Deck 10: Property, Plant, and Equipment and Intangible Assets: Acquisition

Question 1

Productive assets that are physically consumed in operations are:

A) Equipment.
B) Land.
C) Land improvements.
D) Natural resources.

Answer 1

D

Question 2

A distinguishing characteristic of intangible assets is that the extent and timing of their future benefits typically are highly uncertain.

Answer 2

True

Question 3

Sales tax paid on equipment acquired for use in the business is not capitalized.

Answer 3

False

Question 4

Property, plant, and equipment and intangible assets are long-term, revenue producing assets.

Question 5

An exclusive 20-year right to manufacture a product or use a process is a:

A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.

Question 6

The relative fair values are used to determine the valuation of individual assets acquired in a lump-sum purchase.

Question 7

A company that prepares its financial statements according to International Financial Reporting Standards (IFRS) accounts for a government grant by recognizing revenue for the amount of the grant.

Question 8

The fair value of the asset, debt, or equity securities given in a noncash acquisition should determine the value of the consideration received.

Question 9

The FASB's required accounting treatment for research and development costs often understates both net income and assets.

Question 10

Costs incurred after discovery of a natural resource but before production begins are reported as expenses of the period in which the expenditures are made.

Question 11

The successful efforts method of accounting for oil and gas exploration costs allows costs incurred in searching for oil and gas within a large geographical area to be capitalized.

Question 12

Goodwill is:

A) Amortized over the greater of its estimated life or 40 years.
B) Only recorded by the seller of a business.
C) The excess of the fair value of a business over the fair value of all net identifiable assets.
D) None of these answer choices are correct.

Question 13

Under current GAAP, fair value is used to measure the components of all nonmonetary exchanges.

Question 14

The interest capitalization period for a self-constructed asset ends either when the asset is substantially complete and ready for use or when interest costs no longer are being incurred.

Question 15

A company that prepares its financial statements according to International Financial Reporting Standards (IFRS) must calculate amortization of capitalized software development costs in the same way as under U.S. GAAP.

Question 16

According to International Financial Reporting Standards (IFRS), all research and development expenditures are expensed in the period incurred.

Question 17

The acquisition costs of property, plant, and equipment do not include:

A) The ordinary and necessary costs to bring the asset to its desired condition and location for use.
B) The net invoice price.
C) Legal fees, delivery charges, installation, and any applicable sales tax.
D) Maintenance costs during the first 30 days of use.

Question 18

Property, plant, and equipment and intangible assets are:

A) Created by the normal operation of the business and include accounts receivable.
B) All assets except cash and cash equivalents.
C) Current and long-term assets used in the production of either goods or services.
D) Long-term revenue-producing assets.

Question 19

Demolition costs to remove an old building from land purchased as a site for a new building are considered part of the cost of the new building.

Question 20

The initial cost of property, plant, and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use.

Question 21

The cost of constructing a new parking lot at the company's office building would be recorded as:

A) Land.
B) Land improvement.
C) Building.
D) Equipment.

Question 22

Grab Manufacturing Co. purchased a 10-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the 10-ton draw press is:

A) $171,000.
B) $183,600.
C) $187,600.
D) $185,760.

Question 23

On March 1, 2018, Shipley Resources entered into an agreement with the state of Alaska to obtain the rights to operate a mineral mine for $6 million. The mine is expected to produce 100,000 tons of mineral. As part of the agreement, Shipley agrees to restore the land to its original condition after mining operations are completed in approximately five years. Management has provided the following possible outflows for the restoration costs that will occur five years from now: $$\begin{array} { c c } \text { Cash Outflow } & \text { Probability } \\\$ 300,000 & 2 \% \\400,000 & 50 \% \\500,000 & 25 \%\\\end{array}$$ Shipley's credit-adjusted risk-free interest rate is 10%. During 2018, Shipley extracted 18,000 tons of ore from the mine. How much accretion expense will the company record in its income statement for the 2018 fiscal year?

A) $30,326.
B) $20,697.
C) $24,837.
D) $27,294.

Question 24

A company has the following expenditures during the year. The company believes that these efforts have increased the fair value of the entire company by $325,000. How much goodwill can the company recognize at the end of the year associated with these expenditures?

A) $0.
B) $80,000.
C) $230,000.
D) $325,000.

Question 25

The capitalized cost of equipment excludes:

A) Maintenance.
B) Sales tax.
C) Shipping.
D) Installation.

Question 26

The exclusive right to benefit from a creative work, such as a film, is a:

A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.

Question 27

Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is:

A) $455,000.
B) $446,000.
C) $437,000.
D) $435,000.

Question 28

The capitalized cost of land excludes:

A) The purchase price of the land.
B) Title insurance paid at the time of purchase.
C) Real estate commissions associated with the sale.
D) Property taxes for the first year owned.

Question 29

Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Montana. To obtain the rights, MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. MMC incurred exploration and development costs of $60 million on the project. MMC has a credit-adjusted risk free interest rate is 7%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows: $\begin{array}{cc}\text { Cash Outflow } & \text { Probability } \\\$ 10 \text { million } & 60 \% \\\$ 30 \text { million } & 40 \%\end{array}$

-The asset retirement obligation (rounded) that should be reported on MMC's balance sheet one year after the extraction activities begin is:

A) $0.
B) $14.7 million.
C) $15.7 million.
D) $19.3 million.

Question 30

If a company incurs legal obligations associated with the retirement of a tangible long-lived asset as a result of acquiring the asset:

A) The company recognizes the obligation at fair value when the asset is acquired.
B) The company recognizes the obligation at fair value when the asset is retired.
C) The company records the difference between the fair value of the asset and the obligation when the asset is acquired.
D) None of these answer choices are correct.

Question 31

A contractual arrangement under which one party grants another party the exclusive right to use a trademark or tradename is a:

A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.

Question 32

On July 1, 2018, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2018 as follows: What would be the balance in the land account as of December 31, 2018?

A) $400,000.
B) $475,000.
C) $477,000.
D) $487,000.

Question 33

The exclusive right to display a symbol of product identification is a:

A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.

Question 34

Which of the following does not pertain to accounting for asset retirement obligations?

A) They accrete (increase over time) at the company's credit-adjusted risk-free rate.
B) They must be recognized according to GAAP.
C) Statement of Financial Accounting Concepts No. 7 is applied when adjusting cash flow obligations for uncertainty.
D) All of these answer choices pertain to accounting for asset retirement obligations.

Question 35

Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Montana. To obtain the rights, MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. MMC incurred exploration and development costs of $60 million on the project. MMC has a credit-adjusted risk free interest rate is 7%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows: $\begin{array}{lc}\text { Cash Outflow } & \text { Probability } \\\$ 10 \text { million } & 60 \% \\\$ 30 \text { million } & 40 \%\end{array}$

- The asset retirement obligation (rounded) that should be recognized by MMC at the beginning of the extraction activities is:

A) $8.2 million.
B) $14.7 million.
C) $18 million.
D) $30 million.

Question 36

Vijay Inc. purchased a three-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract were $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized cost of the land is:

A) $336,400.
B) $336,150.
C) $334,650.
D) $201,150.

Question 37

Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were: $\begin{array}{lrr} & \text { Book Value } & \text { Fair Value } \\\text { Current assets (net) } & \$ 130,000 & \$ 125,000 \\\text { Property, plant, equip. (net) } & 600,000 & 750,000 \\\text { Liabilities } & 150,000& 175,000\end{array}$ Lake would record goodwill of:

A) $0.
B) $75,000.
C) $445,000.
D) $250,000.

Question 38

Assets acquired in a lump-sum purchase are valued based on:

A) Their assessed valuation.
B) Their relative fair values.
C) The present value of their future cash flows.
D) Their cost plus the difference between their cost and fair values.

Question 39

Asset retirement obligations:

A) Increase the balance in the related asset account.
B) Are measured at fair value in the balance sheet.
C) Are liabilities associated with the restoration of a long-term asset.
D) All of these answer choices are correct.

Question 40

Juliana Corporation purchased all of the outstanding stock of Caldwell Inc., paying $2,700,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were: Juliana would record goodwill of:

A) $1,180,000.
B) $600,000.
C) $880,000.
D) $100,000.

Question 41

The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at:

A) Fair value of the asset(s) given up.
B) The book value of the asset given plus any cash or other monetary consideration received.
C) Fair value or book value, whichever is smaller.
D) Book value of the asset given.

Question 42

An asset acquired using a long-term note payable always will be recorded at the face amount of the note under which scenario?

A) The note payable explicitly requires the payment of interest at a realistic interest rate.
B) The note is a noninterest-bearing note.
C) The company expects to use the asset for its entire physical life.
D) Interest on the note is not payable until the note is due.

Question 43

On July 1, 2018, Markwell Company acquired equipment. Markwell paid $160,000 in cash on July 1, 2018, and signed a $640,000 noninterest-bearing note for the remaining balance which is due on July 1, 2019. An interest rate of 5% reflects the time value of money for this type of loan agreement.

-For what amount will Markwell record the purchase of equipment?

A) $761,905.
B) $769,523.
C) $609,523.
D) $800,000.

Question 44

Assets acquired under multi-year deferred payment contracts are:

A) Valued at their fair value on the date of the final payment.
B) Valued at the present value of the payments required by the contract.
C) Valued at the sum of the payments required by the contract.
D) None of these answer choices are correct.

Question 45

Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be:

A) Option A
B) Option B
C) Option C
D) Option D

Question 46

Assets acquired by the issuance of equity securities are valued based on:

A) Their fair values.
B) The fair value of the equity securities.
C) The fair value of the assets acquired or the fair value of the equity securities, whichever is more reasonably determinable.
D) The fair value of the assets acquired or the fair value of the equity securities, whichever is smaller.

Question 47

The fixed-asset turnover ratio provides:

A) The rate of decline in asset lives.
B) The rate of replacement of fixed assets.
C) The amount of sales generated per dollar of fixed assets.
D) The decline in book value of fixed assets compared to capital expenditures.

Question 48

On June 17, the Lattern Company issued 120,000 shares of its $0.10 par value common stock in exchange for land. On the date of the transaction, the fair value of the common stock, evidenced by its market price, was $10 per share. The journal entry to record this transaction includes:

A) Debt: Land, $1,200,000.
B) Credit: Cash, $1,200,000.
C) Debit: Land, $12,000.
D) No entry for this exchange.

Question 49

On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,000,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement.

-What amount of interest expense, if any, would Corso record on December 31, 2019, the company's fiscal year end?

A) $68,687.
B) $60,000.
C) $80,000.
D) $69,959.

Question 50

Donated assets are recorded at:

A) Zero (memo entry only).
B) The donor's book value.
C) The donee's stated value.
D) Fair value.

Question 51

On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,000,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement.

- Corso should record the acquisition of the patent on September 30, 2018, for what amount?

A) $2,000,000.
B) $1,912,385.
C) $1,857,340.
D) $1,714,678.

Question 52

Savings Mart is a national retail chain. To entice the company to open a mega store in its jurisdiction, the city of Populationville donated a 20-acre tract of land to be used for construction. The land was originally purchased by the city for $250,000 three years ago. The appraisal value at the time of the donation was $300,000. For what amount should Savings Mart record the donated land?

A) $250,000.
B) $275,000.
C) $300,000.
D) $0; Donated assets are not recorded.

Question 53

On July 1, 2018, Markwell Company acquired equipment. Markwell paid $160,000 in cash on July 1, 2018, and signed a $640,000 noninterest-bearing note for the remaining balance which is due on July 1, 2019. An interest rate of 5% reflects the time value of money for this type of loan agreement.

- Which of the following should be included in the journal entry on July 1, 2018?

A) Credit: Notes payable, $609,523.
B) Debit: Equipment, $800,000.
C) Debit: Discount on notes payable, $30,477.
D) Credit: Notes payable, $609,523 and Debit: Discount on notes payable, $30,477.

Question 54

Braxwell Corporation acquired the following assets associated with a manufacturing facility for a lump-sum price of $9,000,000. According to independent appraisals, the fair values were $4,000,000, $2,000,000, $3,000,000, and $1,000,000 for the building, patent, land, and equipment, respectively. The initial value of the patent would be:

A) $2,000,000.
B) $2,250,000.
C) $1,800,000.
D) $0.

Question 55

Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be:

A) Option A
B) Option B
C) Option C
D) Option D

Question 56

The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2018. The fixed-asset turnover ratio for 2018 was 4.0, and sales for the year totaled $1,480,000. Net fixed assets at the end of 2017 were:

A) $470,000.
B) $370,000.
C) $420,000.
D) None of these answer choices are correct.

