Acquisition and Disposition of Property, Plant, and Equipment
10 – 21
74. On May 1, 2020, Goodman Company began construction of a building. Expenditures of
$600,000 were incurred monthly for 5 months beginning on May 1. The building was
completed and ready for occupancy on September 1, 2020. For the purpose of
determining the amount of interest cost to be capitalized, the weighted-average
accumulated expenditures on the building during 2020 were
a. $500,000.
b. $600,000.
c. $2,400,000.
d. $3,000,000.
75. During 2020, Kimmel Co. incurred weighted-average accumulated expenditures of
$1,600,000 during construction of assets that qualified for capitalization of interest. The
only debt outstanding during 2020 was a $2,000,000, 10%, 5-year note payable dated
January 1, 2020. What is the amount of interest that should be capitalized by Kimmel
during 2020?
a. $0.
b. $40,000.
c. $160,000.
d. $200,000.
76. On March 1, Felt Co. began construction of a small building. Payments of $480,000 were
made monthly for three months beginning March 1. The building was completed and
ready for occupancy on June 1. In determining the amount of interest cost to be
capitalized, the weighted-average accumulated expenditures are
a. $120,000.
b. $240,000.
c. $480,000.
d. $960,000.
77. On March 1, Imhoff Co. began construction of a small building. Payments of $800,000
were made monthly for three months beginning March 1. The building was completed and
ready for occupancy on June 1. In determining the amount of interest cost to be
capitalized, the weighted-average accumulated expenditures are
a. $400,000.
b. $800,000.
c. $1,600,000.
d. $3,480,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 22
78. On March 1, 2020, Newton Company purchased land for an office site by paying
$2,700,000 cash. Newton began construction on the office building on March 1. The
following expenditures were incurred for construction:
Date Expenditures
March 1, 2020 $ 1,800,000
April 1, 2020 2,520,000
May 1, 2020 4,500,000
June 1, 2020 4,800,000
The office was completed and ready for occupancy on July 1. To help pay for
construction, and purchase of land $3,600,000 was borrowed on March 1, 2020 on a 9%,
3-year note payable. Other than the construction note, the only debt outstanding during
2020 was a $1,500,000, 12%, 6-year note payable dated January 1, 2020.
The weighted-average accumulated expenditures on the construction project during 2020
were
a. $1,920,000.
b. $14,670,000.
c. $1,560,000.
d. $2,380,000.
79. On March 1, 2020, Newton Company purchased land for an office site by paying
$2,700,000 cash. Newton began construction on the office building on March 1. The
following expenditures were incurred for construction:
Date Expenditures
March 1, 2020 $ 1,800,000
April 1, 2020 2,520,000
May 1, 2020 4,500,000
June 1, 2020 4,800,000
The office was completed and ready for occupancy on July 1. To help pay for
construction, and purchase of land $3,600,000 was borrowed on March 1, 2020 on a 9%,
3-year note payable. Other than the construction note, the only debt outstanding during
2020 was a $1,500,000, 12%, 6-year note payable dated January 1, 2020.
The actual interest cost incurred during 2017 was
a. $450,000.
b. $504,000.
c. $252,000.
d. $420,000.
80. On March 1, 2020, Newton Company purchased land for an office site by paying
$2,700,000 cash. Newton began construction on the office building on March 1.
The office was completed and ready for occupancy on July 1. To help pay for
construction, and purchase of land $3,600,000 was borrowed on March 1, 2020 on a 9%,
Acquisition and Disposition of Property, Plant, and Equipment
10 – 23
3-year note payable. Other than the construction note, the only debt outstanding during
2020 was a $1,500,000, 12%, 6-year note payable dated January 1, 2020.
Assume the weighted-average accumulated expenditures for the construction project are
$4,350,000. The amount of interest cost to be capitalized during 2020 is
a. $391,500.
b. $414,000.
c. $450,000.
d. $504,000.
81. During 2020, Bass Corporation constructed assets costing $4,000,000. The weighted–
average accumulated expenditures on these assets during 2020 was $2,400,000. To help
pay for construction, $1,760,000 was borrowed at 10% on January 1, 2020, and funds not
needed for construction were temporarily invested in short-term securities, yielding
$36,000 in interest revenue. Other than the construction funds borrowed, the only other
debt outstanding during the year was a $2,000,000, 10-year, 9% note payable dated
January 1, 2014. What is the amount of interest that should be capitalized by Bass during
2020?
a. $240,000.
b. $120,000.
c. $233,600.
d. $377,600.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 24
82. On January 2, 2020, Indian River Groves began construction of a new citrus processing
plant. The automated plant was finished and ready for use on September 30, 2021.
Expenditures for the construction were as follows:
January 2, 2020
$ 600,000
September 1, 2020
1,800,000
December 31, 2020
1,800,000
March 31, 2021
1,800,000
September 30, 2021
1,200,000
Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on
January 2, 2020. This loan was outstanding during the construction period. The company
also had $12,000,000 in 9% bonds outstanding in 2020 and 2021.
What were the weighted-average accumulated expenditures for 2020?
a. $1,600,000
b. $1,500,000
c. $1,200,000
d. $3,000,000
83. On January 2, 2020, Indian River Groves began construction of a new citrus processing
plant. The automated plant was finished and ready for use on September 30, 2021.
Expenditures for the construction were as follows:
January 2, 2020
$ 600,000
September 1, 2020
1,800,000
December 31, 2020
1,800,000
March 31, 2021
1,800,000
September 30, 2021
1,200,000
Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on
January 2, 2020. This loan was outstanding during the construction period. The company
also had $12,000,000 in 9% bonds outstanding in 2017 and 2021.
The interest capitalized for 2020 was:
a. $540,000
b. $144,000
c. $456,000
d. $180,000
Acquisition and Disposition of Property, Plant, and Equipment
10 – 25
84. On January 2, 2020, Indian River Groves began construction of a new citrus processing
plant. The automated plant was finished and ready for use on September 30, 2021.
Expenditures for the construction were as follows:
January 2, 2020
$ 600,000
September 1, 2020
1,800,000
December 31, 2020
1,800,000
March 31, 2021
1,800,000
September 30, 2021
1,200,000
Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on
January 2, 2020. This loan was outstanding during the construction period. The company
also had $12,000,000 in 9% bonds outstanding in 2020 and 2021.
What were the weighted-average accumulated expenditures for 2021 by the end of the
construction period?
a. $1,170,000
b. $4,905,000
c. $5,958,000
d. $4,158,000
85. On January 2, 2020, Indian River Groves began construction of a new citrus processing
plant. The automated plant was finished and ready for use on September 30, 2018.
Expenditures for the construction were as follows:
January 2, 2020
$ 600,000
September 1, 2020
1,800,000
December 31, 2020
1,800,000
March 31, 2021
1,800,000
September 30, 2021
1,200,000
Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on
January 2, 2020. This loan was outstanding during the construction period. The company
also had $12,000,000 in 9% bonds outstanding in 2020 and 2021.
The interest capitalized for 2021 was:
a. $374,220
b. $354,915
c. $ 77,220
d. $297,000
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 26
86. Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $6,400,000 on March 1, $5,280,000 on
June 1, and $8,000,000 on December 31. Arlington Company borrowed $3,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an
11%, 4-year, $12,000,000 note payable.
What are the weighted-average accumulated expenditures?
a. $11,680,000
b. $8,413,333
c. $19,680,000
d. $9,840,000
87. Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $6,400,000 on March 1, $5,280,000 on
June 1, and $8,000,000 on December 31. Arlington Company borrowed $3,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an
11%, 4-year, $12,000,000 note payable.
What is the weighted-average interest rate used for interest capitalization purposes?
a. 11%
b. 10.85%
c. 10.5%
d. 10.65%
88. Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $6,400,000 on March 1, $5,280,000 on
June 1, and $8,000,000 on December 31. Arlington Company borrowed $3,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an
11%, 4-year, $12,000,000 note payable.
What is the avoidable interest for Arlington Company?
a. $384,000
b. $1,236,820
c. $438,682
d. $939,220
Acquisition and Disposition of Property, Plant, and Equipment
10 – 27
89. Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $6,400,000 on March 1, $5,280,000 on
June 1, and $8,000,000 on December 31. Arlington Company borrowed $3,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an
11%, 4-year, $12,000,000 note payable.
What is the actual interest for Arlington Company?
a. $2,344,000
b. $2,376,000
c. $1,960,000
d. $939,220
90. Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $6,400,000 on March 1, $5,280,000 on
June 1, and $8,000,000 on December 31. Arlington Company borrowed $3,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an
11%, 4-year, $12,000,000 note payable.
What amount of interest should be charged to expense?
a. $1,020,778
b. $1,960,000
c. $1,404,780
d. $1,107,178
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 28
91. Dodson Company traded in a manual pressing machine for an automated pressing
machine and gave $40,000 cash. The old machine cost $465,000 and had a net book
value of $355,000. The old machine had a fair value of $300,000.
Which of the following is the correct journal entry to record the exchange assuming
commercial substance?
a. Equipment 340,000
Loss on Disposal 55,000
Accumulated Depreciation 110,000
Equipment 465,000
Cash 40,000
b. Equipment 304,000
Equipment 200,000
Cash 40,000
c. Cash 40,000
Equipment 300,000
Loss on Disposal 55,000
Accumulated Depreciation 110,000
Equipment 505,000
d. Equipment 615,000
Accumulated Depreciation 110,000
Equipment 465,000
Cash 40,000
Acquisition and Disposition of Property, Plant, and Equipment
10 – 29
92. Below is the information relative to an exchange of assets by Stanton Company. The
exchange lacks commercial substance.
Book Value
Fair Value
Cash Paid
Case I
$450,000
$510,000
$90,000
Case II
$300,000
$270,000
$42,000
Which of the following would be correct for Stanton to record in Case I?
Record Equipment at:
Record a gain of (loss) of:
a.
$540,000
$0
b.
$600,000
$60,000
c.
$450,000
$(30,000)
d.
$540,000
$60,000
93. Below is the information relative to an exchange of assets by Stanton Company. The
exchange lacks commercial substance.
Book Value
Fair Value
Cash Paid
Case I
$450,000
$510,000
$90,000
Case II
$300,000
$270,000
$42,000
Which of the following would be correct for Stanton to record in Case II?
Record Equipment at:
Record a gain of (loss) of:
a.
$342,000
$30,000
b.
$300,000
$12,000
c.
$312,000
$(30,000)
d.
$300,000
$(12,000)
94. Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset
given up by Glen Inc. has a book value of $72,000 and a fair value of $90,000. The asset
given up by Armstrong Co. has a book value of $120,000 and a fair value of $114,000.
Boot of $24,000 is received by Armstrong Co.
What amount should Glen Inc. record for the asset received?
a. $90,000
b. $96,000
c. $114,000
d. $120,000
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 30
95. Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset
given up by Glen Inc. has a book value of $72,000 and a fair value of $90,000. The asset
given up by Armstrong Co. has a book value of $120,000 and a fair value of $114,000.
Boot of $24,000 is received by Armstrong Co.
What amount should Armstrong Co. record for the asset received?
a. $90,000
b. $96,000
c. $114,000
d. $120,000
96. Hardin Company received $120,000 in cash and a used computer with a fair value of
$360,000 from Page Corporation for Hardin Company’s existing computer having a fair
value of $480,000 and an undepreciated cost of $450,000 recorded on its books. The
transaction has no commercial substance. How much gain should Hardin recognize on
this exchange, and at what amount should the acquired computer be recorded,
respectively?
a. $0 and $330,000
b. $1,537 and $221,537
c. $30,000 and $360,000
d. $120,000 and $450,000
97. Jamison Company purchased the assets of Booker Company at an auction for
$5,600,000. An independent appraisal of the fair value of the assets is listed below:
Land $1,900,000
Building 2,800,000
Equipment 2,100,000
Trucks 3,400,000
Assuming that specific identification costs are impracticable and that Jamison allocates
the purchase price on the basis of the relative fair values, what amount would be allocated
to the Trucks?
a. $1,866,667
b. $2,800,000
c. $3,360,000
d. $3,400,000
Acquisition and Disposition of Property, Plant, and Equipment
10 – 31
98. Jamison Company purchased the assets of Booker Company at an auction for
$5,600,000. An independent appraisal of the fair value of the assets is listed below:
Land $1,900,000
Building 2,800,000
Equipment 2,100,000
Trucks 3,400,000
Assuming that specific identification costs are impracticable and that Jamison allocates
the purchase price on the basis of the relative fair values, what amount would be allocated
to the Building?
a. $2,118,920
b. $2,800,000
c. $5,100,000
d. $1,537,255
99. On December 1, Miser Corporation exchanged 6,000 shares of its $25 par value common
stock held in treasury for a parcel of land to be held for a future plant site. The treasury
shares were acquired by Miser at a cost of $40 per share, and on the exchange date the
common shares of Miser had a fair value of $50 per share. Miser received $18,000 for
selling scrap when an existing building on the property was removed from the site. Based
on these facts, the land should be capitalized at
a. $148,000.
b. $240,000.
c. $282,000.
d. $300,000.
100. Storm Corporation purchased a new machine on October 31, 2020. A $4,800 down
payment was made and three monthly installments of $14,400 each are to be made
beginning on November 30, 2020. The cash price would have been $46,400. Storm paid
no installation charges under the monthly payment plan but an $800 installation charge
would have been incurred with a cash purchase. The amount to be capitalized as the cost
of the machine on October 31, 2020 would be
a. $48,800.
b. $48,000.
c. $47,200.
d. $46,400.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 32
101. Horner Company buys a delivery van with a list price of $70,000. 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 $930 and the company paid an extra $700 to
have a special device installed. What should be the recorded cost of the van?
a. $58,310.
b. $59,907.
c. $59,940.
d. $59,240.
102. On August 1, 2020, Hayes Corporation purchased a new machine on a deferred payment
basis. A down payment of $18,000 was made and 4 monthly installments of $15,000 each
are to be made beginning on September 1, 2020. The cash equivalent price of the
machine was $72,000. Hayes incurred and paid installation costs amounting to $3,000.
The amount to be capitalized as the cost of the machine is
a. $72,000.
b. $75,000.
c. $78,000.
d. $81,000.
103. On April 1, Mooney Corporation purchased for $1,620,000 a tract of land on which a
warehouse and office building was located. The following data were collected concerning
the property:
Current Assessed Valuation Vendor’s Original Cost
Land $600,000 $550,000
Warehouse 400,000 370,000
Office building 800,000 680,000
$1,800,000 $1,600,000
What are the appropriate amounts that Mooney should record for the land, warehouse,
and office building, respectively?
a. Land, $550,000; warehouse, $370,000; office building, $680,000.
b. Land, $600,000; warehouse, $400,000; office building, $800,000.
c. Land, $556,875; warehouse, $374,625; office building, $688,500.
d. Land, $540,000; warehouse, $360,000; office building, $720,000.
Acquisition and Disposition of Property, Plant, and Equipment
10 – 33
104. On August 1, 2020, Mendez Corporation purchased a new machine on a deferred payment
basis. A down payment of $4,000 was made and 4 annual installments of $24,000 each are
to be made beginning on September 1, 2020. The cash equivalent price of the machine was
$92,000. Due to an employee strike, Mendez could not install the machine immediately, and
thus incurred $1,200 of storage costs. Costs of installation (excluding the storage costs)
amounted to $3,200. The amount to be capitalized as the cost of the machine is
a. $92,000.
b. $95,200.
c. $96,400.
d. $104,000.
105. Siegle Company exchanged 3,000 shares of Guinn Company common stock, which
Siegle was holding as an investment, for equipment from Mayo Company. The Guinn
Company common stock, which had been purchased by Siegle for $50 per share, had a
quoted market value of $58 per share at the date of exchange. The equipment had a
recorded amount on Mayo’s books of $157,500. What journal entry should Siegle make to
record this exchange?
a. Equipment ………………………………………………………………… 150,000
Investment in Guinn Co. Common Stock ………………. 150,000
b. Equipment ………………………………………………………………… 157,500
Investment in Guinn Co. Common Stock ………………. 150,000
Gain on Disposal of Investment ……………………………. 7,500
c. Equipment ………………………………………………………………… 157,500
Loss on Disposal of Investment …………………………………… 16,500
Investment in Guinn Co. Common Stock ………………. 174,000
d. Equipment ………………………………………………………………… 174,000
Investment in Guinn Co. Common Stock ………………. 150,000
Gain on Disposal of Investment ……………………………. 24,000
106. On January 2, 2020, Rapid Delivery Company traded in an old delivery truck for a newer
model. The exchange lacked commercial substance. Data relative to the old and new
trucks follow:
Old Truck
Original cost $45,000
Accumulated depreciation as of January 2, 2020 30,000
Average published retail value 14,000
New Truck
List price $75,000
Cash price without trade-in 68,000
Cash paid with trade-in 56,000
What should be the cost of the new truck for financial accounting purposes?
a. $56,000.
b. $68,000.
c. $71,000.
d. $75,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 34
107. On December 1, 2020, Kelso Company acquired new equipment in exchange for old
equipment that it had acquired in 2017. The old equipment was purchased for $210,000
and had a book value of $79,800. On the date of the exchange, the old equipment had a
fair value of $84,000. In addition, Kelso paid $273,000 cash for the new equipment, which
had a list price of $378,000. The exchange lacked commercial substance. At what amount
should Kelso record the new equipment for financial accounting purposes?
a. $273,000.
b. $352,800.
c. $357,000.
d. $378,000.
108. A machine cost $1,200,000, has annual depreciation of $200,000, and has accumulated
depreciation of $950,000 on December 31, 2020. On April 1, 2021, when the machine has
a fair value of $275,000, it is exchanged for a machine with a fair value of $1,350,000 and
the proper amount of cash is paid. The exchange had commercial substance.
The gain to be recorded on the exchange is
a. $0.
b. $25,000
c. $50,000
d. $150,000
Acquisition and Disposition of Property, Plant, and Equipment
10 – 35
109. A machine cost $1,200,000, has annual depreciation of $200,000, and has accumulated
depreciation of $950,000 on December 31, 2020. On April 1, 2021, when the machine has a fair
value of $275,000, it is exchanged for a machine with a fair value of $1,350,000 and the proper
amount of cash is paid. The exchange had commercial substance.
The new machine should be recorded at
a. $1,075,000.
b. $1,225,000.
c. $1,325,000.
d. $1,350,000.
110. Equipment that cost $660,000 and has accumulated depreciation of $300,000 is
exchanged for equipment with a fair value of $480,000 and $120,000 cash is received.
The exchange lacked commercial substance.
The gain to be recognized from the exchange is
a. $48,000
b. $60,000
c. $180,000
d. $240,000
111. Equipment that cost $660,000 and has accumulated depreciation of $300,000 is
exchanged for equipment with a fair value of $480,000 and $120,000 cash is received.
The exchange lacked commercial substance.
The new equipment should be recorded at
a. $480,000.
b. $360,000.
c. $300,000.
d. $288,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 36
112. Two independent companies, Hager Co. and Shaw Co., are in the home building
business. Each owns a tract of land held for development, but each would prefer to build
on the other’s land. They agree to exchange their land. An appraiser was hired, and from
her report and the companies’ records, the following information was obtained:
Hager’s Land Shaw’s Land
Cost and book value $576,000 $360,000
Fair value based upon appraisal 720,000 630,000
The exchange was made, and based on the difference in appraised fair values, Shaw paid
$90,000 to Hager. The exchange lacked commercial substance.
For financial reporting purposes, Hager should recognize a pre-tax gain on this exchange
of
a. $0.
b. $18,000.
c. $90,000.
d. $144,000.
113. Two independent companies, Hager Co. and Shaw Co., are in the home building
business. Each owns a tract of land held for development, but each would prefer to build
on the other’s land. They agree to exchange their land. An appraiser was hired, and from
her report and the companies’ records, the following information was obtained:
Hager’s Land Shaw’s Land
Cost and book value $576,000 $360,000
Fair value based upon appraisal 720,000 630,000
The exchange was made, and based on the difference in appraised fair values, Shaw paid
$90,000 to Hager. The exchange lacked commercial substance.
The new land should be recorded on Hager’s books at
a. $504,000.
b. $576,000.
c. $630,000.
d. $720,000.
114. Two independent companies, Hager Co. and Shaw Co., are in the home building
business. Each owns a tract of land held for development, but each would prefer to build
on the other’s land. They agree to exchange their land. An appraiser was hired, and from
her report and the companies’ records, the following information was obtained:
Hager’s Land Shaw’s Land
Cost and book value $576,000 $360,000
Fair value based upon appraisal 720,000 630,000
Acquisition and Disposition of Property, Plant, and Equipment
10 – 37
The exchange was made, and based on the difference in appraised fair values, Shaw paid
$90,000 to Hager. The exchange lacked commercial substance.
The new land should be recorded on Shaw’s books at
a. $360,000.
b. $450,000.
c. $630,000.
d. $720,000.
115. Timmons Company traded machinery with a book value of $600,000 and a fair value of
$1,000,000. It received in exchange from Lewis Company a machine with a fair value of
$900,000 and cash of $100,000. Lewis’s machine has a book value of $950,000. What
amount of gain should Timmons recognize on the exchange (assuming lack of
commercial substance)?
a. $ -0-
b. $40,000
c. $100,000
d. $400,000
116. Lewis Company traded machinery with a book value of $950,000 and a fair value of
$900,000. It received in exchange from Timmons Company a machine with a fair value of
$1,000,000. Lewis also paid cash of $100,000 in the exchange. Timmons’s machine has a
book value of $950,000. What amount of gain or loss should Lewis recognize on the
exchange (assuming lack of commercial substance)?
a. $100,000 gain
b. $ -0-.
c. $5,000 loss
d. $50,000 loss
117. Durler Company traded machinery with a book value of $1,080,000 and a fair value of
$1,800,000. It received in exchange from Hoyle Company a machine with a fair value of
$1,620,000 and cash of $180,000. Hoyle’s machine has a book value of $1,710,000. What
amount of gain should Durler recognize on the exchange (assuming lack of commercial
substance)?
a. $ -0-
b. $72,000
c. $180,000
d. $720,000
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 38
118. Hoyle Company traded machinery with a book value of $760,000 and a fair value of
$720,000. It received in exchange from Durler Company a machine with a fair value of
$800,000. Hoyle also paid cash of $80,000 in the exchange. Durler’s machine has a book
value of $760,000. What amount of gain or loss should Hoyle recognize on the exchange
(assuming lack of commercial substance)?
a. $80,000 gain
b. $ -0-
c. $4,000 loss
d. $40,000 loss
119. Peterson Company purchased machinery for $960,000 on January 1, 2017. Straight-line
depreciation has been recorded based on a $60,000 salvage value and a 5-year useful
life. The machinery was sold on May 1, 2021 at a gain of $18,000. How much cash did
Peterson receive from the sale of the machinery?
a. $138,000
b. $162,000
c. $198,000
d. $258,000
120. Sutherland Company purchased machinery for $1,120,000 on January 1, 2017. Straight-
line depreciation has been recorded based on a $70,000 salvage value and a 5-year
useful life. The machinery was sold on May 1, 2021 at a gain of $21,000. How much cash
did Sutherland receive from the sale of the machinery?
a. $161,000.
b. $189,000.
c. $231,000.
d. $301,000.
121. Ecker Company purchased a new machine on May 1, 2012 for $528,000. At the time of
acquisition, the machine was estimated to have a useful life of ten years and an estimated
salvage value of $24,000. The company has recorded monthly depreciation using the
straight-line method. On March 1, 2021, the machine was sold for $72,000. What should
be the loss recognized from the sale of the machine?
a. $0.
b. $10,800.
c. $24,000.
d. $34,800.
Acquisition and Disposition of Property, Plant, and Equipment
10 – 39
122. On January 1, 2012, Mill Corporation purchased for $760,000, equipment having a useful
life of ten years and an estimated salvage value of $40,000. Mill has recorded monthly
depreciation of the equipment on the straight-line method. On December 31, 2020, the
equipment was sold for $140,000. As a result of this sale, Mill should recognize a gain of
a. $0.
b. $28,000.
c. $68,000.
d. $140,000.
Multiple Choice Answers—Computational
Test Bank for Intermediate Accounting, Seventeenth Edition
10 – 40
MULTIPLE CHOICE—CPA Adapted
123. On December 1, 2020, Hogan Co. purchased a tract of land as a factory site for $780,000.
The old building on the property was razed, and salvaged materials resulting from
demolition were sold. Additional costs incurred and salvage proceeds realized during
December 2020 were as follows:
Cost to raze old building $70,000
Legal fees for purchase contract and to record ownership 10,000
Title guarantee insurance 16,000
Proceeds from sale of salvaged materials 8,000
In Hogan ‘s December 31, 2020 balance sheet, what amount should be reported as land?
a. $806,000.
b. $842,000.
c. $868,000.
d. $876,000.
124. Land was purchased to be used as the site for the construction of a plant. A building on
the property was sold and removed by the buyer so that construction on the plant could
begin. The proceeds from the sale of the building should be
a. classified as other income.
b. deducted from the cost of the land.
c. netted against the costs to clear the land and expensed as incurred.
d. netted against the costs to clear the land and amortized over the life of the plant.
125. A company is constructing an asset for its own use. Construction began in 2020. The
asset is being financed entirely with a specific new borrowing. Construction expenditures
were made in 2020 and 2021 at the end of each quarter. The total amount of interest cost
capitalized in 2021 should be determined by applying the interest rate on the specific new
borrowing to the
a. total accumulated expenditures for the asset in 2020 and 2021.
b. weighted-average accumulated expenditures for the asset in 2020 and 2021.
c. weighted-average expenditures for the asset in 2021.
d. total expenditures for the asset in 2021.