Chapter 10: Acquisition and Disposition of Property, Plant, and Equipment

Question 1

Lump sum purchases

Answer 1

Group of assets purchased in single amount

Question 2

How are lump sum purchases allocated?

Answer 2

Single amount allocated to each asset, allocation made based on ratio of relative fair market values

Question 3

Basis of land formula

Answer 3

(FV of land/FV of real estate) x Purchases price

Question 4

4 Accounting Treatments for Exchanges of Assets

Answer 4

Dissimilar assets, similar assets - loss situation, similar assets - gain situation - no boot, similar assets - gain situation - boot

Question 5

Calculation of Gains and Losses

Answer 5

Basis of assets received - Book value of assets given

Question 6

Hierarchical Order of Establishing Basis

Answer 6

FMV of asset given (if known), FMV of asset received (if more clearly evident), BV of asset given (last resort)

Question 7

Recording of Dissimilar Assets

Answer 7

Record new asset at basis, recognize all gains and losses

Question 8

Recording of Similar Assets - Loss Situation

Answer 8

Record new asset at basis, recognize loss

Question 9

Recording of Similar Assets - Gain Situation - No Boot

Answer 9

Defer gain by reducing basis of new asset, recognize at sale, depreciation

Question 10

Recording of Similar Assets - Gain Situation - Boot

Answer 10

Recognize only portion of gain attributable to boot received, defer rest of gain

Question 11

Recognized Gain Calculation with Boot

Answer 11

Total Gain x (Cash Received/FMV of all Assets Received)

Question 12

3 Characteristics of PPE

Answer 12

Used in operations, LT in nature and subject to depreciation, and physical substance from which assets value can be derived

Question 13

Recording of Acquisition of PPE

Answer 13

Record at FV of consideration given, includes all costs normal and necessary to get assets ready for use (historical cost)

Question 14

Recording of Acquisition of Land

Answer 14

Purchase Price + Closing Costs + Cost of Preparing Land + Mortgages/Liens Assumed + Land Improvements with Indefinite Life

Question 15

Recording of Buildings Purchased

Answer 15

Purchase Price + All costs necessary to set building ready for intended use

Question 16

Recording of Buildings Constructed

Answer 16

All costs from excavation forward considered cost of building

Question 17

Recording of Equipment

Answer 17

Purchase Price + All costs normal and necessary for intended use

Question 18

Recording of Self-Constructed Assets

Answer 18

Direct Cost Assigned to asset + Overhead + Capitalized Interest Cost

Question 19

3 Ways to Allocate Overhead

Answer 19

Direct Cost Approach (no overhead), Full cost approach (overhead allocated similar to inventory), incremental cost (only assigned if increases overhead)

Question 20

3 Conditions Necessary to Capitalize Interest Cost

Answer 20

Expenditure Must be made, Interest must be incurred, ongoing activities for asset preparation

Question 21

Calculation of Capitalized Interest

Answer 21

Weighted Average Accumulated Expenditure Method

Question 22

Avoidable interest

Answer 22

Interest that could have been avoided had we not built asset

Question 23

Calculate avoidable interest

Answer 23

Directly attributable rate first, weighted average of previous debt second