Question 1

All of the following are characteristics of property, plant and equipment except:

Accepted Answer

Property, plant, and equipment are tangible assets used in a business's operations for a long time, not primarily held for investment purposes.

Question 2

The cost of land would include all of the following except:

Accepted Answer

The cost of land includes expenses directly associated with its purchase and preparation for use, such as delinquent property taxes, the net purchase price, and grading. Paving is typically considered a part of land improvements rather than the land cost itself, as it is not necessary for the land's basic use and can be depreciated over time.

Question 3

A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?

Accepted Answer

The equipment would be recorded at $88,500, which includes the purchase price of $80,000, installation costs of $8,000, and insurance while in transit of $500. These are all considered capital expenditures necessary to bring the asset to its intended use.

Question 4

Cycle Company Ltd. made a lump-sum purchase of land, buildings, and equipment for $630,000. The appraised market values for the items are respectively, $210,000, $322,000, and $168,000. Cycle Company Ltd. should debit the equipment account for:

Accepted Answer

The equipment account should be debited based on its proportion of the total purchase price. The total appraised value is $210,000 (land) + $322,000 (buildings) + $168,000 (equipment) = $700,000. The equipment's proportion is $168,000 / $700,000 = 0.24. Therefore, the equipment account should be debited for 0.24 * $630,000 = $151,200.

Question 5

Acme Investments plans to develop a shopping center. In the first quarter, they spent the following amounts: $$\begin{array} { | l | r| } 
\hline \text { Purchase land } & \$ 90,000 \
\hline \text { Surveys and legal fees } & 1,200 \
\hline \text { Land clearing } & 5,000 \
\hline \text { Install fences around the property } & 4,600 \
\hline \text { Install lighting and signage } & 2,600 \
\hline
\end{array}$$ What amount should be recorded as the land cost?

Accepted Answer

The answer of Acme Investments plans to develop a shopping...

Question 6

A lump-sum purchase of assets requires an allocation of the purchase price among the assets acquired. This allocation method is called the:

Accepted Answer

The relative-fair-value method is used to allocate the purchase price among the assets acquired in a lump-sum purchase. This method assigns a portion of the total cost to each asset based on its relative fair market value.

Question 7

Jackson Construction Company Ltd. paid $42,000 for equipment with a fair market value of $46,000. Jackson Construction Company Ltd. will record equipment at:

Accepted Answer

Under the historical cost principle, assets are recorded at their cost at the time of purchase. Therefore, Jackson Construction Company Ltd. will record the equipment at the purchase price of $42,000, not the fair market value or any other value.

Question 8

Which of the following assets is never amortized?

Accepted Answer

Land is never amortized because it has an indefinite useful life. Unlike buildings or equipment, land does not wear out, become obsolete, or get used up.

Question 9

Utsman Enterprises Ltd. purchased land, buildings, and equipment for $2,400,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The equipment account will be debited for:

Accepted Answer

The answer of Utsman Enterprises Ltd. purchased land, buildings, and...

Question 10

Lumac Corporation purchased land and a building for $1,500,000. An appraisal indicates that the land's value is $650,000 and the building's value is $975,000. The amount that would be debited to the building account is:

Accepted Answer

The answer of Lumac Corporation purchased land and a building...

Question 11

Grubbs Company Ltd. acquired land and buildings for $1,350,000. The land is appraised at $475,000 and the buildings are appraised at $775,000. The debit to the buildings account will be:

Accepted Answer

The answer of Grubbs Company Ltd. acquired land and buildings...

Question 12

The cost of a building would include all of the following except:

Accepted Answer

The answer of The cost of a building would include...

Question 13

Five hundred hectares of land are purchased for $120,000. Additional costs include $5,000 real estate commission, $10,000 for removal of an old building, $6,000 for paving, and $800 delinquent property taxes. What is the cost of the land?

Accepted Answer

The answer of Five hundred hectares of land are purchased...

Question 14

Talbert Company Ltd. purchased land, buildings, and equipment for $3,000,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The land account will be debited for:

Accepted Answer

The total appraised value is $2,550,000 ($865,000 + $1,175,000 + $510,000). The land's proportion of the total appraised value is $865,000 / $2,550,000. Multiply this proportion by the total purchase price of $3,000,000 to find the amount to debit the land account: $865,000 / $2,550,000 * $3,000,000 = $1,017,647.

Question 15

The cost of fencing should be charged to:

Accepted Answer

The cost of fencing is considered a land improvement because it is a permanent addition that increases the value of the land. Land improvements are capitalized and depreciated over their useful life, rather than being expensed immediately like repairs.

Question 16

All amounts paid to acquire an asset and to get it ready for its intended use are referred to as:

Accepted Answer

The cost of an asset includes all amounts paid to acquire it and to get it ready for its intended use, encompassing purchase price, installation costs, and any other initial costs necessary to bring the asset to a condition and location for its intended use.

Question 17

The cost of paving a parking lot should be charged to:

Accepted Answer

Paving a parking lot increases the value and usability of the land without depleting a natural resource, thus it is classified as a land improvement rather than a repair, maintenance, or alteration of a natural resource.

Question 18

Jet Tool Company Ltd. paid $184,000 for equipment and a building with fair market values of $100,000 and $150,000, respectively. Jet Tool Company Ltd. should debit the equipment account for:

Accepted Answer

The equipment account should be debited for $73,600, calculated based on the proportion of the equipment's fair market value ($100,000) to the total fair market value of both assets ($250,000), then applied to the total cost paid ($184,000). This gives ($100,000 / $250,000) * $184,000 = $73,600.

Question 19

Which of the following would not be included in the building account?

Accepted Answer

The answer of Which of the following would not be...

Question 20

Which of the following is included in the cost of a plant asset?

Accepted Answer

Amounts paid to ready the asset for its intended use are included in the cost of a plant asset, as these costs are necessary to acquire the asset and prepare it for its intended use. Regular maintenance, normal repair costs, and wages of workers who use the asset are considered operational expenses and are not capitalized as part of the asset's cost.

Quiz 10: Property, Plant, and Equipment; Goodwill; and Intangibles