ACC 304 WEEK 4 QUIZ 3
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ACC 304 WEEK 4 QUIZ 3
ACC 304 Week 4 Quiz 3 – STR NEW
ACC 304 Week 4 Quiz 3
All Questions Included.
TRUE-FALSE—Conceptual
1. Assets classified as Property, Plant, and
Equipment can be either acquired for use in operations, or acquired for resale.
2. Assets classified as Property, Plant, and
Equipment must be both long-term in nature and possess physical substance.
3. When land with an old building is purchased
as a future building site, the cost of removing the old building is part of the
cost of the new building.
4. Insurance on equipment purchased, while the
equipment is in transit, is part of the cost of the equipment.
5. Special assessments for local improvements
such as street lights and sewers should be accounted for as land improvements.
6. Variable overhead costs incurred to
self-construct an asset should be included in the cost of the asset.
7. Companies should assign no portion of fixed
overhead to self-constructed assets.
8. When capitalizing interest during
construction of an asset, an imputed interest cost on stock financing must be
included.
9. Assets under construction for a company’s
own use do not qualify for interest cost capitalization.
10. Avoidable interest is the amount of
interest cost that a company could theoretically avoid if it had not made
expenditures for the asset.
11. When a company purchases land with the
intention of developing it for a particular use, interest costs associated with
those expenditures qualify for interest capitalization.
12. Assets purchased on long-term credit
contracts should be recorded at the present value of the consideration
exchanged.
13. Companies account for the exchange of
nonmonetary assets on the basis of the fair value of the asset given up or the
fair value of the asset received.
14. If a nonmonetary exchange lacks commercial
substance, and cash is received, a partial gain or loss is recognized.
15. When a company exchanges nonmonetary
assets and a loss results, the company recognizes the loss only if the exchange
has commercial substance.
16. Costs incurred subsequent to the
acquisition of an asset are capitalized if they provide future benefits.
17. Improvements are often referred to as
betterments and involve the substitution of a better asset for the one
currently used.
18. When an ordinary repair occurs, several
periods will usually benefit.
19. Companies always treat gains or losses
from an involuntary conversion as extraordinary items.
20. If a company scraps an asset without any
cash recovery, it recognizes a loss equal to the asset’s book value.
MULTIPLE CHOICE—Conceptual
21. 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.
22. 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
23. Which of these is not a major
characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant
asset.
24. Cotton Hotel Corporation recently
purchased Emporia Hotel and the land on which it is located with the plan to
tear down the Emporia Hotel and build a new luxury hotel on the site. The cost
of the Emporia Hotel should be
a. depreciated over the period from acquisition to
the date the hotel is scheduled to be torn down.
b. written off as an extraordinary loss in the year
the hotel is torn down.
c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
25. The cost of land does not include
a. costs of grading, filling, draining, and
clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
26. The cost of land typically includes
the purchase price and all of the following costs except
a. grading, filling, draining, and clearing costs.
b. street lights, sewers, and drainage systems cost.
c. private driveways and parking lots.
d. assumption of any liens or mortgages on the property.
27. If a corporation purchases a lot and
building and subsequently tears down the building and uses the property as a
parking lot, the proper accounting treatment of the cost of the building would
depend on
a. the significance of the cost allocated to the
building in relation to the combined cost of the lot and building.
b. the length of time for which the building was
held prior to its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when
the building was acquired.
28. The debit for a sales tax properly
levied and paid on the purchase of machinery preferably would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all
taxes other than those on income).
d. accumulated depreciation–machinery.
29. Fences and parking lots are reported
on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.
S30. Historical cost is the basis
advocated for recording the acquisition of property, plant, and equipment for
all of the following reasonsexcept
a. at the date of acquisition, cost reflects fair
market 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.
S31. To be consistent with the historical
cost principle, overhead costs incurred by an enterprise constructing its own
building should be
a. allocated on the basis of lost production.
b. eliminated completely from the cost of the asset.
c. allocated on an opportunity cost basis.
d. allocated on a pro rata basis between the asset
and normal operations.
