Question 1

If a company buys a building and the surrounding land for cash, total assets increase.

Accepted Answer

The purchase of a building and surrounding land for cash shifts the composition of the company's assets (from cash to property) but does not increase the total assets, as the outflow of cash equals the inflow of property value.

Question 2

Which of the following should be included in the cost of land improvements?

Accepted Answer

Land improvements refer to enhancements made to a piece of land to increase its value or usability. This includes structures such as fences, as well as features like sprinkler systems and driveways. Therefore, all of the options (A)-Fencing, (B)-Sprinkler system for the landscaping, and (C)-Driveways should be included in the cost of land improvements.

Question 3

Leasehold improvements are not subject to depreciation or amortization.

Accepted Answer

Leasehold improvements can be depreciated or amortized over the useful life of the improvement.

Question 4

Which of the following statements is INCORRECT?

Accepted Answer

The cost of land typically does not include fencing and paving, as these are considered land improvements and are accounted for separately.

Question 5

Major Company purchased equipment to be used in its distribution center. All of the following should be included in the cost of the equipment EXCEPT for:

Accepted Answer

Insurance costs after the equipment is up and running should not be included in the cost of the equipment. All other options, including insurance while in transit, wages of workers who test the equipment, and employee training costs before the equipment is placed in service, are commonly included in the cost of equipment.

Question 6

Land, a building and equipment are acquired for a lump sum of $6,000,000. The market values of the land, building and equipment are $400,000, $800,000 and $300,000, respectively. What is the cost assigned to the equipment? (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Accepted Answer

The answer of Land, a building and equipment are acquired...

Question 7

Land is purchased for $400,000. Back taxes paid by the purchaser were $6900; total costs to demolish an existing building were $13,000 and the cost to clear the land was $18,000. The cost of paving the parking lot was $7200. The cost of land is ________ and the cost of land improvements is ________.

Accepted Answer

The cost of land includes the purchase price, back taxes, demolition, and clearing costs, totaling $437,900. The cost of paving the parking lot is considered a land improvement, totaling $7200.

Question 8

The cost of land includes the cost of any back property taxes that the purchaser pays.

Accepted Answer

When a purchaser buys land, they become responsible for any past due property taxes. These taxes are considered a part of the cost of the land and must be paid by the purchaser in addition to the purchase price.

Question 9

The long-term asset that is not depreciated or amortized is:

Accepted Answer

Land is a long-term asset that is not subject to depreciation or amortization as it is considered to have an indefinite useful life. Land improvements and leasehold improvements, on the other hand, can be depreciated or amortized over their estimated useful lives. Office computers are also subject to depreciation over their useful lives.

Question 10

The cost of installing lights in a company's parking lot should be recorded as a cost of:

Accepted Answer

The cost of installing lights in the parking lot is considered a land improvement because it adds value to the land and makes it more usable. Land improvements are recorded separately from land because they have a limited useful life and can be depreciated over time.

Question 11

The ________ method is used to allocate the cost of multiple assets acquired in a basket purchase.

Accepted Answer

The relative-sales-value method is used to allocate the cost of multiple assets acquired in a basket purchase. This method allocates the cost to each asset based on its relative sales value compared to the total sales value of all assets in the basket.

Question 12

The installation costs for a new machine should be part of the cost of the machine and should be depreciated.

Accepted Answer

The installation costs for a new machine are considered part of the cost of the machine and should be included in the depreciation calculation. This is because the installation costs are necessary to get the machine up and running and performing its intended functions.

Question 13

Jimmy Company leased a delivery van for payments of $6000 per year for three years. In addition, Jimmy Company also paid $1300 for new larger windows in the van and spent $4400 for special storage racks for the van. Leasehold Improvements equal:

Accepted Answer

Leasehold improvements are enhancements made to leased property. The $1300 for new windows and $4400 for storage racks are improvements to the van, totaling $5700.

Question 14

Minor Company purchased land and which is being prepared for the construction of a new office building. Which of the following should be included in the cost of the land?

Accepted Answer

The cost of land includes all expenditures made to acquire the land and prepare it for its intended use, such as the cost of removing an old building and clearing and grading the land. The cost of a fence is not included as it is considered a land improvement.

Question 15

The costs assigned to the Land account include legal fees, survey fees, and expenditures for grading and clearing the land.

Accepted Answer

The costs assigned to the Land account do include legal fees, survey fees, and expenditures for grading and clearing the land.

Question 16

Gengler Company acquired three pieces of equipment for $1,600,000. Equipment #1 is appraised at $740,000, equipment #2 is appraised at $560,000 and equipment #3 is appraised for $720,000. The cost of equipment #1 is: (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Accepted Answer

The answer of Gengler Company acquired three pieces of equipment...

Question 17

ABC Company purchased land with an old building. ABC plans to demolish the old building and then construct a new, modern building. The cost of demolishing the building will be part of the cost of the:

Accepted Answer

The cost of demolishing the building is considered part of the land preparation costs, thus it is added to the cost of the land. This is because the demolition is necessary to make the land suitable for its intended use, which in this case is the construction of a new building.

Question 18

A lump-sum purchase of multiple, long-term plant assets requires the company to:

Accepted Answer

When a company makes a lump-sum purchase of multiple long-term plant assets, the total cost should be divided among the various assets according to their relative fair market values. This method ensures that each asset is recorded at a cost that reflects its proportionate value of the total purchase price.

Question 19

The cost of land includes the cost of fencing the property and paving the parking lot on the land.

Accepted Answer

The answer of The cost of land includes the cost...

Question 20

The cost of a new building includes the cost to demolish and remove an old building on the same site as the new building.

Accepted Answer

The answer of The cost of a new building includes...

Quiz 7: Plant Assets, Natural Resources, Intangibles