Deck 9: Long-Term Assets I: Property,plant,and Equipment

Question 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)Appraised value of the land
D)Total liquidating value of the stock issued

Answer 1

C

Question 2

Long-lived assets to be disposed of by sale.

Answer 2

Long-term assets held and used are to be tested for impairment using the original SFAS No.121 criteria if events suggest there may have been impairment.The impairment is to be measured at fair value by using the present value procedures outlined in SFAC No.7 see Chapter 2).Long-lived assets to be disposed of other than by sale,such as those to be abandoned,exchanged for a similar productive asset,or distributed to owners in a spin-off,are to be considered held and used until disposed of.Additionally,in order to resolve implementation issues,the depreciable life of a long-lived asset to be abandoned was to be revised in accordance with the criteria originally established in APB Opinion No.20,"Accounting Changes" Since rescinded).The accounting treatment for long-lived assets to be disposed of by sale is used for all long-lived assets,whether previously held and used or newly acquired FASB ASC 360-10-35).That treatment retains the requirement originally outlined in SFAS No.121 to measure a long-lived asset classified as held for sale at the lower of its carrying amount or fair value less cost to sell and to cease depreciation amortization).As a result,discontinued operations are no longer measured on a net realizable value basis,and future operating losses are no longer recognized before they occur.In summary,SFAS No.144 retained the requirements of SFAS No.121 to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows.This loss is measured as the difference between the carrying amount and fair value of the asset FASB ASC 360-10-35-17).

Question 3

Define and discuss accounting for asset retirement obligations under SFAS No.14FASB ASC 410-20.

Answer 3

According to the provisions of SFAS No.144 Long-lived assets to be disposed of other than by sale,such as those to be abandoned,exchanged for a similar productive asset,or distributed to owners in a spin-off,are to be considered held and used until disposed of.Additionally,in order to resolve implementation issues,the depreciable life of a long-lived asset to be abandoned was to be revised in accordance with the criteria originally established in APB Opinion No.20,"Accounting Changes" Since rescinded).The accounting treatment for long-lived assets to be disposed of by sale is used for all long-lived assets,whether previously held and used or newly acquired FASB ASC 360-10-35).That treatment retains the requirement originally outlined in SFAS No.121 to measure a long-lived asset classified as held for sale at the lower of its carrying amount or fair value less cost to sell and to cease depreciation amortization).As a result,discontinued operations are no longer measured on a net realizable value basis,and future operating losses are no longer recognized before they occur.In summary,SFAS No.144 retained the requirements of SFAS No.121 to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows.This loss is measured as the difference between the carrying amount and fair value of the asset FASB ASC 360-10-35-17).

Question 4

Property,plant,and equipment are conventionally presented n the balance sheet at

A)Replacement cost less accumulated depreciation
B)Historical cost less salvage value
C)Original cost adjusted for general price level changes
D)Acquisition cost less depreciated portion thereof

Question 5

Discuss the issue of allocating interest to self construction projects.That is,when should interest be allocated and how much interest should be allocated?

Question 6

How did SFAS No.116,now FASB ASC 605-10-15-3,change the accounting for donated assets?

Question 7

A principal objection to the straight-line method of depreciation is that it

A)Provides for the declining productivity of an aging asset
B)Ignores variations in the rate of asset use
C)Tends to result in a constant rate of return on a diminishing investment base
D)Gives smaller periodic write-offs than decreasing charge methods

Question 8

A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group was reached.An insurance recovery was received.The net book value of these group asset accounts would be decreased by the

A)Original cost of the truck
B)Original cost of the truck less the insurance recovery received
C)Original cost of the truck less depreciation on the truck to the date of retirement
D)Insurance recovery received

Question 9

A donated plant asset for which the fair value has been determined,and for which incidental costs were incurred in acceptance of the asset,should be recorded at an amount equal to its

A)Incidental costs incurred
B)Fair value and incidental costs incurred
C)Book value on books of donor and incidental costs incurred
D)Book value on books of donor

Question 10

Explain the concept of commercial substance originally outlined in SFAS No.158.

Question 11

A method that excludes salvage value from the base for the depreciation calculation is

A)Straight line
B)Sum-of-the-year's digits
C)Double-declining balance
D)Productive output

Question 12

For income statement purposes,depreciation is a variable expense if the depreciation method used for book purposes is

A)Units of production
B)Straight line
C)Sum-of-the-year's-digits
D)Declining balance

Question 13

A machine with a four-year estimated useful life and an estimated 15 percent salvage value was acquired on January 1,2010.On December 31,2012,the accumulated depreciation using the sum-of-year's digits method would be

A)Original cost less salvage value)multiplied by 9/10
B)Original cost multiplied by 9/10
C)Original cost multiplied by 9/10 less total salvage value
D)Original cost less salvage value)multiplied by 1/10

Question 14

Lyle,Inc.,purchased certain plant assets under a deferred payment contract on December 31,2011.The agreement was to pay $20,000 at the time of purchase and $20,000 at the end of each of the next five years.The plant assets should be valued at

A)The present value of a $20,000 ordinary annuity for five years
B)$120,000
C)$120,000 less imputed interest
D)$120,000 plus imputed interest

Question 15

How does IAS no.23 define borrowing costs?

Question 16

As generally used in accounting,depreciation

A)Is a process of asset valuation for balance sheet purposes
B)Applies only to long-lived intangible assets
C)Is used to indicate a decline in market value of a long-lived asset
D)Is an accounting process that allocates long-lived asset cost to accounting periods

Question 17

When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant,the cost incurred to tear down the building should be

A)Expensed as incurred
B)Added to the cost of the plant
C)Added to the cost of the land
D)Amortized over the estimated time period between the tearing down of the building and the completion of the plant

Question 18

The theoretical justification for reporting depreciation expense is

A)Depreciation expense represents a decrease in the value of the asset that has occurred during the accounting period.
B)Depreciation expense represents the impairment of the asset that has occurred during the accounting period.
C)Depreciation expense represents the unrealized loss that has been incurred by using the asset during the accounting period.
D)Depreciation expense represents the allocation of the historical cost of the asset that has been applied to the accounting period.

Question 19

Discuss the guidelines for accounting for property,plant and equipment outlined in IAS No.16.

Question 20

Discuss the distinction between capital and revenue expenditures for long-term assets.

Question 21

Discuss accounting for the impairment of assets as outlined in IAS No.36.