Question 1

Which of the following costs incurred subsequent to the acquisition of a machine would be appropriately accounted for by debiting the accumulated depreciation account related to the machine?

Accepted Answer

The cost of replacing a component of a machine (like a motor) when the original cost is not known is accounted for by debiting the accumulated depreciation account. This approach removes the depreciated cost of the old component and recognizes the expenditure on the new component, effectively updating the asset's book value.

Question 2

Maxa Marina exchanged a boat with a cost of $80,000 (now 75% depreciated) for another boat with a current fair value of $27,000. No boot was paid or received. The new boat will perform the same function as the old boat, but is expected but cash flows are expected to last for 5 years longer than with the old boat. Maxa should record the new boat at

Accepted Answer

Maxa should record the new boat at its current fair value of $27,000 since no boot was paid or received. The fact that the new boat is expected to generate cash flows for 5 years longer than the old boat does not impact the initial recording of the asset.

Question 3

On May 15, 2015, January Company acquired a new forklift in exchange for an old forklift that it had acquired in 2005. The old forklift was purchased for $20,000 and had a book value of $5,000. On the date of the exchange, the old forklift had a market value of $6,000. In addition, Retread paid $18,000 cash for the new forklift, which had a list price of $25,000. it is expected that future cash flows will not change. At what amount should Retread record the new forklift for financial accounting purposes?

Accepted Answer

The new forklift should be recorded at its fair value, which is the market value of the old forklift plus the cash paid for the new forklift. The market value of the old forklift is $6,000, and the cash paid for the new forklift is $18,000. Therefore, the fair value of the new forklift is $24,000.

Question 4

When exchanging nonmonetary assets

Accepted Answer

The answer of When exchanging nonmonetary assets
...

Question 5

Exhibit 10-1 Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:  The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to Dakota.
-Refer to Exhibit 10-1. For financial reporting purposes, Carolina should recognize a gain on this exchange in the amount of

Accepted Answer

The answer of Exhibit 10-1 Two construction companies, Dakota and...

Question 6

Mary Co. exchanged a piece of equipment that had cost $40,000 (now 75% depreciated) for a truck with a current appraised value of $18,000. Mary Co. gave the other company the piece of equipment and $10,000. Mary Co. should record

Accepted Answer

The answer of Mary Co. exchanged a piece of equipment...

Question 7

Camp, Inc. exchanged a truck that cost $30,000 (now 50% depreciated) for equipment with an appraised value of $25,000. Camp paid boot of $6,000. Camp should record the equipment at

Accepted Answer

The answer of Camp, Inc. exchanged a truck that cost...

Question 8

Coco Services exchanged an asset with a cost of $24,000 (now 40% depreciated) for a nonmonetary asset worth $12,000. Coco received $2,000 boot. In the entry to record this exchange, Coco should record

Accepted Answer

The answer of Coco Services exchanged an asset with a...

Question 9

Richards, Inc. exchanged a piece of equipment with an original cost of $82,000, accumulated depreciation to date of $40,000, and a fair value of $46,000 for a similar piece of equipment. Cash flows are not expected to change significantly. The newly acquired equipment had a book value of $40,000 and a fair market value of $46,000. Richard should record the equipment acquired at

Accepted Answer

Richards, Inc. exchanged a piece of equipment with a book value of $42,000 ($82,000 cost - $40,000 accumulated depreciation) for a similar piece of equipment with a fair market value of $46,000. Since the cash flows are not expected to change significantly, the exchange is considered to have commercial substance. Therefore, Richards should record the newly acquired equipment at its fair market value of $46,000.

Question 10

Exhibit 10-1 Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:  The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to Dakota.
-Refer to Exhibit 10-1. After the exchange, Dakota should record its newly acquired land on its books at

Accepted Answer

The answer of Exhibit 10-1 Two construction companies, Dakota and...

Question 11

Romney Company exchanged one business automobile for another business automobile. The old automobile had an original cost of $40,000, an undepreciated cost of $16,000, and a market value of $24,000 when exchanged. In addition, Romney paid $9,000 cash for the replacement automobile. The list price of the replacement automobile was $45,000. The replacement will help generate significantly greater cash flows in the business. At what amount should the replacement automobile be recorded for financial accounting purposes?

