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

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

A) the nominal cost of taking title to it.
B) its market value.
C) one dollar (since the site cost nothing but should be included in the statement of financial position).
D) the value assigned to it by the company's directors.

Answer 1

its market value.

Question 2

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

A) are always expensed as incurred.
B) are recognized only if they represent a legal obligation.
C) are capitalized once they have become apparent.
D) include only costs related to the acquisition of the asset.

Answer 2

are recognized only if they represent a legal obligation.

Question 3

Examples of property, plant, and equipment include

A) land, equipment, vehicles.
B) equipment, apple trees, mineral resource property.
C) machinery, livestock, patents.
D) computers, cherry orchards, copyrights.

Answer 3

equipment, apple trees, mineral resource property.

Question 4

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

A) They can have a significant impact on a company's earnings.
B) This is allowed under both ASPE and IFRS.
C) This is not allowed under IFRS.
D) They must be disclosed in the notes to the financial statements.

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?

A) land, $ 250,000; warehouse, $ 150,000; office building, $ 300,000
B) land, $ 300,000; warehouse, $ 200,000; office building, $ 400,000
C) land, $ 273,214; warehouse, $ 163,929; office building, $ 327,857
D) land, $ 255,000; warehouse, $ 170,000; office building, $ 340,000

Question 6

When accounting for asset exchanges,

A) if a transaction lacks commercial substance, it is not recorded.
B) an asset cannot be recognized at more than its fair value.
C) if the fair values of either the asset given up or the asset received cannot be ascertained, then the Board of Directors may assign an arbitrary value.
D) when an exchange lacks commercial substance, either a gain or loss may be recognized.

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

A) market value of the plant asset.
B) original cost of the plant asset.
C) book value of the plant asset.
D) book value of the shares.

Question 8

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

A) actual cash to be paid in the future.
B) future amount of the future payments.
C) present value of the future payments.
D) future value of the current payments.

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

A) $ 31,000.
B) $ 27,000.
C) $ 19,000.
D) $ 12,000.

Question 10

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

A) total value of the shares issued.
B) total book value of the shares issued.
C) total liquidating value of the shares issued.
D) fair market value of the land.

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

A)a) Equipment.............................................32,000
Investment in Lesotho Corp Common Shares...................32,000
B)Equipment........................................................37,000
Investment in Lesotho Corp. Common Shares....................32,000
Gain on Disposal of Investment..........................................5,000
C)Equipment.................................................................37,000
Loss on Disposal of Investment................................3,000
Investment in Lesotho Corp. Common Shares...............................40,000
D)Equipment.........................................................40,000
Investment in Lesotho Corp. Common Shares...........................32,000
Gain on Disposal of Investment..................................................8,000

Question 12

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

A) PPE will be used over more than one accounting period.
B) PPE is held for use in the production of goods and services.
C) PPE can be tangible or intangible.
D) PPE is tangible.

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

A) memo entry only.
B) credit to Equipment for $ 250,000.
C) credit to Deferred Revenue for $ 250,000.
D) credit to Contribution Revenue for $ 250,000.

Question 14

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

A) equity account.
B) revenue account.
C) deferred revenue account.
D) asset account.

Question 15

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

A) It is certain that the item's associated future benefits will flow to the entity.
B) It is probable that the item's associated future benefits will flow to the entity.
C) The cost can be measured reliably.
D) It is probable that the item's associated future benefits will flow to the entity, and the cost can be measured reliably.

Question 16

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

A) Provincial Sales Tax Expense.
B) Machinery.
C) Accumulated Depreciation-Machinery.
D) Prepaid Provincial Sales Tax.

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

A) $ 29,135.
B) $ 31,535.
C) $ 28,595.
D) $ 28,552.

Question 18

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

A) the purchase price net of any trade discounts and rebates
B) delivery costs
C) costs of training employees to use the asset
D) 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

A) $ 9,000.
B) $ 11,000.
C) $ 14,000.
D) $ 15,000.

Question 20

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

A) They should be included in the cost of the asset.
B) They should be assigned to the cost of inventory production.
C) They should be written off as a loss for the period.
D) They should be recorded as a one-time special assessment in a separate asset account.

Question 21

Ghana Football Club had a player contract with Mowgli that is recorded in its books at $ 300,000 on July 1, 2020. Ivory Coast Football Club had a player contract with Eeyore that is recorded in its books at $ 375,000 on July 1, 2020. On this date, Ghana traded Mowgli to Ivory Coast for Eeyore and paid a cash difference of $ 37,500. The fair value of the Eeyore contract was $ 450,000 on the exchange date. After the exchange, the Eeyore contract should be recorded in Ghana's books at

A) $ 337,500.
B) $ 375,000.
C) $ 412,500.
D) $ 450,000.

Question 22

Bally Ho Inc. traded one of its used trailers (cost $ 15,000, accumulated depreciation $ 13,500) for another used trailer with a fair value of $ 2,400. Bally Ho also paid $ 300 to complete the transaction. Since the exchange will leave Bally Ho in the same economic position, this transaction lacks commercial substance. What is the gain or loss on the exchange?

A) $ 900 gain
B) $ 675 gain
C) $ 225 loss
D) $ 0 (no gain or loss)

Question 23

Soflo Inc. acquired a new delivery truck in exchange for an old delivery truck that it had acquired several years earlier for $ 50,000. On the date of the exchange, the old truck had a fair value of $ 20,000, and its net book value (carrying value) was $ 19,000. In addition, Soflo paid $ 65,000 cash for the new truck, which had a list price of $ 90,000. At what amount should Soflo record the new truck for financial accounting purposes?

A) $ 65,000
B) $ 84,200
C) $ 85,000
D) $ 90,000

Question 24

Dinga Corp. exchanged similar pieces of equipment with Elongo Corp. No cash was exchanged. Since this exchange will not significantly change the economic position of either company, this transaction lacks commercial substance. At this time, the net book value of Dinga's asset is $ 36,000, while the net book value of Elongo's asset on their books is $ 33,300. However, it has been reliably determined that the fair value of Dinga's asset is $ 36,900, while the fair value of Elongo's asset is $ 34,200. Given these facts, at what amount should Dinga record the asset it receives from Elongo?

A) $ 36,900
B) $ 36,000
C) $ 34,200
D) $ 33,300

Question 25

If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on

A) the significance of the cost allocated to the building in relation to the combined cost of the lot and building.
B) the length of time for which the building was held prior to its demolition.
C) management's plans for the property when the building was acquired.
D) the planned future use of the parking lot.

Question 26

Chiquita Corp. purchased a large area of land with the intention to transform it into a banana plantation. Before the new seedlings can be planted, the site, which is prone to flooding, must be drained. The cost of the draining should be

A) capitalized as part of the cost of the land.
B) expensed only after the first crop of bananas has been harvested.
C) expensed immediately.
D) reported as loss from discontinued operations.

Question 27

On August 1, 2020, Chapelle Corp. purchases a new machine. The company makes a $ 7,200 cash down payment, and agrees to pay four monthly instalments of $ 10,800 each, starting September 1, 2020, signing a non-interest-bearing note to this effect. The cash equivalent price of the machine is $ 43,200. As well, Chapelle pays installation costs of $ 1,200. The recorded cost of the machine should be

A) $ 8,400.
B) $ 44,400.
C) $ 50,400.
D) $ 51,600.

Question 28

On February 1, 2020, Sudan Corp. purchased a parcel of land for $ 300,000 as a factory site. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2020. Costs incurred during this period are listed below: Demolition of old building..............................................................$25,000
Architect's feer .................................................................................35,000
Legal fees for title invertigation and purchase contract.............. $\quad 5,000$
Construction costs............................................................................990,000
(5alvaged materials resulting from demolition were sold for $\$ 10,000$ .) Sudan should record the cost of the land and new building, respectively, at

A) $ 330,000 and $ 1,015,000.
B) $ 315,000 and $ 1,030,000.
C) $ 315,000 and $ 1,025,000.
D) $ 320,000 and $ 1,025,000.

Question 29

On January 2, 2020, Zimbabwe Corp. purchases a new machine. The company makes a $ 3,000 cash down payment, and agrees to pay eight semi-annual instalments of $ 2,000 each, starting July 1, 2020, signing a non-interest-bearing note to this effect. The cash equivalent price of the machine is not known, but the appropriate interest rate for this type of transaction is 8% p.a. Rounding to the nearest dollar (if necessary), Zimbabwe should record the cost of the machine at

A) $ 15,413.
B) $ 16,465.
C) $ 16,000.
D) $ 19,000.

