Question 1

The four subdivisions for property, plant, and equipment are normally
A) land, land improvements, buildings, and equipment.
B) intangibles, land, buildings, and equipment.
C) furnishings and fixtures, land, buildings, and equipment.
D) property, plant, equipment, and land.

Accepted Answer

Land, land improvements, buildings, and equipment are the four common subdivisions for property, plant, and equipment. This classification is based on the nature of the assets and their expected useful lives. These assets are also typically subject to depreciation as they are used in the production of goods and services. Option B and C are incorrect as they do not include all four of the commonly recognized subdivisions for property, plant, and equipment. Option D is incorrect as it includes "land" as a separate subdivision, even though it is already included in the first category of "land, land improvements."

Question 2

A company purchased property for $300,000. The property included an acre of land valued at $50,000, a building valued at $150,000, and equipment valued at $125,000. The land will be recorded at a cost of
A) $45,000.
B) $48,234.
C) $46,154.
D) $50,000.

Accepted Answer

The answer of A company purchased property for $300,000. The...

Question 3

Interest may be included in the acquisition cost of property, plant, and equipment
A) during the construction period of a self-constructed asset.
B) if the asset is purchased on credit.
C) if the asset acquisition is financed by a long-term note payable.
D) if it is a part of a lump-sum purchase.

Accepted Answer

The answer of Interest may be included in the acquisition...

Question 4

Merry Clinic purchases land for $80,000 cash. The clinic assumes $2,000 in property taxes due on the land. The legal fees totalled $1,000. The clinic has the land graded for $2,200. What amount does Merry Clinic record as the cost for the land?
A) $82,000
B) $80,000
C) $85,200
D) $84,200

Accepted Answer

The cost of the land includes the purchase price, plus any additional costs necessary to get it ready for use. This includes the $80,000 purchase price, $2,000 in property taxes, $1,000 in legal fees, and $2,200 for grading, totaling $85,200.

Question 5

An example of operating costs of a long-lived asset would NOT include the following:
A) insurance costs paid after the asset is being used in operations.
B) maintenance costs.
C) repair costs.
D) insurance costs paid before the asset is being used in operations.

Accepted Answer

Insurance costs paid before the asset is being used in operations are considered part of the initial cost of the asset and therefore would not be included in the operating costs. The other options (A, B, and C) are all typical operating costs that would be associated with a long-lived asset.

Question 6

Which one of the following items is NOT considered a part of the cost of a truck purchased for business use?
A) insurance during transit
B) truck licence
C) freight charges
D) cost of lettering on side of truck

Accepted Answer

The cost of a truck license is not considered part of the purchase cost of a truck for business use. It is an operational expense related to the use of the truck, whereas insurance during transit, freight charges, and the cost of lettering on the side of the truck are all considered part of the initial acquisition cost.

Question 7

All of the following are examples of property, plant, and equipment EXCEPT
A) equipment.
B) timber stand.
C) land.
D) building.

Accepted Answer

Timber stand is considered as natural resources and is not categorized under property, plant, and equipment (PPE). The rest of the options, including equipment, land, and building, are examples of PPE.

Question 8

A company purchased property for $300,000. The property included an acre of land valued at $50,000, a building valued at $150,000, and equipment valued at $125,000. The equipment will be recorded at a cost of
A) $125,000.
B) $120,000.
C) $118,723.
D) $115,384.

Accepted Answer

The total cost of the property is $300,000, and we know the value of the land ($50,000) and the building ($150,000), so we can subtract those to find the cost of the equipment: $300,000 - $50,000 - $150,000 = $100,000. However, the equipment is valued at $125,000, which means it will be recorded at a cost of $125,000 / $100,000 = 1.25 times the actual cost. Therefore, the cost of the equipment will be $100,000 * 1.25 = $125,000 * 0.8 = $115,384. The correct answer is D.

Question 9

The replacement of the bumper of a company's delivery truck would be classified as a(n)
A) non-monetary exchange.
B) addition.
C) renovation.
D) ordinary repair.

Accepted Answer

The replacement of the bumper of a delivery truck would be classified as an ordinary repair, as it is a routine maintenance expense that keeps the vehicle operational and does not significantly increase its value. It does not involve a major upgrade or renovation, and it does not involve a non-monetary exchange.

Question 10

The Fizzard Company purchases a new delivery truck for $45,000. The logo of the company is painted on the side of the truck for $600. The truck licence is $60. The truck undergoes safety testing for $110. What does Fizzard record as the cost of the new truck?
A) $45,770
B) $45,060
C) $45,000
D) $45,710

Accepted Answer

The answer of The Fizzard Company purchases a new delivery...

Question 11

Which of the following is NOT true of ordinary repairs?
A) They primarily benefit the current accounting period.
B) They can be referred to as operating expenditures.
C) They maintain the expected productive life of the asset.
D) They increase the productive capacity of the asset.

Accepted Answer

Ordinary repairs are expenses incurred to keep an asset in good working condition and maintain its expected productive life. They are part of the ongoing operating expenditure of a business and primarily benefit the current accounting period. However, ordinary repairs do not increase the productive capacity of the asset; rather, they simply ensure that the asset continues to function as intended.

Question 12

General Paint Company 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?
A) Excavation fees are capitalized but building permit fees are not.
B) Architect fees are capitalized but building permit fees are not.
C) Interest during the construction is capitalized as part of the cost of the building.
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Accepted Answer

The interest during the construction period is capitalized as part of the cost of the building, as it is a necessary cost incurred in order to complete the construction. Excavation fees and architect fees may also be capitalized if they are directly related to the construction of the plant. Building permit fees, however, are generally expensed as they are not directly related to the construction of the plant. Finally, the capitalized cost of the building is equal to the contract price to build the plant plus any capitalized interest on borrowed funds during the construction period.

