Ch 9 Acquisition and Disposition of Property, Plant, and Equipment

Question 1

a periodic expense recognized when updating the present value of a balance sheet liability

Answer 1

accretion expense

Question 2

increase or extension of existing assets

should present no major accounting problems

Answer 2

additions

Question 3

remediation costs would include cleaning up the groundwater, removing soil contamination, and controlling methane gas migration

these expected mediations are referred to as _____________ and the costs are referred to as asset retirement costs (ARC)

Answer 3

asset retirement obligation (ARO)

Question 4

the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset

Answer 4

avoidable interest

Question 5

the payment with either cash or credit to purchase long-term physical or fixed assets used in a business’s operations

Answer 5

capital expenditure

Question 6

the period of time during which a company must capitalize interest

Answer 6

capitalization period

Question 7

an exchange has ____________ if the future cash flows change as a result of the transaction

Answer 7

commercial substance

Question 8

often some type of asset (i.e. cash, securities, land, or buildings), services, or use of facilities, but it also could be the forgiveness of a debt

Answer 8

contribution

Question 9

includes assets used in operations, such as store checkout counters, office furniture, factory machinery, and delivery trucks

Answer 9

equipment

Question 10

another phrase for property, plant, and equipment

Answer 10

fixed assets

Question 11

1. the acquisition price plus sales tax
2. costs incurred bringing the asset to its location, such as freight/shipping costs
3. costs incurred getting the asset ready for its intended use, such as installing it or testing it prior to use

Answer 11

historical cost

Question 12

aka betterment, is the substitution of a better asset for the one currently used i.e. a concrete floor for a wooden floor

Answer 12

improvements (betterments)

Question 13

sometimes an asset’s service is terminated through an _________ such as fire, flood, theft, or condemnation

Answer 13

involuntary conversion

Question 14

structural additions with limited lives that are made to land

ex) driveways, parking lots, fencing, lightning, landscaping with a limited life e.g. plants, trees, sprinkler systems, and retaining walls for planting beds

Answer 14

land improvement

Question 15

a special problem of valuing fixed assets arises when a company purchases a group of assets at a single ______________

Answer 15

lump-sum price

Question 16

if _______ occurs, several periods will benefit

Answer 16

major repairs

Question 17

a company may exchange a piece of equipment for a piece of land which is called an exchange of ___________

Answer 17

nonmonetary assets

Question 18

a company makes __________ to maintain plant assets in operating condition

Answer 18

ordinary repairs

Question 19

another phrase for property, plant, and equipment

Answer 19

plant assets

Question 20

assets of durable nature

long-term assets vital to business operations and not easily converted into cash

ex) land, building structures (offices, factories, warehouses), & equipment (machinery, computers, vehicles, furniture, tools)

Answer 20

property, plant, and equipment

Question 21

an exception to the historical cost principle for assets is the ____________ concept

Answer 21

prudent cost

Question 22

movement of assets from one location to another

companies incur _______ to benefit future periods i.e. machines to facilitate future production

Answer 22

rearrangement and reinstallation costs

Question 23

the substitution for a similar asset (a wooden floor for a wooden floor)

Answer 23

replacements

Question 24

short-term business expenses usually used immediately or within one year

Answer 24

revenue expenditure

Question 25

salaries and wages of employees are only included in the cost of a _________________ if the employees are directly involved with the construction, such as a plant supervisor overseeing the construction

Answer 25

self-constructed asset

Question 26

to apply the avoidable interest concept, a company determines the potential amount of interest that it may capitalize during an accounting period by multiplying the interest rate(s) by the ________________ for qualifying assets during the period

Answer 26

weighted-average accumulated expenditures