Question 57

Maltese is a privately-owned company. On September 3, Maltese exchanged 2,000 shares of its private common stock for equipment. There is no readily available estimate of the stock's fair value. The equipment currently is selling for $80,000. The journal entry to record this transaction includes:

A) Credit: Stock revenue, $80,000.
B) Credit: Cash, $80,000.
C) Debit: Equipment, $80,000.
D) No entry is recorded for this exchange.

Question 58

On September 30, 2018, Corso Steel acquired a patent from Thermo Steel. The agreement specified that Corso will pay Thermo $1,000,000 immediately and then another $1,000,000 on September 30, 2020. An interest rate of 8% reflects the time value of money for this type of loan agreement.

-What amount of interest expense, if any, would Corso record on December 31, 2018, the company's fiscal year end?

A) $17,147.
B) $20,000.
C) $68,687.
D) $80,000.

Question 59

On January 1, 2018, Laramie Inc. acquired land for $6.2 million. Laramie paid $1.2 in cash and signed a 6% note requiring the company to pay the remaining $5 million plus interest on December 31, 2019. An interest rate of 6% properly reflects the time value of money for this type of loan agreement. For what amount should Laramie record the purchase of land?

A) $6.8 million.
B) $5.0 million.
C) $5.6 million.
D) $6.2 million.

Question 60

A company receiving a donated asset will record:

A) An increase in revenue.
B) An increase in liabilities.
C) A decrease in liabilities.
D) An increase in revenue and A decrease in liabilities.

Question 61

Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively. Assuming that the exchange has commercial substance, Bloomington would record equipment and a gain/(loss) of:

A) Option A
B) Option B
C) Option C
D) Option D

Question 62

Pensacola Inc. exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance. $$\begin{array} { l c c c } & { \text { Old Equipment } } && \text { Cash } \\& \text { Book Value } & \text { Fair Value } & \text { Received } \\\text { Equipment A } & \$ 75,000 & \$ 80,000 & \$ 12,000 \\\text { Equipment B } & \$ 60,000 & \$ 56,000 & \$ 10,000\end{array}$$

- For Equipment A, Pensacola would record the new equipment at:

A) $68,000.
B) $63,750.
C) $67,250.
D) $80,000.

Question 63

Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively. Assuming that the exchange has commercial substance, Horton would record land-new and a gain/(loss) of:

A) Option A
B) Option B
C) Option C
D) Option D

Question 64

Interest may be capitalized:

A) On routinely manufactured goods as well as self-constructed assets.
B) On self-constructed assets from the date an entity formally adopts a plan to build a discrete project.
C) Whether or not there is specific borrowing for the construction.
D) Whether or not there are actual interest costs incurred.

Question 65

Interest is eligible to be capitalized as part of an asset's cost, rather than being expensed immediately, when:

A) The interest is incurred during the construction period of the asset.
B) The asset is a discrete construction project for sale or lease.
C) The asset is self-constructed, rather than acquired.
D) All of these answer choices are correct.

Question 66

On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions): $\begin{array}{|l|r|}\hline \text { July } 1,2017 & 54 \\\hline \text { October } 1,2017 & 22 \\\hline \text { February } 1,2018 & 30 \\\hline \text { April } 1,2018 & 21 \\\hline \text { September } 1,2018 & 20 \\\hline \text { October } 1,2018 & 6 \\\hline\end{array}$ On July 1, 2017, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2018. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2017 and 2018. The company's fiscal year-end is December 31.

-What is the amount of interest that Crocus should capitalize in 2018, using the specific interest method (rounded to the nearest thousand dollars)?

A) $7,248,000 (rounded).
B) $7,283,000 (rounded).
C) $8,740,000 (rounded).
D) None of these answer choices are correct.

Question 67

In a nonmonetary exchange of equipment, if the exchange has commercial substance, a gain is recognized if:

A) The fair value of the equipment received exceeds the book value of the equipment received.
B) The book value of the equipment received exceeds the fair value of the equipment given up.
C) The fair value of the equipment surrendered exceeds the book value of the equipment given up.
D) None of these answer choices are correct.

Question 68

P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively. Assuming that the exchange has commercial substance, Chang would record equipment and a gain/(loss) of:

A) Option A
B) Option B
C) Option C
D) Option D

Question 69

Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively. Assuming that the exchange lacks commercial substance, Horton would record land-new and a gain/(loss) of:

A) Option A
B) Option B
C) Option C
D) Option D

Question 70

On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions): $\begin{array}{|l|r|}\hline \text { July } 1,2017 & 54 \\\hline \text { October } 1,2017 & 22 \\\hline \text { February } 1,2018 & 30 \\\hline \text { April } 1,2018 & 21 \\\hline \text { September } 1,2018 & 20 \\\hline \text { October } 1,2018 & 6 \\\hline\end{array}$ On July 1, 2017, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2018. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2017 and 2018. The company's fiscal year-end is December 31.

- What is the amount of interest that Crocus should capitalize in 2017, using the specific interest method?

A) $1.90 million.
B) $1.95 million.
C) $2.96 million.
D) None of these answer choices are correct.

Question 71

Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance. $$\begin{array} { l l l c } & { \text { Old Equipment } }& & \text { Cash } \\ & \text { Book Value } & \text { Fair Value } & \text { Paid } \\\text { Case A }& \$ 50,000 & \$ 60,000 & \$ 15,000 \\\text { Case B } & \$ 40,000 & \$ 35,000 & \$ 8,000\end{array}$$

-In Case B, Grand Forks would record a gain/(loss) of:

A) $5,000.
B) $3,000.
C) ($5,000).
D) ($3,000).

Question 72

In computing capitalized interest, average accumulated expenditures:

A) Is the arithmetic mean of all construction expenditures.
B) Is determined by time-weighting individual expenditures made during the asset construction period.
C) Is multiplied by the company's most recent financing rates.
D) All of these answer choices are correct.

Question 73

Interest is not capitalized for:

A) Assets that are constructed as discrete projects for sale or lease.
B) Assets constructed for a company's own use.
C) Inventories routinely and repetitively produced in large quantities.
D) Interest is capitalized for all of these items.

Question 74

Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively.

- Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of:

A) $26,000.
B) $8,000.
C) ($8,000).
D) $0.

Question 75

The cost of self-constructed fixed assets should:

A) Include allocated indirect costs just as they are for production of products.
B) Include only incremental indirect costs.
C) Include only specifically identifiable indirect costs.
D) Not include indirect costs.

Question 76

On June 1, 2017, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2018. Expenditures on the project were as follows ($ in millions): $\begin{array}{|l|r|}\hline \text { July } 1,2017 & 54 \\\hline \text { October } 1,2017 & 22 \\\hline \text { February } 1,2018 & 30 \\\hline \text { April } 1,2018 & 21 \\\hline \text { September } 1,2018 & 20 \\\hline \text { October } 1,2018 & 6 \\\hline\end{array}$ On July 1, 2017, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2018. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2017 and 2018. The company's fiscal year-end is December 31.

-In computing the capitalized interest for 2018, Crocus' average accumulated expenditures are:

A) $46.30 million.
B) $103.54 million.
C) $122.30 million.
D) $124.25 million.

Question 77

Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively.

-Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of:

A) $26,000.
B) $8,000.
C) ($8,000).
D) $0.

Question 78

Pensacola Inc. exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance. $\begin{array}{lccc} & {\text { Old Equipment }} && \text { Cash } \\& \text { Book Value } & \text { Fair Value } & \text { Received } \\\text { Equipment A } & \$ 75,000 & \$ 80,000 & \$ 12,000 \\\text { Equipment B } & 60,000 & \$ 56,000 & \$ 10,000\end{array}$

- For Equipment B, Pensacola would record a gain/(loss) of:

A) $4,000.
B) ($4,000).
C) ($10,000).
D) None of these answer choices are correct.

Question 79

Average accumulated expenditures:

A) Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.
B) Is computed as a simple average if all construction expenditures are made at the end of the period.
C) Are irrelevant if the company's total outstanding debt is less than total costs of construction.
D) All of these answer choices are true statements.

Question 80

Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance. $$\begin{array} { l l l c } & { \text { Old Equipment } } && \text { Cash } \\& \text { Book Value } & \text { Fair Value } & \text { Paid } \\\text { Case A } & \$ 50,000 & \$ 60,000 & \$ 15,000 \\\text { Case B }& \$ 40,000 & \$ 35,000 & \$ 8,000\end{array}$$

- In Case A, Grand Forks would record the new equipment at:

A) $65,000.
B) $75,000.
C) $50,000.
D) $60,000.