Question 30

Use the following information for questions.
Morocco Corp. purchased land as a factory site for $ 250,000. They paid $ 10,000 to tear down two buildings on the land, and the salvage from these old buildings was sold for $ 1,350. Legal fees of $ 870 were paid for title investigation and making the purchase. Architect's fees were $ 10,300. Title insurance cost $ 600, and liability insurance during construction cost $ 650. Excavation costs were $ 2,610. A contractor was paid $ 600,000 to construct the new building. An assessment made by the city for pavement was $ 1,600. Interest costs during construction were $ 42,500.
The cost of the land should be recorded at

A) $ 260,120.
B) $ 261,720.
C) $ 262,470.
D) $ 264,070.

Question 31

On December 1, 2020, Guinea Corp. purchased a tract of land as a factory site for $ 500,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2020 were as follows: Cost to raze old building .......................................$25,000
Legel fees for purchese contrect and to record ownership.............................5,000
Property purchase tax........................................................................8,000
Proceeds from sole of solvaged materials.........................................4,000 On Guinea's December 31, 2020 balance sheet, what amount should be reported for the land?

A) $ 513,000
B) $ 521,000
C) $ 534,000
D) $ 538,000

Question 32

The costs of land improvements with limited lives, such as a parking lot, are

A) added to the land account.
B) recorded in a separate account.
C) depreciated over their useful lives.
D) recorded in a separate account and depreciated over their useful lives.

Question 33

Liberia Corporation exchanged 2,000 shares of its common shares for a parcel of land to be held as a future plant site. The book value of the shares is currently $ 90 per share, and their current market value is $ 110 per share. Liberia received $ 30,000 from the sale of scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at

A) $ 150,000.
B) $ 180,000.
C) $ 190,000.
D) $ 220,000.

Question 34

Ben's Delivery buys a van with a list price of $ 60,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days, which Ben's did. Non-refundable sales taxes are $ 800 and Ben's paid an extra $ 600 to have a GPS device installed. What amount should Ben's record as the cost of the van?

A) $ 51,380.
B) $ 49,980.
C) $ 51,290.
D) $ 50,780.

Question 35

On January 2, 2020, Holliwell Inc. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler....................................... $\$ 36,000$
Carrying amount of old boiler.......................................4,000
Fair value of old boiler.................................................2,400
Installation cost of new boiler......................................3,200

The old boiler was sold for $ 2,400. At what amount should Holliwell capitalize the cost of the new boiler?

A) $ 42,300
B) $ 43,200
C) $ 39,200
D) $ 40,000

Question 36

Use the following information for questions.
Morocco Corp. purchased land as a factory site for $ 250,000. They paid $ 10,000 to tear down two buildings on the land, and the salvage from these old buildings was sold for $ 1,350. Legal fees of $ 870 were paid for title investigation and making the purchase. Architect's fees were $ 10,300. Title insurance cost $ 600, and liability insurance during construction cost $ 650. Excavation costs were $ 2,610. A contractor was paid $ 600,000 to construct the new building. An assessment made by the city for pavement was $ 1,600. Interest costs during construction were $ 42,500.
The cost of the building should be recorded at

A) $ 656,060.
B) $ 655,800.
C) $ 653,710.
D) $ 653,450.

Question 37

On August 1, 2020, Burkina Corp. purchases a new machine. The company makes a $ 2,000 cash down payment, and agrees to pay four annual instalments of $ 3,000 each, starting August 1, 2021, signing a non-interest bearing-note to this effect. The cash equivalent price of the machine is $ 12,500. Due to an employee strike, Burkina could not install the machine immediately, and thus incurred $ 300 of storage costs. As well, Burkina pays installation costs of $ 400. The recorded cost of the machine should be

A) $ 14,000.
B) $ 13,200.
C) $ 12,900.
D) $ 12,500.

Question 38

Land is generally included in property, plant, and equipment EXCEPT when

A) it is not yet ready for use.
B) it is held for resale by land developers.
C) it includes a building that must be demolished.
D) special amounts are assessed for local improvements such as sewers.

Question 39

On January 2, 2020, Gabon Corp. purchases a new machine. The company makes a $ 2,000 cash down payment, and agrees to pay four annual instalments of $ 4,000 each, starting December 31, 2020, signing a non-interest-bearing note to this effect. The cash equivalent price of the machine is not known, but the appropriate interest rate for this type of transaction is 9% p.a. Rounding to the nearest dollar (if necessary), Gabon should record the cost of the machine at

A) $ 18,000.
B) $ 16,000.
C) $ 14,959.
D) $ 12,959.

Question 40

Under IFRS, biological assets should normally be measured at

A) cost.
B) cost less accumulated depreciation.
C) fair value.
D) fair value less costs to sell.

Question 41

Nigeria Ltd. acquires a new machine. It is comprised of two different components (A and B) that are expected to be overhauled at different times. The acquisition costs of the components are as follows:
$\begin{array}{llcc} \text { Comportent A: } &\$198,000 \\ \text {Component B: } &\$240,000\\\end{array}$

Component A is expected to have a useful life of 5 years and a residual value of $ 20,000 before the first major overhaul is required. Component B is expected to have a useful life of 7 years and a residual value of $ 15,000 before its first overhaul. Nigeria uses straight-line depreciation for all its equipment. What is the net book value of component A after 5 years?

A) $ 0
B) $ 19,000
C) $ 20,000
D) $ 55,600

Question 42

On September 10, 2020, Angola Printing incurred the following costs for one of its printing presses: Purchase of stapling attachment.............................................................$84,000
Installation of attachment........................................................................10,000
Replacement parts for renovation of presz......................................... $\quad 36,000$
Labour and overhead in connection with renovation of presc ............ $\quad 14,000$ Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized?

A) $ 0
B) $ 108,000
C) $ 130,000
D) $ 144,000

Question 43

Which of the following expenditures after acquisition would NOT be capitalized?

A) adding a new wing to a hospital
B) replacing the air conditioning system in an office building
C) major overhaul of a fleet of trucks
D) replacing all the tires on an 18-wheel semi-trailer

Question 44

Which of the following statements is correct?

A) IFRS allows the cost, revaluation, or fair value models; ASPE allows only the cost model.
B) ASPE allows the cost, revaluation, or fair value models; IFRS allows only the cost model.
C) Both IFRS and ASPE allow the cost, revaluation, or fair value models.
D) IFRS allows the cost, revaluation, or fair value models; ASPE allows only the cost and revaluation models.

Question 45

When using the revaluation model of accounting for PP&E assets (asset-adjustment or elimination method),

A) the related Accumulated Depreciation account is closed to OCI.
B) depreciation continues to be charged in the original pattern.
C) the difference between fair value and book value is always debited to Revaluation Surplus (OCI).
D) a new depreciation rate must be calculated.

Question 46

Which of the following statements is correct?

A) IFRS requires that any net revenues or expenses derived from an asset before it is ready for use be included in income; ASPE requires that such revenues and expenses be included in the asset's cost.
B) ASPE requires that any net revenues or expenses derived from an asset before it is ready for use be included in income; IFRS requires that such revenues and expenses be included in the asset's cost.
C) Both IFRS and ASPE require that any net revenues or expenses derived from an asset before it is ready for use be included in income.
D) Both IFRS and ASPE require that any net revenues or expenses derived from an asset before it is ready for use be included in the asset's cost.

Question 47

Assume the same facts as indicated above, except that, between December 31, 2020, and December 31, 2021, the property's fair value had decreased by $ 10,000. As a result, Tunisia's 2021 income statement will include a

A) $ 10,000 loss.
B) $ 8,000 loss.
C) $ 8,000 gain (other comprehensive income).
D) $ 2,000 loss.

Question 48

Nickel Corporation uses the fair value model of accounting for its investment property. The fair values of its property were: December 31, 2020, $ 180,000 and December 31, 2021, $ 195,000. At December 31, 2021, Nickel should

A) recognize a gain of $ 15,000 in income.
B) report a gain of $ 15,000 in other comprehensive income.
C) defer the gain until the property is sold.
D) do nothing (ignore it).

Question 49

Round Up Corporation uses the cost model to account for its property, plant, and equipment, which were acquired on January 1, 2020, for $ 200,000. Round Up uses straight-line depreciation and estimates the assets will have an eight-year life with no residual value. Assuming Round Up did not experience any impairment losses, the December 31, 2021, net book value of the assets is

A) $ 200,000.
B) $ 175,000.
C) $ 150,000.
D) $ 125,000.

Question 50

Which of the following statements is correct?

A) IFRS treats major overhauls that allow the continued use of an asset, as replacements; ASPE usually treats them as expenses.
B) ASPE treats major overhauls that allow the continued use of an asset, as replacements; IFRS usually treats them as expenses.
C) Both IFRS and ASPE treat major overhauls that allow the continued use of an asset, as replacements.
D) Both IFRS and ASPE treat major overhauls that allow the continued use of an asset, as expenses.

Question 51

Use the following information for questions.
Tunisia Inc. owns assets to which it applies the revaluation model (asset-adjustment method). The following additional information is available:
1. Accumulated Depreciation at December 31, 2021, (prior to any fair value adjustments) was $ 12,000.
2. Between December 31, 2020, and December 31, 2021, the property's fair value had increased by $ 30,000.
3. The December 31, 2021, balance in the revaluation surplus account (prior to any fair value adjustments) was $ 2,000.
The adjusted December 31, 2021, in the revaluation surplus account will be

A) $ 0.
B) $ 28,000.
C) $ 30,000.
D) $ 32,000.

Question 52

The revaluation model of accounting for PP&E assets

A) uses a revaluation surplus account to hold net increases in the asset's fair value.
B) may be applied to all classes of PP&E including investment property.
C) may be applied to investment property under ASPE.
D) is not allowed under IFRS.

Question 53

Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be

A) classified as other income.
B) deducted from the cost of the land.
C) netted against the costs to clear the land and expensed as incurred.
D) netted against the costs to clear the land and amortized over the life of the plant.

Question 54

The fair value model of accounting for PP&E assets

A) recognizes changes in the asset's fair value in other comprehensive income.
B) should be applied to investment property only.
C) once chosen for one investment property does not have to be applied to all investment property.
D) is acceptable under both IFRS and ASPE.

Question 55

When can the balance in the Revaluation Surplus (OCI) account be transferred to retained earnings?

A) at the end of every year, or when the asset is sold
B) whenever a revaluation is performed
C) only when the revalued asset is sold
D) never

Question 56

The cost model of accounting for PP&E assets

A) should be applied to investment property only.
B) should be applied to other PP&E assets only.
C) can be applied to all classes of PP&E including investment property.
D) is not appropriate under ASPE.

Question 57

A major overhaul made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be

A) expensed.
B) debited to accumulated depreciation.
C) capitalized.
D) allocated between accumulated depreciation and the machine account.

Question 58

An expenditure that maintains an existing asset so that it can function in the manner intended should be

A) fully expensed in the period in which it is made.
B) partially expensed in the period in which it is made.
C) fully capitalized in the period in which it is made.
D) partially capitalized in the period in which it is made.

Question 59

Kenya Ltd. acquires a new machine. It is comprised of two different components (A and B) that are expected to be overhauled at different times. The acquisition costs of the components are as follows:
$\begin{array}{llcc} \text { Comportent A: } &\$198,000 \\ \text {Component B: } &\$240,000\\\end{array}$


Component A is expected to have a useful life of 5 years and a residual value of $ 20,000 before the first major overhaul is required. Component B is expected to have a useful life of 7 years and a residual value of $ 15,000 before its first overhaul. Kenya uses straight-line depreciation for all its equipment. At the beginning of year 6, component A undergoes a major overhaul at a cost of 100,000. The work is expected to extend its life by 3 years, but the residual value will then be zero. What is the net book value of component A one year after the overhaul?

A) $ 120,000
B) $ 80,000
C) $ 66,667
D) $ 40,000

Question 60

Use the following information for questions.
Tunisia Inc. owns assets to which it applies the revaluation model (asset-adjustment method). The following additional information is available:
1. Accumulated Depreciation at December 31, 2021, (prior to any fair value adjustments) was $ 12,000.
2. Between December 31, 2020, and December 31, 2021, the property's fair value had increased by $ 30,000.
3. The December 31, 2021, balance in the revaluation surplus account (prior to any fair value adjustments) was $ 2,000.
The adjusted December 31, 2021, balance in the related contra-asset account will be

A) $ 0.
B) $ 10,000.
C) $ 12,000.
D) $ 14,000.

Question 61

Non-monetary transaction without commercial substance
Malawi Auto traded one of its used trailers (cost $ 40,000, accumulated depreciation $ 36,000) for another used trailer with a fair value of $ 6,400. Malawi also paid $ 600 to complete the transaction.
Instructions
Assuming the transaction lacks commercial substance, prepare the journal entry to record the exchange.

Question 62

On May 1, 2020, Ethiopia Ltd. began construction of a new building for its own use. Expenditures of $ 75,000 were incurred monthly for five months beginning on May 1. The building was completed and ready for occupancy on September 1, 2020. For the purpose of determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures on the building during 2020 were

A) $ 62,500.
B) $ 75,000.
C) $ 187,500.
D) $ 375,000.

Question 63

Costs included in assets
Eritrea Ltd. is expanding its operations. Due to the expansion, they incurred the following costs during the fiscal period when they constructed a new factory:


Instructions
Which of these costs should be included in the cost of the new factory?

Question 64

Which of the following statements is correct?

A) ASPE considers investment, mining, and oil and gas properties to be part of property, plant, and equipment; IFRS has different standards for each of these.
B) IFRS considers investment, mining, and oil and gas properties to be part of property, plant, and equipment; ASPE has different standards for each of these.
C) Both ASPE and IFRS consider investment, mining, and oil and gas properties to be part of property, plant, and equipment.
D) Both ASPE and IFRS have different standards for investment, mining, and oil and gas properties; they do not consider them to be part of property, plant, and equipment.

Question 65

During calendar 2020, Somalia Corp. incurred weighted-average accumulated expenditures of $ 800,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2020 was a $ 900,000, 8%, five-year note payable dated January 1, 2018. The amount of interest that should be capitalized during calendar 2020 is

A) $ 0.
B) $ 32,000.
C) $ 64,000.
D) $ 72,000.

Question 66

Use the following information to solve the following questions:
On March 1, 2020, Mauritania Ltd. purchased land for $ 270,000 cash, which they intend to use for their new head office. Construction on the office building began on March 1. The following expenditures were incurred for construction:
$$\begin{array} { l l } \text { Date } & \text { Expenditures } \\\text { March } 1,2020 &\$450,000\\\text { April } 1,2020 & \mathbf { 2 5 2 , 0 0 0 } \\\text { May } 1,2020 & 450,000 \\\text { June } 1,2020 & 720,000\end{array}$$ The office building was completed and ready for occupancy on July 1. To help pay for construction, Mauritania borrowed $ 360,000 on March 1, 2020, on a 9%, three-year note payable. Other than this note, the only other debt outstanding during 2020 was a $ 150,000, 10%, six-year note payable dated January 1, 2019.

-The actual interest cost incurred during 2020 was

A) $ 27,000.
B) $ 39,500.
C) $ 42,000.
D) $ 47,400.

Question 67

Use the following information to solve the following questions:
On March 1, 2020, Mauritania Ltd. purchased land for $ 270,000 cash, which they intend to use for their new head office. Construction on the office building began on March 1. The following expenditures were incurred for construction:
$$\begin{array} { l l } \text { Date } & \text { Expenditures } \\\text { March } 1,2020 &\$450,000\\\text { April } 1,2020 & \mathbf { 2 5 2 , 0 0 0 } \\\text { May } 1,2020 & 450,000 \\\text { June } 1,2020 & 720,000\end{array}$$ The office building was completed and ready for occupancy on July 1. To help pay for construction, Mauritania borrowed $ 360,000 on March 1, 2020, on a 9%, three-year note payable. Other than this note, the only other debt outstanding during 2020 was a $ 150,000, 10%, six-year note payable dated January 1, 2019.

-The weighted-average accumulated expenditures on the construction project during 2020 were

A) $ 1,467,000.
B) $ 348,000.
C) $ 258,000.
D) $ 156,000.

Question 68

Acquisition Cost
Rwanda Corporation purchased land at a cost of $ 100,000. Closing costs were $ 3,800, plus Rwanda paid $ 48,000 for site preparation so they could construct a building on the site.
Instructions
Calculate the amount that should be recorded as the cost of the land.

Question 69

Explain the concept of componentization as it applies to the recognition of PP&E assets.

Question 70

Borrowing costs that are capitalized should

A) be written off over the remaining term of the debt.
B) be accumulated in a separate deferred charge account and written off straight-line over a 40-year period.
C) not be written off until the related asset is fully depreciated or disposed of.
D) be amortized over the related asset's useful life.

Question 71

Use the following information for questions.
Egypt Corp. owns equipment that originally cost $ 100,000. At December 31, 2020, the equipment's book value (after 2020 depreciation was booked) is $ 60,000. It is determined that the fair value of the equipment at this date is $ 90,000. Although Egypt's policy is to apply the revaluation model using the proportionate method, this is the first time the company has done it.
The adjusting entry to record the revaluation will include a

A) debit to Accumulated Depreciation of $ 20,000.
B) credit to Equipment of $ 10,000.
C) credit to Revaluation Surplus (OCI) of $ 30,000.
D) debit to Revaluation Surplus (OCI) of $ 10,000.

Question 72

Asset exchange
Arabia Inc. traded its fleet of rental cars for a new fleet. Two-thirds of the old fleet's original cost of $ 375,000 had been depreciated. The new fleet is valued at $ 500,000 and Arabia was required to make a cash payment of $ 400,000.
Instructions
Prepare the required entr(ies) to record the exchange.

Question 73

When using the revaluation model of accounting for PP&E assets (proportionate method),

A) a Revaluation Surplus account is not used.
B) depreciation continues to be charged in the original pattern.
C) the asset account and its related contra-asset are both adjusted.
D) over the life of the asset, it is possible that there can be a net increase in net income from revaluations.

Question 74

Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is

A) 8 ÷ 8.
B) 8 ÷ 12.
C) 9 ÷ 12.
D) 11 ÷ 12.

Question 75

Asset exchange with commercial substance
In 2021, Malawi Inc. exchanged equipment for two delivery trucks. The equipment had been purchased for $ 95,000 ten years ago and has since been fully depreciated. While the equipment was recently appraised at $ 22,000, a reliable valuation for the trucks was not available. This transaction has commercial substance.
Instructions
Prepare the journal entry to record the exchange.

Question 76

Use the following information for questions.
Egypt Corp. owns equipment that originally cost $ 100,000. At December 31, 2020, the equipment's book value (after 2020 depreciation was booked) is $ 60,000. It is determined that the fair value of the equipment at this date is $ 90,000. Although Egypt's policy is to apply the revaluation model using the proportionate method, this is the first time the company has done it.
By how much must the accumulated depreciation account be increased (decreased) at December 31, 2020?

A) $ 20,000
B) $ 40,000
C) $ 60,000
D) $ (60,000)

Question 77

Borrowing costs incurred for the acquisition of assets may be capitalized if certain conditions are met. Which of the following issues is irrelevant in making that determination?

A) the capitalization period
B) the avoidable borrowing costs
C) whether the asset is a "qualifying asset"
D) the depreciation period

Question 78

On March 1, Senegal Inc. began construction of a small building for its own use. Payments of $ 150,000 were made monthly for three months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are

A) $ 0.
B) $ 75,000.
C) $ 150,000.
D) $ 450,000.

Question 79

Non-interest-bearing note
Togo Auto purchased several trucks by issuing a $ 40,000, 4-year, non-interest-bearing note to Rabat Motors. The market interest rate for this type of transaction is 8%.
Instructions
Prepare the journal entry to record the purchase of these trucks.

Question 80

A company is constructing an asset for its own use. Construction began in 2020. The asset is being financed entirely with a specific new borrowing. Construction expenditures were made in 2020 and 2021 at the end of each quarter. The total amount of interest cost capitalized in 2021 should be determined by applying the interest rate on the specific new borrowing to the

A) total accumulated expenditures for the asset in 2020 and 2021.
B) weighted-average accumulated expenditures for the asset in 2020 and 2021.
C) weighted-average expenditures for the asset in 2021.
D) total expenditures for the asset in 2021.