32. Which of the following costs are
capitalized for self-constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
33. 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 prepare them for their intended use.
34. Assets that qualify for interest
cost capitalization include
a. assets under construction for a company’s own
use.
b. assets that are ready for their intended use in
the earnings of the company.
c. assets that are not currently being used because
of excess capacity.
d. All of these assets qualify for interest cost
capitalization.
35. When computing the amount of
interest cost to be capitalized, the concept of “avoidable interest” refers to
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders’
equity.
c. that portion of total interest cost which would
not have been incurred if expenditures for asset construction had not been
made.
d. that portion of average accumulated expenditures
on which no interest cost was incurred.
36. The period of time during which
interest must be capitalized ends when
a. the asset is substantially complete and ready for
its intended use.
b. no further interest cost is being incurred.
c. the asset is abandoned, sold, or fully
depreciated.
d. the activities that are necessary to get the
asset ready for its intended use have begun.
37. Which of the following statements is
true regarding capitalization of interest?
a. Interest cost capitalized in connection with the
purchase of land to be used as a building site should be debited to the land
account and not to the building account.
b. The amount of interest cost capitalized during
the period should not exceed the actual interest cost incurred.
c. When excess borrowed funds not immediately needed
for construction are temporarily invested, any interest earned should be offset
against interest cost incurred when determining the amount of interest cost to
be capitalized.
d. The minimum amount of interest to be capitalized
is determined by multiplying a weighted average interest rate by the amount of
average accumulated expenditures on qualifying assets during the period.
38. Construction of a qualifying asset
is started on April 1 and finished on December 1. The fraction used to multiply
an expenditure made on April 1 to find weighted-average accumulated
expenditures is
a. 8/8.
b. 8/12.
c. 9/12.
d. 11/12.
39. When funds are borrowed to pay for
construction of assets that qualify for capitalization of interest, the excess
funds not needed to pay for construction may be temporarily invested in
interest-bearing securities. Interest earned on these temporary investments
should be
a. offset against interest cost incurred during
construction.
b. used to reduce the cost of assets being
constructed.
c. multiplied by an appropriate interest rate to
determine the amount of interest to be capitalized.
d. recognized as revenue of the period.
40. Interest cost that is capitalized
should
a. be written off over the remaining term of the
debt.
b. be accumulated in a separate deferred charge
account and written off equally over a 40-year period.
c. not be written off until the related asset is
fully depreciated or disposed of.
d. none of these.
S41. Which of the following is not a
condition that must be satisfied before interest capitalization can begin on a
qualifying asset?
a. Interest cost is being incurred.
b. Expenditures for the assets have been made.
c. The interest rate is equal to or greater than the
company’s cost of capital.
d. Activities that are necessary to get the asset
ready for its intended use are in progress.
S42. Which of the following is the
recommended approach to handling interest incurred in financing the construction
of property, plant and equipment?
a. Capitalize only the actual interest costs
incurred during construction.
b. Charge construction with all costs of funds
employed, whether identifiable or not.
c. Capitalize no interest during construction.
d. Capitalize interest costs equal to the prime
interest rate times the estimated cost of the asset being constructed.
S43. Which of the following nonmonetary
exchange transactions represents a culmination of the earning process?
a. Exchange of assets with no difference in future
cash flows.
b. Exchange of products by companies in the same
line of business with no difference in future cash flows.
c. Exchange of assets with a difference in future
cash flows.
d. Exchange of an equivalent interest in similar
productive assets that causes the companies involved to remain in essentially
the same economic position.
S44. 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.
S45. The cost of a nonmonetary asset
acquired in exchange for another nonmonetary asset and 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.
P46. Ringler Corporation exchanges one
plant asset for a similar plant asset and gives cash in the exchange. The
exchange is not expected to cause a material change in the future cash flows
for either entity. If a gain on the disposal of the old asset is indicated, the
gain will
a. be reported in the Other Revenues and Gains
section of the income statement.
b. effectively reduce the amount to be recorded as
the cost of the new asset.
c. effectively increase the amount to be recorded as
the cost of the new asset.
d. be credited directly to the owner’s capital
account.
