 was a $300,000, 12%, 6-year note payable dated January 1, 2010.

  1. Assume the weighted-average accumulated expenditures for the construction project are $870,000. The amount of interest cost to be capitalized during 2010 is
    a. $78,300.
    b. $82,800.
    c. $90,000.
    d. $100,800.
A

b. $82,800.

81
Q
  1. During 2010, Bass Corporation constructed assets costing $1,000,000. The weighted-average accumulated expenditures on these assets during 2010 was $600,000. To help pay for construction, $440,000 was borrowed at 10% on January 1, 2010, and funds not needed for construction were temporarily invested in short-term securities, yielding $9,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $500,000, 10-year, 9% note payable dated January 1, 2004. What is the amount of interest that should be capitalized by Bass during 2010?
    a. $60,000.
    b. $30,000.
    c. $58,400.
    d. $94,400.
A

c. $58,400.

82
Q

On January 2, 2010, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2011. Expenditures for the construction were as follows:

January 2, 2010	$200,000
September 1, 2010	  600,000
December 31, 2010	  600,000
March 31, 2011	          600,000
September 30, 2011	  400,000

Indian River Groves borrowed $1,100,000 on a construction loan at 12% interest on January 2, 2010. This loan was outstanding during the construction period. The company also had $4,000,000 in 9% bonds outstanding in 2010 and 2011.

  1. What were the weighted-average accumulated expenditures for 2010?
    a. $533,333
    b. $500,000
    c. $400,000
    d. $1,000,000
A

c. $400,000

83
Q

On January 2, 2010, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2011. Expenditures for the construction were as follows:

January 2, 2010	$200,000
September 1, 2010	  600,000
December 31, 2010	  600,000
March 31, 2011	          600,000
September 30, 2011	  400,000

Indian River Groves borrowed $1,100,000 on a construction loan at 12% interest on January 2, 2010. This loan was outstanding during the construction period. The company also had $4,000,000 in 9% bonds outstanding in 2010 and 2011.

  1. The interest capitalized for 2010 was:
    a. $180,000
    b. $48,000
    c. $192,000
    d. $60,000
A

b. $48,000

84
Q

On January 2, 2010, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2011. Expenditures for the construction were as follows:

January 2, 2010	$200,000
September 1, 2010	  600,000
December 31, 2010	  600,000
March 31, 2011	          600,000
September 30, 2011	  400,000

Indian River Groves borrowed $1,100,000 on a construction loan at 12% interest on January 2, 2010. This loan was outstanding during the construction period. The company also had $4,000,000 in 9% bonds outstanding in 2010 and 2011.

  1. What were the weighted-average accumulated expenditures for 2011 by the end of the construction period?
    a. $390,000
    b. $1,635,000
    c. $1,986,000
    d. $1,386,000
A

d. $1,386,000

85
Q

On January 2, 2010, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2011. Expenditures for the construction were as follows:

January 2, 2010	$200,000
September 1, 2010	  600,000
December 31, 2010	  600,000
March 31, 2011	          600,000
September 30, 2011	  400,000

Indian River Groves borrowed $1,100,000 on a construction loan at 12% interest on January 2, 2010. This loan was outstanding during the construction period. The company also had $4,000,000 in 9% bonds outstanding in 2010 and 2011.

  1. The interest capitalized for 2011 was:
    a. $124,740
    b. $118,305
    c. $ 25,740
    d. $ 99,000
A

b. $118,305

86
Q

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December 31. Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and an 11%, 4-year, $4,500,000 note payable.

  1. What are the weighted-average accumulated expenditures?
    a. $4,380,000
    b. $3,155,000
    c. $7,380,000
    d. $3,690,000
A

b. $3,155,000

87
Q

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December 31. Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and an 11%, 4-year, $4,500,000 note payable.

  1. What is the weighted-average interest rate used for interest capitalization purposes?
    a. 11%
    b. 10.85%
    c. 10.5%
    d. 10.65%
A

d. 10.65%

88
Q

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December 31. Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and an 11%, 4-year, $4,500,000 note payable.

