Question 1

Interest may be included in the acquisition cost of a plant asset

Accepted Answer

Interest can be included in the acquisition cost of a plant asset during the construction period of a self-constructed asset. This is because the interest cost is considered part of the cost of constructing the asset, making it ready for its intended use.

Question 2

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)

Accepted Answer

Depreciation is the allocation of the cost of a plant asset over its useful life in a systematic and rational manner. This means that the cost is spread out evenly over the asset's useful life, rather than being expensed all at once. Choice A is not entirely accurate, as depreciation may not be equal in every year due to different depreciation methods. Choice B is incorrect, as accelerating depreciation would not necessarily be accurate or correct. Choice D is not relevant to the concept of depreciation.

Question 3

National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Accepted Answer

Interest incurred during the construction period can be capitalized as part of the cost of the building. Both excavation fees and architect fees can also be capitalized as part of the cost of the building. Building permit fees, on the other hand, are typically expensed as incurred rather than capitalized. The capitalized cost is not equal to the contract price minus interest on borrowed funds, as this does not take into account the other costs that should be capitalized.

Question 4

The term applied to the periodic expiration of a plant asset's cost is

Accepted Answer

Depreciation is the term used to describe the periodic expiration of a plant asset's cost. Amortization is typically used for intangible assets and depletion for natural resources. "Cost expiration" is not a commonly used accounting term.

Question 5

Schrock Company purchases a new delivery van for $70,000. The sales taxes are $5,250. The logo of the company is painted on the side of the van for $1,400. The van's annual license is $140. The van undergoes safety testing for $250. What does Schrock record as the cost of the new van?

Accepted Answer

The cost of the new van is the sum of its purchase price, sales taxes, and any additional costs directly related to acquiring and preparing the van for use. Therefore, the cost of the new van is:
$70,000 + $5,250 + $1,400 + $140 + $250 = $76,900. 
Therefore, the best choice is B.

Question 6

Rains Company purchased equipment on January 1 at a list price of $125,000, with credit terms 2/10, n/30. Payment was made within the discount period. Rains paid $6,250 sales tax on the equipment, and paid installation charges of $2,200. Prior to installation, Rains paid $5,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?

Accepted Answer

List price of equipment = $125,000
Discount received (2%) = $2,500
Net amount payable for equipment = $122,500

Sales tax paid = $6,250
Installation charges = $2,200
Amount paid for concrete slab = $5,000

Total cost of new equipment = Net amount payable for equipment + Sales tax paid + Installation charges + Amount paid for concrete slab
= $122,500 + $6,250 + $2,200 + $5,000
= $135,950

Therefore, the best choice is B.

Question 7

Land improvements should be depreciated over the useful life of the

Accepted Answer

Land improvements, which include items such as driveways, fences, and landscaping, have a limited useful life and will eventually need to be replaced or repaired. Therefore, it is appropriate to depreciate them over their useful life, which can be determined based on industry standards and the specific characteristics of the improvement. Depreciating land or buildings would not be appropriate because they typically do not have a limited useful life and do not depreciate in value over time. Choosing "land or land improvements, whichever is longer" would also not be appropriate because land itself does not depreciate, and it would not make sense to assume that an improvement with a shorter useful life would be depreciated over the longer useful life of the land.

Question 8

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

Accepted Answer

When recording periodic depreciation expense on plant assets, cash needed to replace the asset is not a consideration. The factors that are considered are the cost of the asset, its estimated useful life, and its salvage value.

Question 9

Wesley Hospital installs a new parking lot. The paving cost $60,000 and the lights to illuminate the new parking area cost $24,000. Which of the following statements is true with respect to these additions?

Accepted Answer

The paving cost of $60,000 should be capitalized as Land Improvements because it is a cost incurred to improve the land. Similarly, the cost of lights at $24,000 is also a cost incurred to improve the land and should be capitalized as Land Improvements. Thus, the total cost of $84,000 should be debited to the Land Improvements account.

Question 10

Rodgers Company purchased equipment and these costs were incurred: $\begin{array}{lr}
\text { Cash price } & \$ 55,000 \
\text { Sales taxes } & 3,600 \
\text { Insurance during transit } & 640 \
\text { Installation and testing } & 860 \
\text { Total costs } & \$ 60,100
\end{array}$ Rodgers will record the acquisition cost of the equipment as

Accepted Answer

The answer of Rodgers Company purchased equipment and these costs...

Question 11

Kathy's Blooms purchased a delivery van with a $60,000 list price. The company was given a $6,000 cash discount by the dealer, and paid $3,000 sales tax. Annual insurance on the van is $1,500. As a result of the purchase, by how much will Kathy's Blooms increase its van account?

Accepted Answer

The answer of Kathy's Blooms purchased a delivery van with...

Question 12

Which of the following is included in the cost of constructing a building?

Accepted Answer

The cost of interest incurred during construction is considered part of the cost of constructing the building.

D is incorrect because the cost of removing the demolished building would be considered a cost of acquiring the land, rather than constructing the building.

A and B are incorrect because they are not directly related to the construction of the building itself. Paving a parking lot would be considered a site improvement, and repairing vandalism damage would be a post-construction expense.

Question 13

Ramirez Company acquires land for $240,000 cash. Additional costs are as follow. $$\begin{array} { l r } 
\text { Removal of shed } & \$ 2,000 \
\text { Filling and grading } & 6,000 \
\text { Salvage value of lumber of shed } & 1,280 \
\text { Broker commission } & 4,520 \
\text { Paving of parking lot } & 40,000 \
\text { Closing costs } & 3,400
\end{array}$$ Ramirez will record the acquisition cost of the land as

Accepted Answer

The acquisition cost of the land includes the purchase price and all costs necessary to make it ready for its intended use. This includes the removal of the shed ($2,000), filling and grading ($6,000), broker commission ($4,520), and closing costs ($3,400). The salvage value of the shed ($1,280) is subtracted. The paving of the parking lot is not included as it is a land improvement. Therefore, the total cost is $240,000 + $2,000 + $6,000 + $4,520 + $3,400 - $1,280 = $254,640.

Question 14

Ryan, Inc. purchased a delivery truck with a $48,000 list price. The company was given a $4,800 cash discount by the dealer, and paid $2,400 sales tax. Annual insurance on the truck is $1,200. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?

Accepted Answer

The answer of Ryan, Inc. purchased a delivery truck with...

Question 15

Carpino Company purchased equipment and these costs were incurred: $\begin{array}{lr}
\text { Cash price } & \$ 75,000 \
\text { Sales taxes } & 3,500 \
\text { Insurance during transit } & 750 \
\text { Installation and testing } & 1,500 \
\text { Total costs } & \$ 80,750
\end{array}$ What amount should be recorded as the cost of the equipment?

Accepted Answer

The cost of equipment includes all expenditures necessary to acquire the asset and prepare it for use. This includes the cash price, sales taxes, insurance during transit, and installation and testing. Therefore, the total cost is $80,750.

Question 16

All leases are classified as either

Accepted Answer

Leases are classified as either capital leases or operating leases. Capital leases are treated as assets and liabilities on the balance sheet, while operating leases are treated as operating expenses.

Question 17

A company purchases a remote building site for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

Accepted Answer

The answer of A company purchases a remote building site...

Question 18

Runge Company purchased machinery on January 1 at a list price of $300,000, with credit terms 2/10, n/30. Payment was made within the discount period. Runge paid $15,000 sales tax on the machinery, and paid installation charges of $5,300. Prior to installation, Runge paid $12,000 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery?

Accepted Answer

The answer of Runge Company purchased machinery on January 1...

Question 19

The balance in the Accumulated Depreciation account represents the

Accepted Answer

The balance in the Accumulated Depreciation account represents the amount charged to expense since the acquisition of the plant asset.

Question 20

Arnold Company purchases a new delivery truck for $45,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?

Accepted Answer

The answer of Arnold Company purchases a new delivery truck...

Quiz 8: Reporting and Analyzing Long-Lived Assets