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Homework answers / question archive / California Polytechnic State University, Pomona ACC 311 Chapter 10 1)Propert plant and equipment and intangible assets are: a
California Polytechnic State University, Pomona
ACC 311
Chapter 10
1)Propert plant and equipment and intangible assets are:
a.Created by the normal operation of the business and include accounts receivable.
b. All assets except cash and cash equivalents.
c. Current and long-term assets used in the production of either goods or services.
d. Long-term revenue-producing assets.
2. The acquisition costs of property, plant, and equipment do not include:
a. The ordinary and necessary costs to bring the asset to its desired condition and location for use.
b. The net invoice price.
c. Legal fees, delivery charges, installation, and any applicable sales tax.
d. Maintenance costs during the first 30 days of use.
3. Goodwill is:
a. Amortized over the greater of its estimated life or 40 years.
b. Only recorded by the seller of a business.
c. The excess of the fair value of a business over the fair value of all net identifiable assets.
d. None of these answer choices are correct.
4. Productive assets that are physically consumed in operations are:
a. Equipment.
b. Land.
c. Land improvements.
d. Natural resources.
5. An exclusive 20-year right to manufacture a product or use a process is a:
a. Patent.
b. Copyright.
c. Trademark.
d. Franchise.
6. The exclusive right to benefit from a creative work, such as a film, is a:
a. Patent.
b. Copyright.
c. Trademark.
d. Franchise.
7. The exclusive right to display a symbol of product identification is a:
a. Patent.
b. Copyright.
c. Trademark.
d. Franchise.
8. The capitalized cost of equipment excludes:
a. Maintenance.
b. Sales tax.
c. Shipping.
d. Installation.
9. Asset retirement obligations:
a. Increase the balance in the related asset account.
b. Are measured at fair value in the balance sheet.
c. Are liabilities associated with the restoration of a long-term asset.
d. All of these answer choices are correct.
10. If a company incurs disposition obligations as a result of acquiring an asset:
a. The company recognizes the obligation at fair value when the asset is acquired.
b. The company recognizes the obligation at fair value when the asset is disposed.
c. The company records the difference between the fair value of the asset and the obligation when the asset is acquired.
d. None of these answer choices are correct.
11. When selling property, plant, and equipment for cash:
a. The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.
b. The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.
c. The seller recognizes losses, but not gains.
d. None of these answer choices are correct.
12. Which of the following does not pertain to accounting for asset retirement obligations?
a. They accrete (increase over time) at the company's credit-adjusted risk-free rate.
b. They must be recognized according to GAAP.
c. Statement of Financial Accounting Concepts No. 7 is applied when adjusting cash flow obligations for uncertainty.
d. All of these answer choices pertain to accounting for asset retirement obligations.
Use the following to answer questions :
Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Montana. To obtain the rights, MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. MMC incurred exploration and development costs of $60 million on the project.
MMC has a credit-adjusted risk free interest rate is 7%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows:
Cash Outflow Probability
$10 million 60%
$30 million 40%
13. The asset retirement obligation (rounded) that should be recognized by MMC at the beginning of the extraction activities is:
a. $ 8.2 million.
b. $14.7 million.
c. $ 18 million.
d. $ 30 million.
14. The asset retirement obligation (rounded) that should be reported on MMC’s balance sheet one year after the extraction activities begin is:
a. $0.
b. $14.7 million. c. $15.7 million.
d. $19.3 million.
15. Grab Manufacturing Co. purchased a 10-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included
$200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking
out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the 10-ton draw press is:
a. $171,000.
b. $183,600. c. $187,600. d. $185,760.
16. Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is:
a. $455,000. b. $446,000.
c. $437,000.
d. $435,000.
17. Vijay Inc. purchased a three-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was
$900 and attorney fees for reviewing the contract were $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized cost of the land
is:
a. $336,400.
b. $336,150. c. $334,650. d. $201,150.
18. Juliana Corporation purchased all of the outstanding stock of Caldwell Inc., paying $2,700,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were:
Book Value Fair Value
Current assets (net) $420,000 $450,000
Property, plant, & equip. (net) 1,600,000 2,250,000
Liabilities 500,000 600,000
Juliana would record goodwill of: a. $1,180,000.
b. $ 600,000. c. $ 880,000.
d. $ 100,000.
19. Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were:
Book Value Fair Value
Current assets (net) $130,000 $125,000
Property, plant, equip. (net) 600,000 750,000
Liabilities 150,000 175,000
Lake would record goodwill of:
a. $ 0.
b. $ 75,000.
c. $445,000. d. $250,000.
20. On July 1, 2016, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2016 as follows:
Demolition of existing building on site $75,000
Legal and other fees to close escrow 12,000
Proceeds from sale of demolition scrap 10,000
What would be the balance in the land account as of December 31, 2016? a. $400,000.
b. $475,000. c. $477,000. d. $487,000.
21. Assets acquired in a lump-sum purchase are valued based on:
a. Their assessed valuation.
b. Their relative fair values.
c. The present value of their future cash flows.
d. Their cost plus the difference between their cost and fair values.
22. Simpson and Homer Corporation acquired an office building on three acres of land for a lump- sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be:
Building Land Fixtures a. $1,300,000 $ 780,000 $520,000 b. $1,200,000 $ 720,000 $480,000 c. $ 720,000 $1,200,000 $480,000
d. None of these answer choices are correct.
23. Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be:
Building Land Equipment a. $4,500,000 $3,000,000 $2,500,000
b. $4,500,000 $3,000,000 $ 500,000 c. $3,600,000 $2,400,000 $2,000,000
d. None of these answer choices are correct.
24. Assets acquired under multi-year deferred payment contracts are:
a. Valued at their fair value on the date of the final payment.
b. Valued at the present value of the payments required by the contract.
c. Valued at the sum of the payments required by the contract. d. None of these answer choices are correct.
25. Assets acquired by the issuance of equity securities are valued based on:
a. Their fair values.
b. The fair value of the equity securities.
c. A or B, whichever is more reasonably determinable.
d. A or B, whichever is smaller.
26. Donated assets are recorded at:
a. Zero (memo entry only).
b. The donor's book value.
c. The donee's stated value. d. Fair value.
27. The fixed-asset turnover ratio provides:
a. The rate of decline in asset lives.
b. The rate of replacement of fixed assets.
c. The amount of sales generated per dollar of fixed assets.
d. The decline in book value of fixed assets compared to capital expenditures.
28. The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2016. The fixed-asset turnover ratio for 2016 was 4.0, and sales for the year totaled $1,480,000. Net fixed assets at the end of 2015 were:
a. $470,000.
b. $370,000.
c. $420,000.
d. None of these answer choices are correct.
29. The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at: a. Fair value of the asset(s) given up.
b. The book value of the asset given plus any cash or other monetary consideration received.
c. Fair value or book value, whichever is smaller.
d. Book value of the asset given.
30. In a nonmonetary exchange of equipment, if the exchange has commercial substance, a gain is recognized if:
a. The fair value of the equipment received exceeds the book value of the equipment received.
b. The book value of the equipment received exceeds the fair value of the equipment given up. c. The fair value of the equipment surrendered exceeds the book value of the equipment given
up.
d. None of these answer choices are correct.
Use the following to answer questions :
Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively.
31. Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of: a. $26,000.
b. $ 8,000. c. $(8,000).
d. $ 0.
32. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of: a. $26,000.
b. $ 8,000.
c. $(8,000).
d. $ 0.
Use the following to answer questions :
Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively.
33. Assuming that the exchange has commercial substance, Horton would record land-new and a gain/(loss) of:
a. Land
$105,000 Gain/(loss)
$ 0.
b. $105,000 $10,000.
c. $ 95,000 $ 0.
d. $ 95,000 $10,000.
34. Assuming that the exchange lacks commercial substance, Horton would record land-new and a gain/(loss) of:
Land Gain/(loss)
a. $105,000 $ 0.
b. $105,000 $10,000.
c. $ 95,000 $ 0.
d. $ 95,000 $10,000.
35. Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively.
Bloomington would record equipment and a gain/(loss) of:
Equipment Gain/(loss)
a. $ 87,000 $ 3,000.
b. $104,000 $ (5,000).
c. $ 87,000 $(14,000).
d. All of these answer choices are incorrect.
36. P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively.
Chang would record equipment and a gain/(loss) of:
Equipment Gain/(loss)
a. $ 99,000 $ (16,000).
b. $ 90,000 $ (25,000).
c. $108,000 $ 16,000.
d. $106,000 $ (9,000).
Use the following to answer questions:
Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.
Old Equipment Cash Book Value Fair Value Paid
Case A $50,000 $60,000 $15,000
Case B $40,000 $35,000 $ 8,000
37. In Case A, Grand Forks would record the new equipment at: a. $65,000.
b. $75,000. c. $50,000.
d. $60,000.
38. In Case B, Grand Forks would record a gain/(loss) of: a. $ 5,000.
b. $ 3,000. c. $(5,000).
d. $(3,000).
Use the following to answer questions :
Below is information relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.
Old Equipment Cash
Book Value Fair Value Received
Case A $75,000 $80,000 $12,000
Case B $60,000 $56,000 $10,000
39. In Case A, Pensacola would record the new equipment at: a. $68,000.
b. $63,750.
c. $67,250.
d. $80,000.
40. In Case B, Pensacola would record a gain/(loss) of: a. $ 4,000.
b. $ (4,000).
c. $ (10,000).
d. None of these answer choices are correct.
41. Interest may be capitalized:
a. On routinely manufactured goods as well as self-constructed assets.
b. On self-constructed assets from the date an entity formally adopts a plan to build a discrete project.
c. Whether or not there is specific borrowing for the construction.
d. Whether or not there are actual interest costs incurred.
42. Interest is eligible to be capitalized as part of an asset's cost, rather than being expensed immediately, when:
a. The interest is incurred during the construction period of the asset.
b. The asset is a discrete construction project for sale or lease.
c. The asset is self-constructed, rather than acquired. d. All of these answer choices are correct.
43. In computing capitalized interest, average accumulated expenditures:
a. Is the arithmetic mean of all construction expenditures.
b. Is determined by time-weighting individual expenditures made during the asset construction period.
c. Is multiplied by the company's most recent financing rates.
d. All of these answer choices are correct.
44. Interest is not capitalized for:
a. Assets that are constructed as discrete projects for sale or lease.
b. Assets constructed for a company’s own use.
c. Inventories routinely and repetitively produced in large quantities.
d. Interest is capitalized for all of these items.
45. Average accumulated expenditures:
a. Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.
b. Is computed as a simple average if all construction expenditures are made at the end of the period.
c. Are irrelevant if the company's total outstanding debt is less than total costs of construction.
d. All of these answer choices are true statements.
46. The cost of self-constructed fixed assets should:
a. Include allocated indirect costs just as they are for production of products.
b. Include only incremental indirect costs.
c. Include only specifically identifiable indirect costs.
d. Not include indirect costs.
Use the following to answer questions:
On June 1, 2015, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2016. Expenditures on the project were as follows ($ in millions):
October 1, 2015 22
February 1, 2016 30
April 1, 2016 21
September 1, 2016 20
October 1, 2016 6
On July 1, 2015, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2016. The company's only other interest-bearing debt was a long- term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2015 and 2016. The company's fiscal year-end is December 31.
47. What is the amount of interest that Crocus should capitalize in 2015, using the specific interest method?
a. $1.90 million. b. $1.95 million.
c. $2.96 million.
d. None of these answer choices are correct.
48. In computing the capitalized interest for 2016, Crocus' average accumulated expenditures are:
a. $ 46.30 million.
b. $103.54 million.
c. $122.30 million. d. $124.25 million.
.
49. What is the amount of interest that Crocus should capitalize in 2016, using the specific interest method (rounded to the nearest thousand dollars)?
a. $7,248,000 (rounded).
b. $7,283,000 (rounded).
c. $8,740,000 (rounded).
d. None of these answer choices are correct.
Use the following to answer questions :
On January 1, 2016, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2017. Expenditures on the project were as follows:
January 1, 2016 $200,000
September 1, 2016 $300,000
December 31, 2016 $300,000
March 31, 2017 $300,000
September 30, 2017 $200,000
Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2016. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2016 and 2017.
50. Average accumulated expenditures for 2016 was: a. $300,000.
b. $350,000.
c. $500,000.
d. $400,000.
January 1, 2016 $200,000 x 12/12 = $200,000
September 1, 2016 300,000 x 4/12 = 100,000
December 31, 2016 300,000 x 0/12 = 0
$800,000 $300,000
51. Interest capitalized for 2016 was: a. $48,000.
b. $42,000.
c. $60,000.
d. $36,000.
52. Average accumulated expenditures for 2017 was: a. $ 536,000.
b. $1,236,000.
c. $1,200,000.
d. $1,036,000.
53. Interest capitalized for 2017 was: a. $104,625.
b. $ 86,805
c. $ 87,875.
d. $ 67,500.
Use the following to answer questions :
On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2017. Expenditures on the project were as follows:
January 1, 2016 $300,000
September 1, 2016 $450,000
December 31, 2016 $450,000
March 31, 2017 $450,000
September 30, 2017 $300,000
Dreamworld had $5,000,000 in 12% bonds outstanding through both years.
54. Dreamworld's average accumulated expenditures for 2016 was: a. $300,000.
b. $450,000.
c. $525,000.
d. $600,000.
55. Dreamworld's capitalized interest in 2016 was: a. $72,000.
b. $63,000.
c. $54,000.
d. $36,000.
56. The average accumulated expenditures for 2017 by the end of the construction period was: a. $1,950,000.
b. $1,554,000.
c. $1,254,000.
d. $ 975,000.
57. What was the final cost of Dreamworld's warehouse? a. $2,154,480.
b. $2,143,860.
c. $1,950,000.
d. $1,254,000.
58. Liddy Corp. began constructing a new warehouse for its operations during the current year. In the year Liddy incurred interest of $30,000 on a working capital loan, and interest on a construction loan for the warehouse of $60,000. Interest computed on the average accumulated expenditures for the warehouse construction was $50,000. What amount of interest should Liddy expense for the year?
a. $ 30,000.
b. $ 40,000.
c. $ 90,000.
d. $140,000.
59. Research and development costs for projects other than software development should be:
a. Expensed in the period incurred.
b. Expensed in the period they are determined to be unsuccessful.
c. Deferred pending determination of success.
d. Expensed if unsuccessful, capitalized if successful.
60. Software development costs are capitalized if they are incurred:
a. Prior to the point at which technological feasibility has been established.
b. After commercial production has begun.
c. After technological feasibility has been established but prior to the product availability date.
d. None of these answer choices are correct.
61. Research and development (R&D) costs:
a. Generally pertain to activities that occur prior to the start of production.
b. May be expensed or capitalized, at the option of the reporting entity.
c. Must be capitalized and amortized.
d. None of these answer choices are correct.
62. Research and development expense for a given period includes:
a. The full cost of newly acquired equipment that has an alternative future use.
b. Depreciation on a research and development facility.
c. Research and development conducted on a contract basis for another entity.
d. Patent filing and legal costs.
63. Amortization of capitalized computer software costs is:
a. Either the percentage-of-revenue method or the straight-line method at the company's option.
b. The greater of the percentage-of-revenue method or the straight-line method.
c. The lesser of the percentage-of-revenue method or the straight-line method.
d. Based on neither the percentage-of-revenue nor the straight-line method.
64. Axcel Software began a new development project in 2015. The project reached technological feasibility on June 30, 2016, and was available for release to customers at the beginning of 2017. Development costs incurred prior to June 30, 2016, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The 2017 revenues from the sale of the new
software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2017 amortization of the software development costs would be:
a. $0.
b. $ 350,000.
c. $1,840,000.
d. $ 560,000.
65. Under International Financial Reporting Standards, research expenditures are:
a. Expensed in the period incurred.
b. Expensed in the period they are determined to be unsuccessful.
c. Capitalized if certain criteria are met.
d. Expensed if unsuccessful, capitalized if successful.
66. Under International Financial Reporting Standards, development expenditures are:
a. Expensed in the period incurred.
b. Expensed in the period they are determined to be unsuccessful.
c. Capitalized if certain criteria are met.
d. All of these answer choices are incorrect.
67. Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2016 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2016 fiscal year. Sale of the product began in 2015. What amount of the above expenditures would Cromartie expense in its 2016 income statement?
a. $2,001,000.
b. $ 756,000. c. $1,245,000.
d. $0.
68. In accounting for oil and gas exploration costs, companies:
a. May not use the full-cost method.
b. May use the successful efforts method.
c. May use the slippery slope method.
d. All of these answer choices are correct.
69. During 2016, the Longhorn Oil Company incurred $5,000,000 in exploration costs for each of 20 oil wells drilled in 2016 in west Texas. Of the 20 wells drilled, 14 were dry holes. Longhorn uses the successful efforts method of accounting. Assuming that none of the oil found is depleted in 2016, what oil exploration expense would Longhorn charge for this activity in its 2016 income statement?
a. $0.
b. $ 30 million.
c. $ 70 million.
d. $100 million.
70. During 2016, Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2016. Of the 15 wells drilled, 10 were dry holes. Prospect uses the successful efforts method of accounting. Assuming that Prospect depletes 30% of the oil discovered in 2016, what amount of these exploration costs would remain in its 12/31/16 balance sheet?
a. $ 6 million. b. $14 million.
c. $20 million.
d. $42 million.
