Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) Plant assets are long-lived, tangible assets used in the operation of a business.
2) The process of allocating the cost of a plant asset over its useful life is known as cost reduction.
3) The cost principle requires a business to record the assets acquired, or services received, at their actual
cost.
4) The cost of a plant asset includes all amounts paid to ready the asset for its intended use.
5) A business that has a vacant building that is not currently being used would classify the building as a
plant asset.
6) All plant assets are depreciated.
7) Which of the following is included in the cost of a plant asset?
A) amounts paid to make the asset ready for its intended use
B) regular repair and maintenance costs
C) replacement of damaged parts of the asset
D) wages of workers who use the asset in normal operations
8) Masonry Construction Group paid $10,000 for a plant asset that had a market value of $14,500. At
which of the following amounts should the plant asset be recorded?
A) $14,500
B) $5000
C) $10,000
D) $20,000
9) Which of the following is a characteristic of a plant asset, such as a building?
A) It is used in the operations of a business.
B) It is available for sale to customers in the ordinary course of business.
C) It has a short useful life.
D) It will have a negligible value at the end of its useful life.
10) Which of the following statements is incorrect?
A) The life cycle of a plant asset includes: acquisition, usage, and disposal.
B) Depreciation is recorded on all plant assets.
C) Plant assets not currently being used in business operations are classified as long-term investments.
D) Plant assets are long-lived tangible assets used in the operations of a business.
11) The cost of land does not include the cost of fencing and paving.
12) Capitalizing a cost involves crediting the asset account.
13) Land and land improvements are one and the same and therefore must be recorded in single account.
14) Which of the following is included in the cost of land?
A) cost of fencing
B) cost of paving
C) brokerage commission
D) cost of outdoor lighting
15) Which of the following asset categories would include the cost of clearing land and removing
unwanted buildings?
A) land
B) buildings
C) land improvements
D) machinery and equipment
16) Which of the following should be included in the cost of land?
A) cost to build sidewalks on the land
B) cost to clear the land of old buildings
C) cost of installing signage
D) cost of installing fences
17) Bachman, Inc. plans to develop a shopping center. In the first quarter, the following amounts were
spent:
Acquisition of land
$23,000
Surveys and legal fees
1500
Land clearing
400
Fencing
7000
Install lighting and signage
1860
What amount should be recorded as the cost of the land in the corporation‘s books?
A) $31,900
B) $24,900
C) $26,760
D) $30,400
18) McArthur, Inc. plans to develop a shopping center. In the first quarter, the following amounts were
spent:
Acquisition of land
$19,000
Surveys and legal fees
900
Land clearing
1100
Fencing
2000
Install lighting and signage
14,060
What amount should be recorded as the land improvements cost?
A) $3100
B) $4000
C) $16,060
D) $2000
19) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash. Omit
explanation.
Land Improvements
5,000
Cash
5,000
Diff: 1
LO: 9-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Land and Land Improvements
20) The cost of a building depends on whether the company is constructing the building or is acquiring
an existing one.
21) When constructing a building for plant operations, payments for materials, labor, and miscellaneous
costs are recorded as expenses.
22) Which of the following is NOT recorded as the cost of a building?
A) building permits
B) fencing
C) architectural fees
D) contractor charges
23) For each of the following amounts paid by a purchaser, determine whether the amount is debited to
Land, Land Improvements, or Building.
Transaction
Building permits
Cost of clearing land and removing unwanted
buildings
Parking lot lighting
Delinquent property taxes on land
Cost to renovate a building to make it ready for
use
Taxes assessed to transfer ownership (title) of
land
Building permits
Building
Cost of clearing land and removing unwanted
buildings
Land
Parking lot lighting
Land Improvements
use
Building
Taxes assessed to transfer ownership (title) of
25) Installation costs are recorded as part of the cost of equipment.
26) Danube Corp. purchased a used machine for $21,000. The machine required installation costs of $6000
and insurance while in transit of $1800. At which of the following amounts would the machine be
recorded?
A) $21,000
B) $27,000
C) $22,800
D) $28,800
27) Brentwood Auto Repair purchased a new machine and placed it in service on June 14. Which of the
following is NOT included in the cost of equipment?
A) cost of testing the machine on June 12
B) purchase commission
C) sales tax
D) a six month insurance policy which was paid on June 5 and became effective on June 15
28) The cost of furniture and fixtures includes all costs to ready the asset for its intended use.
29) The cost paid to a laborer to assemble a desk is recorded as an expense.
30) Which of the following is NOT included as furniture and fixtures?
A) file cabinets
B) shelving
C) display racks
D) computers
31) A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.
32) The lump-sum amount paid for a group of assets is divided among the acquired assets based on their
relative market values.