Question 1

Schrock Company purchases a new delivery van for $60,000. The sales taxes are $4,500. The logo of the company is painted on the side of the van for $1,200. The van's annual license is $120. The van undergoes safety testing for $220. What does Schrock record as the cost of the new van?

Accepted Answer

The answer of Schrock Company purchases a new delivery van...

Question 2

All leases are classified as either

Accepted Answer

Leases are classified as either capital leases, which are treated similarly to asset purchases and recorded on the balance sheet, or operating leases, which are treated as rental expenses and recorded on the income statement. The other choices (A, C, D) do not accurately reflect the commonly recognized lease classifications.

Question 3

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

Accepted Answer

The cash needed to replace the plant asset is not a consideration when recording periodic depreciation expense on plant assets. Depreciation expense is calculated based on the cost of the asset, its estimated useful life, and its salvage value (if any). The cash needed to replace the asset would be a consideration when deciding whether to replace the asset and how to finance the replacement, but it is not relevant to the calculation of periodic depreciation expense.

Question 4

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 5

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

Accepted Answer

Depreciation is a process of allocating the cost of a plant asset over its useful life in a systematic and rational manner. This helps in matching the cost of the asset with the revenue generated by it during its useful life. Option A is not correct as depreciation methods vary and may not always be equal or equitable. Option B is incorrect as accelerated depreciation methods may not always be the most accurate reflection of the asset's useful life. Option D is incorrect as conservative financial reporting practices do not necessarily apply to the calculation of depreciation.

Question 6

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

Accepted Answer

The answer of Which of the following is included in...

Question 7

Rodgers Company purchased equipment and these costs were incurred:  Rodgers will record the acquisition cost of the equipment as

Accepted Answer

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

Question 8

Arnold Company purchases a new delivery truck for $40,000. 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 cost of the new truck is calculated by adding the purchase price ($40,000), sales taxes ($2,500), and the cost of painting the logo ($1,200), which comes to $43,700. Then, additional costs such as the annual license fee and safety testing are added to get the total cost of the truck. Therefore, the cost of the new truck is $43,700 + $120 + $220 = $43,920.

Question 9

Carpino Company purchased equipment and these costs were incurred:  What amount should be recorded as the cost of the equipment?

Accepted Answer

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

Question 10

Ramirez Company acquires land for $210,000 cash. Additional costs are as follow.  Ramirez will record the acquisition cost of the land as

Accepted Answer

The answer of Ramirez Company acquires land for $210,000 cash....

Question 11

Ryan, Inc. purchased a delivery truck with a $42,000 list price. The company was given a $4,200 cash discount by the dealer, and paid $2,100 sales tax. Annual insurance on the truck is $1,050. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?

Accepted Answer

The company paid $42,000 - $4,200 = $37,800 for the truck after the cash discount.
Adding the sales tax of $2,100, the total cost is $39,900. 
Annual insurance of $1,050 is an operating expense, not a part of the purchase cost. 
Therefore, the increase in Ryan, Inc.'s truck account will be $39,900.

Question 12

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

Under the Generally Accepted Accounting Principles (GAAP), interest incurred during the construction period is capitalized as part of the cost of the asset. Choices A and B are incorrect as both excavation fees and architect fees are considered part of the construction cost and should be capitalized. Choice D is incorrect as the capitalized cost includes the contract price to build the plant and any additional costs incurred during the construction period, including interest on borrowed funds.

Question 13

Runge Company purchased machinery on January 1 at a list price of $250,000, with credit terms 2/10, n/30. Payment was made within the discount period. Runge paid $12,500 sales tax on the machinery, and paid installation charges of $4,400. Prior to installation, Runge paid $10,000 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery?

Accepted Answer

List price of machinery = $250,000
Discount = 2% of $250,000 = $5,000
Amount paid within discount period = $250,000 - $5,000 = $245,000
Sales tax on machinery = $12,500
Installation charges = $4,400
Cost of concrete slab = $10,000
Total cost of new machinery = $245,000 + $12,500 + $4,400 + $10,000 = $271,900

Question 14

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

Accepted Answer

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

Question 15

Wesley Hospital installs a new parking lot. The paving cost $45,000 and the lights to illuminate the new parking area cost $18,000. Which of the following statements is true with respect to these additions?

Accepted Answer

The cost of the paving and lights should be capitalized and added to the cost of the land improvements, which is an asset account on the balance sheet. Therefore, $45,000 for paving and $18,000 for lights should be debited to the Land Improvements account, resulting in a total of $63,000. Option D is the only answer that reflects this accounting treatment.

Question 16

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. This account is used to reduce the book value of the plant asset, which is also known as the cost of the asset minus the accumulated depreciation. Therefore, option D is the correct answer.

Question 17

Kathy's Blooms purchased a delivery van with a $50,000 list price. The company was given a $5,000 cash discount by the dealer, and paid $2,500 sales tax. Annual insurance on the van is $1,250. 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 18

Land improvements should be depreciated over the useful life of the

Accepted Answer

Land improvements, such as parking lots or fences, have a limited useful life and should be depreciated separately from the land itself. Therefore, the correct choice is D, land improvements.

Question 19

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 20

Rains Company purchased equipment on January 1 at a list price of $75,000, with credit terms 2/10, n/30. Payment was made within the discount period. Rains paid $3,750 sales tax on the equipment, and paid installation charges of $1,320. Prior to installation, Rains paid $3,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?

Accepted Answer

The cost is calculated as follows:
List price: $75,000
Sales tax: $3,750
Installation charges: $1,320
Concrete slab: $3,000
Total cost: $83,070
Therefore, the best choice is B.

Quiz 9: Reporting and Analyzing Long-Lived Assets