The following questions are adapted from a variety of sources including questions developed by the AICPA Board of Examiners and those used in the Kaplan CPA Review Course to study property, plant, and equipment and intangible assets while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. Simons Company purchased land to build a new factory. The following expenditures were made in conjunction with the land purchase:
€¢ Purchase price of the land, $150,000
€¢ Real estate commissions of 7% of the purchase price
€¢ Land survey, $5,000
€¢ Back taxes, $5,000
What is the initial value of the land?
a. $160,000
b. $160,500
c. $165,500
d. $170,500
2. During 2013, Burr Co. made the following expenditures related to the acquisition of land and the construction of a building:
Purchase price of land ................. $ 60,000
Legal fees for contracts to purchase land ......... 2,000
Architects€™ fees ................... 8,000
Demolition of old building on site ............. 5,000
Sale of scrap from old building .............. 3,000
Construction cost of new building (fully completed) .... 350,000
What amounts should be recorded as the initial values of the land and the building?
Land Building
a. $60,000 ................. $360,000
b. $62,000 ................. $360,000
c. $64,000 ................. $358,000
d. $65,000 ................. $362,000
3. On December 31, 2013, Bart Inc. purchased a machine from Fell Corp. in exchange for a noninterest-bearing note requiring eight payments of $20,000. The first payment was made on December 31, 2013, and the remaining seven payments are due annually on each December 31, beginning in 2014. At the date of the transaction, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:

The initial value of the machine is
a. $ 94,240
b. $102,920
c. $104,620
d. $114,240
4. Amble Inc. exchanged a truck with a book value of $12,000 and a fair value of $20,000 for a truck and $5,000 cash. The exchange has commercial substance. At what amount should Amble record the truck received?
a. $12,000
b. $15,000
c. $20,000
d. $25,000
5. Dahl Corporation has just built a machine to produce car doors. Dahl had to build this machine because it couldn€™t purchase one that met its specifications. The following are the costs related to the machine€™s construction and the first month of operations:
€¢ Construction materials, $20,000
€¢ Labor, $9,000 (construction, $3,000; testing, $1,000; operations, $5,000)
€¢ Engineering fees, $5,000
€¢ Utilities, $4,000 (construction, $1,000; testing, $1,000; operations, $2,000)
What is the initial value of the machine?
a. $28,000
b. $29,000
c. $31,000
d. $38,000
6. Cole Co. began constructing a building for its own use in January 2013. During 2013, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 2013 was $40,000. What amount of interest should Cole capitalize?
a. $20,000
b. $40,000
c. $50,000
d. $70,000
7. On December 31, 2012, Bit Co. had capitalized costs for a new computer software product with an economic life of five years. Sales for 2013 were 30 percent of expected total sales of the software. At December 31, 2013, the software had a fair value equal to 90 percent of the capitalized cost. What percentage of the original capitalized cost should be reported as the net amount in Bit€™s December 31, 2013, balance sheet?
a. 70%
b. 72%
c. 80%
d. 90%
8. During the current year, Orr Company incurred the following costs:
Research and development services
performed by Key Corp. for Orr .......... $150,000
Design, construction, and testing of
preproduction prototypes and models ........ 200,000
Testing in search for new products or
process alternatives ............... 175,000
In its income statement for the current year, what amount should Orr report as research and development expense?
a. $150,000
b. $200,000
c. $350,000
d. $525,000
Beginning in 2011, International Financial Reporting Standards are tested on the CPA exam along with U.S. GAAP. The following questions deal with the application of IFRS to accounting for property, plant, and equipment.
9. Under IFRS
a. Research and development expenditures are expensed in the period incurred.
b. Research and development expenditures are capitalized and amortized.
c. Development expenditures that meet certain criteria are capitalized and amortized; research expenditures are expensed in the period incurred.
d. Research expenditures that meet certain criteria are capitalized and amortized; development expenditures are expensed in the period incurred.
10. In 2013 Sanford LTD. received a government grant of $100,000 to be used for the purchase of a machine.
Sanford prepares its financial statements using IFRS. The grant must be recognized
a. As revenue in 2013.
b. As a reduction in the cost of the machine.
c. As deferred income in the balance sheet and then recognized in the income statement systematically over the asset€™s useful life.
d. Either b orc.

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