  1. What is the avoidable interest for Arlington Company?
    a. $144,000
    b. $463,808
    c. $164,281
    d. $352,208
A

d. $352,208

89
Q

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December 31. Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and an 11%, 4-year, $4,500,000 note payable.

  1. What is the actual interest for Arlington Company?
    a. $879,000
    b. $891,000
    c. $735,000
    d. $352,208
A

a. $879,000

90
Q

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December 31. Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and an 11%, 4-year, $4,500,000 note payable.

  1. What amount of interest should be charged to expense?
    a. $382,792
    b. $735,000
    c. $526,792
    d. $415,192
A

c. $526,792

91
Q
  1. Dodson Company traded in a manual pressing machine for an automated pressing machine and gave $8,000 cash. The old machine cost $93,000 and had a net book value of $71,000. The old machine had a fair market value of $60,000.

Which of the following is the correct journal entry to record the exchange?

a. Equipment 68,000
Loss on Exchange 11,000
Accumulated Depreciation 22,000
Equipment 93,000
Cash 8,000
b. Equipment 68,000
Equipment 60,000
Cash 8,000
c. Cash 8,000
Equipment 60,000
Loss on Exchange 11,000
Accumulated Depreciation 22,000
Equipment 101,000
d. Equipment 123,000
Accumulated Depreciation 22,000
Equipment 93,000
Cash 8,000

A

a. Equipment 68,000
Loss on Exchange 11,000
Accumulated Depreciation 22,000
Equipment 93,000
Cash 8,000

92
Q

Below is the information relative to an exchange of assets by Stanton Company. The exchange lacks commercial substance.

                Old Equipment	
     Book Value	   Fair Value	Cash Paid Case I	$75,000	   $85,000	$15,000 Case II	$50,000	   $45,000	$7,000
  1. Which of the following would be correct for Stanton to record in Case I?Record Equipment at: Record a gain of (loss) of:

a. $90,000 $0
b. $100,000 $10,000
c. $75,000 $(5,000)
d. $90,000 $10,000

A

Record Equipment at: Record a gain of (loss) of:

a. $90,000 $0

93
Q

Below is the information relative to an exchange of assets by Stanton Company. The exchange lacks commercial substance.

                Old Equipment	
     Book Value	   Fair Value	Cash Paid Case I	$75,000	   $85,000	$15,000 Case II	$50,000	   $45,000	$7,000
  1. Which of the following would be correct for Stanton to record in Case II?Record Equipment at: Record a gain of (loss) of:

a. $57,000 $5,000
b. $50,000 $2,000
c. $52,000 $(5,000)
d. $50,000 $(2,000)

A

Record Equipment at: Record a gain of (loss) of:

c. $52,000 $(5,000)

94
Q

Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $12,000 and a fair market value of $15,000. The asset given up by Armstrong Co. has a book value of $20,000 and a fair market value of $19,000. Boot of $4,000 is received by Armstrong Co.

  1. What amount should Glen Inc. record for the asset received?
    a. $15,000
    b. $16,000
    c. $19,000
    d. $20,000
A

b. $16,000

95
Q

Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $12,000 and a fair market value of $15,000. The asset given up by Armstrong Co. has a book value of $20,000 and a fair market value of $19,000. Boot of $4,000 is received by Armstrong Co.

