Question 1

A plant site donated by a city to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at

Accepted Answer

The plant site should be recorded on the manufacturer's books at its market value, which reflects the fair value of the site. This is in accordance with the generally accepted accounting principles (GAAP) and ensures that the manufacturer's financial statements accurately reflect the value of their assets.

Question 2

Under ASPE, the costs for environmental clean-up at the end of an asset's useful life

Accepted Answer

Under ASPE, costs for environmental clean-up at the end of an asset's useful life are recognized only if they represent a legal obligation. This means that if there is a legal requirement to clean up any environmental damage caused by an asset, the costs associated with that clean-up would need to be recognized as a liability on the balance sheet.

Question 3

Examples of property, plant, and equipment include

Accepted Answer

B

Question 4

Which of the following does NOT apply to the capitalization of borrowing costs for the purchase of assets?

Accepted Answer

Capitalization of borrowing costs for the purchase of assets is allowed under both ASPE and IFRS. They can have a significant impact on a company's earnings, and must be disclosed in the notes to the financial statements. Therefore, C – "This is not allowed under IFRS" is the only choice that does not apply.

Question 5

Chad Corporation purchased a tract of land for $ 765,000, which included a warehouse and office building. The following data were collected concerning the property: $\begin{array}{lccc} 
& \underline{\text { Current Assessed Valuation } }& \underline{\text { Vendor's Original Cost} } \
 \text { Land } & \$ 300,000 & \$ 250,000 \
\text { Warehouse } & 200,000 & 150,000 \
\text { Office building } & \underline{400,000} & \underline{300,000}\
&\underline{ \$900,000}&\underline{\$700,000}
\end{array}$
 What are the appropriate amounts that Chad should record for the land, warehouse, and office building, respectively?

Accepted Answer

The answer of Chad Corporation purchased a tract of land...

Question 6

When accounting for asset exchanges,

Accepted Answer

An asset cannot be recognized at more than its fair value, ensuring that the recorded value reflects the true economic value of the asset.

Question 7

When a plant asset is acquired by the issuance of a public company's common shares, the cost of the plant asset is properly measured by the

Accepted Answer

When a plant asset is acquired by the issuance of a public company's common shares, the cost of the plant asset is properly measured by the market value of the plant asset. The market value of the asset gives a fair value assessment of the asset and its worth, and therefore, it is the appropriate measure of its cost.

Question 8

Property, plant, and equipment purchased on long-term credit contracts should be accounted for at the

Accepted Answer

Property, plant, and equipment purchased on long-term credit contracts should be accounted for at the present value of the future payments, which takes into account the time value of money and the interest rate on the credit contract. This allows for more accurate financial reporting and reflects the true cost of the assets over time.

Question 9

Spock Inc. exchanged merchandise that cost $ 19,000 and normally sold for $ 27,000 for a new delivery truck with a list price of $ 31,000. The delivery truck should be recorded on Spock's books at

Accepted Answer

The delivery truck should be recorded at its fair value, which is the list price of $31,000.

Question 10

When a closely held corporation issues preferred shares for land, the land should be recorded at the

Accepted Answer

The land should be recorded at the fair market value because preferred shares are not considered as a reliable indicator of the land's worth. The fair market value reflects the amount that a willing buyer would pay a willing seller in an arm's length transaction.

Question 11

Frosty Ltd. exchanged 400 common shares of Grants Corp., which Frosty was holding as an investment, for new equipment from Milliken Sales. The Grants Corp. common shares, which had been purchased by Frosty for $ 80 per share, had a quoted market value of $ 100 per share at the date of exchange. The equipment had a recorded amount on Milliken's books of $ 37,000, but the fair value was not available. The journal entry that Frosty should make to record this exchange is

Accepted Answer

The correct journal entry to record the exchange involves recognizing the equipment at the fair value of the shares given up ($100 per share times 400 shares = $40,000). The investment in Grants Corp. common shares (not Lesotho Corp as mentioned in the options) had a cost of $32,000 ($80 per share times 400 shares), resulting in a gain of $8,000 ($40,000 - $32,000).

