Question 1

Arnold Company purchases a new delivery truck for $40,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?
A) $44,040.
B) $43,920.
C) $42,500.
D) $41,920.

Accepted Answer

The cost of the truck includes the purchase price, sales taxes, and costs to prepare the truck for use (logo painting and safety testing), totaling $43,920. The annual license is not included in the capitalized cost.

Question 2

Kathy's Blooms purchased a delivery van with a $50,000 list price. The company was given a $5,000 cash discount by the dealer, and paid $2,500 sales tax. Annual insurance on the van is $1,250. As a result of the purchase, by how much will Kathy's Blooms increase its van account?
A) $50,000.
B) $45,000.
C) $48,750.
D) $47,500.

Accepted Answer

The van account will be increased by the purchase price of the van, minus the cash discount and sales tax, plus the annual insurance premium.$50,000 - $5,000 - $2,500 + $1,250 = $47,500

Question 3

Runge Company purchased machinery on January 1 at a list price of $250,000, with credit terms 2/10, n/30. Payment was made within the discount period. Runge paid $12,500 sales tax on the machinery, and paid installation charges of $4,400. Prior to installation, Runge paid $10,000 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery?
A) $261,900.
B) $271,900.
C) $276,900.
D) $252,500.

Accepted Answer

The answer of Runge Company purchased machinery on January 1...

Question 4

A company purchases a remote building site for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?
A) The cost of the building will not include the repainting and recarpeting costs.
B) The cost of the building will include the cost of replacing the roof.
C) The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.
D) The wiring is part of the computer costs, not the building cost.

Accepted Answer

The answer of A company purchases a remote building site...

Question 5

Which of the following is included in the cost of constructing a building?
A) Cost of paving a parking lot.
B) Cost of repairing vandalism damage incurred shortly after construction is complete.
C) Interest incurred during construction.
D) Cost of removing the demolished building existing on the land when it was purchased.

Accepted Answer

The answer of Which of the following is included in...

Question 6

Rains Company purchased equipment on January 1 at a list price of $75,000, with credit terms 2/10, n/30. Payment was made within the discount period. Rains paid $3,750 sales tax on the equipment, and paid installation charges of $1,320. Prior to installation, Rains paid $3,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?
A) $78,750.
B) $81,570.
C) $83,070.
D) $75,750.

Accepted Answer

The total cost includes the discounted purchase price, sales tax, installation charges, and the cost of the concrete slab. The discounted price is $75,000 - ($75,000 * 0.02) = $73,500. Adding sales tax ($3,750), installation charges ($1,320), and the concrete slab cost ($3,000) gives a total of $81,570.

Question 7

All leases are classified as either
A) capital leases or long-term leases.
B) capital leases or operating leases.
C) operating leases or current leases,
D) long-term leases or current leases.

Accepted Answer

Leases are classified as either capital leases or operating leases. This classification depends on whether the lease transfers substantially all the risks and rewards of ownership to the lessee (capital lease) or whether it does not (operating lease).

Question 8

National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?
A) Excavation fees are capitalized but building permit fees are not.
B) Architect fees are capitalized but building permit fees are not.
C) Interest is capitalized during the construction as part of the cost of the building.
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Accepted Answer

Interest that is incurred during the construction of the new plant is considered part of the cost of the building and should be capitalized. Excavation fees and architect fees may also be capitalized as part of the cost of the building. However, building permit fees are typically considered a general and administrative expense and should not be capitalized. The capitalized cost is not equal to the contract price less any interest on borrowed funds, as other expenses such as architect fees and excavation fees may also be included.

Question 9

Ramirez Company acquires land for $210,000 cash. Additional costs are as follow. $$\begin{array} { l r } 
\text { Removal of shed } & \$ 2,000 \
\text { Filling and grading } & 6,000 \
\text { Salvage value of lumber of shed } & 1,280 \
\text { Broker commission } & 4,520 \
\text { Paving of parking lot } & 40,000 \
\text { Closing costs } & 3,400
\end{array}$$ Ramirez will record the acquisition cost of the land as
A) $224,640.
B) $227,200.
C) $225,920.
D) $210,000.

Accepted Answer

The acquisition cost of the land includes the purchase price and all necessary costs to get the land ready for its intended use. This includes the removal of the shed ($2,000), filling and grading ($6,000), broker commission ($4,520), and closing costs ($3,400). The salvage value of the shed ($1,280) is subtracted. The paving of the parking lot is not included as it is an improvement. Therefore, the total cost is $210,000 + $2,000 + $6,000 + $4,520 + $3,400 - $1,280 = $224,640.

Question 10

Carpino Company purchased equipment and these costs were incurred:  What amount should be recorded as the cost of the equipment?
A) $70,000.
B) $73,500.
C) $74,250.
D) $75,750.

Accepted Answer

The answer of Carpino Company purchased equipment and these costs...

Question 11

The balance in the Accumulated Depreciation account represents the
A) cash fund to be used to replace plant assets.
B) amount to be deducted from the cost of the plant asset to arrive at its fair market value.
C) amount charged to expense in the current period.
D) amount charged to expense since the acquisition of the plant asset.

Accepted Answer

The balance in the Accumulated Depreciation account represents the amount charged to expense since the acquisition of the plant asset. This account is used to record the accumulated depreciation of a plant asset over its useful life. As the asset depreciates, the Accumulated Depreciation account increases, and the asset's carrying value decreases. By the end of the asset's life, the carrying value will be zero, meaning that the asset has been fully depreciated. Therefore, the best choice is D.

