PPE

CHAPTER 10
ACQUISITION AND DISPOSITION OF

PROPERTY, PLANT, AND EQUIPMENT
IFRS questions ae a!ai"a#"e at t$e en% o& t$is '$a(te)
TRUE*FALSE+Con'e(tua"
Ans,e No) Des'i(tion
F 1. Nature of property, plant, and equipment.
T 2. Nature of property, plant, and equipment.
F 3. Cost of removing old building.
T 4. Insurane on equipment pur!ased.
F ". #ounting for speial assessments.
T $. %ver!ead osts in self&onstruted assets.
F '. %ver!ead osts in self&onstruted assets.
F (. Interest apitali)ation.
F *. +ualifying assets for interest apitali)ation.
T 1,. #voidable interest.
T 11. Interest apitali)ation on land pur!ase.
T 12. -eferred&payment ontrats.
T 13. #ounting for nonmonetary e.!anges.
F 14. Nonmonetary e.!anges.
F 1". /eogni)ing losses on nonmonetary e.!anges.
T 1$. Costs subsequent to aquisition.
T 1'. -efinition of improvements.
F 1(. %rdinary repairs benefit period.
F 1*. Involuntary onversion gains0losses.
T 2, 1oss from srapped asset.
MULTIPLE CHOICE+Con'e(tua"
d 21. -efinition of plant assets.
b 22. C!arateristis of plant assets.
d 23. C!arateristis of plant assets.
24. Composition of land ost.
2". Composition of land ost.
2$. -etermination of land ost.
d 2'. -etermine ost of land used as a par2ing lot.
a 2(. -etermine ost of ma!inery.
b 2*. Classifiation of fenes and par2ing lots.
b
3
3,. /eording plant assets at !istorial ost.
d
3
31. #ounting for over!ead osts.
d 32. -etermine osts apitali)ed for self&onstruted assets.
d 33. #ssets 4!i! qualify for interest apitali)ation.
a 34. #ssets 4!i! qualify for interest apitali)ation.
3". -efinition of 5avoidable interest.5
a 3$. 6eriod of time over 4!i! interest may be apitali)ed.
b 3'. 7a.imum amount of annual interest t!at may be apitali)ed.
Test -an. &o Inte/e%iate A''ountin0, T$iteent$ E%ition
MULTIPLE CHOICE+Con'e(tua" 1'ont)2
b 3(. Interest apitali)ation84eig!ted&average fator.
d 3*. Classifiation of interest earned on seurities pur!ased 4it! borro4ed funds.
d 4,. 9rite&off of apitali)ed interest osts.
3
41. Conditions for interest apitali)ation.
a
3
42. Capitali)ation of interest on onstruted assets.
3
43. Nonmonetary e.!anges and ulmination of earning proess.
a
3
44. /eogni)ing gains0losses in e.!ange !aving ommerial substane.
a
3
4". :aluation of nonmonetary asset.
b
6
4$. ;ain reognition on plant asset e.!ange.
4'. :aluation of plant assets.
d 4(. 6lant asset aquired by issuane of sto2.
d 4*. :aluation of nonmonetary e.!anges.
a ",. ;ain reognition on a nonmonetary e.!ange.
"1. ;ain reognition on a nonmonetary e.!ange.
b "2. #ounting for donated assets.
b "3. :aluation of donated assets.
d "4. Identify onditions for apital e.penditures.
"". Capital e.penditure.
d "$. Identifiation of a apital e.penditure.
a "'. Identifiation of a apital e.penditure.
6
"(. #ounting for revenue e.penditures.
d
3
"*. #ounting for apital e.penditures.
a
3
$,. ;ain or loss on plant asset disposal.
d $1. -etermine loss on sale of depreiable asset.
$2. <no4ledge of involuntary onversions.
6
T!ese questions also appear in t!e 6roblem&3olving 3urvival ;uide.
3
T!ese questions also appear in t!e 3tudy ;uide.
MULTIPLE CHOICE+Co/(utationa"
b $3. -etermine ost of land.
d $4. -etermine ost of building.
d $". Calulate ost of land and building.
$$. Calulate ost of equipment.
$'. Calulate ost of equipment.
d $(. %ver!ead inluded in self&onstruted asset.
d $*. %ver!ead inluded in self&onstruted asset.
a ',. Calulate interest to be apitali)ed.
b '1. Calulate average aumulated e.penditures.
a '2. Calulate interest to be apitali)ed.
b '3. Calulate average aumulated e.penditures.
a '4. Calulate average aumulated e.penditures.
'". Calulate amount of interest to be apitali)ed.
b '$. Calulate 4eig!ted&average aumulated e.penditures.
a ''. Calulate 4eig!ted&average aumulated e.penditures.
d '(. Calulate 4eig!ted&average aumulated e.penditures.
a '*. Calulate atual interest ost inurred during year.
10 * 3
#quisition and -isposition of 6roperty, 6lant, and =quipment
MULTIPLE CHOICE+Co/(utationa" 1'ont)2
b (,. Calulate amount of interest to be apitali)ed.
(1. Calulate amount of interest to be apitali)ed.
(2. Calulate 4eig!ted&average aumulated e.penditures.
b (3. Calulate interest to be apitali)ed.
d (4. Calulate 4eig!ted&average aumulated e.penditures.
b (". Calulate interest to be apitali)ed.
b ($. Calulate 4eig!ted&average aumulated e.penditures.
d ('. Calulate 4eig!ted&average interest rate.
d ((. Calulate amount of avoidable interest.
a (*. Calulate amount of atual interest.
*,. Calulate amount of interest e.pense.
a *1. =.!ange of nonmonetary assets.
a *2. =.!ange la2ing ommerial substane.
*3. =.!ange la2ing ommerial substane.
b *4. :aluation of a nonmonetary e.!ange.
a *". :aluation of a nonmonetary e.!ange.
*$. Calulate gain on e.!ange la2ing ommerial substane.
a *'. #lloation of ost in a lump sum pur!ase.
d *(. #lloation of ost in a lump sum pur!ase.
**. Calulate ost of land aquired.
1,,. -etermine ost of pur!ased ma!ine.
1,1. Calulate ost of tru2 pur!ased.
b 1,2. Calulate ost of ma!ine pur!ased.
d 1,3. #lloation of ost of a lump sum pur!ase.
b 1,4. Calulate ost of equipment.
d 1,". #quisition of equipment by e.!ange of sto2 !eld as an investment.
b 1,$. =.!ange la2ing ommerial substane.
b 1,'. =.!ange la2ing ommerial substane 0gain.
b 1,(. =.!ange la2ing ommerial substane 0gain.
d 1,*. :aluation of a nonmonetary e.!ange.
a 11,. =.!ange la2ing ommerial substane0gain.
d 111. :aluation of a nonmonetary e.!ange.
b 112. ;ain reognition of a nonmonetary e.!ange.
a 113. :aluation of a nonmonetary e.!ange.
b 114. :aluation of a nonmonetary e.!ange.
b 11". Calulate gain on nonmonetary e.!ange.
d 11$. Calulate loss on nonmonetary e.!ange.
b 11'. Calulate gain on nonmonetary e.!ange.
d 11(. Calulate loss on nonmonetary e.!ange.
11*. Calulate as! reeived from sale of ma!inery.
12,. Calulate as! reeived from sale of ma!inery.
b 121. Calulate loss on sale of ma!ine.
b 122. Calulate gain on sale of equipment.
10 * 4
MULTIPLE CHOICE+CPA A%a(te%
123. -etermine ost of land.
b 124. Classifiation of sale of building.
b 12". -etermine interest ost to be apitali)ed.
a 12$. :aluation of a nonmonetary e.!ange.
a 12'. =.!ange la2ing ommerial substane.
b 12(. #ounting for donated assets.
d 12*. Costs subsequent to aquisition.
a 13,. :aluation of replaement equipment.
E5ERCISES
Ite/ Des'i(tion
=1,&131 6lant asset aounting.
=1,&132 9eig!ted&average aumulated e.penditures.
=1,&133 Capitali)ation of interest.
=1,&134 Nonmonetary e.!ange.
=1,&13" Nonmonetary e.!ange.
=1,&13$ -onated assets.
=1,&13' Capitali)ing vs. e.pensing.
PRO-LEMS
Ite/ Des'i(tion
61,&13( Capitali)ing aquisition osts.
61,&13* Capitali)ation of interest.
61,&14, Capitali)ation of interest.
61,&141 #sset aquisition
61,&142 Nonmonetary e.!ange.
61,&14" Nonmonetary e.!ange.
61,&14$ Nonmonetary e.!ange.
CHAPTER LEARNIN6 O-7ECTI8ES
1. -esribe property, plant, and equipment.
2. Identify t!e osts to inlude in t!e initial valuation of property, plant, and equipment.
3. -esribe t!e aounting problems assoiated 4it! self&onstruted assets.
4. -esribe t!e aounting problems assoiated 4it! interest apitali)ation.
". >nderstand aounting issues related to aquiring and valuing plant assets.
$. -esribe t!e aounting treatment for osts subsequent to aquisition.
'. -esribe t!e aounting treatment for t!e disposal of property, plant, and equipment.
10 * 9
SUMMARY OF LEARNIN6 O-7ECTI8ES -Y QUESTIONS
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Leanin0 O#:e'ti!e 1
1. TF 2. TF 21. 7C 22. 7C 23. 7C
Leanin0 O#:e'ti!e 3
3. TF 24. 7C 2'. 7C 3,. 7C $". 7C 123. 7C 13'. =
4. TF 2". 7C 2(. 7C $3. 7C $$. 7C 124. 7C 13(. 6
". TF 2$. 7C 2*. 7C $4. 7C $'. 7C 131. =
Leanin0 O#:e'ti!e 4
$. TF
3
31. 7C $(. 7C 132. =
'. TF
3
32. 7C $*. 7C 133. =
Leanin0 O#:e'ti!e 9
(. TF 3". 7C
3
41. 7C '4. 7C (,. 7C ($. 7C 131. =
*. TF 3$. 7C
3
42. 7C '". 7C (1. 7C ('. 7C 133. =
1,. TF 3'. 7C ',. 7C '$. 7C (2. 7C ((. 7C 13'. =
11. TF 3(. 7C '1. 7C ''. 7C (3. 7C (*. 7C 13*. 6
33. 7C 3*. 7C '2. 7C '(. 7C (4. 7C *,. 7C 14,. 6
34. 7C 4,. 7C '3. 7C '*. 7C (". 7C 12". 7C
Leanin0 O#:e'ti!e ;
12. TF 4(. 7C *4. 7C 1,3. 7C 112. 7C 12(. 7C 144. 6
13. TF 4*. 7C *". 7C 1,4. 7C 113. 7C 131. = 14". 6
14. TF ",. 7C *$. 7C 1,". 7C 114. 7C 134. = 14$. 6
1". TF "1. 7C *'. 7C 1,$. 7C 11". 7C 13". =
3
43. 7C "2. 7C *(. 7C 1,'. 7C 11$. 7C 13$. =
3
44. 7C "3. 7C **. 7C 1,(. 7C 11'. 7C 13'. =
3
4". 7C *1. 7C 1,,. 7C 1,*. 7C 11(. 7C 141. 6
6
4$. 7C *2. 7C 1,1. 7C 11,. 7C 12$. 7C 142. 6
4'. 7C *3. 7C 1,2. 7C 111. 7C 12'. 7C 143. 6
Leanin0 O#:e'ti!e <
1$. TF 1(. TF "". 7C "'. 7C
3
"*. 7C 13,. 7C 13'. =
1'. TF "4. 7C "$. 7C
6
"(. 7C 12*. 7C 131. =
Leanin0 O#:e'ti!e =
1*. TF
3
$,. 7C $2. 7C 12,. 7C 122. 7C
2,. TF $1. 7C 11*. 7C 121. 7C
Note? TF @ True&False
7C @ 7ultiple C!oie
6 @ 6roblem
= @ =.erise
10 * ;
TRUE*FALSE+Con'e(tua"
1. #ssets lassified as 6roperty, 6lant, and =quipment an be eit!er aquired for use in
operations, or aquired for resale.
2. #ssets lassified as 6roperty, 6lant, and =quipment must be bot! long&term in nature and
possess p!ysial substane.
3. 9!en land 4it! an old building is pur!ased as a future building site, t!e ost of removing
t!e old building is part of t!e ost of t!e ne4 building.
4. Insurane on equipment pur!ased, 4!ile t!e equipment is in transit, is part of t!e ost of
t!e equipment.
". 3peial assessments for loal improvements su! as street lig!ts and se4ers s!ould be
aounted for as land improvements.
$. :ariable over!ead osts inurred to self&onstrut an asset s!ould be inluded in t!e ost
of t!e asset.
'. Companies s!ould assign no portion of fi.ed over!ead to self&onstruted assets.
(. 9!en apitali)ing interest during onstrution of an asset, an imputed interest ost on
sto2 finaning must be inluded.
*. #ssets under onstrution for a ompanyAs o4n use do not qualify for interest ost
apitali)ation.
1,. #voidable interest is t!e amount of interest ost t!at a ompany ould t!eoretially avoid if
it !ad not made e.penditures for t!e asset.
11. 9!en a ompany pur!ases land 4it! t!e intention of developing it for a partiular use,
interest osts assoiated 4it! t!ose e.penditures qualify for interest apitali)ation.
12. #ssets pur!ased on long&term redit ontrats s!ould be reorded at t!e present value of
t!e onsideration e.!anged.
13. Companies aount for t!e e.!ange of nonmonetary assets on t!e basis of t!e fair value
of t!e asset given up or t!e fair value of t!e asset reeived.
14. If a nonmonetary e.!ange la2s ommerial substane, and as! is reeived, a partial
gain or loss is reogni)ed.
1". 9!en a ompany e.!anges nonmonetary assets and a loss results, t!e ompany
reogni)es t!e loss only if t!e e.!ange !as ommerial substane.
1$. Costs inurred subsequent to t!e aquisition of an asset are apitali)ed if t!ey provide
future benefits.
1'. Improvements are often referred to as betterments and involve t!e substitution of a better
asset for t!e one urrently used.
10 * <
1(. 9!en an ordinary repair ours, several periods 4ill usually benefit.
1*. Companies al4ays treat gains or losses from an involuntary onversion as e.traordinary
items.
2,. If a ompany sraps an asset 4it!out any as! reovery, it reogni)es a loss equal to t!e
assetAs boo2 value.
Tue Fa"se Ans,es+Con'e(tua"
Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans)
1. F $. T 11. T 1$. T
2. T '. F 12. T 1'. T
3. F (. F 13. T 1(. F
4. T *. F 14. F 1*. F
". F 1,. T 1". F 2,. T
MULTIPLE CHOICE+Con'e(tua"
21. 6lant assets may properly inlude
a. deposits on ma!inery not yet reeived.
b. idle equipment a4aiting sale.
. land !eld for possible use as a future plant site.
d. none of t!ese.
22. 9!i! of t!e follo4ing is not a maBor !arateristi of a plant assetC
a. 6ossesses p!ysial substane
b. #quired for resale
. #quired for use
d. Dields servies over a number of years
23. 9!i! of t!ese is not a maBor !arateristi of a plant assetC
a. 6ossesses p!ysial substane
b. #quired for use in operations
. Dields servies over a number of years
d. #ll of t!ese are maBor !arateristis of a plant asset.
24. Cotton Eotel Corporation reently pur!ased =mporia Eotel and t!e land on 4!i! it is
loated 4it! t!e plan to tear do4n t!e =mporia Eotel and build a ne4 lu.ury !otel on t!e
site. T!e ost of t!e =mporia Eotel s!ould be
a. depreiated over t!e period from aquisition to t!e date t!e !otel is s!eduled to be
torn do4n.
b. 4ritten off as an e.traordinary loss in t!e year t!e !otel is torn do4n.
. apitali)ed as part of t!e ost of t!e land.
d. apitali)ed as part of t!e ost of t!e ne4 !otel.
10 * =
2". T!e ost of land does not inlude
a. osts of grading, filling, draining, and learing.
b. osts of removing old buildings.
. osts of improvements 4it! limited lives.
d. speial assessments.
2$. T!e ost of land typially inludes t!e pur!ase prie and all of t!e follo4ing osts e.ept
a. grading, filling, draining, and learing osts.
b. street lig!ts, se4ers, and drainage systems ost.
. private drive4ays and par2ing lots.
d. assumption of any liens or mortgages on t!e property.
2'. If a orporation pur!ases a lot and building and subsequently tears do4n t!e building
and uses t!e property as a par2ing lot, t!e proper aounting treatment of t!e ost of t!e
building 4ould depend on
a. t!e signifiane of t!e ost alloated to t!e building in relation to t!e ombined ost of
t!e lot and building.
b. t!e lengt! of time for 4!i! t!e building 4as !eld prior to its demolition.
. t!e ontemplated future use of t!e par2ing lot.
d. t!e intention of management for t!e property 4!en t!e building 4as aquired.
2(. T!e debit for a sales ta. properly levied and paid on t!e pur!ase of ma!inery preferably
4ould be a !arge to
a. t!e ma!inery aount.
b. a separate deferred !arge aount.
. misellaneous ta. e.pense F4!i! inludes all ta.es ot!er t!an t!ose on inomeG.
d. aumulated depreiation&&ma!inery.
2*. Fenes and par2ing lots are reported on t!e balane s!eet as
a. urrent assets.
b. land improvements.
. land.
d. property and equipment.
3
3,. Eistorial ost is t!e basis advoated for reording t!e aquisition of property, plant, and
equipment for all of t!e follo4ing reasons except
a. at t!e date of aquisition, ost reflets fair mar2et value.
b. property, plant, and equipment items are al4ays aquired at t!eir original !istorial
ost.
. !istorial ost involves atual transations and, as su!, is t!e most reliable basis.
d. gains and losses s!ould not be antiipated but s!ould be reogni)ed 4!en t!e asset
is sold.
3
31. To be onsistent 4it! t!e !istorial ost priniple, over!ead osts inurred by an
enterprise onstruting its o4n building s!ould be
a. alloated on t!e basis of lost prodution.
b. eliminated ompletely from t!e ost of t!e asset.
. alloated on an opportunity ost basis.
d. alloated on a pro rata basis bet4een t!e asset and normal operations.
10 * >
32. 9!i! of t!e follo4ing osts are apitali)ed for self&onstruted assetsC
a. 7aterials and labor only
b. 1abor and over!ead only
. 7aterials and over!ead only
d. 7aterials, labor, and over!ead
33. 9!i! of t!e follo4ing assets do not qualify for apitali)ation of interest osts inurred
during onstrution of t!e assetsC
a. #ssets under onstrution for an enterpriseHs o4n use.
b. #ssets intended for sale or lease t!at are produed as disrete proBets.
. #ssets finaned t!roug! t!e issuane of long&term debt.
d. #ssets not urrently undergoing t!e ativities neessary to prepare t!em for t!eir
intended use.
34. #ssets t!at qualify for interest ost apitali)ation inlude
a. assets under onstrution for a ompanyHs o4n use.
b. assets t!at are ready for t!eir intended use in t!e earnings of t!e ompany.
. assets t!at are not urrently being used beause of e.ess apaity.
d. #ll of t!ese assets qualify for interest ost apitali)ation.
3". 9!en omputing t!e amount of interest ost to be apitali)ed, t!e onept of 5avoidable
interest5 refers to
a. t!e total interest ost atually inurred.
b. a ost of apital !arge for sto2!oldersH equity.
. t!at portion of total interest ost 4!i! 4ould not !ave been inurred if e.penditures
for asset onstrution !ad not been made.
d. t!at portion of average aumulated e.penditures on 4!i! no interest ost 4as
inurred.
3$. T!e period of time during 4!i! interest must be apitali)ed ends 4!en
a. t!e asset is substantially omplete and ready for its intended use.
b. no furt!er interest ost is being inurred.
. t!e asset is abandoned, sold, or fully depreiated.
d. t!e ativities t!at are neessary to get t!e asset ready for its intended use !ave
begun.
3'. 9!i! of t!e follo4ing statements is true regarding apitali)ation of interestC
a. Interest ost apitali)ed in onnetion 4it! t!e pur!ase of land to be used as a
building site s!ould be debited to t!e land aount and not to t!e building aount.
b. T!e amount of interest ost apitali)ed during t!e period s!ould not e.eed t!e atual
interest ost inurred.
. 9!en e.ess borro4ed funds not immediately needed for onstrution are temporarily
invested, any interest earned s!ould be offset against interest ost inurred 4!en
determining t!e amount of interest ost to be apitali)ed.
d. T!e minimum amount of interest to be apitali)ed is determined by multiplying a
4eig!ted average interest rate by t!e amount of average aumulated e.penditures
on qualifying assets during t!e period.
10 * ?
3(. Constrution of a qualifying asset is started on #pril 1 and finis!ed on -eember 1. T!e
fration used to multiply an e.penditure made on #pril 1 to find 4eig!ted&average
aumulated e.penditures is
a. (0(.
b. (012.
. *012.
d. 11012.
3*. 9!en funds are borro4ed to pay for onstrution of assets t!at qualify for apitali)ation of
interest, t!e e.ess funds not needed to pay for onstrution may be temporarily invested
in interest&bearing seurities. Interest earned on t!ese temporary investments s!ould be
a. offset against interest ost inurred during onstrution.
b. used to redue t!e ost of assets being onstruted.
. multiplied by an appropriate interest rate to determine t!e amount of interest to be
apitali)ed.
d. reogni)ed as revenue of t!e period.
4,. Interest ost t!at is apitali)ed s!ould
a. be 4ritten off over t!e remaining term of t!e debt.
b. be aumulated in a separate deferred !arge aount and 4ritten off equally over a
4,&year period.
. not be 4ritten off until t!e related asset is fully depreiated or disposed of.
d. none of t!ese.
3
41. 9!i! of t!e follo4ing is not a ondition t!at must be satisfied before interest
apitali)ation an begin on a qualifying assetC
a. Interest ost is being inurred.
b. =.penditures for t!e assets !ave been made.
. T!e interest rate is equal to or greater t!an t!e ompanyHs ost of apital.
d. #tivities t!at are neessary to get t!e asset ready for its intended use are in
progress.
3
42. 9!i! of t!e follo4ing is t!e reommended approa! to !andling interest inurred in
finaning t!e onstrution of property, plant and equipmentC
a. Capitali)e only t!e atual interest osts inurred during onstrution.
b. C!arge onstrution 4it! all osts of funds employed, 4!et!er identifiable or not.
. Capitali)e no interest during onstrution.
d. Capitali)e interest osts equal to t!e prime interest rate times t!e estimated ost of t!e
asset being onstruted.
3
43. 9!i! of t!e follo4ing nonmonetary e.!ange transations represents a ulmination of
t!e earning proessC
a. =.!ange of assets 4it! no differene in future as! flo4s.
b. =.!ange of produts by ompanies in t!e same line of business 4it! no differene in
future as! flo4s.
. =.!ange of assets 4it! a differene in future as! flo4s.
d. =.!ange of an equivalent interest in similar produtive assets t!at auses t!e
ompanies involved to remain in essentially t!e same eonomi position.
10 * 10
3
44. 9!en boot is involved in an e.!ange !aving ommerial substane.
a. gains or losses are reogni)ed in t!eir entirely.
b. a gain or loss is omputed by omparing t!e fair value of t!e asset reeived 4it! t!e
fair value of t!e asset given up.
. only gains s!ould be reogni)ed.
d. only losses s!ould be reogni)ed.
3
4". T!e ost of a nonmonetary asset aquired in e.!ange for anot!er nonmonetary asset
and t!e e.!ange !as ommerial substane is usually reorded at
a. t!e fair value of t!e asset given up, and a gain or loss is reogni)ed.
b. t!e fair value of t!e asset given up, and a gain but not a loss may be reogni)ed.
. t!e fair value of t!e asset reeived if it is equally reliable as t!e fair value of t!e asset
given up.
d. eit!er t!e fair value of t!e asset given up or t!e asset reeived, 4!i!ever one results
in t!e largest gain Fsmallest lossG to t!e ompany.
6
4$. /ingler Corporation e.!anges one plant asset for a similar plant asset and gives as! in
t!e e.!ange. T!e e.!ange is not e.peted to ause a material !ange in t!e future
as! flo4s for eit!er entity. If a gain on t!e disposal of t!e old asset is indiated, t!e gain
4ill
a. be reported in t!e %t!er /evenues and ;ains setion of t!e inome statement.
b. effetively redue t!e amount to be reorded as t!e ost of t!e ne4 asset.
. effetively inrease t!e amount to be reorded as t!e ost of t!e ne4 asset.
d. be redited diretly to t!e o4nerHs apital aount.
4'. 6lant assets pur!ased on long&term redit ontrats s!ould be aounted for at
a. t!e total value of t!e future payments.
b. t!e future amount of t!e future payments.
. t!e present value of t!e future payments.
d. none of t!ese.
4(. 9!en a plant asset is aquired by issuane of ommon sto2, t!e ost of t!e plant asset
is properly measured by t!e
a. par value of t!e sto2.
b. stated value of t!e sto2.
. boo2 value of t!e sto2.
d. mar2et value of t!e sto2.
4*. 9!en a losely !eld orporation issues preferred sto2 for land, t!e land s!ould be
reorded at t!e
a. total par value of t!e sto2 issued.
b. total boo2 value of t!e sto2 issued.
. total liquidating value of t!e sto2 issued.
d. fair mar2et value of t!e land.
",. #ounting reognition s!ould be given to some or all of t!e gain reali)ed on a
nonmonetary e.!ange of plant assets except 4!en t!e e.!ange !as
a. no ommerial substane and additional as! is paid.
b. no ommerial substane and additional as! is reeived.
. ommerial substane and additional as! is paid.
d. ommerial substane and additional as! is reeived.
10 * 11
"1. For a nonmonetary e.!ange of plant assets, aounting reognition s!ould not be given to
a. a loss 4!en t!e e.!ange !as no ommerial substane.
b. a gain 4!en t!e e.!ange !as ommerial substane.
. part of a gain 4!en t!e e.!ange !as no ommerial substane and as! is paid
Fas! paid0reeived is less t!an 2"I of t!e fair value of t!e e.!angeG.
d. part of a gain 4!en t!e e.!ange !as no ommerial substane and as! is reeived
Fas! paid or reeived is less t!an 2"I of t!e fair value of t!e e.!angeG.
"2. 9!en an enterprise is t!e reipient of a donated asset, t!e aount redited may be a
a. paid&in apital aount.
b. revenue aount.
. deferred revenue aount.
d. all of t!ese.
"3. # plant site donated by a to4ns!ip to a manufaturer t!at plans to open a ne4 fatory
s!ould be reorded on t!e manufaturerHs boo2s at
a. t!e nominal ost of ta2ing title to it.
b. its mar2et value.
. one dollar Fsine t!e site ost not!ing but s!ould be inluded in t!e balane s!eetG.
d. t!e value assigned to it by t!e ompanyHs diretors.
"4. In order for a ost to be apitali)ed Fapital e.penditureG, t!e follo4ing must be present?
a. T!e useful life of an asset must be inreased.
b. T!e quantity of assets must be inreased.
. T!e quality of assets must be inreased.
d. #ny one of t!ese.
"". #n improvement made to a ma!ine inreased its fair mar2et value and its prodution
apaity by 2"I 4it!out e.tending t!e ma!ineHs useful life. T!e ost of t!e improvement
s!ould be
a. e.pensed.
b. debited to aumulated depreiation.
. apitali)ed in t!e ma!ine aount.
d. alloated bet4een aumulated depreiation and t!e ma!ine aount.
"$. 9!i! of t!e follo4ing is a apital e.penditureC
a. 6ayment of an aount payable
b. /etirement of bonds payable
. 6ayment of Federal inome ta.es
d. None of t!ese
"'. 9!i! of t!e follo4ing is not a apital e.penditureC
a. /epairs t!at maintain an asset in operating ondition
b. #n addition
. # betterment
d. # replaement
10 * 13
6
"(. In aounting for plant assets, 4!i! of t!e follo4ing outlays made subsequent to
aquisition s!ould be fully e.pensed in t!e period t!e e.penditure is madeC
a. =.penditure made to inrease t!e effiieny or effetiveness of an e.isting asset
b. =.penditure made to e.tend t!e useful life of an e.isting asset beyond t!e time frame
originally antiipated
. =.penditure made to maintain an e.isting asset so t!at it an funtion in t!e manner
intended
d. =.penditure made to add ne4 asset servies
3
"*. #n e.penditure made in onnetion 4it! a ma!ine being used by an enterprise s!ould be
a. e.pensed immediately if it merely e.tends t!e useful life but does not improve t!e
quality.
b. e.pensed immediately if it merely improves t!e quality but does not e.tend t!e useful
life.
. apitali)ed if it maintains t!e ma!ine in normal operating ondition.
d. apitali)ed if it inreases t!e quantity of units produed by t!e ma!ine.
3
$,. 9!en a plant asset is disposed of, a gain or loss may result. T!e gain or loss 4ould be
lassified as an e.traordinary item on t!e inome statement if it resulted from
a. an involuntary onversion and t!e onditions of t!e disposition are unusual and
infrequent in nature.
b. a sale prior to t!e ompletion of t!e estimated useful life of t!e asset.
. t!e sale of a fully depreiated asset.
d. an abandonment of t!e asset.
$1. T!e sale of a depreiable asset resulting in a loss indiates t!at t!e proeeds from t!e
sale 4ere
a. less t!an urrent mar2et value.
b. greater t!an ost.
. greater t!an boo2 value.
d. less t!an boo2 value.
$2. 9!i! of t!e follo4ing statements about involuntary onversions is false?
a. #n involuntary onversion may result from ondemnation or fire.
b. T!e gain or loss from an involuntary onversion may be reported as an e.traordinary
item.
. T!e gain or loss from an involuntary onversion s!ould not be reogni)ed 4!en t!e
enterprise reinvests in replaement assets.
d. #ll of t!ese.
10 * 14
Mu"ti("e C$oi'e Ans,es+Con'e(tua"
Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans)
21. d 2'. d 33. d 3*. d 4". a "1. "'. a
22. b 2(. a 34. a 4,. d 4$. b "2. b "(.
23. d 2*. b 3". 41. 4'. "3. b "*. d
24. 3,. b 3$. a 42. a 4(. d "4. d $,. a
2". 31. d 3'. b 43. 4*. d "". $1. d
2$. 32. d 3(. b 44. a ",. a "$. d $2.
3olutions to t!ose 7ultiple C!oie questions for 4!i! t!e ans4er is Jnone of t!ese.K
21. 1ong&lived tangible assets used in t!e enterpriseAs operations.
4,. Capitali)ed interest is depreiated over t!e related assetAs useful life.
"$. Capital e.penditures inlude additions, betterments, improvements, and e.traordinary
repairs.
MULTIPLE CHOICE+Co/(utationa"
>se t!e follo4ing information for questions $3 and $4.
9ilson Co. pur!ased land as a fatory site for L$,,,,,,. 9ilson paid L$,,,,, to tear do4n t4o
buildings on t!e land. 3alvage 4as sold for L",4,,. 1egal fees of L3,4(, 4ere paid for title
investigation and ma2ing t!e pur!ase. #r!itetHs fees 4ere L31,2,,. Title insurane ost
L2,4,,, and liability insurane during onstrution ost L2,$,,. =.avation ost L1,,44,. T!e
ontrator 4as paid L2,2,,,,,,. #n assessment made by t!e ity for pavement 4as L$,4,,.
Interest osts during onstrution 4ere L1',,,,,.
$3. T!e ost of t!e land t!at s!ould be reorded by 9ilson Co. is
a. L$$,,4(,.
b. L$$$,((,.
. L$$*,((,.
d. L$'$,2(,.
$4. T!e ost of t!e building t!at s!ould be reorded by 9ilson Co. is
a. L2,4,3,(,,.
b. L2,4,4,(4,.
. L2,413,2,,.
d. L2,414,24,.
10 * 19
$". %n February 1, 2,1,, Nelson Corporation pur!ased a parel of land as a fatory site for
L2,,,,,,. #n old building on t!e property 4as demolis!ed, and onstrution began on a
ne4 building 4!i! 4as ompleted on November 1, 2,1,. Costs inurred during t!is
period are listed belo4?
-emolition of old building L 2,,,,,
#r!itetHs fees 3",,,,
1egal fees for title investigation and pur!ase ontrat ",,,,
Constrution osts 1,,*,,,,,
F3alvaged materials resulting from demolition 4ere sold for L1,,,,,.G
Nelson s!ould reord t!e ost of t!e land and ne4 building, respetively, as
a. L22",,,, and L1,11",,,,.
b. L21,,,,, and L1,13,,,,,.
. L21,,,,, and L1,12",,,,.
d. L21",,,, and L1,12",,,,.
$$. 9ort!ington C!andler Company pur!ased equipment for L1,,,,,. 3ales ta. on t!e
pur!ase 4as L",,. %t!er osts inurred 4ere freig!t !arges of L2,,, repairs of L3", for
damage during installation, and installation osts of L22". 9!at is t!e ost of t!e
equipmentC
a. L1,,,,,
b. L1,,",,
. L1,,*2"
d. L11,2'"
$'. Fogelberg Company pur!ased equipment for L12,,,,. 3ales ta. on t!e pur!ase 4as
L$,,. %t!er osts inurred 4ere freig!t !arges of L24,, repairs of L42, for damage
during installation, and installation osts of L2',. 9!at is t!e ost of t!e equipmentC
a. L12,,,,.
b. L12,$,,.
. L13,11,.
d. L13,"3,.
$(. -uring self&onstrution of an asset by 3amuelson Company, t!e follo4ing 4ere among
t!e osts inurred?
Fi.ed over!ead for t!e year L1,,,,,,,,
6ortion of L1,,,,,,,, fi.ed over!ead t!at 4ould
be alloated to asset if it 4ere normal prodution 4,,,,,
:ariable over!ead attributable to self&onstrution 3",,,,
9!at amount of over!ead s!ould be inluded in t!e ost of t!e self&onstruted assetC
a. L &,&
b. L3",,,,
. L4,,,,,
d. L'",,,,
10 * 1;
$*. -uring self&onstrution of an asset by /i!ardson Company, t!e follo4ing 4ere among
t!e osts inurred?
Fi.ed over!ead for t!e year L1,,,,,,,,
6ortion of L1,,,,,,,, fi.ed over!ead t!at 4ould
be alloated to asset if it 4ere normal prodution $,,,,,
:ariable over!ead attributable to self&onstrution "",,,,
9!at amount of over!ead s!ould be inluded in t!e ost of t!e self&onstruted assetC
a. L &,&
b. L "",,,,
. L $,,,,,
d. L11",,,,
',. 7enden!all Corporation onstruted a building at a ost of L1,,,,,,,,,. #verage
aumulated e.penditures 4ere L4,,,,,,,,, atual interest 4as L$,,,,,,, and avoidable
interest 4as L3,,,,,,. If t!e salvage value is L(,,,,,,, and t!e useful life is 4, years,
depreiation e.pense for t!e first full year using t!e straig!t&line met!od is
a. L23',",,.
b. L24",,,,.
. L2"',",,.
d. L33',",,.
'1. 7essersmit! Company is onstruting a building. Constrution began in 2,1, and t!e
building 4as ompleted 1203101,. 7essersmit! made payments to t!e onstrution
ompany of L1,,,,,,,, on '01, L2,1,,,,,, on *01, and L2,,,,,,,, on 12031. #verage
aumulated e.penditures 4ere
a. L1,,2",,,,.
b. L1,2,,,,,,.
. L3,1,,,,,,.
d. L",1,,,,,,.
'2. Euffman Corporation onstruted a building at a ost of L2,,,,,,,,,. #verage
aumulated e.penditures 4ere L(,,,,,,,,, atual interest 4as L1,2,,,,,,, and
avoidable interest 4as L$,,,,,,. If t!e salvage value is L1,$,,,,,,, and t!e useful life is
4, years, depreiation e.pense for t!e first full year using t!e straig!t&line met!od is
a. L4'",,,,.
b. L4*,,,,,.
. L"1",,,,.
d. L$'",,,,.
'3. ;utierre) Company is onstruting a building. Constrution began in 2,1, and t!e
building 4as ompleted 1203101,. ;utierre) made payments to t!e onstrution ompany
of L1,",,,,,, on '01, L3,3,,,,,, on *01, and L3,,,,,,,, on 12031. #verage aumulated
e.penditures 4ere
a. L1,"'",,,,.
b. L1,(",,,,,.
. L4,(,,,,,,.
d. L',(,,,,,,.
10 * 1<
'4. %n 7ay 1, 2,1,, ;oodman Company began onstrution of a building. =.penditures of
L12,,,,, 4ere inurred mont!ly for " mont!s beginning on 7ay 1. T!e building 4as
ompleted and ready for oupany on 3eptember 1, 2,1,. For t!e purpose of
determining t!e amount of interest ost to be apitali)ed, t!e average aumulated
e.penditures on t!e building during 2,1, 4ere
a. L1,,,,,,.
b. L12,,,,,.
. L4(,,,,,.
d. L$,,,,,,.
'". -uring 2,1,, <immel Co. inurred average aumulated e.penditures of L4,,,,,, during
onstrution of assets t!at qualified for apitali)ation of interest. T!e only debt outstanding
during 2,1, 4as a L",,,,,,, 1,I, "&year note payable dated Manuary 1, 2,,(. 9!at is
t!e amount of interest t!at s!ould be apitali)ed by <immel during 2,1,C
a. L,.
b. L1,,,,,.
. L4,,,,,.
d. L",,,,,.
'$. %n 7ar! 1, Felt Co. began onstrution of a small building. 6ayments of L12,,,,, 4ere
made mont!ly for t!ree mont!s beginning 7ar! 1. T!e building 4as ompleted and
ready for oupany on Mune 1. In determining t!e amount of interest ost to be
apitali)ed, t!e 4eig!ted&average aumulated e.penditures are
a. L3,,,,,.
b. L$,,,,,.
. L12,,,,,.
d. L24,,,,,.
''. %n 7ar! 1, Im!off Co. began onstrution of a small building. 6ayments of L1(,,,,,
4ere made mont!ly for four mont!s beginning 7ar! 1. T!e building 4as ompleted and
ready for oupany on Mune 1. In determining t!e amount of interest ost to be
apitali)ed, t!e 4eig!ted&average aumulated e.penditures are
a. L*,,,,,.
b. L1(,,,,,.
. L3$,,,,,.
d. L'2,,,,,.
>se t!e follo4ing information for questions '( t!roug! (,.
%n 7ar! 1, 2,1,, Ne4ton Company pur!ased land for an offie site by paying L"4,,,,, as!.
Ne4ton began onstrution on t!e offie building on 7ar! 1. T!e follo4ing e.penditures 4ere
inurred for onstrution?
-ate =.penditures
7ar! 1, 2,1, L 3$,,,,,
#pril 1, 2,1, ",4,,,,
7ay 1, 2,1, *,,,,,,
Mune 1, 2,1, 1,44,,,,,
10 * 1=
T!e offie 4as ompleted and ready for oupany on Muly 1. To !elp pay for onstrution,
L'2,,,,, 4as borro4ed on 7ar! 1, 2,1, on a *I, 3&year note payable. %t!er t!an t!e
onstrution note, t!e only debt outstanding during 2,1, 4as a L3,,,,,,, 12I, $&year note
payable dated Manuary 1, 2,1,.
'(. T!e 4eig!ted&average aumulated e.penditures on t!e onstrution proBet during 2,1,
4ere
a. L3(4,,,,.
b. L2,*34,,,,.
. L312,,,,.
d. L$*$,,,,.
'*. T!e atual interest ost inurred during 2,1, 4as
a. L*,,,,,.
b. L1,,,(,,.
. L",,4,,.
d. L(4,,,,.
(,. #ssume t!e 4eig!ted&average aumulated e.penditures for t!e onstrution proBet are
L(',,,,,. T!e amount of interest ost to be apitali)ed during 2,1, is
a. L'(,3,,.
b. L(2,(,,.
. L*,,,,,.
d. L1,,,(,,.
(1. -uring 2,1,, Nass Corporation onstruted assets osting L1,,,,,,,,. T!e 4eig!ted&
average aumulated e.penditures on t!ese assets during 2,1, 4as L$,,,,,,. To !elp
pay for onstrution, L44,,,,, 4as borro4ed at 1,I on Manuary 1, 2,1,, and funds not
needed for onstrution 4ere temporarily invested in s!ort&term seurities, yielding L*,,,,
in interest revenue. %t!er t!an t!e onstrution funds borro4ed, t!e only ot!er debt
outstanding during t!e year 4as a L",,,,,,, 1,&year, *I note payable dated Manuary 1,
2,,4. 9!at is t!e amount of interest t!at s!ould be apitali)ed by Nass during 2,1,C
a. L$,,,,,.
b. L3,,,,,.
. L"(,4,,.
d. L*4,4,,.
>se t!e follo4ing information for questions (2 t!roug! (".
%n Manuary 2, 2,1,, Indian /iver ;roves began onstrution of a ne4 itrus proessing plant.
T!e automated plant 4as finis!ed and ready for use on 3eptember 3,, 2,11. =.penditures for t!e
onstrution 4ere as follo4s?
Manuary 2, 2,1, L2,,,,,,
3eptember 1, 2,1, $,,,,,,
-eember 31, 2,1, $,,,,,,
7ar! 31, 2,11 $,,,,,,
3eptember 3,, 2,11 4,,,,,,
10 * 1>
Indian /iver ;roves borro4ed L1,1,,,,,, on a onstrution loan at 12I interest on Manuary 2,
2,1,. T!is loan 4as outstanding during t!e onstrution period. T!e ompany also !ad
L4,,,,,,,, in *I bonds outstanding in 2,1, and 2,11.
(2. 9!at 4ere t!e 4eig!ted&average aumulated e.penditures for 2,1,C
a. L"33,333
b. L",,,,,,
. L4,,,,,,
d. L1,,,,,,,,
(3. T!e interest apitali)ed for 2,1, 4as?
a. L1(,,,,,
b. L4(,,,,
. L1*2,,,,
d. L$,,,,,
(4. 9!at 4ere t!e 4eig!ted&average aumulated e.penditures for 2,11 by t!e end of t!e
onstrution periodC
a. L3*,,,,,
b. L1,$3",,,,
. L1,*($,,,,
d. L1,3($,,,,
(". T!e interest apitali)ed for 2,11 4as?
a. L124,'4,
b. L11(,3,"
. L 2",'4,
d. L **,,,,
>se t!e follo4ing information to ans4er questions ($ & *,.
#rlington Company is onstruting a building. Constrution began on Manuary 1 and 4as
ompleted on -eember 31. =.penditures 4ere L2,4,,,,,, on 7ar! 1, L1,*(,,,,, on Mune 1,
and L3,,,,,,,, on -eember 31. #rlington Company borro4ed L1,2,,,,,, on Manuary 1 on a "&
year, 12I note to !elp finane onstrution of t!e building. In addition, t!e ompany !ad
outstanding all year a 1,I, 3&year, L2,4,,,,,, note payable and an 11I, 4&year, L4,",,,,,,
note payable.
($. 9!at are t!e 4eig!ted&average aumulated e.pendituresC
a. L4,3(,,,,,
b. L3,1"",,,,
. L',3(,,,,,
d. L3,$*,,,,,
('. 9!at is t!e 4eig!ted&average interest rate used for interest apitali)ation purposesC
a. 11I
b. 1,.("I
. 1,."I
d. 1,.$"I
10 * 1?
((. 9!at is t!e avoidable interest for #rlington CompanyC
a. L144,,,,
b. L4$3,(,(
. L1$4,2(1
d. L3"2,2,(
(*. 9!at is t!e atual interest for #rlington CompanyC
a. L('*,,,,
b. L(*1,,,,
. L'3",,,,
d. L3"2,2,(
*,. 9!at amount of interest s!ould be !arged to e.penseC
a. L3(2,'*2
b. L'3",,,,
. L"2$,'*2
d. L41",1*2
*1. -odson Company traded in a manual pressing ma!ine for an automated pressing
ma!ine and gave L(,,,, as!. T!e old ma!ine ost L*3,,,, and !ad a net boo2 value
of L'1,,,,. T!e old ma!ine !ad a fair mar2et value of L$,,,,,.
9!i! of t!e follo4ing is t!e orret Bournal entry to reord t!e e.!angeC
a. =quipment $(,,,,
1oss on =.!ange 11,,,,
#umulated -epreiation 22,,,,
=quipment *3,,,,
Cas! (,,,,
b. =quipment $(,,,,
=quipment $,,,,,
Cas! (,,,,
. Cas! (,,,,
=quipment $,,,,,
1oss on =.!ange 11,,,,
=quipment 1,1,,,,
d. =quipment 123,,,,
=quipment *3,,,,
Cas! (,,,,
Use t$e &o""o,in0 in&o/ation to ans,e questions ?3 @ ?4)
Nelo4 is t!e information relative to an e.!ange of assets by 3tanton Company. T!e e.!ange
la2s ommerial substane.
O"% Equi(/ent
Noo2 :alue Fair :alue Cas! 6aid
Case I L'",,,, L(",,,, L1",,,,
Case II L",,,,, L4",,,, L',,,,
10 * 30
*2. 9!i! of t!e follo4ing 4ould be orret for 3tanton to reord in Case IC
/eord =quipment at? /eord a gain of FlossG of?
a. L*,,,,, L,
b. L1,,,,,, L1,,,,,
. L'",,,, LF",,,,G
d. L*,,,,, L1,,,,,
*3. 9!i! of t!e follo4ing 4ould be orret for 3tanton to reord in Case IIC
/eord =quipment at? /eord a gain of FlossG of?
a. L"',,,, L",,,,
b. L",,,,, L2,,,,
. L"2,,,, LF",,,,G
d. L",,,,, LF2,,,,G
Use t$e &o""o,in0 in&o/ation &o questions ?9 an% ?;)
;len In. and #rmstrong Co. !ave an e.!ange 4it! no ommerial substane. T!e asset given
up by ;len In. !as a boo2 value of L12,,,, and a fair mar2et value of L1",,,,. T!e asset given
up by #rmstrong Co. !as a boo2 value of L2,,,,, and a fair mar2et value of L1*,,,,. Noot of
L4,,,, is reeived by #rmstrong Co.
*4. 9!at amount s!ould ;len In. reord for t!e asset reeivedC
a. L1",,,,
b. L1$,,,,
. L1*,,,,
d. L2,,,,,
*". 9!at amount s!ould #rmstrong Co. reord for t!e asset reeivedC
a. L1",,,,
b. L1$,,,,
. L1*,,,,
d. L2,,,,,
*$. Eardin Company reeived L4,,,,, in as! and a used omputer 4it! a fair value of
L12,,,,, from 6age Corporation for Eardin CompanyHs e.isting omputer !aving a fair
value of L1$,,,,, and an undepreiated ost of L1",,,,, reorded on its boo2s. T!e
transation !as no ommerial substane. Eo4 mu! gain s!ould Eardin reogni)e on
t!is e.!ange, and at 4!at amount s!ould t!e aquired omputer be reorded,
respetivelyC
a. L, and L11,,,,,
b. L'$* and L11,,'$*
. L1,,,,, and L12,,,,,
d. L4,,,,, and L1",,,,,
Use t$e &o""o,in0 in&o/ation to ans,e questions ?= @ ?>)
Mamison Company pur!ased t!e assets of Noo2er Company at an aution for L1,4,,,,,,. #n
independent appraisal of t!e fair value of t!e assets is listed belo4?
1and L4'",,,,
Nuilding ',,,,,,
=quipment "2",,,,
Tru2s (",,,,,
10 * 31
*'. #ssuming t!at speifi identifiation osts are impratiable and t!at Mamison alloates
t!e pur!ase prie on t!e basis of t!e relative fair values, 4!at amount 4ould be alloated to t!e
Tru2sC
a. L4$$,$$'
b. L',,,,,,
. L(4,,,,,
d. L(",,,,,
*(. #ssuming t!at speifi identifiation osts are impratiable and t!at Mamison alloates
t!e pur!ase prie on t!e basis of t!e relative fair values, 4!at amount 4ould be alloated
to t!e NuildingC
a. L"2*,'3,
b. L',,,,,,
. L1,2'",,,,
d. L3(4,314
**. %n -eember 1, 7iser Corporation e.!anged 2,,,, s!ares of its L2" par value ommon
sto2 !eld in treasury for a parel of land to be !eld for a future plant site. T!e treasury
s!ares 4ere aquired by 7iser at a ost of L4, per s!are, and on t!e e.!ange date t!e
ommon s!ares of 7iser !ad a fair mar2et value of L", per s!are. 7iser reeived L$,,,,
for selling srap 4!en an e.isting building on t!e property 4as removed from t!e site.
Nased on t!ese fats, t!e land s!ould be apitali)ed at
a. L'4,,,,.
b. L(,,,,,.
. L*4,,,,.
d. L1,,,,,,.
1,,. 3torm Corporation pur!ased a ne4 ma!ine on %tober 31, 2,1,. # L1,2,, do4n
payment 4as made and t!ree mont!ly installments of L3,$,, ea! are to be made
beginning on November 3,, 2,1,. T!e as! prie 4ould !ave been L11,$,,. 3torm paid
no installation !arges under t!e mont!ly payment plan but a L2,, installation !arge
4ould !ave been inurred 4it! a as! pur!ase. T!e amount to be apitali)ed as t!e ost
of t!e ma!ine on %tober 31, 2,1, 4ould be
a. L12,2,,.
b. L12,,,,.
. L11,(,,.
d. L11,$,,.
1,1. Eorner Company buys a delivery van 4it! a list prie of L3,,,,,. T!e dealer grants a 1"I
redution in list prie and an additional 2I as! disount on t!e net prie if payment is
made in 3, days. 3ales ta.es amount to L4,, and t!e ompany paid an e.tra L3,, to
!ave a speial !orn installed. 9!at s!ould be t!e reorded ost of t!e vanC
a. L24,**,.
b. L2",$4".
. L2",$*,.
d. L2",3*,.
10 * 33
1,2. %n #ugust 1, 2,1,, Eayes Corporation pur!ased a ne4 ma!ine on a deferred payment
basis. # do4n payment of L3,,,, 4as made and 4 mont!ly installments of L2,",, ea!
are to be made beginning on 3eptember 1, 2,1,. T!e as! equivalent prie of t!e
ma!ine 4as L12,,,,. Eayes inurred and paid installation osts amounting to L",,. T!e
amount to be apitali)ed as t!e ost of t!e ma!ine is
a. L12,,,,.
b. L12,",,.
. L13,,,,.
d. L13,",,.
1,3. %n #pril 1, 7ooney Corporation pur!ased for L("",,,, a trat of land on 4!i! 4as
loated a 4are!ouse and offie building. T!e follo4ing data 4ere olleted onerning t!e
property?
Current #ssessed :aluation:endorAs %riginal Cost
1and L3,,,,,, L2(,,,,,
9are!ouse 2,,,,,, 1(,,,,,
%ffie building 4,,,,,, 34,,,,,
L*,,,,,, L(,,,,,,
9!at are t!e appropriate amounts t!at 7ooney s!ould reord for t!e land, 4are!ouse,
and offie building, respetivelyC
a. 1and, L2(,,,,,O 4are!ouse, L1(,,,,,O offie building, L34,,,,,.
b. 1and, L3,,,,,,O 4are!ouse, L2,,,,,,O offie building, L4,,,,,,.
. 1and, L2**,2",O 4are!ouse, L1*2,3'"O offie building, L3$3,3'".
d. 1and, L2(",,,,O 4are!ouse, L1*,,,,,O offie building, L3(,,,,,.
1,4. %n #ugust 1, 2,1,, 7ende) Corporation pur!ased a ne4 ma!ine on a deferred payment
basis. # do4n payment of L2,,,, 4as made and 4 annual installments of L$,,,, ea! are
to be made beginning on 3eptember 1, 2,1,. T!e as! equivalent prie of t!e ma!ine 4as
L23,,,,. -ue to an employee stri2e, 7ende) ould not install t!e ma!ine immediately, and
t!us inurred L3,, of storage osts. Costs of installation Fe.luding t!e storage ostsG
amounted to L(,,. T!e amount to be apitali)ed as t!e ost of t!e ma!ine is
a. L23,,,,.
b. L23,(,,.
. L24,1,,.
d. L2$,,,,.
10 * 34
1,". 3iegle Company e.!anged 4,, s!ares of ;uinn Company ommon sto2, 4!i! 3iegle
4as !olding as an investment, for equipment from 7ayo Company. T!e ;uinn Company
ommon sto2, 4!i! !ad been pur!ased by 3iegle for L", per s!are, !ad a quoted
mar2et value of L"( per s!are at t!e date of e.!ange. T!e equipment !ad a reorded
amount on 7ayoHs boo2s of L21,,,,. 9!at Bournal entry s!ould 3iegle ma2e to reord t!is
e.!angeC
a. =quipment .......................................................................... 2,,,,,
Investment in ;uinn Co. Common 3to2 ................... 2,,,,,
b. =quipment .......................................................................... 21,,,,
;ain on -isposal of Investment ................................. 1,,,,
. =quipment .......................................................................... 21,,,,
1oss on -isposal of Investment .......................................... 2,2,,
Investment in ;uinn Co. Common 3to2 ................... 23,2,,
d. =quipment .......................................................................... 23,2,,
;ain on -isposal of Investment ................................. 3,2,,
1,$. %n Manuary 2, 2,1,, /apid -elivery Company traded in an old delivery tru2 for a ne4er
model. T!e e.!ange la2ed ommerial substane. -ata relative to t!e old and ne4
tru2s follo4?
%ld Tru2
%riginal ost L24,,,,
#umulated depreiation as of Manuary 2, 2,1, 1$,,,,
#verage publis!ed retail value ',,,,
Ne4 Tru2
1ist prie L4,,,,,
Cas! prie 4it!out trade&in 3$,,,,
Cas! paid 4it! trade&in 3,,,,,
9!at s!ould be t!e ost of t!e ne4 tru2 for finanial aounting purposesC
a. L3,,,,,.
b. L3$,,,,.
. L3(,,,,.
d. L4,,,,,.
1,'. %n -eember 1, 2,1,, <elso Company aquired a ne4 delivery tru2 in e.!ange for an
old delivery tru2 t!at it !ad aquired in 2,,'. T!e old tru2 4as pur!ased for L3",,,,
and !ad a boo2 value of L13,3,,. %n t!e date of t!e e.!ange, t!e old tru2 !ad a fair
value of L14,,,,. In addition, <elso paid L4",",, as! for t!e ne4 tru2, 4!i! !ad a list
prie of L$3,,,,. T!e e.!ange la2ed ommerial substane. #t 4!at amount s!ould
<elso reord t!e ne4 tru2 for finanial aounting purposesC
a. L4",",,.
b. L"(,(,,.
. L"*,",,.
d. L$3,,,,.
>se t!e follo4ing information for questions 1,( and 1,*.
# ma!ine ost L12,,,,,, !as annual depreiation of L2,,,,,, and !as aumulated depreiation
of L*,,,,, on -eember 31, 2,1,. %n #pril 1, 2,11, 4!en t!e ma!ine !as a fair value of
L2',",,, it is e.!anged for a ma!ine 4it! a fair value of L13",,,, and t!e proper amount of
as! is paid. T!e e.!ange la2ed ommerial substane.
10 * 39
1,(. T!e gain to be reorded on t!e e.!ange is
a. L,.
b. L2,",, loss.
. L",,,, gain.
d. L1",,,, gain.
1,*. T!e ne4 ma!ine s!ould be reorded at
a. L1,',",,.
b. L122,",,.
. L132,",,.
d. L13",,,,.
>se t!e follo4ing information for questions 11, and 111.
=quipment t!at ost L$$,,,, and !as aumulated depreiation of L3,,,,, is e.!anged for
equipment 4it! a fair value of L4(,,,, and L12,,,, as! is reeived. T!e e.!ange la2ed
ommerial substane.
11,. T!e gain to be reogni)ed from t!e e.!ange is
a. L4,(,, gain.
b. L$,,,, gain.
. L1(,,,, gain.
d. L24,,,, gain.
111. T!e ne4 equipment s!ould be reorded at
a. L4(,,,,.
b. L3$,,,,.
. L3,,,,,.
d. L2(,(,,.
>se t!e follo4ing information for questions 112 t!roug! 114.
T4o independent ompanies, Eager Co. and 3!a4 Co., are in t!e !ome building business. =a!
o4ns a trat of land !eld for development, but ea! 4ould prefer to build on t!e ot!erHs land. T!ey
agree to e.!ange t!eir land. #n appraiser 4as !ired, and from !er report and t!e ompaniesH
reords, t!e follo4ing information 4as obtained?
EagerHs 1and 3!a4Hs 1and
Cost and boo2 value L1*2,,,, L12,,,,,
Fair value based upon appraisal 24,,,,, 21,,,,,
T!e e.!ange 4as made, and based on t!e differene in appraised fair values, 3!a4 paid
L3,,,,, to Eager. T!e e.!ange la2ed ommerial substane.
112. For finanial reporting purposes, Eager s!ould reogni)e a pre&ta. gain on t!is e.!ange
of
a. L,.
b. L$,,,,.
. L3,,,,,.
d. L4(,,,,.
10 * 3;
113. T!e ne4 land s!ould be reorded on EagerHs boo2s at
a. L1$(,,,,.
b. L1*2,,,,.
. L21,,,,,.
d. L24,,,,,.
114. T!e ne4 land s!ould be reorded on 3!a4Hs boo2s at
a. L12,,,,,.
b. L1",,,,,.
. L21,,,,,.
d. L24,,,,,.
11". Timmons Company traded ma!inery 4it! a boo2 value of L12,,,,, and a fair value of
L2,,,,,,. It reeived in e.!ange from 1e4is Company a ma!ine 4it! a fair value of
L1(,,,,, and as! of L2,,,,,. 1e4isAs ma!ine !as a boo2 value of L1*,,,,,. 9!at
amount of gain s!ould Timmons reogni)e on t!e e.!angeC
a. L &,&
b. L(,,,,
. L2,,,,,
d. L(,,,,,
11$. 1e4is Company traded ma!inery 4it! a boo2 value of L1*,,,,, and a fair value of
L1(,,,,,. It reeived in e.!ange from Timmons Company a ma!ine 4it! a fair value of
L2,,,,,,. 1e4is also paid as! of L2,,,,, in t!e e.!ange. TimmonsAs ma!ine !as a
boo2 value of L1*,,,,,. 9!at amount of gain or loss s!ould 1e4is reogni)e on t!e
e.!angeC
a. L2,,,,, gain
b. L &,&.
. L1,,,, loss
d. L1,,,,, loss
11'. -urler Company traded ma!inery 4it! a boo2 value of L1(,,,,, and a fair value of
L3,,,,,,. It reeived in e.!ange from Eoyle Company a ma!ine 4it! a fair value of
L2',,,,, and as! of L3,,,,,. EoyleAs ma!ine !as a boo2 value of L2(",,,,. 9!at
amount of gain s!ould -urler reogni)e on t!e e.!angeC
a. L &,&
b. L12,,,,
. L3,,,,,
d. L12,,,,,
11(. Eoyle Company traded ma!inery 4it! a boo2 value of L2(",,,, and a fair value of
L2',,,,,. It reeived in e.!ange from -urler Company a ma!ine 4it! a fair value of
L3,,,,,,. Eoyle also paid as! of L3,,,,, in t!e e.!ange. -urlerAs ma!ine !as a boo2
value of L2(",,,,. 9!at amount of gain or loss s!ould Eoyle reogni)e on t!e e.!angeC
a. L3,,,,, gain
b. L &,&
. L1,",, loss
d. L1",,,, loss
10 * 3<
11*. 6eterson Company pur!ased ma!inery for L1$,,,,, on Manuary 1, 2,,'. 3traig!t&line
depreiation !as been reorded based on a L1,,,,, salvage value and a "&year useful
life. T!e ma!inery 4as sold on 7ay 1, 2,11 at a gain of L3,,,,. Eo4 mu! as! did
6eterson reeive from t!e sale of t!e ma!ineryC
a. L23,,,,
b. L2',,,,
. L33,,,,
d. L43,,,,
12,. 3ut!erland Company pur!ased ma!inery for L32,,,,, on Manuary 1, 2,,'. 3traig!t&line
depreiation !as been reorded based on a L2,,,,, salvage value and a "&year useful
life. T!e ma!inery 4as sold on 7ay 1, 2,11 at a gain of L$,,,,. Eo4 mu! as! did
3ut!erland reeive from t!e sale of t!e ma!ineryC
a. L4$,,,,.
b. L"4,,,,.
. L$$,,,,.
d. L($,,,,.
121. =2er Company pur!ased a ne4 ma!ine on 7ay 1, 2,,2 for L1'$,,,,. #t t!e time of
aquisition, t!e ma!ine 4as estimated to !ave a useful life of ten years and an estimated
salvage value of L(,,,,. T!e ompany !as reorded mont!ly depreiation using t!e
straig!t&line met!od. %n 7ar! 1, 2,11, t!e ma!ine 4as sold for L24,,,,. 9!at s!ould
be t!e loss reogni)ed from t!e sale of t!e ma!ineC
a. L,.
b. L3,$,,.
. L(,,,,.
d. L11,$,,.
122. %n Manuary 1, 2,,2, 7ill Corporation pur!ased for L1"2,,,,, equipment !aving a useful
life of ten years and an estimated salvage value of L(,,,,. 7ill !as reorded mont!ly
depreiation of t!e equipment on t!e straig!t&line met!od. %n -eember 31, 2,1,, t!e
equipment 4as sold for L2(,,,,. #s a result of t!is sale, 7ill s!ould reogni)e a gain of
a. L,.
b. L",$,,.
. L13,$,,.
d. L2(,,,,.
Mu"ti("e C$oi'e Ans,es+Co/(utationa"
Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans)
$3. b '2. a (1. *,. **. 1,(. b 11'. b
$4. d '3. b (2. *1. a 1,,. 1,*. d 11(. d
$". d '4. a (3. b *2. a 1,1. 11,. a 11*.
$$. '". (4. d *3. 1,2. b 111. d 12,.
$'. '$. b (". b *4. b 1,3. d 112. b 121. b
$(. d ''. a ($. b *". a 1,4. b 113. a 122. b
$*. d '(. d ('. d *$. 1,". d 114. b
',. a '*. a ((. d *'. a 1,$. b 11". b
'1. b (,. b (*. a *(. d 1,'. b 11$. d
10 * 3=
MULTIPLE CHOICE+CPA A%a(te%
123. %n -eember 1, 2,1,, Eogan Co. pur!ased a trat of land as a fatory site for L(,,,,,,.
T!e old building on t!e property 4as ra)ed, and salvaged materials resulting from
demolition 4ere sold. #dditional osts inurred and salvage proeeds reali)ed during
-eember 2,1, 4ere as follo4s?
Cost to ra)e old building L',,,,,
1egal fees for pur!ase ontrat and to reord o4ners!ip 1,,,,,
Title guarantee insurane 1$,,,,
6roeeds from sale of salvaged materials (,,,,
In Eogan Hs -eember 31, 2,1, balane s!eet, 4!at amount s!ould be reported as landC
a. L(2$,,,,.
b. L($2,,,,.
. L(((,,,,.
d. L(*$,,,,.
124. 1and 4as pur!ased to be used as t!e site for t!e onstrution of a plant. # building on
t!e property 4as sold and removed by t!e buyer so t!at onstrution on t!e plant ould
begin. T!e proeeds from t!e sale of t!e building s!ould be
a. lassified as ot!er inome.
b. deduted from t!e ost of t!e land.
. netted against t!e osts to lear t!e land and e.pensed as inurred.
d. netted against t!e osts to lear t!e land and amorti)ed over t!e life of t!e plant.
12". # ompany is onstruting an asset for its o4n use. Constrution began in 2,1,. T!e
asset is being finaned entirely 4it! a speifi ne4 borro4ing. Constrution e.penditures
4ere made in 2,1, and 2,11 at t!e end of ea! quarter. T!e total amount of interest ost
apitali)ed in 2,11 s!ould be determined by applying t!e interest rate on t!e speifi ne4
borro4ing to t!e
a. total aumulated e.penditures for t!e asset in 2,1, and 2,11.
b. average aumulated e.penditures for t!e asset in 2,1, and 2,11.
. average e.penditures for t!e asset in 2,11.
d. total e.penditures for t!e asset in 2,11.
12$. Colt Football Co. !ad a player ontrat 4it! 9atts t!at is reorded in its boo2s at
L3,$,,,,,, on Muly 1, 2,1,. -ay Football Co. !ad a player ontrat 4it! <urt) t!at is
reorded in its boo2s at L4,",,,,,, on Muly 1, 2,1,. %n t!is date, Colt traded 9atts to
-ay for <urt) and paid a as! differene of L4",,,,,. T!e fair value of t!e <urt) ontrat
4as L",4,,,,,, on t!e e.!ange date. T!e e.!ange !ad no ommerial substane.
#fter t!e e.!ange, t!e <urt) ontrat s!ould be reorded in ColtHs boo2s at
a. L4,,",,,,,.
b. L4,",,,,,,.
. L4,*",,,,,.
d. L",4,,,,,,.
10 * 3>
12'. Euff Co. e.!anged nonmonetary assets 4it! 3ayler Co. No as! 4as e.!anged and t!e
e.!ange !ad no ommerial substane. T!e arrying amount of t!e asset surrendered
by Euff e.eeded bot! t!e fair value of t!e asset reeived and 3aylerHs arrying amount of
t!at asset. Euff s!ould reogni)e t!e differene bet4een t!e arrying amount of t!e asset
it surrendered and
a. t!e fair value of t!e asset it reeived as a loss.
b. t!e fair value of t!e asset it reeived as a gain.
. 3aylerHs arrying amount of t!e asset it reeived as a loss.
d. 3aylerHs arrying amount of t!e asset it reeived as a gain.
12(. C!ase County o4ned an idle parel of real estate onsisting of land and a fatory building.
C!ase gave title to t!is realty to 6atton Co. as an inentive for 6atton to establis!
manufaturing operations in t!e County. 6atton paid not!ing for t!is realty, 4!i! !ad a
fair mar2et value of L2",,,,, at t!e date of t!e grant. 6atton s!ould reord t!is
nonmonetary transation as a
a. memo entry only.
b. redit to Contribution /evenue for L2",,,,,.
. redit to e.traordinary inome for L2",,,,,.
d. redit to -onated Capital for L2",,,,,.
12*. %n 3eptember 1,, 2,1,, Men2s Co. inurred t!e follo4ing osts for one of its printing
presses?
6ur!ase of atta!ment L"",,,,
Installation of atta!ment ",,,,
/eplaement parts for renovation of press 1(,,,,
1abor and over!ead in onnetion 4it! renovation of press ',,,,
Neit!er t!e atta!ment nor t!e renovation inreased t!e estimated useful life of t!e press.
Eo4ever, t!e renovation resulted in signifiantly inreased produtivity. 9!at amount of
t!e osts s!ould be apitali)edC
a. L,.
b. L$',,,,.
. L'(,,,,.
d. L(",,,,.
13,. %n Manuary 2, 2,1,, Dor2 Corp. replaed its boiler 4it! a more effiient one. T!e follo4ing
information 4as available on t!at date?
6ur!ase prie of ne4 boiler L1",,,,,
Carrying amount of old boiler 1,,,,,
Fair value of old boiler 4,,,,
Installation ost of ne4 boiler 2,,,,,
T!e old boiler 4as sold for L4,,,,. 9!at amount s!ould Dor2 apitali)e as t!e ost of t!e
ne4 boilerC
a. L1',,,,,.
b. L1$$,,,,.
. L1$,,,,,.
d. L1",,,,,.
10 * 3?
Mu"ti("e C$oi'e Ans,es+CPA A%a(te%
Ite/ Ans) Ite/ Ans) Ite/ Ans) Ite/ Ans)
123. 12". b 12'. a 12*. d
124. b 12$. a 12(. b 13,. a
DERI8ATIONS + Co/(utationa"
No) Ans,e Dei!ation
$3. b L$,,,,,, P L$,,,,, Q L",4,, P L3,4(, P L2,4,, P L$,4,, @ L$$$,((,.
$4. d L31,2,, P L2,$,, P L1,,44, P L2,2,,,,,, P L1',,,,, @ L2,414,24,.
$". d 1and? L2,,,,,, P L2,,,,, P L",,,, Q L1,,,,, @ L21",,,,.
Nuilding? L3",,,, P L1,,*,,,,, @ L1,12",,,,.
$$. L1,,,,, P L",, P L2,, P L22" @ L1,,*2".
$'. L12,,,, P L$,, P L24, P L2', @ L13,11,.
$(. d L4,,,,, P L3",,,, @ L'",,,,.
$*. d L$,,,,, P L"",,,, @ L11",,,,.
',. a RFL1,,,,,,,,, P L3,,,,,,G Q L(,,,,,,S T 4, @ L23',",,.
'1. b FL1,,,,,,,, U $012G P FL2,1,,,,,, U 4012G @ L1,2,,,,,,.
'2. a RFL2,,,,,,,,, P L$,,,,,,G Q L1,$,,,,,,S T 4, @ L4'",,,,.
'3. b FL1,",,,,,, U $012G P FL3,3,,,,,, U 4012G @ L1,(",,,,,.
'4. a FL12,,,,, U 4012G P FL12,,,,, U 3012G P FL12,,,,, U 2012G P FL12,,,,, U 1012G
@ L1,,,,,,.
'". L4,,,,,, U .1, @ L4,,,,,.
'$. b L12,,,,, F3012 P 2012 P 1012G @ L$,,,,,.
''. a L1(,,,,, F3012 P 2012 P 1012G @ L*,,,,,.
'(. d FL*,,,,,, U 4012G P FL",4,,,, U 3012G P FL*,,,,,, U 2012G P
FL1,44,,,,, U 1012G @ L$*$,,,,.
'*. a FL'2,,,,, U *I U 1,012G P FL3,,,,,, U 12IG @ L*,,,,,.
(,. b FL'2,,,,, U .,*G P FL1",,,,, U .12G @ L(2,(,,.
(1. FL44,,,,, U .1G P FL1$,,,,, U .,*G @ L"(,4,,.
10 * 40
DERI8ATIONS + Co/(utationa" 1'ont)2
No) Ans,e Dei!ation
(2. FL2,,,,,, U 12012G P FL$,,,,,, U 4012G P FL$,,,,,, U ,012G @ L4,,,,,,.
(3. b L4,,,,,, Ffrom V (2G U 12I @ L4(,,,,.
(4. d RFL2,,,,,, P L$,,,,,, P L$,,,,,, P L4(,,,,G U *012S P FL$,,,,,, U $012G P
FL4,,,,,, U ,012G @ L1,3($,,,,.
(". b L1,1,,,,,, U 12I U *012 @ L**,,,,O
FL1,44(,,,, U *012G P FL$,,,,,, U $012G @ L1,3($,,,,O
RFL1,3($,,,, Q L1,1,,,,,,G U *I U *012S P L**,,,, @ L11(,3,".
($. b FL2,4,,,,,, U 1,012G P FL1,*(,,,,, U '012G P FL3,,,,,,,, U ,012G @ L3,1"",,,,.
('. d RFL2,4,,,,,, U .1,G P FL4,",,,,,, U .11GS T FL2,4,,,,,, P L4,",,,,,,G @ 1,.$"I.
((. d L1,2,,,,,, U 12I @ L144,,,,O
FL2,4,,,,,, U 1,012G P FL1,*(,,,,, U '012G @ L3,1"",,,,O
RFL3,1"",,,, Q L1,2,,,,,,G U 1,.$"IS P L144,,,, @ L3"2,2,(.
(*. a FL1,2,,,,,, U .12G P FL2,4,,,,,, U .1,G P FL4,",,,,,, U .11G @ L('*,,,,.
*,. FL1,2,,,,,, U .12G P FL2,4,,,,,, U .1,G P FL4,",,,,,, U .11G @ L('*,,,,O
RFL3,1"",,,, Q L1,2,,,,,,G U 1,.$"IS P L1,2,,,,,, U .12 @ L3"2,2,(.
L('*,,,, Q L3"2,2,( @ L"2$,'*2.
*1. a =quipment @ L$,,,,, P L(,,,,O 1oss? L'1,,,, Q L$,,,,, @ 11,,,,.
*2. a L'",,,, P L1",,,, @ L*,,,,,.
*3. L4",,,, P L',,,, @ L"2,,,,O L4",,,, Q L",,,,, @ L",,,,.
*4. b L12,,,, P L4,,,, @ L1$,,,,.
*". a L1",,,, Ffair mar2et valueG.
*$. L1$,,,,, Q L1",,,,, @ L1,,,,,O L12,,,,, Ffair valueG.
*'. a RL(",,,,, T FL4'",,,, P L',,,,,, P L"2",,,, P L(",,,,,GS U L1,4,,,,,, @ L4$$,$$'.
*(. d RL',,,,,, T FL4'",,,, P L',,,,,, P L"2",,,, P L(",,,,,GS U L1,4,,,,,, @ L3(4,314.
**. F2,,,, U L",G Q L$,,,, @ L*4,,,,.
1,,. L11,$,, P L2,, @ L11,(,,.
1,1. FL3,,,,, U .(" U .*(G P L4,, P L3,, @ L2",$*,.
1,2. b L12,,,, P L",, @ L12,",,.
10 * 41
No) Ans,e Dei!ation
1,3. d 1and? 3,0*, U L("",,,, @ L2(",,,,.
9are!ouse? 2,0*, U L("",,,, @ L1*,,,,,.
%ffie Nuilding? 4,0*, U L("",,,, @ L3(,,,,,.
1,4. b L23,,,, P L(,, @ L23,(,,.
1,". d L23,2,, Q L2,,,,, @ L3,2,, FgainG.
1,$. b Fair mar2et value of ne4 tru2 @ L3$,,,,.
1oss? FL3$,,,, Q L3,,,,,G Q L(,,,, @ FL2,,,,G.
Ne4 7a!ine? L(,,,, P L3,,,,, Q L2,,,, @ L3$,,,,.
1,'. b L13,3,, P L4",",, @ L"(,(,,.
1,(. b L2',",, Q FL12,,,,, Q L*",,,,G @ L2,",,.
1,*. d L1,',",, P L2',",, @ L13",,,,.
11,. a
L12,,,,
L12,,,, L4(,,,, +
U L24,,,, @ L4,(,,.
111. d L4(,,,, Q FL24,,,, Q L4,(,,G @ L2(,(,,.
112. b
L3,,,,,
L3,,,,, L21,,,,, +
U L4(,,,, @ L$,,,,.
113. a L21,,,,, Q FL4(,,,, Q L$,,,,G @ L1$(,,,, or
L3,,,,,
L1*2,,,, .L1*2,,,, L1$(,,,,.
L24,,,,,

=

114. b L12,,,,, P L3,,,,, @ L1",,,,,
or L24,,,,, Q FL21,,,,, Q L12,,,,,G @ L1",,,,,.
11". b FL2,,,,,, Q L12,,,,,G U RL2,,,,, T FL2,,,,, P L1(,,,,,GS @ L(,,,,.
11$. d L1(,,,,, Q L1*,,,,, @ FL1,,,,,G.
11'. b FL3,,,,,, Q L1(,,,,,G U RL3,,,,, T FL3,,,,, P L2',,,,,GS @ L12,,,,.
11(. d L2',,,,, Q L2(",,,, @ FL1",,,,G.
11*. RFL1$,,,,, Q L1,,,,,G T "S U 4 103 @ L13,,,,,
FL1$,,,,, Q L13,,,,,G P L3,,,, @ L33,,,,.
12,. RFL32,,,,, Q L2,,,,,G T "S U 4 103 @ L2$,,,,,
FL32,,,,, Q L2$,,,,,G P L$,,,, @ L$$,,,,.
10 * 43
No) Ans,e Dei!ation
121. b FL1'$,,,, Q L(,,,,G T F1, U 12G @ L1,4,, per mont!
L24,,,, Q RL1'$,,,, Q FL1,4,, U 1,$ mo.GS @ QL3,$,,.
122. b FL1"2,,,, Q L(,,,,G T F1, U 12G @ L1,2,,0mo.O
L2(,,,, Q RL1"2,,,, Q FL1,2,, U 1,(GS @ L",$,,.
DERI8ATIONS + CPA A%a(te%
No) Ans,e Dei!ation
123. L(,,,,,, P L',,,,, P L1,,,,, P L1$,,,, Q L(,,,, @ L(((,,,,.
124. b Coneptual.
12". b Coneptual.
12$. a FL",4,,,,,, Q L4",,,,,G Q L3,$,,,,,, @ L1,3",,,,, Fdeferred gainG
L",4,,,,,, Q L1,3",,,,, @ L4,,",,,,, FNasisG.
12'. a Coneptual.
12(. b Coneptual.
12*. d L"",,,, P L",,,, P L1(,,,, P L',,,, @ L(",,,,.
13,. a L1",,,,, P L2,,,,, @ L1',,,,,.
10 * 44
E5ERCISES
EA) 10*14186lant asset aounting.
-uring 2,1, and 2,11, 3a4yer Corporation e.periened several transations involving plant
assets. # number of errors 4ere made in reording some of t!ese transations. For ea! item
listed belo4, indiate t!e effet of t!e error Fif anyG in t!e blan2s provided by using t!e follo4ing
odes?
% @ %verstateO > @ >nderstateO N= @ No =ffet
If no error 4as made, 4rite N= in ea! of t!e four olumns.
2,1, 2,11
Net Noo2 Net Noo2
:alue of :alue of
6lant 2,1, 6lant 2,11
#ssets at Net #ssets at Net
Transation 1203101, Inome 12031011 Inome
1. T!e ost of installing a ne4 omputer
system in 2,1, 4as not reorded in 2,1,.
It 4as !arged to e.pense in 2,11.
2. In 2,11 lerial 4or2ers 4ere trained to
use t!e ne4 omputer system at a ost of
L1",,,,, 4!i! 4as erroneously apital&
i)ed. T!e ost is to be 4ritten off over t!e
e.peted life of t!e ne4 omputer system.
3. # maBor over!aul of fatory ma!inery in
2,1,, 4!i! e.tended its useful life by "
years, 4as !arged to aumulated
depreiation in 2,1,.
4. Interest ost qualifying for apitali)ation in
2,1, 4as !arged to interest e.pense in
2,1,.
". In 2,1, land 4as boug!t for an employee
par2ing lot. T!e L2,,,, title sear! fee
4as !arged to e.pense in 2,1,.
$. T!e ost of moving several manufaturing
failities from metropolitan loations to
suburban areas in 2,1, 4as apitali)ed.
T!e ost 4as 4ritten off over a 1,&year
period beginning in 2,1,.
10 * 49
WWWWWWWW WWWWWWWW WWWWWWWW WWWWWWWW
So"ution 10*141
Net Noo2 Net Noo2
:alue of :alue of
6lant 2,1, 6lant 2,11
#ssets at Net #ssets at Net
1203101, Inome 12031011 Inome
1. > % > >
2. N= N= % %
3. N= N= N= N=
4. > > > %
". > > > N=
$. N= N= N= N=
EA) 10*14389eig!ted&#verage #umulated =.penditures.
%n #pril 1, 6aine Co. began onstrution of a small building. 6ayments of L12,,,,, 4ere made
mont!ly for four mont!s beginning on #pril 1. T!e building 4as ompleted and ready for
oupany on #ugust 1. For t!e purpose of determining t!e amount of interest ost to be
apitali)ed, alulate t!e 4eig!ted&average aumulated e.penditures on t!e building by
ompleting t!e s!edule belo4?
-ate =.penditures Capitali)ation 6eriod 9eig!ted&#verage =.penditures
So"ution 10*143
-ate =.penditures Capitali)ation 6eriod 9eig!ted&#verage =.penditures
#pril 1 L12,,,,, 4012 L 4,,,,,
7ay 1 12,,,,, 3012 3,,,,,
Mune 1 12,,,,, 2012 2,,,,,
Muly 1 12,,,,, 1012 1,,,,,
L1,,,,,,
EA) 10*1448Capitali)ation of interest.
%n 7ar! 1, 7ol Co. began onstrution of a small building. T!e follo4ing e.penditures 4ere
inurred for onstrution?
7ar! 1 L '",,,, #pril 1 L '4,,,,
7ay 1 1(,,,,, Mune 1 2',,,,,
Muly 1 1,,,,,,
T!e building 4as ompleted and oupied on Muly 1. To !elp pay for onstrution L",,,,, 4as
borro4ed on 7ar! 1 on a 12I, t!ree&year note payable. T!e only ot!er debt outstanding during
t!e year 4as a L",,,,,,, 1,I note issued t4o years ago.
Instu'tions
FaG Calulate t!e 4eig!ted&average aumulated e.penditures.
FbG Calulate avoidable interest.
10 * 4;
So"ution 10*144
FaG Capitali)ation 9eig!ted&#verage
-ate =.penditures 6eriod #um. =.pend.
7ar! 1 L '",,,, 4012 L2",,,,
#pril 1 '4,,,, 3012 1(,",,
7ay 1 1(,,,,, 2012 3,,,,,
Mune 1 2',,,,, 1012 22,",,
Muly 1 1,,,,,, , ,
L*$,,,,
FbG 9eig!ted&#verage #voidable
#um. =.pend. /ate Interest
L",,,,, .12 L $,,,,
4$,,,, .1, 4,$,,
L*$,,,, L1,,$,,
EA) 10*1498Nonmonetary e.!ange.
# ma!ine ost L(,,,,,, !as annual depreiation e.pense of L1$,,,,, and !as aumulated
depreiation of L4,,,,, on -eember 31, 2,1,. %n #pril 1, 2,11, 4!en t!e ma!ine !as a fair
value of L32,,,,, it is e.!anged for a similar ma!ine 4it! a fair value of L*$,,,, and t!e proper
amount of as! is paid. T!e e.!ange la2ed ommerial substane.
Instu'tions
6repare all entries t!at are neessary at #pril 1, 2,11.
So"ution 10*149
-epreiation =.pense FL1$,,,, U 3012G.......................................... 4,,,,
#umulated -epreiation .................................................. 4,,,,
#umulated -epreiation .............................................................. 44,,,,
7a!inery ....................................................................................... *$,,,,
1oss on -isposal............................................................................. 4,,,,
7a!inery ........................................................................... (,,,,,
Cas! FL*$,,,, Q L32,,,,G .................................................. $4,,,,
EA) 10*14;8Nonmonetary e.!ange.
=quipment t!at ost L(,,,,, and !as aumulated depreiation of L$3,,,, is e.!anged for
equipment 4it! a fair value of L32,,,, and L(,,,, as! is reeived. T!e e.!ange la2ed
ommerial substane.
Instu'tions
FaG 3!o4 t!e alulation of t!e gain to be reogni)ed from t!e e.!ange.
FbG 6repare t!e entry for t!e e.!ange. 3!o4 a !e2 of t!e amount reorded for t!e ne4
equipment.
10 * 4<
So"ution 10*14;
FaG Cost L(,,,,,
#umulated depreiation F$3,,,,G
Noo2 value 1',,,,
Fair value FL32,,,, P L(,,,,G 4,,,,,
;ain L23,,,,
;ain reogni)ed F(04, U L32,,,,G L 4,$,,
FbG #umulated -epreiation....................................................... $3,,,,
=quipment................................................................................ 13,$,,
Cas!........................................................................................ (,,,,
=quipment.................................................................... (,,,,,
;ain on -isposal.......................................................... 4,$,,
C!e2?
Fair value L32,,,,
1ess deferred gain F1(,4,,G
Nasis of ne4 equipment L13,$,,
EA) 10*14<8-onated assets.
C!eng Company !as reently deided to aept a proposal from t!e City of Nel #ire t!at publily
o4ned property 4it! a large 4are!ouse loated on it 4ill be donated to C!eng if C!eng 4ill build
a bran! plant in Nel #ire. T!e appraised value of t!e property is L4*,,,,, and of t!e 4are!ouse
is L*(,,,,,.
Instu'tions
6repare t!e entry by C!eng for t!e reeipt of t!e properties.
So"ution 10*14<
Nuilding F9are!ouseG...................................................................... *(,,,,,
1and................................................................................................ 4*,,,,,
Contribution /evenue.......................................................... 1,4',,,,,
10 * 4=
EA) 10*14=8Capitali)ing vs. =.pensing.
Consider ea! of t!e items belo4. 6lae t!e proper letter in t!e blan2 spae provided to indiate
t!e nature of t!e aount or aounts to be debited 4!en reording ea! transation using t!e
preferred aounting treatment. 6repayments s!ould be reorded in balane s!eet aounts.
-isregard inome ta. onsiderations unless instruted ot!er4ise.
a. assetFsG only
b. aumulated amorti)ation, depletion, or depreiation only
. e.pense only
d. assetFsG and e.pense
e. some ot!er aount or ombination of aounts
WWWWWW 1. # motor in one of Nort! CompanyAs tru2s 4as over!auled at a ost of L$,,. It is
e.peted t!at t!is 4ill e.tend t!e life of t!e tru2 for t4o years.
WWWWWW 2. 7a!inery 4!i! !ad originally ost L13,,,,, 4as rearranged at a ost of L4",,
inluding installation, in order to improve prodution.
WWWWWW 3. %rlando Company reently pur!ased land and t4o buildings for a total ost of
L3",,,,, and entered t!e pur!ase on t!e boo2s. T!e L1,2,, ost of ra)ing t!e
smaller building, 4!i! !as an appraisal value of L$,2,,, is reorded.
WWWWWW 4. Mant)en Company traded its old ma!ine 4it! a net boo2 value of L3,,,, plus as! of
L',,,, for a ne4 one 4!i! !ad a fair mar2et value of L*,,,,.
WWWWWW ". Mim 6arra and 7ary 1a4son, maintenane repair 4or2ers, spent five days in unloading
and setting up a ne4 L$,,,, preision ma!ine in t!e plant. T!e 4ages earned in t!is
five&day period, L4(,, are reorded.
WWWWWW $. %n Mune 1, t!e 7ilton Eotel installed a sprin2ler system t!roug!out t!e building at a
ost of L13,,,,. #s a result t!e insurane rate 4as dereased by 4,I.
WWWWWW '. #n improvement, 4!i! e.tended t!e life but not t!e usefulness of t!e asset, ost
L$,,,,.
WWWWWW (. T!e atti of t!e administration building 4as finis!ed at a ost of L3,,,, to provide an
additional offie.
WWWWWW *. In 7ar!, t!e 1yon T!eatre boug!t proBetion equipment on t!e installment basis. T!e
ontrat prie 4as L23,$1,, payable L",$1, do4n, and L2,2", a mont! for t!e ne.t
eig!t mont!s. T!e as! prie for t!is equipment 4as L22,"3,.
WWWWWW1,. 1ambert Company reorded t!e first yearAs interest on $I L1,,,,,, ten&year bonds
sold a year ago at *4. T!e bonds 4ere sold in order to finane t!e onstrution of a
!ydroeletri plant. 3i. mont!s after t!e sale of t!e bonds, t!e onstrution of t!e
!ydroeletri plant 4as ompleted and operations 4ere begun. F%nly as! interest,
and not disount amorti)ation, is to be onsidered.G
10 * 4>
So"ution 10*14=
1. b $. a
2. a or '. b
3. a (. a
4. e *. e
". a 1,. d
PRO-LEMS
P) 10*14>8Capitali)ing aquisition osts.
;ibbs 7anufaturing Co. 4as inorporated on 10201, but 4as unable to begin manufaturing
ativities until (0101, beause ne4 fatory failities 4ere not ompleted until t!at date. T!e 1and
and Nuilding aount at 1203101, per t!e boo2s 4as as follo4s?
-ate Item #mount
103101, 1and and dilapidated building L2,,,,,,
202(01, Cost of removing building 4,,,,
40101, 1egal fees $,,,,
"0101, Fire insurane premium payment ",4,,
"0101, 3peial ta. assessment for streets 4,",,
"0101, 6artial payment of ne4 building onstrution 1",,,,,
(0101, Final payment on building onstrution 1",,,,,
(0101, ;eneral e.penses 3,,,,,
1203101, #sset 4rite&up '",,,,
L$24,*,,
#dditional information?
1. To aquire t!e land and building on 103101,, t!e ompany paid L1,,,,,, as! and 1,,,,
s!ares of its ommon sto2 Fpar value @ L1,,0s!areG 4!i! is very atively traded and !ad a
mar2et value per s!are of L1',.
2. 9!en t!e old building 4as removed, ;ibbs paid <4i2 -emolition Co. L4,,,,, but also
reeived L1,",, from t!e sale of salvaged material.
3. 1egal fees overed t!e follo4ing?
Cost of organi)ation L2,",,
=.amination of title overing pur!ase of land 2,,,,
1egal 4or2 in onnetion 4it! t!e building onstrution 1,",,
L$,,,,
4. T!e fire insurane premium overed premiums for a t!ree&year term beginning 7ay 1, 2,1,.
". ;eneral e.penses overed t!e follo4ing for t!e period 10201, to (0101,.
6residentHs salary L2,,,,,
6lant superintendent overing supervision of ne4 building 1,,,,,
L3,,,,,
$. Neause of t!e rising land osts, t!e president 4as sure t!at t!e land 4as 4ort! at least
L'",,,, more t!an 4!at it ost t!e ompany.
Instu'tions
-etermine t!e proper balanes as of 1203101, for a separate land aount and a separate
building aount. >se separate T&aounts Fone for land and one for buildingG labeling all t!e
relevant amounts and dislosing all omputations.
10 * 4?
So"ution 10*14>
1and
1and and old building
FL1,,,,,, plus L1',,,,,G 2',,,,,
/emoval of old building
FL4,,,, Q L1,",,G 2,",,
1egal fees 2,,,,
3peial assessment 4,",,
Nalane 2'*,,,,
Nuilding
1egal Fees 1,",,
6artial payment 1",,,,,
Insurane F3 mont!sG 4",
Final payment 1",,,,,
3uperintendentHs salary 1,,,,,
Nalane 311,*",
P) 10*14?8Capitali)ation of interest.
-uring 2,1,, Narden Nuilding Company onstruted various assets at a total ost of L(,4,,,,,,.
T!e 4eig!ted average aumulated e.penditures on assets qualifying for apitali)ation of interest
during 2,1, 4ere L",$,,,,,,. T!e ompany !ad t!e follo4ing debt outstanding at
-eember 31, 2,1,?
1. 1,I, "&year note to finane onstrution of various assets,
dated Manuary 1, 2,1,, 4it! interest payable annually on Manuary 1 L3,$,,,,,,
2. 12I, ten&year bonds issued at par on -eember 31, 2,,4, 4it! interest
payable annually on -eember 31 4,,,,,,,,
3. *I, 3&year note payable, dated Manuary 1, 2,,*, 4it! interest payable
annually on Manuary 1 2,,,,,,,,
Instu'tions
Compute t!e amounts of ea! of t!e follo4ing Fs!o4 omputationsG.
1. #voidable interest.
2. Total interest to be apitali)ed during 2,1,.
10 * 90
So"ution 10*14?
1. 9eig!ted #verage
#umulated #ppliable #voidable
=.penditures Interest /ate Interest
L3,$,,,,,, .1, L3$,,,,,
2,,,,,,,, .11X 22,,,,,
L",$,,,,,, L"(,,,,, @ #voidable Interest
XComputation of 4eig!ted average interest rate?
6rinipal Interest
12I ten&year bonds L4,,,,,,,, L4(,,,,,
*I 3&year note 2,,,,,,,, 1(,,,,,
L$,,,,,,,, L$$,,,,,
9eig!ted average interest rate @ L$$,,,,, T L$,,,,,,,, @ 11I.
2. #tual interest ost during 2,1,?
Constrution note, L3,$,,,,,, U .1, L 3$,,,,,
12I ten&year bonds, L4,,,,,,,, U .12 4(,,,,,
*I t!ree&year note, L2,,,,,,,, U .,* 1(,,,,,
L1,,2,,,,,
T!e interest ost to be apitali)ed is L"(,,,,, Ft!e lesser of t!e L"(,,,,, avoidable interest
and t!e L1,,2,,,,, atual interestG.
P) 10*1908Capitali)ation of interest.
=arly in 2,1,, -obbs Corporation engaged <iner, In. to design and onstrut a omplete
moderni)ation of -obbsHs manufaturing faility. Constrution 4as begun on Mune 1, 2,1, and
4as ompleted on -eember 31, 2,1,. -obbs made t!e follo4ing payments to <iner, In. during
2,1,?
-ate 6ayment
Mune 1, 2,1, L3,$,,,,,,
#ugust 31, 2,1, ",4,,,,,,
-eember 31, 2,1, 4,",,,,,,
In order to !elp finane t!e onstrution, -obbs issued t!e follo4ing during 2,1,?
1. L3,,,,,,,, of 1,&year, *I bonds payable, issued at par on 7ay 31, 2,1,, 4it! interest
payable annually on 7ay 31.
2. 1,,,,,,,, s!ares of no&par ommon sto2, issued at L1, per s!are on %tober 1, 2,1,.
In addition to t!e *I bonds payable, t!e only debt outstanding during 2,1, 4as a L'",,,,,, 12I
note payable dated Manuary 1, 2,,$ and due Manuary 1, 2,1$, 4it! interest payable annually on
Manuary 1.
Instu'tions
Compute t!e amounts of ea! of t!e follo4ing Fs!o4 omputationsG?
1. 9eig!ted&average aumulated e.penditures qualifying for apitali)ation of interest ost.
2. #voidable interest inurred during 2,1,.
3. Total amount of interest ost to be apitali)ed during 2,1,.
10 * 91
So"ution 10*190
1. 9eig!ted&#verage
Capitali)ation #umulated
-ate =.penditures 6eriod =.penditures
Mune 1 L3,$,,,,,, '012 L2,1,,,,,,
#ugust 31 ",4,,,,,, 4012 1,(,,,,,,
-eember 31 4,",,,,,, , ,
L3,*,,,,,,
2. 9eig!ted&#verage
#umulated #ppropriate #voidable
=.penditures Interest /ate Interest
L3,,,,,,,, .,* L2',,,,,
*,,,,,, .12 1,(,,,,
L3,*,,,,,, L3'(,,,,
3. #tual interest inurred during 2,1,?
*I bonds payable, L3,,,,,,,, U .,* U '012 L1"',",,
12I note payable, L'",,,,, U .12 *,,,,,
L24',",,
T!e interest ost to be apitali)ed is L24',",, Ft!e lesser of t!e L3'(,,,, avoidable interest
and t!e L24',",, atual interest ostG.
P) 10*1918#sset aquisition.
Ford In. plans to aquire an additional ma!ine on Manuary 1, 2,1, to meet t!e gro4ing demand
for its produt. 3tever Company offers to provide t!e ma!ine to Ford using eit!er of t!e options
listed belo4 Fea! option gives Ford e.atly t!e same ma!ine and gives 3tever Company
appro.imately t!e same net present value as! equivalent at 1,IG.
%ption 1 8 Cas! pur!ase L(,,,,,,.
%ption 2 8 Installment pur!ase requiring 1" annual payments of L1,",1'* due
-eember 31 ea! year.
T!e e.peted eonomi life of t!is ma!ine to Ford is 1" years. 3alvage value at t!at time is
estimated to be L",,,,,. 3traig!t&line depreiation is used. Interest e.pense under %ption 2 is
omputed using t!e effetive interest met!od.
Instu'tions
Nased upon urrent generally aepted aounting priniples, state !o4, if at all, t!e boo2 value
of t!e ma!ine and t!e obligation s!ould appear on t!e -eember 31, 2,1, balane s!eet of
Ford In., for ea! option. 6resent your ans4er on an ans4er s!eet in t!e follo4ing format. If an
item s!ould not appear in t!e balane s!eet, 4rite 5not s!o4n5 opposite t!e option.
#ssets 1iabilities
#ount Name #mount #ount Name #mount
%ption 1
%ption 2
10 * 93
So"ution 10*191
#ssets 1iabilities
#ount Name #mount #ount Name #mount
%ption 1 7a!inery L(,,,,,, 5not s!o4n5
#um. -epr. ",,,,,
%ption 2 7a!inery L(,,,,,, Notes 6ayable8
#um. -epr. ",,,,, Current L 2',$*'
Notes 6ayable8
1ong&term '4',124
Computations?
#t Manuary 1, 2,1,, t!e note payable is L(,,,,,,.
#t -eember 31, 2,1,, after t!e first payment of L1,",1'* !as been made FL(,,,,, interestG
L''4,(21 prinipal remains, of 4!i! L'4',124 is long&term and L2',$*' is urrent RL1,",1'* Q
F1,I U L''4,(21GS.
Note? L1,",1'* U '.$,$,( FTable $&4G @ L(,,,,,,, t!e present value of t!e obligation on
Manuary 1, 2,1,.
P) 10*1938Nonmonetary e.!anges.
7oore Corporation follo4s a poliy of a 1,I depreiation !arge per year on all ma!inery and a
"I depreiation !arge per year on buildings. T!e follo4ing transations ourred in 2,11?
7ar! 31, 2,118 Negotiations 4!i! began in 2,1, 4ere ompleted and a 4are!ouse
pur!ased 1010,2 Fdepreiation !as been properly !arged t!roug! -eember
31, 2,1,G at a ost of L3,2,,,,,, 4it! a fair mar2et value of L2,,,,,,,, 4as
e.!anged for a seond 4are!ouse 4!i! also !ad a fair mar2et value of
L2,,,,,,,,. T!e e.!ange !ad no ommerial substane. Not! parels of land
on 4!i! t!e 4are!ouses 4ere loated 4ere equal in value, and !ad a fair
value equal to boo2 value.
Mune 3,, 2,118 7a!inery 4it! a ost of L24,,,,, and aumulated depreiation t!roug!
Manuary 1 of L1(,,,,, 4as e.!anged 4it! L1",,,,, as! for a parel of land
4it! a fair mar2et value of L23,,,,,.
Instu'tions
6repare all appropriate Bournal entries for 7oore Corporation for t!e above dates.
So"ution 10*193
3031011 -epreiation =.pense ...................................................... 4,,,,,
#umulated -epreiation89are!ouse ........... 4,,,,,
FL3,2,,,,,, U "I U 104G
9are!ouse ..................................................................... 1,'2,,,,,
#umulated -epreiation89are!ouse........................... 1,4(,,,,,
9are!ouse......................................................... 3,2,,,,,,
FL3,2,,,,,, U "I U * 104 @ L1,4(,,,,,G
10 * 94
So"ution 10*193 Font.G
$03,011 -epreiation =.pense....................................................... 12,,,,
#umulated -epreiation87a!inery.............. 12,,,,
FL24,,,,, U 1,I U 102G
1and ............................................................................... 23,,,,,
#umulated -epreiation87a!inery............................ 1*2,,,,
;ain on =.!ange.............................................. 32,,,,
7a!inery........................................................... 24,,,,,
Cas!................................................................... 1",,,,,
RL(,,,,, Q FL24,,,,, Q L1*2,,,,GS @ L32,,,,
P) 10*1948Nonmonetary e.!ange.
/ogers Co. !ad a s!eet metal utter t!at ost L*$,,,, on Manuary ", 2,,$. T!is old utter !ad an
estimated life of ten years and a salvage value of L1$,,,,. %n #pril 3, 2,11, t!e old utter is
e.!anged for a ne4 utter 4it! a mar2et value of L4(,,,,. T!e e.!ange la2ed ommerial
substane. /ogers also reeived L12,,,, as!. #ssume t!at t!e last fisal period ended on
-eember 31, 2,1,, and t!at straig!t&line depreiation is used.
Instu'tions
FaG 3!o4 t!e alulation of t!e amount of t!e gain or loss to be reogni)ed by /ogers Co.
FbG 6repare all entries t!at are neessary on #pril 3, 2,11. 3!o4 a !e2 of t!e amount
reorded for t!e ne4 utter.
So"ution 10*194
FaG Cost L*$,,,,
#umulated depreiation F" 104 U L(,,,,G F42,,,,G
Noo2 value "4,,,,
Fair value FL4(,,,, P L12,,,,G $,,,,,
;ain L $,,,,
;ain reogni)ed F120$, U L$,,,,G L 1,2,,
FbG -epreiation =.pense.......................................................... 2,,,,
#umulated -epreiation....................................... 2,,,,
#umulated -epreiation................................................... 42,,,,
7a!inery............................................................................ 43,2,,
Cas!.................................................................................... 12,,,,
7a!inery ............................................................... *$,,,,
;ain on -isposal ..................................................... 1,2,,
C!e2? Fair value L4(,,,,
1ess deferred gain F4,(,,G
Nasis of ne4 ma!inery L43,2,,
10 * 99
P) 10*1998Nonmonetary e.!ange.
1ayne Co. !as a ma!ine t!at ost L2"",,,, on 7ar! 2,, 2,,'. T!is old ma!ine !ad an
estimated life of ten years and a salvage value of L1",,,,. %n -eember 23, 2,11, t!e old
ma!ine is e.!anged for a ne4 ma!ine 4it! a mar2et value of L1$2,,,,. T!e e.!ange la2ed
ommerial substane. 1ayne also reeived L1(,,,, as!. #ssume t!at t!e last fisal period
ended on -eember 31, 2,1,, and t!at straig!t&line depreiation is used.
Instu'tions
FaG 3!o4 t!e alulation of t!e amount of gain or loss to be reogni)ed by 1ayne Co. from t!e
e.!ange. F/ound to t!e nearest dollar.G
FbG 6repare all entries t!at are neessary on -eember 23, 2,11. 3!o4 a !e2 of t!e amount
reorded for t!e ne4 ma!ine.
So"ution 10*199
FaG Cost L2"",,,,
#umulated depreiation F4 304 U L24,,,,G F114,,,,G
Noo2 value 141,,,,
Fair value FL1$2,,,, P L1(,,,,G 1(,,,,,
;ain L 3*,,,,
;ain reogni)ed F1(01(, U L3*,,,,G L 3,*,,
FbG -epreiation =.pense.......................................................... 24,,,,
#umulated -epreiation....................................... 24,,,,
#umulated -epreiation................................................... 114,,,,
7a!ine............................................................................... 12$,*,,
Cas!.................................................................................... 1(,,,,
7a!ine................................................................... 2"",,,,
;ain on -isposal...................................................... 3,*,,
C!e2? Fair value L1$2,,,,
-eferred gain F3",1,,G
Nasis of ne4 ma!ine L12$,*,,
P) 10*19;8Nonmonetary e.!ange.
Eodge Co. e.!anged Nuilding 24 4!i! !as an appraised value of L3,2,,,,,,, a ost of
L",,$,,,,,, and aumulated depreiation of L2,4,,,,,, for Nuilding 7 belonging to Fine Co.
Nuilding 7 !as an appraised value of L3,,,(,,,,, a ost of L$,,2,,,,,, and aumulated
depreiation of L3,1$(,,,,. T!e orret amount of as! 4as also paid. #ssume depreiation !as
already been updated.
Instu'tions
6repare t!e entries on bot! ompaniesH boo2s assuming t!e e.!ange !ad no ommerial
substane. 3!o4 a !e2 of t!e amount reorded for Nuilding 7 on EodgeHs boo2s. F/ound to
t!e nearest dollar.G
10 * 9;
So"ution 10*19;
Eodge Co.?
Cost L",,$,,,,,
#umulated depreiation 2,4,,,,,,
Noo2 value 2,$$,,,,,
Fair value 3,2,,,,,,
;ain L "4,,,,,
;ain reogni)ed F1*203,2,, U L"4,,,,,G L32,4,,
#umulated -epreiation................................................... 2,4,,,,,,
Nuilding 7............................................................................ 2,",,,4,,
Cas!.................................................................................... 1*2,,,,
Nuilding 24............................................................... ",,$,,,,,
;ain on -isposal...................................................... 32,4,,
C!e2? Fair value L3,,,(,,,,
-eferred gain F",',$,,G
Nasis for Nuilding 7 L2,",,,4,,
Fine Co.?
Cost L$,,2,,,,,
#umulated -epreiation 3,1$(,,,,
Noo2 value 2,("2,,,,
Fair value 3,,,(,,,,
;ain L 1"$,,,,
#umulated -epreiation................................................... 3,1$(,,,,
Nuilding 24........................................................................... 3,,44,,,,
Nuilding 7................................................................ $,,2,,,,,
Cas!......................................................................... 1*2,,,,
P) 10*19<8Nonmonetary e.!ange.
Neeman Company e.!anged ma!inery 4it! an appraised value of L1,'"",,,,, a reorded ost
of L2,',,,,,, and #umulated -epreiation of L1,3",,,,, 4it! 1aey Corporation for ma!inery
1aey o4ns. T!e ma!inery !as an appraised value of L1,$*",,,,, a reorded ost of
L3,24,,,,,, and #umulated -epreiation of L1,'(2,,,,. 1aey also gave Neeman L$,,,,, in
t!e e.!ange. #ssume depreiation !as already been updated.
Instu'tions
FaG 6repare t!e entries on bot! ompaniesH boo2s assuming t!at t!e e.!ange !ad ommerial
substane. F/ound all omputations to t!e nearest dollar.G
FbG 6repare t!e entries on bot! ompaniesH boo2s assuming t!at t!e e.!ange la2ed
ommerial substane. F/ound all omputations to t!e nearest dollar.G
10 * 9<
So"ution 10*19<
FaG Commerial 3ubstane
Neeman
7a!inery...................................... 1,$*",,,, Cost L2,',,,,,,
Cas!.............................................. $,,,,, #0- 1,3",,,,,
#um. -epreiation8 N: 1,3",,,,,
7a!inery.................................. 1,3",,,,, F: 1,'"",,,,
;ain on =.!ange of ;ain L 4,",,,,
6lant #ssets.................. 4,",,,,
7a!inery........................ 2,',,,,,,
1aey
7a!inery...................................... 1,'"",,,, Cost L3,24,,,,,
#um. -epreiation8 #0- 1,'(2,,,,
7a!inery.................................. 1,'(2,,,, N: 1,4"(,,,,
;ain on =.!ange of F: 1,$*",,,,
6lant #ssets.................. 23',,,, ;ain L 23',,,,
7a!inery........................ 3,24,,,,,
Cas!................................ $,,,,,
FbG No Commerial 3ubstane
Neeman
7a!inery................................................................................... 1,3,3,(4$
Cas!........................................................................................... $,,,,,
#umulated -epreation87a!inery....................................... 1,3",,,,,
;ain on =.!ange........................................................ 13,(4$
7a!inery..................................................................... 2,',,,,,,
L$,,,,, T FL$,,,,, P L1,$*",,,,G U L4,",,,, @ L13,(4$
1aey
7a!inery................................................................................... 1,"1(,,,,
#umulated -epreiation87a!inery...................................... 1,'(2,,,,
7a!inery..................................................................... 3,24,,,,,
Cas!............................................................................. $,,,,,
10 * 9=
S$ot Ans,eB
1. 9!at are t!e maBor !arateristis of plant assetsC
1. T!e maBor !arateristis of plant assets are F1G t!at t!ey are aquired for use in
operations and not for resale, F2G t!at t!ey are long&term in nature and usually subBet to
depreiation, and F3G t!at t!ey !ave p!ysial substane.
2. 9!at interest rates s!ould be used in determining t!e amount of interest to be apitali)edC
Eo4 s!ould t!e amount of interest to be apitali)ed be determinedC
2. T!e avoidable interest is determined by multiplying FanG interest rateFsG by t!e 4eig!ted&
average amount of aumulated e.penditures on qualifying assets. For t!e portion of
4eig!ted&average aumulated e.penditures 4!i! is less t!an or equal to any amounts
borro4ed speifially to finane onstrution of t!e assets, t!e apitali)ation rate is t!e
speifi interest rate inurred. For t!e portion of 4eig!ted&average aumulated
e.penditures 4!i! is greater t!an speifi debt inurred, t!e interest rate is a 4eig!ted
average of all ot!er interest rates inurred.
T!e amount of interest to be apitali)ed is t!e avoidable interest, or t!e atual interest
inurred, 4!i!ever is lo4er.
10 * 9>
IFRS QUESTIONS
TueCFa"se
1. >nder international aounting standards, !istorial ost is t!e preferred treatment for
property, plant, and equipment.
2. /eently !anges to i;##6 require ompanies to apitali)e borro4ing osts related to
qualifying assets.
3. >nder i;##6, interest osts inurred during onstrution of a plant asset annot be
apitali)ed.
4. >nder i;##6, if a ompany uses t!e revaluation model for fi.ed assets, ompanies must
revalue t!e lass of assets regularly.
". >nder i;##6, assets t!at qualify for interest apitali)ation are assets t!at are in use or ready
for t!eir intended use.
Ans,es to TueCFa"seB
1. True
2. True
3. False
4. True
". False
Mu"ti("e C$oi'e
1. >nder i;##6, 3ampson Company, 4!o !as a non&urrent asset 4!i! !as been lassified as
!eld&for&sale, s!ould
a. test t!e assetHs value mont!ly for impairment.
b. value t!e asset at its depreiated !istorial ost.
. depreiate t!e asset over its remaining life.
d. not depreiate t!e asset.
2. 7iller Company, a ompany 4!o uses i;##6 reporting standards, sells a non&urrent asset
lassified as !eld&for&sale. 9!i! of t!e follo4ing statements is true regarding t!e treatment of
a gain on a subsequent inrease in t!e fair value less ostC
a. T!e gain s!ould not be reogni)ed.
b. T!e gain s!ould be reogni)ed in full in t!e inome statement.
. T!e gain s!ould be reogni)ed but only in retained earnings.
d. T!e gain s!ould be reogni)ed to t!e e.tent t!at it is not in e.ess of t!e umulative
impairment loss t!at !as been reogni)ed.
10 * 9?
3. -anson Company, a ompany 4!o uses i;##6 reporting standards, !as a non&urrent asset
t!at !as been lassified as !eld&for&sale. 9!en t!e asset no longer meets t!is definition,
-anson s!ould
a. /emove t!e asset from t!e balane s!eet.
b. /emeasure t!e asset at fair value.
. 7easure t!e asset at t!e lo4er of its arrying value before it 4as lassified as !eld&for&
sale and its reoverable amount at t!e date 4!en t!e ompany deided not to sell it.
d. 1eave t!e non&urrent asset on t!e finanial statements at t!e urrent arrying value.
4. =lton Industries, a ompany 4!o uses i;##6 reporting standards, !as assets and liabilities of
a disposal group lassified as !eld&for&sale s!o4n on its balane s!eet. 9!i! of t!e follo4ing
presents t!e best treatment for t!eseC
a. T!ese assets and liabilities s!ould be netted and presented as a single amount & eit!er a
urrent asset or a urrent liability on t!e balane s!eet.
b. %n t!e balane s!eet, t!e disposal group assets s!ould be s!o4n separately from ot!er
assets, 4!ile t!e disposal group liabilities s!ould be s!o4n separately from ot!er
liabilities.
. T!e assets and liabilities s!ould be netted and presented as a dedution from equity on
t!e balane s!eet.
d. T!ere s!ould be no separate dislosure of t!ese assets and liabilities on t!e balane
s!eet.
10 * ;0
". 9oodson Company, a ompany 4!o uses i;##6 reporting standards, !as identified a group
of plant assets for disposal. %n Manuary 1, 2,1,, t!e arrying value of t!ese assets 4as
L1'." million. T!e assets 4ere revalued to L1$." million on Manuary ", 2,1,, 4!en t!ey 4ere
identified as property for t!e disposal group. In addition, 9oodson t!in2s t!at is 4ill ost
L1." million to sell t!ese assets. 9!at arrying amount s!ould t!ese assets reflet for
year&end finanial statements to be prepared on Manuary 1,, 2,1,C
a. L1'." million
b. L1$." million
. L1$., million
d. L1"., million
$. T!omas Company, a ompany 4!o uses i;##6 reporting standards, is disposing of a plant
asset. T!e amount of gain or loss from t!is disposal is
a. reported as t!e differene bet4een t!e sales proeeds and t!e arrying amount of t!e
asset.
b. not reported.
. reported as t!e mar2et value less t!e reoverable amount.
d. reported as t!e differene bet4een t!e net as! flo4s of t!e produtive years of t!e asset
and its arrying value.
'. %n Manuary 1, 2,1,, Ma2son Company !as a building 4it! a arrying value of L",,,,, and a
remaining useful life " years t!at 4as reently valued at L1",,,,,. #ssuming t!at t!e
ompany uses straig!t&line depreiation, i;##6 4ould s!o4 t!e depreiation as
a. L1,,,,,
b. L3,,,,,
. L2,,,,,
d. 7ore t!an one of t!ese ans4ers ould be orret.
(. Tram Industries, a ompany 4!o uses i;##6 reporting standards, is installing a ne4 plant.
T!e ompany !as inurred t!e follo4ing osts
1. %perating losses before ommerial prodution L 2,,,,,,
2. Cost of t!e plant 1,",,,,,,
3. Initial delivery and !andling !arges 3,,,,,,
4. Cost of site preparation 1'",,,,
9!i! of t!ese osts an Tram apitali)e in aordane 4it! i;##6C
a. 1, 2, 3, Y 4
b. 2 Y 4
. 2, 3, Y 4
d. 1, 2, Y 4
10 * ;1
*. Ion Industries, a ompany 4!o uses i;##6 reporting standards, is installing a ne4 plant.
T!e ompany !as inurred t!e follo4ing osts
1. Consultants used for advie on t!e aquisition of t!e plant L24",,,,
2. Interest !arges paid to t!e supplier of plant for deferred redit L2'",,,,
3. =stimated dismantling ost to be inurred after ( years L4,,,,,,
4. Cost of t!e plant L2,3,,,,,,
9!i! of t!ese osts an Tram apitali)e in aordane 4it! i;##6C
a. 1, 2, 3, Y 4
b. 4 only
. 1 Y 4
d. 1, 3, Y 4
1,. #ll of t!e follo4ing are true regarding t!e revaluation model allo4ed under i;##6 e.ept
a. %ne seleted, t!e revaluation poliy applies to an entire lass of property, plant and
equipment.
b. /evaluations must be made regularly to ensure t!at t!e arrying value is not materially
different from fair value.
. #fter initial reognition, t!e revalued amount is fair value less subsequent depreiation
and impairment losses.
d. 9!en an asset is revalued, any inrease in arrying amount is reported as misellaneous
revenue.
Ans,es to Mu"ti("e C$oi'eB
1. d
2. d
3.
4. b
". d
$. a
'. d
(.
*. d
1,. d
10 * ;3

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CHAPTER 10

ACQUISITION AND DISPOSITION OF

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