Question 1

Tanner Company acquired equipment #1, equipment #2, and equipment #3, for $600,000. Equipment #1 is appraised at $240,000, equipment # 2 is appraised at $310,000 and equipment #3 is appraised for $110,000.The cost of equipment #2 is:

Accepted Answer

The cost of equipment #2 is $281,818. This is calculated by multiplying the total cost of the equipment ($600,000) by the appraised value of equipment #2 ($310,000) and dividing by the total appraised value of all three pieces of equipment ($660,000).

Question 2

Bixby Corporation purchased land and a building for $800,000. An appraisal indicates that the land's value is $400,000 and the building's value is $500,000. When recording this transaction Galaxy should debit:

Accepted Answer

The correct entry to record the purchase of land and building is to split the cost between the two assets based on their respective fair market values. According to the appraisal, the land's value is $400,000 and the building's value is $500,000, for a total of $900,000. Therefore, the cost assigned to the building is $500,000/$900,000 x $800,000 = $444,444. The remaining cost is assigned to the land, which is $355,556.

So, it should be debited to the Building Account for $444,444.

Question 3

The distinction between a capital expenditure and an expense can be difficult to determine.

Accepted Answer

Capital expenditures are for long-term assets that will be used for more than a year or will increase the value of an existing asset, while expenses are for day-to-day operating costs. Determining whether a cost should be classified as a capital expenditure or an expense can be subjective and may require professional judgment. Therefore, the distinction between the two can be difficult to determine.

Question 4

A machine is purchased for $70,000. The transportation costs were $4,000, installation costs were $1,000 and taxes on the purchase price were $700. The cost basis of the machine is:

Accepted Answer

The cost basis of the machine is the total amount spent on acquiring and preparing the machine for its intended use. This includes the purchase price of $70,000 plus the transportation costs of $4,000, installation costs of $1,000, and taxes of $700, which totals to $75,700. Therefore, the correct choice is C.

Question 5

Delivery Company Corporation purchased a delivery van for $32,500. Delivery Company also paid $1,200 in sales taxes. After driving the van for 5,000 miles, a flat tire needed to be repaired at a cost of $60.The cost of the van is:

Accepted Answer

The cost of the van includes the purchase price and any additional costs necessary to get the van ready for use, such as sales taxes. Therefore, the cost is $32,500 + $1,200 = $33,700. The tire repair is a maintenance expense, not part of the initial cost.

Question 6

Determine the cost of the dump truck, based upon the following data:

Accepted Answer

The answer of Determine the cost of the dump truck,...

Question 7

The Spa Company purchased land, buildings and equipment for $830,000. The land has been appraised at $300,000, the buildings at $510,000 and the equipment at $90,000. The journal entry to record this transaction will include a debit to:

Accepted Answer

The answer of The Spa Company purchased land, buildings and...

Question 8

Although located on the land, they are subject to decay and their cost is depreciated. This is the definition of:

Accepted Answer

Land improvements are additions made to a property that enhance its value but are not considered part of the land itself. Examples include fences, sidewalks, and drainage systems. These improvements are subject to decay and their cost is depreciated. Buildings and plant and equipment are also subject to depreciation, but they are not considered land improvements. Land itself is not subject to depreciation.

Question 9

The Meat Company purchased assets for a lump sum price of $1,000,000. The assets purchased had an appraised value of:
  Prepare the appropriate journal entry if The Meat Company paid cash for this transaction.

Accepted Answer

The answer of The Meat Company purchased assets for a...

Question 10

Many companies will have a policy of expensing all items above a certain dollar amount.

Accepted Answer

The answer of Many companies will have a policy of...

Question 11

Determine the cost of the land, based upon the following data:

Accepted Answer

The answer of Determine the cost of the land, based...

Question 12

The ________ method is used to allocate the cost of assets acquired in a lump-sum purchase.

Accepted Answer

The relative-sales-value method is used to allocate the cost of assets acquired in a lump-sum purchase. This method allocates the total cost based on the proportional sales values of the individual assets.

Question 13

Land, buildings and equipment are acquired for a lump sum of $850,000. The market values of the three assets are, respectively, $250,000, $480,000 and $180,000. What is the cost assigned to the equipment?

Accepted Answer

First, we need to calculate the total market value of the assets: $250,000 + $480,000 + $180,000 = $910,000
Then, we can use the ratio of the market value of each asset to calculate the cost assigned to the equipment: 
$180,000 / $910,000 x $850,000 = $168,131.87. 
Therefore, the cost assigned to the equipment is $168,132 (rounded to the nearest dollar). So, the correct choice is B.

Question 14

The cost of installing lights in the parking lot should be recorded as:

Accepted Answer

The cost of installing lights in the parking lot is considered an improvement to the land, or land improvement. Land improvements refer to any enhancements made to the land, such as adding driveways, fences, or lighting. These improvements increase the value of the land and are typically depreciated over time.

Question 15

Which of the following should be included in the cost of equipment?

Accepted Answer

All of the options listed should be included in the cost of equipment to arrive at the total cost. Freight costs are necessary to bring the equipment to the business location. Installation costs are required to get the equipment ready for use, and testing costs help ensure that the equipment is functioning properly.

Question 16

A lump-sum purchase of assets:

Accepted Answer

In a lump-sum purchase, the total cost is allocated among the individual assets based on their relative market values, not historical costs.

Question 17

Which of the following costs should NOT be added to the cost of the machine?

Accepted Answer

The cost of oiling the machine after it has been used for two years should not be added to the cost of the machine as it is a routine maintenance cost and not a cost incurred at the time of purchase or setup.

Question 18

Land is purchased for $543,710. Back taxes paid by the purchaser were $8,500; total costs to demolish an existing building and clear the land were $215,000, and costs of paving the parking lot were $106,000. What is the cost of the land?

Accepted Answer

To find the cost of the land, we need to add the purchase price of the land to all additional costs, including back taxes, demolition and clearing costs, and paving costs. 
Cost of land = Purchase price + Back taxes + Demolition and clearing costs + Paving costs 
Cost of land = $543,710 + $8,500 + $215,000 + $106,000 
Cost of land = $873,210 
Therefore, the cost of the land is $873,210, which is option D.

Question 19

Auto Shop, Inc., incurred the following costs in acquiring plant assets:
a. Purchased land for a $100,000 down payment and signed a $75,000 note payable for the balance.
b. Delinquent property tax of $2,500 and legal fees of $1,000 had to be paid before the land could be purchased.
c. $12,000 was paid to demolish an unwanted building on the land.
d. Architect fee of $7,000 was paid for the design of a new office building.
e. An office building was constructed at a cost of $500,000.
f. Interest cost on a construction loan for the building totaled $6,000
g. $17,500 was paid for fencing, $12,000 was paid for landscaping, and $55,000 was paid for paving the parking lot.
Determine the cost of the land, land improvements, and building.

Accepted Answer

The answer of Auto Shop, Inc., incurred the following costs...

Question 20

A company recently purchased a building that it plans to renovate to get ready for use in its operations. All expenditures to repair and renovate the existing building for its intended use are charged to:

Accepted Answer

All expenditures related to repairs and renovations of an existing building should be capitalized and charged to the building account. This will increase the company's asset value on the balance sheet and provide future benefits from using the building for its intended purpose. Options A and B are not applicable as they refer to land-related expenditures, and option C is not a recognized account in financial reporting.

Quiz 7: Plant Assets, Natural Resources, Intangibles