Question 1

Exhibit 10-1
Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:

The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to
Dakota.
-Refer to Exhibit 10-1. For financial reporting purposes, Dakota should recognize a gain on this exchange in the amount of
A) $0
B) $50,000
C) $100,000
D) $200,000

Accepted Answer

Dakota should recognize a gain of $100,000 if the exchange has commercial substance and the fair value of the asset received is greater than the book value of the asset given up.

Question 2

Property acquired through donation is recorded at
A) its book value.
B) its fair value.
C) its cost.
D) zero.

Accepted Answer

Property acquired through donation is recorded at its fair value. This is because fair value provides a more accurate representation of the asset's value to the organization at the time of acquisition, even though no cash or other consideration might have been exchanged.

Question 3

Romney Company exchanged one business automobile for a replacement automobile. The old automobile had an original cost of $40,000, a book value of $16,000, and a fair value of $24,000 when exchanged. In addition, Romney paid $9,000 cash to acquire the replacement automobile. The list price of the replacement automobile was $45,000. The replacement will help generate significantly greater cash flows in the business. At what amount should the replacement automobile be recorded for financial accounting purposes?
A) $24,000
B) $30,000
C) $33,000
D) $35,000

Accepted Answer

The replacement automobile should be recorded at the fair value of the asset given up ($24,000) plus the cash paid ($9,000), totaling $33,000.

Question 4

Samos, Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $75,000 at year-end for each of the next three years. The plant assets should be valued at
A) present value of a $75,000 annuity for three years discounted at the bank prime interest rate.
B) $225,000.
C) present value of a $75,000 annuity for three years discounted at the market interest rate.
D) $225,000 plus imputed interest.

Accepted Answer

The correct valuation of plant assets acquired under a deferred payment contract is the present value of the annuity payments, discounted at the market interest rate. This reflects the time value of money, where future payments are worth less in today's dollars.

Question 5

A plant site donated by a city to Pluto Company, which plans to open a new factory, should be recorded on Pluto's books at
A) the out-of-pocket cost of taking title to it.
B) the fair value of the property.
C) zero value, but footnoted.
D) the value assigned to it by the company's directors.

Accepted Answer

The correct way to record a donated asset, such as a plant site, is at its fair value at the time of donation. This approach aligns with accounting principles that require assets to be recorded at their value to provide accurate and fair financial information.

Question 6

Mary Co. exchanged a piece of equipment that had cost $40,000 now 75% depreciated) for a truck with a current appraised value of $18,000. Mary Co. gave the other company the piece of equipment, which had a fair value of $12,000 at the time of the exchange, and $10,000 cash. Mary Co. should record
A) a $8,000 loss
B) a $4,000 loss
C) a $2,000 loss
D) a $2,000 gain

Accepted Answer

The truck has a fair value of $18,000, and Mary Co. gave up equipment worth $12,000 and $10,000 cash. So, Mary Co. has a gain of $18,000 - $12,000 - $10,000 = $2,000.

Question 7

When exchanging nonmonetary assets
A) boot must be associated with the transaction in order to recognize a gain or loss.
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) 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.
D) recognized gain or loss can occur depending on the book value of the asset surrendered and the fair value of the asset surrendered.

Accepted Answer

The answer of When exchanging nonmonetary assets
A) boot must be...

Question 8

Reba Company received $60,000 in cash and used equipment with a fair value of $160,000 from Fargo Corporation in exchange for Reba's existing equipment, which had a fair value of $210,000 and an undepreciated cost of $170,000 recorded on its books. The transaction was undertaken because Reba was revising its market strategy and planned to reduce the use of this type of equipment in its production. How much gain should Reba recognize on this exchange and at what value should the acquired equipment be recorded, respectively?
A) Gain - $10,000 and Equipment - $150,000
B) Gain - $10,000 and Equipment - $160,000
C) Gain - $40,000 and Equipment - $150,000
D) Gain - $40,000 and Equipment - $160,000

Accepted Answer

Reba should recognize a gain of $40,000, calculated as the fair value of the equipment given up ($210,000) minus its book value ($170,000). The acquired equipment should be recorded at $150,000, which is the fair value of the equipment received ($160,000) minus the cash received ($60,000) plus the fair value of the equipment given up ($210,000).

