Question 1.1. Reiley Co. purchased land as a factory site for $1,000,000. Reiley paid $40,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Title insurance cost $2,400. Architect’s fees were $41,200. Excavation cost $10,040. The contractor was paid $2,400,000. Interest costs during construction were $170,000.
The cost of the building that should be recorded by Reiley Co. is (Points : 4)
Question 2.2. On October 1, Carr Co. began construction of a small building. Payments of $150,000 were made monthly for three months beginning October 1. The building was completed and ready for occupancy on December 31. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are (Points : 4)
Question 3.3. During 2012, Foster Co. incurred average accumulated expenditures of $500,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2012 was a $600,000, 10%, 5-year note payable dated January 1, 2010. What is the amount of interest that should be capitalized by Foster during 2012? (Points : 4)
Question 4.4. On August 1, 2012, Kegan Corporation purchased a new machine on a deferred payment basis. A down payment of $3,000 was made and 4 monthly installments of $4,000 each are to be made beginning on September 1, 2012. The cash equivalent price of the machine was $16,200. Kegan incurred and paid installation costs amounting to $500. The amount to be capitalized as the cost of the machine is (Points : 4)
Question 5.5. On December 1, Young Corporation exchanged 5,000 shares of its $25 par value common stock held in treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by Young at a cost of $40 per share, and on the exchange date the common shares of Young had a fair market value of $50 per share. Young received $9,000 for selling scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at (Points : 4)
Question 6.6. Equipment that cost $55,000 and has accumulated depreciation of $25,000 is exchanged for similar equipment with a fair value of $40,000 and $10,000 cash is received (assume commercial substance).
The gain to be recognized from the exchange is (Points : 4)
Question 7.7. On March 6, 2013, Calle Corporation purchased machinery for $25,000. The estimated service life of the machinery is 10 years and the estimated residual value is $5,000. Calle uses straight-line depreciation and follows the half-year convention. What amount of depreciation expense should be recorded for 2013? (Points : 4)
Question 8.8. Witten Co. purchased machinery that was installed and ready for use on January 3, 2011, at a total cost of $230,000. Salvage value was estimated at $30,000. The machinery will be depreciated over five years using the double-declining-balance method. For the year 2012, Witten should record depreciation expense on this machinery of (Points : 4)
Question 9.9. On January 1, 2012, Reiley Co. purchased new machinery for $540,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years’-digits method. The accumulated depreciation on this machinery at December 31, 2013, should be (Points : 4)
Question 10.10. In January 2012, Kohl Mining Corporation purchased a mineral mine for $6,300,000 with removable ore estimated by geological surveys at 3,000,000 tons. The property has an estimated value of $600,000 after the ore has been extracted. Kohl incurred $1,740,000 of development costs preparing the property for the extraction of ore. During 2012, 300,000 tons were removed and sold. For the year ended December 31, 2012, Kohl should include what amount of depletion in its cost of goods sold? (Points : 4)
Question 11.11. The general ledger of Younger Corporation as of December 31, 2011, includes the following accounts:
Deposits with advertising agency $13,500
Discount on bonds payable $33,750
In the preparation of Younger’s balance sheet as of December 31, 2011, what should be reported as total intangible assets? (Points : 4)
Question 12.12. The following information is available for Barkley Company’s patents:
Carrying amount $430,000
Expected future net cash flows $400,000
Fair value $320,000
Barkley would record a loss on impairment of (Points : 4)
Question 13.13. On January 1, 2010, equipment was purchased that cost $50,000, has a useful life of 10 years, and no residual value. At the beginning of 2014, it was decided that there were only four years remaining in the asset’s useful life, instead of six. Assuming the company uses the straight-line method, depreciation expense for 2014 should be (Points : 4)
The interest cost to be capitalized as part of the cost of an asset should be
(Points : 4)
the total interest cost actually incurred.
the cost of capital charge for stockholders’ equity.
that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.
that portion of average accumulated expenditures on which no interest cost was incurred.
Question 15.15. If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will (Points : 4)
vary with unit sales.
vary with sales revenue.
vary with production.
Question 16.16. White Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should (Points : 4)
recognize an extraordinary loss for the period.
include a credit to the equipment accumulated depreciation account.
include a credit to the equipment account.
not be made if the equipment is still being used.
Question 17.17. Which of the following is true of depreciation accounting? (Points : 4)
Depreciation is not a matter of valuation.
Depreciation is an attempt to match revenues and expenses.
Depreciation is a process of cost allocation.
All of the above are true about depreciation.
Question 18.18. A loss on impairment of a limited-life intangible asset is the difference between the asset’s (Points : 4)
carrying amount and the expected future net cash flows.
carrying amount and its fair value.
fair value and the expected future net cash flows.
cost and its fair value.
Question 19.19. Purchased goodwill should (Points : 4)
be written off as soon as possible against retained earnings.
be written off as soon as possible as an extraordinary item.
be written off by systematic charges as a regular operating expense over the period benefited.
not be amortized.
Question 20.20. Assets that qualify for interest cost capitalization include (Points : 4)
assets under construction for a company’s own use.
assets that are ready for their intended use in the earnings of the company.
assets that are not currently being used because of excess capacity.
All of these assets qualify for interest cost capitalization.
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