Question 12

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
A) Salvage value.
B) Estimated useful life.
C) Cash needed to replace the plant asset.
D) Cost.

Accepted Answer

Cash needed to replace the plant asset is not a consideration when recording periodic depreciation expense on plant assets. Depreciation expense is based on the cost of the asset, its estimated useful life, and its salvage value. Cash needed to replace the asset is relevant when determining if and when to replace the asset, but it does not have a direct impact on the periodic depreciation expense.

Question 13

Rodgers Company purchased equipment and these costs were incurred:  Rodgers will record the acquisition cost of the equipment as
A) $45,000.
B) $48,600.
C) $49,240.
D) $50,100.

Accepted Answer

The answer of Rodgers Company purchased equipment and these costs...

Question 14

Land improvements should be depreciated over the useful life of the
A) land.
B) buildings on the land.
C) land or land improvements, whichever is longer.
D) land improvements.

Accepted Answer

Land improvements such as adding parking lots, fences, or sidewalks should be depreciated over their useful life, which is generally shorter than the useful life of the land itself. Therefore, choice D (land improvements) is the correct answer.

Question 15

The term applied to the periodic expiration of a plant asset's cost is
A) amortization.
B) depletion.
C) depreciation.
D) cost expiration.

Accepted Answer

Depreciation refers to the periodic allocation of the cost of a plant asset to expenses over its useful life. Amortization refers specifically to the periodic allocation of the cost of intangible assets, and depletion refers specifically to the periodic allocation of the cost of natural resources. Cost expiration is not a commonly used accounting term.

Question 16

Wesley Hospital installs a new parking lot. The paving cost $45,000 and the lights to illuminate the new parking area cost $18,000. Which of the following statements is true with respect to these additions?
A) $45,000 should be debited to the Land account.
B) $18,000 should be debited to Land Improvements.
C) $63,000 should be debited to the Land account.
D) $63,000 should be debited to Land Improvements.

Accepted Answer

The paving and lighting are considered land improvements, which are separate from the land itself and should be capitalized as such.

Question 17

Ryan, Inc. purchased a delivery truck with a $42,000 list price. The company was given a $4,200 cash discount by the dealer, and paid $2,100 sales tax. Annual insurance on the truck is $1,050. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?
A) $42,000.
B) $37,800.
C) $40,950.
D) $39,900.

Accepted Answer

The truck account will increase by the net purchase price plus sales tax: $42,000 - $4,200 + $2,100 = $39,900. Insurance is not included in the truck account.

Question 18

Interest may be included in the acquisition cost of a plant asset
A) during the construction period of a self-constructed asset.
B) if the asset is purchased on credit.
C) if the asset acquisition is financed by a long-term note payable.
D) if it is a part of a lump-sum purchase.

Accepted Answer

Interest can be included in the acquisition cost of a plant asset during the construction period of a self-constructed asset. This is because the interest cost is considered part of the cost of constructing the asset, making it ready for its intended use.

Question 19

Schrock Company purchases a new delivery van for $60,000. The sales taxes are $4,500. The logo of the company is painted on the side of the van for $1,200. The van's annual license is $120. The van undergoes safety testing for $220. What does Schrock record as the cost of the new van?
A) $66,040.
B) $65,920.
C) $64,500.
D) $63,920.

Accepted Answer

The cost of the van includes the purchase price, sales taxes, and the cost of painting the logo. Therefore, $60,000 + $4,500 + $1,200 = $65,700. The license and safety testing are not included in the capitalized cost.

Question 20

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)
A) equal and equitable manner.
B) accelerated and accurate manner.
C) systematic and rational manner.
D) conservative market-based manner.

Accepted Answer

Depreciation is the systematic and rational allocation of an asset's cost over its useful life. This allows for the cost of the asset to be spread out over its useful life, matching the expense with the revenue generated by the asset. A, B, and D are not accurate descriptions of the depreciation process.

Quiz 9: Reporting and Analyzing Long-Lived Assets

Arnold Company purchases a new delivery truck for $40,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck?

Kathy's Blooms purchased a delivery van with a $50,000 list price. The company was given a $5,000 cash discount by the dealer, and paid $2,500 sales tax. Annual insurance on the van is $1,250. As a result of the purchase, by how much will Kathy's Blooms increase its van account?

Which of the following is included in the cost of constructing a building?

All leases are classified as either

National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

Carpino Company purchased equipment and these costs were incurred: What amount should be recorded as the cost of the equipment?

The balance in the Accumulated Depreciation account represents the

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

Rodgers Company purchased equipment and these costs were incurred: Rodgers will record the acquisition cost of the equipment as

Land improvements should be depreciated over the useful life of the

The term applied to the periodic expiration of a plant asset's cost is

Wesley Hospital installs a new parking lot. The paving cost $45,000 and the lights to illuminate the new parking area cost $18,000. Which of the following statements is true with respect to these additions?

Ryan, Inc. purchased a delivery truck with a $42,000 list price. The company was given a $4,200 cash discount by the dealer, and paid $2,100 sales tax. Annual insurance on the truck is $1,050. As a result of the purchase, by how much will Ryan, Inc. increase its truck account?

Interest may be included in the acquisition cost of a plant asset

Schrock Company purchases a new delivery van for $60,000. The sales taxes are $4,500. The logo of the company is painted on the side of the van for $1,200. The van's annual license is $120. The van undergoes safety testing for $220. What does Schrock record as the cost of the new van?

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)