CHAPTER 10 ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT IFRS questions are available at the end of this chapter WITH CORRECT ANSWERS

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3. When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building. Ans: F, LO: 1, Bloom: K, Difficulty: Moderate... , Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment. Ans: T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 5. Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements. Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 6. Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 7. Companies should assign no portion of fixed overhead to self-constructed assets. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 8. When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 9. Companies should always offset interest revenue against interest cost when determining the amount of interest to be capitalized as part of the construction cost of assets. Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 10 - 7 Test Bank for Intermediate Accounting, Sixteenth Edition 10. Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset. Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 11. When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization. Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 12. Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged. Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 13. When a company makes an unconditional promise to pledge an asset in the future, the company should report the contribution expense and related payable immediately. Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 14. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss is recognized. Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 15. When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance. Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 16. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits. Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 17. Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently used. Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 18. When an ordinary repair occurs, several periods will usually benefit. Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 19. Companies always treat gains or losses from an involuntary conversion as comprehensive income. Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 10 - 8 Acquisition and Disposition of Property, Plant, and Equipment 20. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset’s book value. Ans: T, LO: 6, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None True False Answers—Conceptual Item Ans. Item Ans. Item Ans. Item Ans. 1. F 6. T 11. T 16. T 2. T 7. F 12. T 17. T 3. F 8. F 13. T 18. F 4. T 9. F 14. F 19. F 5. F 10. T 15. F 20. T MULTIPLE CHOICE—Conceptual 21. Plant assets may properly include a. deposits on machinery not yet received. b. idle equipment awaiting sale. c. land held for possible use as a future plant site. d. None of these answers are correct. Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 22. Which of the following is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for resale c. Acquired for use d. Yields services over a number of years Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 23. Which of these is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for use in operations c. Yields services over a number of years d. All of these are major characteristics of a plant asset. Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 10 - 9 Test Bank for Intermediate Accounting, Sixteenth Edition 24. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be a. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down. b. written off as a loss in the year the hotel is torn down. c. capitalized as part of the cost of the land. d. capitalized as part of the cost of the new hotel. Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 25. The cost of land does not include a. costs of grading, filling, draining, and clearing. b. costs of removing old buildings. c. costs of improvements with limited lives. d. special assessments. Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 26. The cost of land typically includes the purchase price and all of the following costs except a. grading, filling, draining, and clearing costs. b. street lights, sewers, and drainage systems cost. c. private driveways and parking lots. d. assumption of any liens or mortgages on the property. Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 27. If a corporation purchases land and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on a. the significance of the cost allocated to the building in relation to the combined cost of the land and building. b. the length of time for which the building was held prior to its demolition. c. the contemplated future use of the parking lot. d. the intention of management for the property when the building was acquired. Ans: D, LO: 1, Bloom: K, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting, IFRS: None 28. The debit for a sales tax properly levied and paid on the [Show More]

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