  1. What amount should Armstrong Co. record for the asset received?
    a. $15,000
    b. $16,000
    c. $19,000
    d. $20,000
A

a. $15,000

96
Q
  1. Hardin Company received $40,000 in cash and a used computer with a fair value of $120,000 from Page Corporation for Hardin Company’s existing computer having a fair value of $160,000 and an undepreciated cost of $150,000 recorded on its books. The transaction has no commercial substance. How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively?
    a. $0 and $110,000
    b. $769 and $110,769
    c. $10,000 and $120,000
    d. $40,000 and $150,000
A

c. $10,000 and $120,000

97
Q 
Jamison Company purchased the assets of Booker Company at an auction for $1,400,000. An independent appraisal of the fair value of the assets is listed below:
Land	         $475,000
Building	   700,000
Equipment  525,000
Trucks	   850,000
  1. Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Trucks?
    a. $466,667
    b. $700,000
    c. $840,000
    d. $850,000
A

a. $466,667

98
Q 
Jamison Company purchased the assets of Booker Company at an auction for $1,400,000. An independent appraisal of the fair value of the assets is listed below:
Land	         $475,000
Building	   700,000
Equipment  525,000
Trucks	   850,000
  1. Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Building?
    a. $529,730
    b. $700,000
    c. $1,275,000
    d. $384,314
A

d. $384,314

99
Q
  1. On December 1, Miser Corporation exchanged 2,000 shares of its $25 par value common stock held in treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by Miser at a cost of $40 per share, and on the exchange date the common shares of Miser had a fair market value of $50 per share. Miser received $6,000 for selling scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at
    a. $74,000.
    b. $80,000.
    c. $94,000.
    d. $100,000.
A

c. $94,000.

100
Q
  1. Storm Corporation purchased a new machine on October 31, 2010. A $1,200 down payment was made and three monthly installments of $3,600 each are to be made beginning on November 30, 2010. The cash price would have been $11,600. Storm paid no installation charges under the monthly payment plan but a $200 installation charge would have been incurred with a cash purchase. The amount to be capitalized as the cost of the machine on October 31, 2010 would be
    a. $12,200.
    b. $12,000.
    c. $11,800.
    d. $11,600.
A

c. $11,800.

101
Q
  1. Horner Company buys a delivery van with a list price of $30,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to $400 and the company paid an extra $300 to have a special horn installed. What should be the recorded cost of the van?
    a. $24,990.
    b. $25,645.
    c. $25,690.
    d. $25,390.
A

c. $25,690.

102
Q
  1. On August 1, 2010, Hayes Corporation purchased a new machine on a deferred payment basis. A down payment of $3,000 was made and 4 monthly installments of $2,500 each are to be made beginning on September 1, 2010. The cash equivalent price of the machine was $12,000. Hayes incurred and paid installation costs amounting to $500. The amount to be capitalized as the cost of the machine is
    a. $12,000.
    b. $12,500.
    c. $13,000.
    d. $13,500.
A

b. $12,500.

103
Q
  1. On April 1, Mooney Corporation purchased for $855,000 a tract of land on which was located a warehouse and office building. The following data were collected concerning the property:
    Current Assessed Vendor’s Original
    Valuation Cost
    Land $300,000 $280,000
    Warehouse 200,000 180,000
    Office building 400,000 340,000
    Total $900,000 $800,000

What are the appropriate amounts that Mooney should record for the land, warehouse, and office building, respectively?

a. Land, $280,000; warehouse, $180,000; office building, $340,000.
b. Land, $300,000; warehouse, $200,000; office building, $400,000.
c. Land, $299,250; warehouse, $192,375; office building, $363,375.
d. Land, $285,000; warehouse, $190,000; office building, $380,000.

A

d. Land, $285,000; warehouse, $190,000; office building, $380,000.

104
Q
  1. On August 1, 2010, Mendez Corporation purchased a new machine on a deferred payment basis. A down payment of $2,000 was made and 4 annual installments of $6,000 each are to be made beginning on September 1, 2010. The cash equivalent price of the machine was $23,000. Due to an employee strike, Mendez could not install the machine immediately, and thus incurred $300 of storage costs. Costs of installation (excluding the storage costs) amounted to $800. The amount to be capitalized as the cost of the machine is
    a. $23,000.
    b. $23,800.
    c. $24,100.
    d. $26,000.
A

b. $23,800.

