CHAPTER 10: PROPERTY, PLANT, AND EQUIPMENT: ACQUISITION AND
SUBSEQUENT INVESTMENTS
1. One advantage of recording property, plant, and equipment at historical costs is that historical cost is equal to the fair
value on the purchase date.
a.
True
b.
False
True
1
Easy
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2. GAAP requires a company to report its property, plant, and equipment at fair value less accumulated depreciation.
a.
True
b.
False
False
1
Easy
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3. Improvements made to a leased property should be capitalized over the life of the lease or the life of the assets
whichever is shorter.
a.
True
b.
False
True
1
Easy
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4. Under IFRS a company is allowed to revalue its property, plant, and equipment up to fair value if the value can be
reliably measured.
a.
True
b.
False
True
1
Easy
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5. Assets acquired by donation will have zero value for financial reporting purposes.
a.
True
b.
False
False
1
Easy
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Bloom’s: Remembering
6. The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the new asset
acquired.
a.
True
b.
False
False
1
Easy
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United States – OH – Default City – AICPA: FN-Decision Modeling
Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
7. If an exchange lacks commercial substance and results in a gain, the gain must be deferred by reducing the cost of the
asset.
a.
True
b.
False
True
1
Easy
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8. All interest paid on a construction loan should be capitalized as part of the cost of the constructed asset.
a.
True
b.
False
False
1
Easy
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9. Capitalized interest for a constructed asset cannot exceed actual interest costs.
a.
True
b.
False
True
1
Easy
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Bloom’s: Remembering
Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
10. The amount of interest that can be capitalized for a qualifying asset is the lesser of the amount considered as avoidable
interest costs or actual interest cost.
a.
True
b.
False
True
1
Easy
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11. An expenditure to improve an asset can be added to the depreciable basis of that asset if the expenditure extends the
life of the asset.
a.
True
b.
False
True
1
Easy
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United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
12. Under IFRS, the costs of relocating property, plant, and equipment can be capitalized as assets and depreciated over
the period of expected benefit.
a.
True
b.
False
False
1
Easy
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United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
13. Under the full-cost method, only the costs associated with the exploration that resulted in the successful discovery of
oil and gas can be capitalized.
a.
True
b.
False
False
1
Easy
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14. Under the full-cost method, the costs associated with dry wells can be capitalized as part of the oil and gas reserves.
a.
True
b.
False
True
1
Easy
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15. Alternative terms for property, plant, and equipment include all of the following except
a.
plant assets.
b.
fixed assets.
c.
long-term assets.
d.
operational assets.
c
1
Easy
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16. All of the following would be classified as property, plant, and equipment except
a.
b.
c.
d.
c
1
Easy
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17. Which of the following assets would be classified as property, plant, and equipment?
a.
Office building to be demolished in nine months
b.
Natural gas reserves expected to produce for more than a decade
c.
Land held as a long-term investment
d.
Financial securities expected to produce significant returns for the next seven years
b
1
Easy
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Bloom’s: Remembering
18. Advantages of using historical cost as the basis of valuation of property, plant, and equipment include all of the
following except
a.
it is representationally faithful.
b.
gains and losses from holding the asset are recognized in the period of value change.
c.
cost equals the fair market value at the date of acquisition.
d.
it is consistent with the valuation of many other assets and liabilities.
b
1
Moderate
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
19. To be included in property, plant, and equipment, an asset must have all of the following except
a.
the asset must be held for use.
b.
the asset must have an expected life of a normal operating cycle.
c.
the asset must be tangible in nature.
d.
the asset must have an expected life of more than one year.
b
1
Easy
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20. Which one of the following types of assets should not be classified as property, plant, and equipment?
a.
leasehold improvements
b.
fully-depreciated building (still in use)
c.
idle land and buildings
d.
long-lived tangible assets
c
1
Easy
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21. Property, plant, and equipment are listed on the balance sheet at
a.
expected future value.
b.
fair value.
c.
historical cost plus or minus holding gains or losses.
d.
cost less accumulated depreciation.
d
1
Easy
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
22. Which of the following terms is not a common alternative for the term “property, plant, and equipment?”
a.
fixed assets
b.
operational assets
c.
plant assets
d.
capital investments
d
1
Easy
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23. Which of the following is a major difference between IFRS and GAAP regarding valuation of property, plant, and
equipment?
a.
IFRS allow valuation increases to be recorded in certain circumstances, but GAAP does not permit increases.
b.
IFRS and GAAP differ greatly on recognition of gains and losses from nonmonetary exchanges.
c.
IFRS require capitalization of all repairs and maintenance while GAAP does not.
d.
IFRS allocate lump-sum purchase costs based on relative book values rather than relative market values.
a
1
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24. Under IFRS, which of the following must be expensed?
a.
maintenance only
b.
repairs only
c.
rearrangements only
d.
maintenance, repairs, and rearrangements
d
1
Easy
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
25. The Roger’s Company incurred the following costs in the acquisition factory production equipment:
Invoice price
$2,675
Purchase discount lost
75
Freight-in
400
Installation
750
Cost of trial runs
150
What is the capitalizable cost of the equipment?
a.
$4,050
b.
$3,900
c.
$3,825
d.
$2,675
b
1
Moderate
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26. Ramirez Company made the following payments related to a land acquisition:
Purchase price
$7,500
Past due taxes
650
Title search
275
Cost of razing old building
1300
Interest (incurred after productive operations had begun)
160
Proceeds from salvage of old building
1875
What is the capitalizable cost of the land?
a.
$9,725
b.
$8,010
c.
$7,850
d.
$7,500
c
1
Moderate
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
27. Roberts Corporation purchased some equipment by issuing a $20,000 non-interest-bearing, four-year note when
interest rates were 8%. Actuarial information for 8% and four periods follows:
Future amount of 1
1.360
Present value of 1
0.735
In the entry to record this purchase, there would be a
a.
$20,000 debit to Equipment.
b.
$5,300.00 credit to Discount on Notes Payable.
c.
$27,210.88 credit to Notes Payable.
d.
$14,700.00 debit to Equipment.
d
1
Moderate
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Bloom’s: Analyzing
28. Bob’s Excavating purchased some equipment by issuing a three-year 6% note for $8,000 when the market rate for an
obligation of this nature was 8%. The interest is payable annually. Actuarial information for three periods follows:
6%
8%
Present value of 1
0.839619
0.793832
Present value of annuity of 1
2.673012
2.577097
At the date of purchase, what amount should be debited to Equipment?
a.
$8,000.00
b.
$7,587.66
c.
$6,716.96
d.
$6,350.66
b
1
Moderate
United States – BUSPORG: Analytic
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
29. Billy’s Builders purchased some equipment by issuing a five-year 5% note for $15,000 when the market rate for an
obligation of this nature was 7%. The interest is payable annually. Actuarial information for five periods follows:
5%
7%
Present value of 1
0.783526
0.712986
Present value of annuity of 1
4.329477
4.100197
At the date of purchase, what amount should be debited to Equipment?
a.
$10,694.79
b.
$11,752.89
c.
$13,769.94
d.
$15,000.00
c
1
Moderate
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30. According to GAAP, interest must be capitalized for
a.
assets that are ready for use.
b.
assets constructed for a firm’s own use.
c.
assets that are not being used in the earning activities of the company.
d.
inventories that are produced in large quantities on a repetitive basis.
b
1
Easy
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31. Laramy purchases a new machine by issuing a $21,000 three-year note. The company will pay off the obligation by
paying $7,000 at the end of each year. The market rate for obligations of this type is 8%.
Actuarial information for three periods follows:
8%
Present value of 1
0.793832
Present value of annuity of 1
2.577097
What is the capitalizable cost of the machine?
a.
$54,119.04
b.
$21,000.00
c.
$18,039.68
d.
