Chapter 9
Multiple Choice
1. When a closely held corporation issues preferred stock for land, the land should be recorded at
the
2. A principal objection to the straight-line method of depreciation is that it
3. Property, plant, and equipment are conventionally presented n the balance sheet at
4. As generally used in accounting, depreciation
5. Lyle, Inc., purchased certain plant assets under a deferred payment contract on December 31,
2014. The agreement was to pay $20,000 at the time of purchase and $20,000 at the end of each
of the next five years. The plant assets should be valued at
Answer c
6. For income statement purposes, depreciation is a variable expense if the depreciation method
used for book purposes is
7. A method that excludes salvage value from the base for the depreciation calculation is
8. When a company purchases land with a building on it and immediately tears down the building so
that the land can be used for the construction of a plant, the cost incurred to tear down the
building should be
9. A machine with a four-year estimated useful life and an estimated 15 percent salvage value was
acquired on January 1, 2012. On December 31, 2014, the accumulated depreciation using the
sum-of-year’s digits method would be
10. The theoretical justification for reporting depreciation expense is
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11. A company using the group depreciation method for its delivery trucks retired one of its delivery
trucks due to damage before the average service life of the group was reached. An insurance
recovery was received. The net book value of these group asset accounts would be decreased by
the
12. When equipment is retired, accumulated depreciation is debited for the original cost less any
residual recovery under which of the following depreciation methods?
Composite Group
Depreciation Depreciation
13. Recognizing depletion expense is an example of the accounting process of
14. A donated plant asset for which the fair value has been determined, and for which incidental
costs were incurred in acceptance of the asset, should be recorded at an amount equal to its
Essay
1. List the objectives of accounting for property, plant and equipment.
2. Describe how cost is assigned to individual assets when they are acquired in a lump-sum group
purchase.
3. Discuss the three approaches to allocating fixed overhead to a self-construction project.
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4. Discuss the issue of allocating interest to self construction projects. That is, when should interest
be allocated and how much interest should be allocated?
5. Explain the concept of commercial substance originally outlined in SFAS No. 158.
6. How did SFAS No. 116, now FASB ASC 605-10-15-3, change the accounting for donated assets?
7. Discuss the factors comprising the depreciation process.
8. Discuss the distinction between capital and revenue expenditures for long-term assets.
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9. Discuss accounting for asset impairments originally outlined in SFAS No’s 121 and 144.
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10. Define and discuss accounting for asset retirement obligations under SFAS No. 143 (FASB ASC
410-20)
11. Discuss the guidelines for accounting for property, plant and equipment outlined in IAS No. 16.
12. How does IAS no. 23 define borrowing costs?
13. Discuss accounting for the impairment of assets as outlined in IAS No. 36.