1. ABC Company purchased a piece of land with a fair value of $120,000 for $100,000 cash. What is the journal entry to record the land purchase?

a.Debit Land for $100,000, debit Gain for $20,000, and credit Cash for $120,000

b.Debit Land and credit Cash for $100,000

c.Debit Land and credit Cash for $120,000

d.Debit Land for $120,000, credit Gain for $20,000, and credit Cash for $100,000

2. The cost of asset acquired can be found with which of the following formulas?

a.Fair Value of Asset Surrendered Cash Paid + Cash Received

b.Fair Value of Asset Surrendered + Cash Received

c.Fair Value of Asset Surrendered Cash Paid

d.Fair Value of Asset Surrendered + Cash Paid

3. __________ is the amount of interest capitalized for a qualifying asset and is the portion of the interest cost that could have been avoided if the construction had not occurred.

a.Capitalized interest

b.Non-avoidable interest

c.Avoidable interest

d.GAAP interest

4. A(n) __________ is the substitution of a better asset for the one currently used, while a(n) __________ is the substitution of an equivalent asset.

a.renewal; improvement

b.replacement; renewal

c.improvement; betterment

d.betterment; replacement

5. Teal Services exchanged an asset with a cost of $24,000 (now 40% depreciated) for a nonmonetary asset worth $12,000. Teal received $2,000 boot. In the entry to record this exchange, Teal should record

a.a $400 loss.

b.a $400 gain.

c.a $10,000 loss.

d.no gain or loss.

6. Companies must disclose in their financial statements or footnotes all of the following about their fixed assets except

a.the difference between the assets' depreciation expense under the straight-line method and the method chosen if straight-line is not used.

b.accumulated depreciation.

c.balances of the major classes of depreciable assets, by nature or function.

d.a general description of the method or methods used to compute deprecation.

7. Rusty recently purchased a building and the tract of land on which it is located. Rusty plans to raze the building immediately and to erect a new building on the site. The value of the original building should be

a.capitalized as part of the cost of the new building.

b.capitalized as part of the cost of the land.

c.written off as an extraordinary loss in the year the building is razed.

d.depreciated over the period from the date of acquisition to the date the building is actually razed.

8. All of the following are justifications for using historical cost as the basis for recording fixed assets except

a.historical costs are relevant even as time passes because they represent the item's fair value.

b.the cost provides verifiable valuation of the asset.

c.historical cost is equal to fair value at the date of acquisition.

d.gains from holding the asset are recognized only when realized through a sale transaction.

9. According to GAAP, interest cost incurred to finance construction of an asset must be capitalized in which of the following situations?

a.When an asset is being constructed for a firm's own use

b.When an asset is used in other than the earning activities of the firm

c.When the asset is inventory that is routinely manufactured in large quantities on a repetitive basis

d.When an asset is ready for its intended use

10.Asset retirement obligations may arise from all of the following except

a.competitor requirements to enter its market.

b.laws.

c.environmental responsibilities.

d.legal arrangements.

11.When exchanging nonmonetary assets,

a.recognized gain or loss can occur depending on the book value of the asset surrendered and the fair value of the asset surrendered.

b.recognized gain or loss can occur depending on the fair value of the asset surrendered and the fair value of the asset received.

c.boot must be associated with the transaction in order to recognize a gain or loss.

d.a loss can be recognized only when the fair value of the asset received plus boot is greater than the book value of the asset surrendered.

12. An expenditure to acquire property, plant, and equipment or to increase the expected future economic benefits of the asset above those that originally were expected is called a(n)

a.capital expenditure.

b.asset expenditure.

c.operating expenditure.

d.owners' expenditure.

13. During the current calendar year, ABC Company started constructing a building to use as a warehouse. The project was completed and ready for inventory storage at the end of the current year. ABC Company incurred the following expenses related to the construction: January 1, $150,000; July 1, $500,000; and December 31, $750,000. ABC Company had a $1,500,000, 9% note payable outstanding during the year to fund this project among other things. What amount of interest should ABC Company capitalize for the year?

a.$135,000

b.$36,000

c.$126,000

d.$58,500

14. ABC Company decides to replace its old elevator. The elevator has a book value of $30,000 ($50,000 cost and $20,000 accumulated depreciation). The new elevator will cost $75,000. The journal entry to record this transaction will include a

a.debit to Loss on Disposal for $25,000.

b.credit to Cash for $75,000.

c.credit to Elevator for $75,000.

d.debit to Accumulated Depreciation for $30,000.