47. Plant assets purchased on long-term
credit contracts should be accounted for at
a. the total value of the future payments.
b. the future amount of the future payments.
c. the present value of the future payments.
d. none of these.
48. When a plant asset is acquired by
issuance of common stock, the cost of the plant asset is properly measured by
the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. fair value of the stock.
49. When a closely held corporation
issues preferred stock for land, the land should be recorded at the
a. total par value of the stock issued.
b. total book value of the stock issued.
c. total liquidating value of the stock issued.
d. fair value of the land.
50. Accounting recognition should be
given to some or all of the gain realized on a nonmonetary exchange of plant
assets except when
the exchange has
a. no commercial substance and additional cash is
paid.
b. no commercial substance and additional cash is
received.
c. commercial substance and additional cash is paid.
d. commercial substance and additional cash is
received.
51. For a nonmonetary exchange of plant
assets, accounting recognition should not be
given to
a. a loss when the exchange has no commercial
substance.
b. a gain when the exchange has commercial
substance.
c. part of a gain when the exchange has no
commercial substance and cash is paid (cash paid/received is less than 25% of
the fair value of the exchange).
d. part of a gain when the exchange has no
commercial substance and cash is received (cash paid or received is less than
25% of the fair value of the exchange).
52. When an enterprise is the recipient
of a donated asset, the account credited may be a
a. paid-in capital account.
b. revenue account.
c. deferred revenue account.
d. all of these.
53. 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.
54. In order for a cost to be
capitalized (capital expenditure), the following must be present:
a. The useful life of an asset must be increased.
b. The quantity of assets must be increased.
c. The quality of assets must be increased.
d. Any one of these.
55. An improvement made to a machine
increased its fair value and its production capacity by 25% without extending
the machine’s useful life. The cost of the improvement should be
a. expensed.
b. debited to accumulated depreciation.
c. capitalized in the machine account.
d. allocated between accumulated depreciation and
the machine account.
56. Which of the following is a capital
expenditure?
a. Payment of an account payable
b. Retirement of bonds payable
c. Payment of Federal income taxes
d. None of these
57. Which of the following is not a capital
expenditure?
a. Repairs that maintain an asset in operating
condition
b. An addition
c. A betterment
d. A replacement
P58. In accounting for plant assets,
which of the following outlays made subsequent to acquisition should be fully
expensed in the period the expenditure is made?
a. Expenditure made to increase the efficiency or
effectiveness of an existing asset
b. Expenditure made to extend the useful life of an
existing asset beyond the time frame originally anticipated
c. Expenditure made to maintain an existing asset so
that it can function in the manner intended
d. Expenditure made to add new asset services
S59. An expenditure made in connection
with a machine being used by an enterprise should be
a. expensed immediately if it merely extends the
useful life but does not improve the quality.
b. expensed immediately if it merely improves the
quality but does not extend the useful life.
c. capitalized if it maintains the machine in normal
operating condition.
d. capitalized if it increases the quantity of units
produced by the machine.
S60. When a plant asset is disposed of, a
gain or loss may result. The gain or loss would be classified as an
extraordinary item on the income statement if it resulted from
a. an involuntary conversion and the conditions of
the disposition are unusual and infrequent in nature.
b. a sale prior to the completion of the estimated
useful life of the asset.
c. the sale of a fully depreciated asset.
d. an abandonment of the asset.
61. The sale of a depreciable asset
resulting in a loss indicates that the proceeds from the sale were
a. less than current fair value.
b. greater than cost.
c. greater than book value.
d. less than book value.
62. Which of the following statements
about involuntary conversions is false?
a. An involuntary conversion may result from
condemnation or fire.
b. The gain or loss from an involuntary conversion
may be reported as an extraordinary item.
c. The gain or loss from an involuntary conversion
should not be recognized when the enterprise reinvests in replacement assets.
d. All of these.
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