Question 13

Newman Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $12,000. Which of the following statements is true with respect to these additions?
A) $30,000 should be debited to the Land account.
B) $12,000 should be debited to Land Improvements.
C) $42,000 should be debited to the Land account.
D) $42,000 should be debited to Land Improvements.

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), land improvements are additions to land that have a limited life and are subject to depreciation. Therefore, the cost of paving and installation of lights should be recorded as land improvements and should be debited to the Land Improvements account. The total cost of both additions is $42,000, which should be debited to Land Improvements.

Question 14

A company purchased property for $300,000. The property included an acre of land valued at $50,000, a building valued at $150,000, and equipment valued at $125,000. The building will be recorded at a cost of
A) $150,000.
B) $140,000.
C) $135,000.
D) $138,461.

Accepted Answer

The building will be recorded at its fair value, which is $150,000. However, since the property includes land and equipment, we need to allocate the total cost among each asset based on its relative fair value.

Total fair value: $50,000 (land) + $150,000 (building) + $125,000 (equipment) = $325,000

Allocation: 
Land - $50,000 / $325,000 = 0.1538 
Building - $150,000 / $325,000 = 0.4615 
Equipment - $125,000 / $325,000 = 0.3846

Applied to total cost: 
Building - $300,000 x 0.4615 = $138,461.54 
Therefore, the building will be recorded at a cost of $138,461.

Question 15

Which of the following assets does NOT decline in service potential over the course of its useful life?
A) equipment
B) furnishings
C) land
D) fixtures

Accepted Answer

Land is a non-depreciable asset, which means it does not decline in service potential over the course of its useful life. Equipment, furnishings, and fixtures are depreciable assets, which means they lose value over time and with use.

Question 16

A company purchased land for $70,000 cash. $7,000 was spent demolishing an old building on the land before construction of a new building could start. The cost of land would be recorded at
A) $77,000.
B) $70,000.
C) $63,000.
D) $7,000.

Accepted Answer

The answer of A company purchased land for $70,000 cash....

Question 17

The cost of land does NOT include
A) costs to clear the land.
B) annual property taxes.
C) accrued property taxes assumed by the purchaser.
D) legal fees.

Accepted Answer

Annual property taxes are considered an operating expense, not a capital expenditure. The cost of land includes initial acquisition costs and expenses to prepare the land for its intended use, but not the recurring taxes paid on an annual basis.

Question 18

A company purchases a remote site building 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 re-carpeted and there will also be some plumbing work done. Which of the following statements is true?
A) The cost of the building will not include the repainting and re-carpeting costs.
B) The cost of the building will include the cost of replacing the roof.
C) The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as building improvements.
D) The wiring is part of the computer costs, not the building cost.

Accepted Answer

The cost of the building includes the cost of replacing the roof because it is a necessary repair to make the building suitable for its intended use, and such costs are capitalized as part of the building cost.

Question 19

Additions and improvements
A) occur frequently during the ownership of a long-lived asset.
B) normally involve immaterial expenditures.
C) increase the carrying amount of long-lived assets when incurred.
D) typically only benefit the current accounting period.

Accepted Answer

The answer of Additions and improvements
A) occur frequently during the...

Question 20

Expenditures that maintain the operating efficiency and expected productive life of a long-lived asset are generally
A) expensed when incurred.
B) capitalized as a part of the cost of the asset.
C) debited to the accumulated depreciation account.
D) not recorded until they become material in amount.

Accepted Answer

Expenditures that maintain the operating efficiency and expected productive life of a long-lived asset are typically expensed when incurred because they are considered routine maintenance and repairs. These costs do not extend the asset's useful life beyond its original estimate nor improve its capacity, so they are treated as period costs and expensed in the period they are incurred to match the expense with the revenue it helps to generate.

Quiz 9: Long-Lived Assets

The four subdivisions for property, plant, and equipment are normally

A company purchased property for $300,000. The property included an acre of land valued at $50,000, a building valued at $150,000, and equipment valued at $125,000. The land will be recorded at a cost of

Interest may be included in the acquisition cost of property, plant, and equipment

Merry Clinic purchases land for $80,000 cash. The clinic assumes $2,000 in property taxes due on the land. The legal fees totalled $1,000. The clinic has the land graded for $2,200. What amount does Merry Clinic record as the cost for the land?

An example of operating costs of a long-lived asset would NOT include the following:

Which one of the following items is NOT considered a part of the cost of a truck purchased for business use?

All of the following are examples of property, plant, and equipment EXCEPT

A company purchased property for $300,000. The property included an acre of land valued at $50,000, a building valued at $150,000, and equipment valued at $125,000. The equipment will be recorded at a cost of

The replacement of the bumper of a company's delivery truck would be classified as a(n)

The Fizzard Company purchases a new delivery truck for $45,000. The logo of the company is painted on the side of the truck for $600. The truck licence is $60. The truck undergoes safety testing for $110. What does Fizzard record as the cost of the new truck?

Which of the following is NOT true of ordinary repairs?

Newman Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $12,000. Which of the following statements is true with respect to these additions?

A company purchased property for $300,000. The property included an acre of land valued at $50,000, a building valued at $150,000, and equipment valued at $125,000. The building will be recorded at a cost of

Which of the following assets does NOT decline in service potential over the course of its useful life?

A company purchased land for $70,000 cash. $7,000 was spent demolishing an old building on the land before construction of a new building could start. The cost of land would be recorded at

The cost of land does NOT include

Additions and improvements

Expenditures that maintain the operating efficiency and expected productive life of a long-lived asset are generally