Question 9

Coco Services exchanged an asset with fair value of $12,000 and a cost of $24,000 now 40% depreciated) for a nonmonetary asset with a fair value of $12,000. In addition, Coco received $2,000 boot. In the entry to record this exchange, Coco should record
A) a $400 loss.
B) a $400 gain.
C) no gain or loss.
D) a $2,400 loss.

Accepted Answer

The answer of Coco Services exchanged an asset with fair...

Question 10

The old forklift was purchased for $20,000 and had a book value of $5,000. On the date of the exchange, the old forklift had a market value of $6,000. In addition, Retread paid $18,000 cash for the new forklift, which had a list price of $25,000. It is expected that future cash flows will not change. At what amount should Retread record the new forklift for financial accounting purposes?
A) $23,000
B) $24,000
C) $20,000
D) $25,000

Accepted Answer

The new forklift should be recorded at the fair value of what was given up ($18,000 cash + $6,000 market value of the old forklift) totaling $24,000.

Question 11

Exhibit 10-1
Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:

The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to
Dakota.
-Refer to Exhibit 10-1. For financial reporting purposes, Carolina should recognize a gain on this exchange in the amount of
A) $ 0
B) $50,000
C) $100,000
D) $200,000

Accepted Answer

The answer of Exhibit 10-1
Two construction companies, Dakota and Carolina,...

Question 12

On August 28, 2016, Saturn Drilling Services purchased a machine with a contract price of $400,000 and cash terms of 2/10, n/30. The company paid $8,000 in transportation costs and $8,000 for installation. Sales taxes of $22,000 were paid on the invoice amount. The machine should be recorded as a plant asset in the amount of
A) $400,000.
B) $422,000.
C) $428,000.
D) $430,000.

Accepted Answer

The machine should be recorded at its total cost, which includes the purchase price minus any discounts, plus transportation, installation, and sales taxes. The cash discount is 2% of $400,000, which is $8,000. Therefore, the cost is $400,000 - $8,000 + $8,000 (transportation) + $8,000 (installation) + $22,000 (sales taxes) = $430,000.

Question 13

Kelly Company exchanged inventory items that cost $47,000 and normally sold for $75,000 for a new delivery truck with a list price of $77,000. The delivery truck should be recorded on Kelly's books at
A) $47,000
B) $75,000
C) $77,000
D) $79,000

Accepted Answer

The delivery truck should be recorded at the fair value of the asset given up, which is the normal selling price of the inventory ($75,000), provided that the fair value is more clearly evident than the fair value of the truck itself.

Question 14

On April 1, 2016, Bennett Corporation purchased a new machine on a deferred payment basis. A down payment of $5,000 was made and 10 monthly installments of $14,000 each are to be made beginning on May 1, 2016. The cash equivalent price of the machine was $130,000. Bennett incurred and paid installation costs amounting to $6,000. The amount to be capitalized as the cost of the machine is
A) $130,000
B) $136,000
C) $145,000
D) $151,000

Accepted Answer

The cost to be capitalized for the machine includes the cash equivalent price of the machine ($130,000) plus the installation costs ($6,000), totaling $136,000. The deferred payment terms and down payment do not affect the capitalized cost since the cash equivalent price is given.

Question 15

Exhibit 10-1
Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:

The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to
Dakota.
-Refer to Exhibit 10-1. After the exchange, Carolina should record its newly acquired land on its books at
A) $300,000
B) $400,000
C) $450,000
D) $500,000

Accepted Answer

The answer of Exhibit 10-1
Two construction companies, Dakota and Carolina,...

Question 16

Camp, Inc. exchanged an old truck that cost $30,000 now 50% depreciated) with a current fair value of $18,000 for equipment with an appraised value of $25,000. In addition, Camp paid cash of $6,000. At what value should Camp record the new equipment?
A) $25,000
B) $24,000
C) $22,000
D) $21,000

Accepted Answer

The value of the new equipment is recorded at the fair value of the assets given up, which is the fair value of the old truck ($18,000) plus the cash paid ($6,000), totaling $24,000.

Question 17

Robertson traded in an old plant asset for a newer model that would be more productive and efficient. Data relative to the old and new plant assets follow: 
Old Plant Asset
Original cost  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$10,000
Accumulated depreciation of  $\quad $ $\quad $7,000
Fair value  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2,000

New Plant Asset
List price  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $13,000

Robertson paid $10,500 cash in the trade. What should be the cost of the new plant asset for financial accounting purposes?
A) $12,000
B) $12,500
C) $13,500
D) $13,000

Accepted Answer

The cost of the new plant asset is calculated by adding the cash paid ($10,500) to the fair value of the old plant asset given up ($2,000), which equals $12,500.

Question 18

Exhibit 10-1
Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:

The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to
Dakota.
-Refer to Exhibit 10-1. After the exchange, Dakota should record its newly acquired land on its books at
A) $300,000
B) $400,000
C) $450,000
D) $500,000

Accepted Answer

The answer of Exhibit 10-1
Two construction companies, Dakota and Carolina,...

Question 19

Maxa Marina exchanged a boat with a cost of $80,000 now 75% depreciated) and fair value of $25,000 for another boat with a current fair value of $27,000. No cash was paid or received. The new boat will perform the same function as the old boat, but cash flows are expected to last for 5 years longer with the new boat. At what value should Maxa record the new boat?
A) $27,000
B) $25,000
C) $20,000
D) $2,000

Accepted Answer

The new boat should be recorded at the fair value of the old boat given up, which is $25,000, as the exchange lacks commercial substance.

Question 20

Richards, Inc. exchanged a piece of equipment with an original cost of $82,000, accumulated depreciation to date of $40,000, and a fair value of $46,000 for a similar piece of equipment. Cash flows are not expected to change significantly. The newly acquired equipment had a book value of $40,000 and a fair market value of $41,000. At what value should Richard record the newly-acquired equipment?
A) $40,000
B) 41,000
C) $42,000
D) $46,000

Accepted Answer

The newly-acquired equipment should be recorded at its fair value, which is $46,000, because the exchange lacks commercial substance and the fair values are determinable.

Quiz 10: Property, Plant, and Equipment: Acquisition and Subsequent Investments

Property acquired through donation is recorded at

Samos, Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $75,000 at year-end for each of the next three years. The plant assets should be valued at

A plant site donated by a city to Pluto Company, which plans to open a new factory, should be recorded on Pluto's books at

Mary Co. exchanged a piece of equipment that had cost $40,000 now 75% depreciated) for a truck with a current appraised value of $18,000. Mary Co. gave the other company the piece of equipment, which had a fair value of $12,000 at the time of the exchange, and $10,000 cash. Mary Co. should record

When exchanging nonmonetary assets

Coco Services exchanged an asset with fair value of $12,000 and a cost of $24,000 now 40% depreciated) for a nonmonetary asset with a fair value of $12,000. In addition, Coco received $2,000 boot. In the entry to record this exchange, Coco should record

Kelly Company exchanged inventory items that cost $47,000 and normally sold for $75,000 for a new delivery truck with a list price of $77,000. The delivery truck should be recorded on Kelly's books at

Camp, Inc. exchanged an old truck that cost $30,000 now 50% depreciated) with a current fair value of $18,000 for equipment with an appraised value of $25,000. In addition, Camp paid cash of $6,000. At what value should Camp record the new equipment?