105
Q
  1. Siegle Company exchanged 400 shares of Guinn Company common stock, which Siegle was holding as an investment, for equipment from Mayo Company. The Guinn Company common stock, which had been purchased by Siegle for $50 per share, had a quoted market value of $58 per share at the date of exchange. The equipment had a recorded amount on Mayo’s books of $21,000. What journal entry should Siegle make to record this exchange?
    a. Equipment 20,000
    Investment in Guinn Co. Common Stock 20,000
    b. Equipment 21,000
    Investment in Guinn Co. Common Stock 20,000
    Gain on Disposal of Investment 1,000
    c. Equipment 21,000
    Loss on Disposal of Investment 2,200
    Investment in Guinn Co. Common Stock 23,200
    d. Equipment 23,200
    Investment in Guinn Co. Common Stock 20,000
    Gain on Disposal of Investment 3,200
A

d. Equipment 23,200
Investment in Guinn Co. Common Stock 20,000
Gain on Disposal of Investment 3,200

106
Q
  1. On January 2, 2010, Rapid Delivery Company traded in an old delivery truck for a newer model. The exchange lacked commercial substance. Data relative to the old and new trucks follow:

Old Truck:
Original cost-$24,000
Accumulated depreciation as of January 2, 2010-$16,000
Average published retail value-$7,000

New Truck:
List price-$40,000
Cash price without trade-in-$36,000
Cash paid with trade-in-$30,000

What should be the cost of the new truck for financial accounting purposes?

a. $30,000.
b. $36,000.
c. $38,000.
d. $40,000.

A

b. $36,000.

107
Q
  1. On December 1, 2010, Kelso Company acquired a new delivery truck in exchange for an old delivery truck that it had acquired in 2007. The old truck was purchased for $35,000 and had a book value of $13,300. On the date of the exchange, the old truck had a fair value of $14,000. In addition, Kelso paid $45,500 cash for the new truck, which had a list price of $63,000. The exchange lacked commercial substance. At what amount should Kelso record the new truck for financial accounting purposes?
    a. $45,500.
    b. $58,800.
    c. $59,500.
    d. $63,000.
A

b. $58,800.

108
Q

A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2010. On April 1, 2011, when the machine has a fair value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid. The exchange lacked commercial substance.

  1. The gain to be recorded on the exchange is
    a. $0.
    b. $2,500 loss.
    c. $5,000 gain.
    d. $15,000 gain.
A

b. $2,500 loss.

109
Q

A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2010. On April 1, 2011, when the machine has a fair value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid. The exchange lacked commercial substance.

  1. The new machine should be recorded at
    a. $107,500.
    b. $122,500.
    c. $132,500.
    d. $135,000.
A

d. $135,000.

110
Q

Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance.

  1. The gain to be recognized from the exchange is
    a. $4,800 gain.
    b. $6,000 gain.
    c. $18,000 gain.
    d. $24,000 gain.
A

a. $4,800 gain.

111
Q

Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance.

  1. The new equipment should be recorded at
    a. $48,000.
    b. $36,000.
    c. $30,000.
    d. $28,800.
A

d. $28,800.

112
Q

Two independent companies, Hager Co. and Shaw Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other’s land. They agree to exchange their land. An appraiser was hired, and from her report and the companies’ records, the following information was obtained:
Hager’s Land Shaw’s Land
Cost and book value $192,000 $120,000
Fair value based upon appraisal 240,000 210,000

The exchange was made, and based on the difference in appraised fair values, Shaw paid $30,000 to Hager. The exchange lacked commercial substance.

  1. For financial reporting purposes, Hager should recognize a pre-tax gain on this exchange of
    a. $0.
    b. $6,000.
    c. $30,000.
    d. $48,000.
A

b. $6,000.

113
Q

Two independent companies, Hager Co. and Shaw Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other’s land. They agree to exchange their land. An appraiser was hired, and from her report and the companies’ records, the following information was obtained:
Hager’s Land Shaw’s Land
Cost and book value $192,000 $120,000
Fair value based upon appraisal 240,000 210,000

The exchange was made, and based on the difference in appraised fair values, Shaw paid $30,000 to Hager. The exchange lacked commercial substance.

  1. The new land should be recorded on Hager’s books at
    a. $168,000.
    b. $192,000.
    c. $210,000.
    d. $240,000.
A

a. $168,000.

114
Q

Two independent companies, Hager Co. and Shaw Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other’s land. They agree to exchange their land. An appraiser was hired, and from her report and the companies’ records, the following information was obtained:
Hager’s Land Shaw’s Land
Cost and book value $192,000 $120,000
Fair value based upon appraisal 240,000 210,000

The exchange was made, and based on the difference in appraised fair values, Shaw paid $30,000 to Hager. The exchange lacked commercial substance.

  1. The new land should be recorded on Shaw’s books at
    a. $120,000.
    b. $150,000.
    c. $210,000.
    d. $240,000.
A

b. $150,000.

115
Q
  1. Timmons Company traded machinery with a book value of $120,000 and a fair value of $200,000. It received in exchange from Lewis Company a machine with a fair value of $180,000 and cash of $20,000. Lewis’s machine has a book value of $190,000. What amount of gain should Timmons recognize on the exchange?
    a. $ -0-
    b. $8,000
    c. $20,000
    d. $80,000
A

b. $8,000

116
Q
  1. Lewis Company traded machinery with a book value of $190,000 and a fair value of $180,000. It received in exchange from Timmons Company a machine with a fair value of $200,000. Lewis also paid cash of $20,000 in the exchange. Timmons’s machine has a book value of $190,000. What amount of gain or loss should Lewis recognize on the exchange?
    a. $20,000 gain
    b. $ -0-.
    c. $1,000 loss
    d. $10,000 loss
A

d. $10,000 loss

117
Q
  1. Durler Company traded machinery with a book value of $180,000 and a fair value of $300,000. It received in exchange from Hoyle Company a machine with a fair value of $270,000 and cash of $30,000. Hoyle’s machine has a book value of $285,000. What amount of gain should Durler recognize on the exchange?
    a. $ -0-
    b. $12,000
    c. $30,000
    d. $120,000
A

b. $12,000

118
Q
  1. Hoyle Company traded machinery with a book value of $285,000 and a fair value of $270,000. It received in exchange from Durler Company a machine with a fair value of $300,000. Hoyle also paid cash of $30,000 in the exchange. Durler’s machine has a book value of $285,000. What amount of gain or loss should Hoyle recognize on the exchange?
    a. $30,000 gain
    b. $ -0-
    c. $1,500 loss
    d. $15,000 loss
A

d. $15,000 loss

119
Q
  1. Peterson Company purchased machinery for $160,000 on January 1, 2007. Straight-line depreciation has been recorded based on a $10,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2011 at a gain of $3,000. How much cash did Peterson receive from the sale of the machinery?
    a. $23,000
    b. $27,000
    c. $33,000
    d. $43,000
A

c. $33,000

120
Q
  1. Sutherland Company purchased machinery for $320,000 on January 1, 2007. Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2011 at a gain of $6,000. How much cash did Sutherland receive from the sale of the machinery?
    a. $46,000.
    b. $54,000.
    c. $66,000.
    d. $86,000.
A

c. $66,000.

121
Q
  1. Ecker Company purchased a new machine on May 1, 2002 for $176,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $8,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2011, the machine was sold for $24,000. What should be the loss recognized from the sale of the machine?
    a. $0.
    b. $3,600.
    c. $8,000.
    d. $11,600.
A

b. $3,600.

122
Q
  1. On January 1, 2002, Mill Corporation purchased for $152,000, equipment having a useful life of ten years and an estimated salvage value of $8,000. Mill has recorded monthly depreciation of the equipment on the straight-line method. On December 31, 2010, the equipment was sold for $28,000. As a result of this sale, Mill should recognize a gain of
    a. $0.
    b. $5,600.
    c. $13,600.
    d. $28,000.
A

b. $5,600.