Accepted Answer

The replacement automobile should be recorded at the fair value of the old automobile plus any cash paid. The fair value of the old automobile is $24,000, and the cash paid is $9,000, totaling $33,000.

Question 12

Property acquired through donation is recorded at

Accepted Answer

Property acquired through donation is recorded at its fair market value at the date of the donation, as it represents the most reliable measure of the property's worth.

Question 13

On January 1, 2014, Randolf Company signed a contract to have Rory Associates construct a manufacturing facility at a cost of $14,000,000. It was estimated that it would take three years to complete the project. Also on January 1, 2014, to finance the construction cost, Randolf borrowed $14,000,000 payable in seven annual installments of $2,000,000 plus interest at the rate of 9%. During 2014, Randolf made progress payments totaling $5,000,000 under the contract, and the average amount of accumulated expenditures was $3,000,000 for the year. The excess borrowed funds were invested in short-term securities, from which Randolf realized investment income of $330,000. What amount should Randolf report as capitalized interest at December 31, 2014?

Accepted Answer

To determine capitalized interest, we need to first calculate the weighted-average accumulated expenditures. This is calculated by taking the total accumulated expenditures for the year ($3,000,000) and multiplying it by the time-weighted average of the borrowing rate (9%) for the year.

Weighted-average accumulated expenditures = $3,000,000 x 9% = $270,000

Since the actual interest cost incurred during the year ($2,000,000 x 9%) exceeded the weighted-average accumulated expenditures ($270,000), all of the $270,000 can be capitalized as interest.

Therefore, the answer is B) $270,000.

Question 14

Which one of the following statements is true?

Accepted Answer

Interest can be capitalized during the period of time when the asset is being constructed or prepared for its intended use. Once the asset is substantially complete and ready for use, no further interest can be capitalized.

Question 15

According to GAAP, interest cost incurred to finance construction of an asset must be capitalized in which of the following situations?

Accepted Answer

Interest cost incurred during the construction period of an asset that is intended for a firm's own use should be capitalized according to GAAP. This allows the firm to spread the cost of financing over the useful life of the asset, rather than expensing it immediately, which would not accurately reflect the economic use of the asset.

Question 16

Reba Company received $60,000 in cash and used equipment with a fair value of $140,000 from Fargo Corporation for Reba's existing equipment, which had a fair value of $200,000 and an undepreciated cost of $170,000 recorded on its books. The transaction was undertaken because Reba was revising its market strategy and planned to reduce the use of this type of equipment in its production. How much gain should Reba recognize on this exchange, and at what amount should the acquired equipment be recorded, respectively?

Accepted Answer

Under ASC 845-10-25-1, exchanges of nonmonetary assets with commercial substance are generally accounted for using the fair value of the assets exchanged. Since the equipment received has a fair value of $140,000 and the equipment given up has a fair value of $200,000, there is a gain of $60,000 ($200,000 - $140,000) that Reba should recognize.

The acquired equipment should be recorded at the fair value of $140,000. Therefore, the answer is D) $30,000 gain should Reba recognize on this exchange, and the acquired equipment should be recorded at $140,000.

Question 17

Exhibit 10-1 Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:  The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to Dakota.
-Refer to Exhibit 10-1. For financial reporting purposes, Dakota should recognize a gain on this exchange in the amount of

Accepted Answer

Dakota should recognize a gain of $100,000 if the fair value of the asset received is greater than the book value of the asset given up, and the transaction has commercial substance.

Question 18

Kelly Company exchanged inventory items that cost $47,000 and normally sold for $75,000 for a new delivery truck with a list price of $77,000. The delivery truck should be recorded on Kelly's books at

Accepted Answer

The delivery truck should be recorded at the fair value of the inventory given up, which is $75,000, as it represents the fair value of the consideration exchanged.

Question 19

On August 1, 2014, Robertson traded in an old plant asset for a newer model that would be more productive and efficient. Data relative to the old and new plant assets follow:  
A total of $10,500 cash was given in the trade. What should be the cost of the new plant asset for financial accounting purposes?

Accepted Answer

The answer of On August 1, 2014, Robertson traded in...

Question 20

All of the following are arguments in favor of including only the incremental fixed overhead costs in the cost of a self-constructed asset, except that the

Accepted Answer

The answer of All of the following are arguments in...

Quiz 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments