Question 1

Companies always treat gains or losses from an involuntary conversion as part of discontinued operations.

Accepted Answer

A) True 
 B)False

Question 2

To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be

Accepted Answer

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.

Question 3

If a government entity provides an interest free loan to a company and the company accounts for the grant using the deferred revenue approach,

Accepted Answer

A)  no interest expense will be recorded.
B)  the interest element is initially recorded as Discount on Notes Payable.
C)  the interest element is amortized to Deferred Grant Revenue over the term of the loan.
D)  All of these answer choices are correct.

Question 4

Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets?

Accepted Answer

A)  Assets under construction for a company'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.

Question 5

Assets that qualify for interest cost capitalization include

Accepted Answer

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.

Question 6

The cost of land typically includes the purchase price and all of the following costs except

Accepted Answer

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.

Question 7

Interest cost that is capitalized should

Accepted Answer

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 answer choices are correct.

Question 8

Assets under construction for a company's own use do not qualify for interest cost capitalization.

Accepted Answer

A) True 
 B)False

Question 9

Companies should assign no portion of fixed overhead to self-constructed assets.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?

Accepted Answer

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.

Question 11

One way of recognizing a government grant is to deduct the grant from the carrying amount of the assets received from the grant.

Accepted Answer

A) True 
 B)False

Question 12

Companies account for the exchange of non-monetary assets on the basis of the fair value of the asset given up or the fair value of the asset received.

Accepted Answer

A) True 
 B)False

Question 13

When an asset acquired through a government grant is recorded on the books, equity will increase by the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 14

An expenditure made in connection with a machine being used by a company should be

Accepted Answer

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.

Question 15

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

Accepted Answer

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.

Question 16

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

Accepted Answer

A)  8/8.
B)  8/12.
C)  9/12.
D)  11/12.

Question 17

Which of the following statements about involuntary conversions is false?

Accepted Answer

A)  An involuntary conversion may result from condemnation or fire.
B)  The gain or loss from an involuntary conversion is reported in other income and expense on the income statement.
C)  The gain or loss from an involuntary conversion should not be recognized when the company reinvests in replacement assets.
D)  None of these answer choices are false.

Question 18

Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not true with regard to the accounting for government grants?

Accepted Answer

A)  Assets may be recorded at fair value or nominal cost.
B)  Companies may use either the capital or income approach to account for the asset and the grant.
C)  Companies may apply the income approach either by recording the grant as deferred revenue or as an adjustment to the asset.
D)  None of these answer choices are correct.

Question 20

Fences and parking lots are reported on the statement of financial position as

Accepted Answer

A)  current assets.
B)  land improvements.
C)  land.
D)  property and equipment.

Exam 10: Acquisition and Disposition of Property, Plant, and Equipment

When an asset acquired through a government grant is recorded on the books, equity will increase by the cost of the asset.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements about involuntary conversions is false?

Correct AnswerverifiedShow Answer

Assets under construction for a company's own use do not qualify for interest cost capitalization.

Correct AnswerverifiedShow Answer

One way of recognizing a government grant is to deduct the grant from the carrying amount of the assets received from the grant.

Correct AnswerverifiedShow Answer

To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be

Correct AnswerverifiedShow Answer

Which of the following is not true with regard to the accounting for government grants?

Correct AnswerverifiedShow Answer

Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?

Correct AnswerverifiedShow Answer

Companies should assign no portion of fixed overhead to self-constructed assets.

Correct AnswerverifiedShow Answer

The cost of land typically includes the purchase price and all of the following costs except

Correct AnswerverifiedShow Answer

An expenditure made in connection with a machine being used by a company should be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fences and parking lots are reported on the statement of financial position as

Correct AnswerverifiedShow Answer

If a government entity provides an interest free loan to a company and the company accounts for the grant using the deferred revenue approach,

Correct AnswerverifiedShow Answer

Interest cost that is capitalized should

Correct AnswerverifiedShow Answer

Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets?

Correct AnswerverifiedShow Answer

Companies account for the exchange of non-monetary assets on the basis of the fair value of the asset given up or the fair value of the asset received.

Correct AnswerverifiedShow Answer

Companies always treat gains or losses from an involuntary conversion as part of discontinued operations.

Correct AnswerverifiedShow Answer

Assets that qualify for interest cost capitalization include

Correct AnswerverifiedShow Answer

Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.

Correct AnswerverifiedShow Answer

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