123
Q
  1. On December 1, 2010, Hogan Co. purchased a tract of land as a factory site for $800,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2010 were as follows:

Cost to raze old building-$70,000
Legal fees for purchase contract and to record ownership-$10,000
Title guarantee insurance-$16,000
Proceeds from sale of salvaged materials-$8,000

In Hogan ‘s December 31, 2010 balance sheet, what amount should be reported as land?

a. $826,000.
b. $862,000.
c. $888,000.
d. $896,000.

A

c. $888,000.

124
Q
  1. Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be
    a. classified as other income.
    b. deducted from the cost of the land.
    c. netted against the costs to clear the land and expensed as incurred.
    d. netted against the costs to clear the land and amortized over the life of the plant.
A

b. deducted from the cost of the land.

125
Q
  1. A company is constructing an asset for its own use. Construction began in 2010. The asset is being financed entirely with a specific new borrowing. Construction expenditures were made in 2010 and 2011 at the end of each quarter. The total amount of interest cost capitalized in 2011 should be determined by applying the interest rate on the specific new borrowing to the
    a. total accumulated expenditures for the asset in 2010 and 2011.
    b. average accumulated expenditures for the asset in 2010 and 2011.
    c. average expenditures for the asset in 2011.
    d. total expenditures for the asset in 2011.
A

b. average accumulated expenditures for the asset in 2010 and 2011.

126
Q
  1. Colt Football Co. had a player contract with Watts that is recorded in its books at $3,600,000 on July 1, 2010. Day Football Co. had a player contract with Kurtz that is recorded in its books at $4,500,000 on July 1, 2010. On this date, Colt traded Watts to Day for Kurtz and paid a cash difference of $450,000. The fair value of the Kurtz contract was $5,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Kurtz contract should be recorded in Colt’s books at
    a. $4,050,000.
    b. $4,500,000.
    c. $4,950,000.
    d. $5,400,000.
A

a. $4,050,000.

127
Q
  1. Huff Co. exchanged nonmonetary assets with Sayler Co. No cash was exchanged and the exchange had no commercial substance. The carrying amount of the asset surrendered by Huff exceeded both the fair value of the asset received and Sayler’s carrying amount of that asset. Huff should recognize the difference between the carrying amount of the asset it surrendered and
    a. the fair value of the asset it received as a loss.
    b. the fair value of the asset it received as a gain.
    c. Sayler’s carrying amount of the asset it received as a loss.
    d. Sayler’s carrying amount of the asset it received as a gain.
A

a. the fair value of the asset it received as a loss.

128
Q
  1. Chase County owned an idle parcel of real estate consisting of land and a factory building. Chase gave title to this realty to Patton Co. as an incentive for Patton to establish manufacturing operations in the County. Patton paid nothing for this realty, which had a fair market value of $250,000 at the date of the grant. Patton should record this nonmonetary transaction as a
    a. memo entry only.
    b. credit to Contribution Revenue for $250,000.
    c. credit to extraordinary income for $250,000.
    d. credit to Donated Capital for $250,000.
A

b. credit to Contribution Revenue for $250,000.

129
Q
  1. On September 10, 2010, Jenks Co. incurred the following costs for one of its printing presses:

Purchase of attachment-$55,000
Installation of attachment-$5,000
Replacement parts for renovation of press-$18,000
Labor and overhead in connection with renovation of press-$7,000

Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized?

a. $0.
b. $67,000.
c. $78,000.
d. $85,000.

A

d. $85,000.

130
Q
  1. On January 2, 2010, York Corp. replaced its boiler with a more efficient one. The following information was available on that date:

Purchase price of new boiler-$150,000
Carrying amount of old boiler-$10,000
Fair value of old boiler-$4,000
Installation cost of new boiler-$20,000

The old boiler was sold for $4,000. What amount should York capitalize as the cost of the new boiler?

a. $170,000.
b. $166,000.
c. $160,000.
d. $150,000.

A

a. $170,000.

Accounting 300 (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions