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Property, Plant, and Equipment: Acquisition and Disposal MULTIPLE CHOICE 1. Alternative terms for property, plant, and equipment include all of the following, except for a. plant assets b. fixed assets c. long-term assets d. operational assets 2. All of the following would be classified as property, plant, and equipment, except for a. office buildings b. machinery owned for standby purposes c. equipment held for resale d. equipment used in the operation of the business 3. In purchasing some land, the Maxim Company made payments for the following: Purchase price Past due taxes Title search Cost of razing old building Interest (incurred after productive operations had begun) Proceeds from salvage of old building $4,000 410 150 200 120 75 The recorded cost of the land should be a. $4,350 b. $4,595 c. $4,685 d. $4,760 4. According to FASB Statement No. 34, interest must be capitalized for a. assets that are ready for use b. assets constructed for a firm's own use c. assets that are not being used in the earning activities of the company d. inventories that are produced in large quantities on a repetitive basis 5. All of the following major types of assets would be included in the general category of property, plant, and equipment on the balance sheet except a. wasting assets b. furniture and fixtures c. land purchased for future use d. leasehold improvements ACCO 202 (Asignacin #2) - Prof. Carlos Alvarez 1-1 6. All of the following costs associated with acquiring a building should be capitalized except a. the costs of building permits b. the cost of a strike associated with the construction of the building c. the contract price d. the costs of excavation for the building 7. The president of Dozier Corporation donated a building to Mandy Corporation. The building had an original cost of $200,000, a book value of $75,000, and a fair market value of $180,000. To record this donation, Mandy would a. make a memorandum entry b. debit Building for $75,000 and credit Gain for $75,000 c. debit Building for $200,000 and credit Gain for $200,000 d. debit Building for $180,000 and credit Gain for $180,000 8. The debit for a sales tax paid on the purchase of a plant asset would be included in a. the plant asset account b. a separate deferred charge account c. miscellaneous tax expense d. accumulated depreciation-machinery 9. A plant site donated by a city to Ace Manufacturing, which plans to open a new factory, should be recorded on Ace's books at: a. the nominal cost of taking title to it b. its fair market value c. zero value, but footnoted d. the value assigned to it by the company's directors 10. Property acquired through donation is recorded at a. its book value b. its fair market value c. its cost d. zero 1-2 11. In recording exchanges of assets, which statement is not true? a. When boot is received for a similar asset, a loss is recognized in full while a gain is recognized in proportion to the boot received. b. When the fair market value of a dissimilar asset being surrendered is less than its book value, the cost of the asset acquired is equal to the fair market value of the asset surrendered less boot received. c. When the fair market value of a dissimilar asset being surrendered is greater than the book value, the cost of the asset acquired is equal to the book value of the asset surrendered plus boot received less gain recognized. d. When boot is paid for a similar asset, a gain is not recognized and a loss is recognized in full. 12. Sansoni Services exchanged an asset with a cost of $20,000 (now 30% depreciated) for a similar asset worth $18,000. Sansoni received $2,000 boot. In the entry to record this exchange, Sansoni should record a. a $6,000 gain b. a $600 gain c. no gain or loss d. a $600 loss 13. Outboard Marina exchanged a boat with a cost of $20,000 (now 75% depreciated) for a similar boat with a current fair value of $7,000. No boot was paid or received. Outboard should record the new boat at a. $ 5,000 b. $15,000 c. $ 7,000 d. $20,000 14. Anoy, Inc., exchanged a truck that cost $30,000 (now 50% depreciated) for a similar truck with an appraised value of $25,000. Anoy paid boot of $6,000. Anoy should record the new truck at a. $25,000 b. $30,000 c. $21,000 d. $31,000 15. Which of the following events is most appropriately recorded as a reduction to accumulated depreciation? a. an addition that increases the anticipated benefits of the old asset b. an improvement that extends an asset's useful life c. an improvement that increases the asset's expected benefits beyond that originally expected d. a replacement of a better asset for the one currently used ACCO 202 (Asignacin #2) - Prof. Carlos Alvarez 1-3 16. The sale of a depreciable asset resulting in a gain indicates that the proceeds from the sale were a. less than current market value b. greater than cost c. greater than book value d. less than book value BONOS: 17. On January 1, 2002, Minco Corporation purchased, for $100,000, equipment having a useful life of eight years and an estimated salvage value of $4,000. Minco has recorded monthly depreciation of the equipment on the straight-line method. On January 1, 2007, the equipment was sold for $39,000. As a result of this sale, Minco should recognize a. $0 b. a $1,500 gain c. a $1,000 loss d. a $13,000 loss 18. The Fisher Company purchased a machine on October 1, 2004, for $80,000. At the time of acquisition, the machine was estimated to have a useful life of five years and an estimated salvage of $5,000. Fisher has recorded monthly depreciation using the straight-line method. On April 1, 2006, the machine was sold for $50,000. What should be the loss recognized from the sale of the machine? a. $ 0 b. $2,500 c. $5,000 d. $7,500 19. Two alternative methods of accounting for the cost of oil and gas properties have been widely used. The method that capitalizes all costs associated with all wells is the a. successful-efforts method b. full-cost method c. variable-cost method d. specific-cost method 1-4 PROBLEM 1.Several expenditures are listed below: Yes a. b. Compensation for injury to construction worker c. Cost of overhaul before initial use d. Cost of tearing down a building on newly acquired land e. Land held as a plant site for future use f. Fully depreciated assets still being used g. Leasehold improvements h. No Landscaping Deposits on machinery not yet received Required: Indicate whether or not each expenditure would be included in the cost of property, plant, and equipment. ACCO 202 (Asignacin #2) - Prof. Carlos Alvarez 1-5