$16,670.48
c
1
Moderate
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32. The president of Christmas Corporation donated a building to Tuesday Corporation. The building had an original cost
of $675,000, a book value of $255,000, and a fair market value of $475,000. The journal entry by Tuesday
Corporation to record this donation will include a
a.
debit Building for $255,000 and credit Gain for $255,000.
b.
debit Building for $475,000 and credit Gain for $200,000.
c.
debit Building for $475,000 and credit Gain for $475,000.
d.
debit Building for $675,000 and credit Gain for $200,000.
c
1
Easy
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33. John’s uncle donated a truck to his company, John’s Corporation. The truck had an original cost of $95,000, a book
value of $40,000, and a fair value of $60,000. The journal entry by John’s Corporation to record this donated asset
will include a
a.
debit Building for $60,000 and credit Gain for $20,000.
b.
debit Building for $60,000 and credit Gain for $60,000.
c.
debit Building for $95,000 and credit Gain for $35,000.
d.
debit Building for $95,000 and credit Gain for $95,000.
b
1
Easy
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Bloom’s: Understanding
34. Galford Company purchased real estate for $480,000, plus closing costs and fees of $60,000. The property which
included land, building, and land improvements was appraised for $600,000, as follows:
Building
$300,000
Land
180,000
Land improvements
120,000
The asset Building should be reported on Galford’s balance sheet at a value of
a.
$300,000
b.
$270,000
c.
$240,000
d.
$200,000
b
1
Moderate
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Bloom’s: Analyzing
35. During 2014, Garnet Corporation purchased three pieces of equipment at an auction for the lump sum of $200,000. It
cost Garnet $40,000 to have the equipment delivered and installed. The equipment was appraised at the
following fair values:
Machine 1
$120,000
Machine 2
105,000
Machine 3
75,000
Machine 2 should be recorded on Garnet’s books at
a.
$120,000
b.
$105,000
c.
$84,000
d.
$70,000
c
1
Moderate
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36. Morris recently purchased a building and the tract of land on which it is located. Morris plans to raze the building
immediately and to erect a new building on the site. The appraised value of the original building should be
a.
written off as an extraordinary loss in the year the building is razed.
b.
capitalized as part of the cost of the land.
c.
depreciated over the period from the date of acquisition to the date that the building is to be razed.
d.
capitalized as part of the cost of the new building.
b
1
Moderate
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37. Excise taxes to be paid on the purchase of factory equipment would be included in which of the following accounts?
a.
Equipment
b.
Deferred Taxes
c.
Excise Tax Expense
d.
Accumulated Depreciation−Equipment
a
1
Easy
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38. On February 1, 2016, Rupport Corporation purchased a parcel of land as a factory site for $50,000. An old building on
the property was demolished, and construction began on a new building that was completed on December 12, 2016.
Costs incurred during this period are listed below:
Legal fees for title investigation and purchase contract
5,000
Demolition of old building
$ 15,000
Architect’s fees
42,000
Construction costs
1,500,000
Rupport should record the cost of the land and the cost of the new building, respectively, as
a.
$70,000 and $1,542,000
b.
$50,000 and $1,562,000
c.
$55,000 and $1,557,000
d.
$65,000 and $1,547,000
a
1
Moderate
ACCT.WHAL.16.10.2 – LO: 10.4
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39. The Jacob Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of
$500,000. At the time of acquisition, Jacob paid $20,000 to have the assets appraised. The appraisal disclosed the
following values:
Land
$100,000
Buildings
200,000
Equipment
300,000
What costs should be assigned to the buildings?
a.
$166,667
b.
$173,333
c.
$200,000
d.
$260,000
b
1
Moderate
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40. Shane Corporation purchased for $450,000 a tract of land on which was located a warehouse and an office building.
The following data were collected concerning the property:
Current
Vendor’s
Assessed
Original
Valuation
Cost
Land
$100,000
$ 70,000
Warehouse
80,000
80,000
Office building
220,000
150,000
$400,000
$300,000
What are the appropriate amounts that Shane should record for the land, warehouse, and office building, respectively?
a.
land, $ 70,000; warehouse, $80,000; office building, $150,000
b.
land, $100,000; warehouse, $80,000; office building, $220,000
c.
land, $100,000; warehouse, $80,000; office building, $270,000
d.
land, $112,500; warehouse, $90,000; office building, $247,500
d
1
Moderate
ACCT.WHAL.16.10.2 – LO: 10.4
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41. On April 1, 2016, Bennett Corporation purchased a new machine on a deferred payment basis. A down payment of
$5,000 was made and 10 monthly installments of $14,000 each are to be made beginning on May 1, 2016. The cash
equivalent price of the machine was $130,000. Bennett incurred and paid installation costs amounting to $6,000. The
amount to be capitalized as the cost of the machine is
a.
$130,000
b.
$136,000
c.
$145,000
d.
$151,000
b
1
Moderate
ACCT.WHAL.16.10.2 – LO: 10.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
42. Samos, Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $75,000 at
year-end for each of the next three years. The plant assets should be valued at
a.
present value of a $75,000 annuity for three years discounted at the bank prime interest rate.
b.
$225,000.
c.
present value of a $75,000 annuity for three years discounted at the market interest rate.
d.
$225,000 plus imputed interest.
c
1
Moderate
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43. A plant site donated by a city to Pluto Company, which plans to open a new factory, should be recorded on Pluto’s
books at
a.
the out-of-pocket cost of taking title to it.
b.
the fair value of the property.
c.
zero value, but footnoted.
d.
the value assigned to it by the company’s directors.
b
1
Easy
ACCT.WHAL.16.10.2 – LO: 10.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
44. On August 28, 2016, Saturn Drilling Services purchased a machine with a contract price of $400,000 and cash terms
of 2/10, n/30. The company paid $8,000 in transportation costs and $8,000 for installation. Sales taxes of $22,000
were paid on the invoice amount. The machine should be recorded as a plant asset in the amount of
a.
$400,000.
b.
$422,000.
c.
$428,000.
d.
$430,000.
d
1
Moderate
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45. Property acquired through donation is recorded at
a.
its book value.
b.
its fair value.
c.
its cost.
d.
zero.
b
1
Easy
ACCT.WHAL.16.10.2 – LO: 10.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
46. Coco Services exchanged an asset with fair value of $12,000 and a cost of $24,000 (now 40% depreciated) for a
nonmonetary asset with a fair value of $12,000. In addition, Coco received $2,000 boot. In the entry to record this
exchange, Coco should record
a.
a $400 loss.
b.
a $400 gain.
c.
no gain or loss.
d.
a $2,400 loss.
d
1
Moderate
ACCT.WHAL.16.10.3 – LO: 10.3
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47. Maxa Marina exchanged a boat with a cost of $80,000 (now 75% depreciated) and fair value of $25,000 for another
boat with a current fair value of $27,000. No cash was paid or received. The new boat will perform the same function
as the old boat, but cash flows are expected to last for 5 years longer with the new boat. At what value should Maxa
record the new boat?
a.
$27,000
b.
$25,000
c.
$20,000
d.
$2,000
b
1
Moderate
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Chapter 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments
48. Camp, Inc. exchanged an old truck that cost $30,000 (now 50% depreciated) with a current fair value of $18,000 for
equipment with an appraised value of $25,000. In addition, Camp paid cash of $6,000. At what value should Camp
record the new equipment?
a.
$25,000
b.
$24,000
c.
$22,000
d.
$21,000
b
1
Moderate
ACCT.WHAL.16.10.3 – LO: 10.3
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49. Mary Co. exchanged a piece of equipment that had cost $40,000 (now 75% depreciated) for a truck with a current
appraised value of $18,000. Mary Co. gave the other company the piece of equipment, which had a fair value of
$12,000 at the time of the exchange, and $10,000 cash. Mary Co. should record
a.
a $8,000 loss
b.
a $4,000 loss
c.
a $2,000 loss
d.
a $2,000 gain
d
1
Moderate
ACCT.WHAL.16.10.3 – LO: 10.3
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement