Question 1

When determining whether to capitalize or expense an amount relating to ﬁxed assets, which of the following is not relevant to the decision?

Accepted Answer

The revenue recognition principle is not relevant to the decision of capitalizing or expensing an amount relating to fixed assets. This principle is concerned with the timing of recognizing revenue in the financial statements, whereas capitalizing or expensing relates to how costs associated with fixed assets are treated for accounting purposes.

Question 2

IFRS permits corporations to capitalize interest costs for

Accepted Answer

Under IFRS, interest costs can be capitalized for assets that are constructed or acquired over time, reflecting the period during which the asset is being prepared for its intended use or sale. This does not apply to assets that are purchased outright and ready for immediate use.

Question 3

Tangible assets include which of the following?

Accepted Answer

Tangible assets are physical and measurable assets used in a company's operations. Land, buildings, and equipment are examples of tangible assets because they have a physical form and can be seen and touched.

Question 4

Which of the following costs would normally not be included in the cost of equipment?

Accepted Answer

Insurance for equipment after it has started being used is considered an operational expense rather than a capital expenditure. Installation, testing, and freight costs are capitalized as part of the equipment's cost.

Question 5

What are operational assets that have physical substance called?

Accepted Answer

Tangible assets are operational assets that have physical substance, which can include buildings, machinery, vehicles, and equipment. Intangible assets, on the other hand, lack physical substance and include things like patents and trademarks.

Question 6

Which of the following is not a major characteristic of a property, plant, and equipment asset?

Accepted Answer

Property, plant, and equipment assets are acquired for use in operations and not for resale, which is a characteristic of inventory rather than fixed assets.

Question 7

To which account should the amount of sales tax paid on the purchase of new machinery be debited?

Accepted Answer

The amount of sales tax paid on the purchase of new machinery should be debited to the machinery account because it is considered part of the cost of acquiring the machinery. This cost is capitalized, meaning it is added to the asset's value on the balance sheet and depreciated over the useful life of the machinery.

Question 8

Los Mi-os purchased a large tract of land with the intention to transform it into a cocoa 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

Accepted Answer

The cost of draining the land should be capitalized as part of the cost of the land because it is a necessary expense to prepare the land for its intended use, which in this case is a cocoa plantation. Capitalizing this cost allows it to be amortized over the useful life of the plantation, reflecting the benefit the expenditure brings over time.

Question 9

On March 1, Chapin Company purchased a new stamping machine for $5,000. Chapin paid cash for the machine. Other costs associated with the machine were: transportation costs, $300; sales tax paid, $200; and installation cost, $100. What cost was recorded for the machine?

Accepted Answer

Calculation: $5,000 + $300 + $200 + $100 = $5,600.

Question 10

Operational assets do not include which of the following kinds of assets?

Accepted Answer

Operational assets are assets used in the daily operations of a business to generate revenue, such as plant, equipment, patents, and mineral deposits being mined. Land held for resale is considered an investment or inventory, not an operational asset, as it is not used in the daily operations to generate revenue.

Question 11

Belmont Corporation made a basket purchase of land, a building and equipment, paying a total of $1,500,000. Market values for the assets were not available, but the appraised values were $300,000 for the land, $900,000 for the building, and $600,000 for equipment. What amounts should be recorded in the Land, Building, and Equipment accounts, respectively?

Accepted Answer

Calculation: $300/$1,800 × $1,500,000 = $250,000; $900/$1,800 × $1,500,000 = $750,000; $600/$1,800 × $1,500,000 = $500,000.

Question 12

Under IFRS, a corporation may capitalize interest for:

Accepted Answer

Under IFRS, interest can be capitalized for assets that require a period of time to get them ready for their intended use or sale, typically those that are constructed or developed over time. This does not apply to all purchased assets.

Question 13

A municipality has decided to donate a plant site to a local manufacturer that plans to open a new factory and create jobs. The donated plant site should be recorded on the manufacturer's books at

Accepted Answer

The donated plant site should be recorded at its market value on the manufacturer's books. This is because under accounting principles, non-monetary donations like land are recorded at their fair market value at the time of the donation.

Question 14

Which of the following would be classiﬁed as an operational (ﬁxed) asset?

Accepted Answer

An operational (fixed) asset is an asset that is used in the day-to-day operations of a business. Choice D is a plant used to manufacture cars, which is an operational asset.

Question 15

Which of the following would be an example of a land improvement?

Accepted Answer

Land improvements are enhancements made to a property that increase its value or utility, such as installing lighting, which is a permanent addition to the land.

Question 16

Which of the following is not a tangible capital asset?

Accepted Answer

Copyrights are considered intangible assets because they represent a legal right or ownership of intellectual property, rather than a physical object.

Question 17

If a plant asset is acquired by the issuance of a public company's common shares, the cost of the plant asset should be measured by the

Accepted Answer

The cost of the plant asset acquired through the issuance of a public company's common shares should be measured by the market value of those shares. This approach reflects the fair value of the asset acquired, providing a more accurate representation of the transaction's economic reality.

Question 18

Intangible assets include which of the following?

Accepted Answer

Intangible assets are non-physical assets that provide economic benefits to their owners. Examples include patents, copyrights, and leaseholds, which are all intangible assets because they represent legal rights or privileges rather than physical objects. Buildings and land are tangible assets, while trade receivables are financial assets, not intangible.

Question 19

Airbury Company acquired manufacturing equipment at an invoice price of $80,000 and paid $750 to have it delivered to the factory. $400 was spent to repair a door that was damaged while installing the equipment. At what amount should this equipment be recorded on the company's books?

Accepted Answer

Calculation: $80,000 + $750 = $80,750.

Question 20

Martinelli Company recently purchased a truck. The price negotiated with the dealer was $85,000. Martinelli also paid sales tax of $6,000 on the purchase, shipping and preparation costs of $950, and insurance for the first year of operation of $2,000. For the truck, what amount should be debited to the asset account Vehicles?

Accepted Answer

Calculation: $85,000 + $6,000 + $950 = $91,950.

Quiz 8: Receivables, Bad Debt Expense, and Interest Revenue