1. Plant assets may properly include a. deposits on machinery not yet received. b. idle equipment awaiting sale. c. land held for possible use as a future plant site. d. None of these answers are correct.
2. Which of the following is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for resale c. Acquired for use d. Yields services over a number of years
3. Fences and parking lots are reported on the balance sheet as a. current assets. b. land improvements. c. land. d. property and equipment.
4. Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except a. at the date of acquisition, cost reflects fair value. b. property, plant, and equipment items are always acquired at their original historical cost. c. historical cost involves actual transactions and, as such, is the most reliable basis. d. gains and losses should not be anticipated but should be recognized when the asset is sold.
5. Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets? a. Assets under construction for an enterprise's own use. b. Assets intended for sale or lease that are produced as discrete projects. c. Assets financed through the issuance of long-term debt. d. Assets not currently undergoing the activities necessary to get them ready for use.
6. When boot is involved in an exchange having commercial substance a. gains or losses are recognized in their entirely. b. a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up. c. only gains should be recognized. d. only losses should be recognized.
7. The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at a. the fair value of the asset given up, and a gain or loss is recognized. b. the fair value of the asset given up, and a gain but not a loss may be recognized. c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up. d. either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company.
8. When a company is the recipient of a donated asset, the account credited may be aa. paid-in capital account. b. revenue account. c. deferred revenue account. d. All of these answers are correct.
9. A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at a. the nominal cost of taking title to it. b. its fair value. c. one dollar (since the site cost nothing but should be included in the balance sheet). d. the value assigned to it by the company's directors.
Wilson Co. purchased land as a factory site for $900,000. Wilson paid $80,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,800,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000.
10. The cost of the land that should be recorded by Wilson Co. is a. $980,480. b. $986,880. c. $989,880. d. $996,280.
11. The cost of the building that should be recorded by Wilson Co. is a. $2,803,800. b. $2,804,840. c. $2, 813,200. d. $3,014,240.
12.Messersmith Company is constructing a building. Construction began in 2014 and the building was completed 12/31/14. Messersmith made payments to the construction company of $2,000,000 on 7/1, $4,200,000 on 9/1, and $4,000,000 on 12/31. Weighted- average accumulated expenditures were a. $2,050,000. b. $2,400,000. c. $6,200,000. d. $10,200,000.
Use the following information for questions 13 through 16.
On January 2, 2014, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2015. Expenditures for the construction were as follows:
January 2, 2014 $400,000 September 1, 2014 1,200,000 December 31, 2014 1,200,000 March 31, 2015 1,200,000 September 30, 2015 800,000
Indian River Groves borrowed $2,200,000 on a construction loan at 12% interest on January 2, 2014. This loan was outstanding during the construction period. The company also had $8,000,000 in 9% bonds outstanding in 2014 and 2015.
13. What were the weighted-average accumulated expenditures for 2014? a. $1,066,667 b. $1,000,000 c. $800,000 d. $2,000,000
14. The interest capitalized for 2014 was: a. $360,000 b. $96,000 c. $304,000 d. $120,000
15. What were the weighted-average accumulated expenditures for 2015 by the end of the construction period? a. $780,000 b. $3,270,000 c. $3,972,000 d. $2,772,000
16. The interest capitalized for 2015 was: a. $249,480 b. $236,610 c. $51,480 d. $198,000
17. Horner Company buys a delivery van with a list price of $60,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to $800 and the company paid an extra $600 to have a special device installed. What should be the recorded cost of the van? a. $49,980. b. $51,290. c. $51,380. d. $50,780.
18. Which of the following is true of depreciation accounting? a. It is not a matter of valuation. b. It is part of the matching of revenues and expenses. c. It retains funds by reducing income taxes and dividends. d. All of these answers are correct.
19. The major difference between the service life of an asset and its physical life is that a. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. b. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. c. physical life is always longer than service life. d. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.
20. Economic factors that shorten the service life of an asset include a. obsolescence. b. supersession. c. inadequacy. d. all of these answers are correct.
21. A principal objection to the straight-line method of depreciation is that it a. provides for the declining productivity of an aging asset. b. ignores variations in the rate of asset use. c. tends to result in a constant rate of return on a diminishing investment base. d. gives smaller periodic write-offs than decreasing charge methods.
22. Composite or group depreciation is a depreciation system whereby a. the years of useful life of the various assets in the group are added together and the total divided by the number of items. b. the cost of individual units within an asset group is charged to expense in the year a unit is retired from service. c. a straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets. d. the original cost of all items in a given group or class of assets is retained in the asset account and the cost of replacements is charged to expense when they are acquired.
23. When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to a. charge a full year's depreciation to the year of acquisition. b. determine depreciation expense for the full year and then prorate the expense between the two periods involved. c. use the straight-line method for the year in which the asset is sold or otherwise disposed of. d. use a salvage value equal to the first year's partial depreciation charge.
24. A change in estimate should a. result in restatement of prior period statements. b. be handled in current and future periods. c. be handled in future periods only. d. be handled retroactively.
25. Which of the following disclosures is not required in the financial statements regarding depreciation? a. Accumulated depreciation, either by major classes of depreciable assets or in total. b. Details demonstrating how depreciation was calculated. c. Depreciation expense for the period. d. Balances of major classes of depreciable assets, by nature and function.
26. The asset turnover ratio is computed by dividing a. net income by ending total assets. b. net income by average total assets. c. net sales by ending total assets. d. net sales by average total assets.
27. Henry Company purchased a depreciable asset for $240,000. The estimated salvage value is $22,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? a. $22,000 b. $24,000 c. $218,000 d. $240,000
28.Slotkin Products purchased a machine for $39,000 on July 1, 2014. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2014 is a. $19,500 b. $4,875 c. $8,531 d. $9,000
29. A plant asset has a cost of $32,000 and a salvage value of $8,000. The asset has a three-year life. If depreciation in the third year amounted to $4,000, which depreciation method was used? a. Straight-line b. Declining-balance c. Sum-of-the-years'-digits d. Cannot tell from information given
30. On January 1, 2008, Forrest Company purchased equipment at a cost of $130,000. The equipment was estimated to have a salvage value of $4,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2015? a. $3,500 b. $3,611 c. $16,250 d. $15,750
31. Falcon Corporation purchased a depreciable asset for $630,000 on January 1, 2012. The estimated salvage value is $63,000, and the estimated total useful life is 9 years. The straight-line method is used for depreciation. In 2015, Falcon changed its estimates to a useful life of 5 years with a salvage value of $105,000. What is 2015 depreciation expense? a. $63,000 b. $105,000 c. $168,000 d. $189,000
Exiter Inc. owns the following assets: Asset Cost Salvage Estimated Useful Life A $140,000 $14,000 10 years B 75,000 7,500 5 years C 164,000 8,000 12 years
32. What is the composite depreciation rate of Exiter's assets? a. 14.0% b. 10.3% c. 12.9% d. 11.1%
33. Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Porter maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? a. $3.25 b. $3.75 c. $4.00 d. $4.50