Question 12

Which of the following is NOT included in the IAS16 definition of property, plant, and equipment (PPE)?

Accepted Answer

The IAS16 definition only includes tangible assets, so option C, which mentions intangible assets, is not included. Options A, B, and D are all correct and are included in the definition of PPE.

Question 13

Mozambique Ltd. received a $ 250,000 grant from the federal government to help buy equipment as an incentive for them to establish manufacturing operations in Ottawa. Assuming that Mozambique uses the cost reduction method for such transactions, they should record this transaction as a

Accepted Answer

Under the cost reduction method, a grant related to assets, like the one received by Mozambique Ltd., is recorded by reducing the cost of the asset. Therefore, the grant is credited directly to the Equipment account, reducing the asset's net book value.

Question 14

When an enterprise is the recipient of a donated asset, the account credited would probably be a(n)

Accepted Answer

When an enterprise receives a donated asset, it typically recognizes it as revenue, as it represents an increase in resources without a corresponding outflow.

Question 15

Which of the following statements applies to the recognition of property, plant, and equipment acquisitions?

Accepted Answer

According to IAS 16 (International Accounting Standard) on Property, Plant, and Equipment, recognition criteria for property, plant, and equipment acquisitions include both probability of future benefits flowing to the entity and reliable measurement of the cost. Therefore, option D is the correct answer. Option A is incorrect because recognition is based on probability, not certainty. Option B is also incorrect because probability alone is not sufficient for recognition. Option C is also incomplete, as reliable measurement is necessary but not sufficient for recognition.

Question 16

The debit for non-refundable provincial sales tax correctly calculated and paid on the purchase of machinery should be included in

Accepted Answer

The correct treatment for non-refundable provincial sales tax paid on the purchase of machinery is to include it in the cost of the machinery itself. This is because it is a cost directly attributable to acquiring the machinery and bringing it to its intended use.

Question 17

Upshaw Ltd. bought a lift truck with a list price of $ 30,000. The dealer granted a 10% reduction in the list price, and an additional 2% cash discount on the net price when payment was made in 30 days. Provincial sales tax was $ 1,785 and Upshaw paid an extra $ 350 to have a special horn installed. The recorded cost of the truck should be

Accepted Answer

List price = $30,000 
10% discount on list price = 0.10 x $30,000 = $3,000 
Net price = $30,000 - $3,000 = $27,000 
2% cash discount on net price = 0.02 x $27,000 = $540 
Net price after cash discount = $27,000 - $540 = $26,460 
Add-ons: 
Provincial sales tax = $1,785 
Special horn = $350 
Total recorded cost = $26,460 + $1,785 + $350 = $28,595

Question 18

Which of the following would NOT be included in the cost of an item of property, plant, and equipment?

Accepted Answer

The costs of training employees to use the asset would not be included in the cost of an item of property, plant, and equipment. These costs would be classified as operating expenses. The cost of an item of property, plant, and equipment would include the purchase price net of any trade discounts and rebates, delivery costs, and costs of obligations associated with the asset's eventual disposal.

Question 19

On January 2, 2020, Neeson Delivery Company traded in an old delivery truck for a newer model. Data relative to the old and new trucks follow: Old Truck
Original cost.....................................................................$9,000
Accumulated depreciation at January 2,2020...................6,000
Fairvalue ...........................................................................3,000
 New Truck
List price..........................................................$\$ 15,000$
Cash price without trade-in..............................14,000
Cash paid with trade-in.....................................11,000 The cost of the new truck for financial accounting purposes is

Accepted Answer

The cost of the new truck is the cash price without trade-in, which is $14,000.

Question 20

How should variable overhead costs incurred to self-construct an asset be recorded?

Accepted Answer

Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset. This is in accordance with the capitalization principle under Generally Accepted Accounting Principles (GAAP), which requires all costs incurred to produce an asset, including overhead costs, to be capitalized as part of the asset's cost.

Quiz 10: Property, Plant, and Equipment: Accounting Model Basics