Question 1

When an operational asset is acquired for non-cash consideration, the cost of the asset received always is measured as the book value of the non-cash consideration given up.

Accepted Answer

The cost of the asset received when acquired for non-cash consideration is measured at the fair value of the asset received or the fair value of the consideration given up, whichever is more clearly evident and measurable. This may or may not be the book value of the consideration given up.

Question 2

Because of depreciation, the net carrying amount of an asset declines over time and proﬁt is reduced by the amount of the expense.

Accepted Answer

Depreciation is an expense that reduces the net carrying amount of an asset over time and reduces the profit. So, the statement is true.

Question 3

When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per share, the company must get an appraisal of the land and recognize a gain if the appraised value is more than the $200,000 value of the shares issued.

Accepted Answer

This statement is incorrect. When a company acquires land by issuing common shares, it records the land at the fair value of the shares issued, not the appraised value of the land. Any gain or loss related to the transaction is recognized based on the fair value of the shares issued, not the appraised value of the land.

Question 4

An asset is always sold for its residual value at the end of the asset's useful life.

Accepted Answer

The residual value of an asset may or may not be equal to its selling price at the end of its useful life. The selling price could be higher or lower than the residual value, depending on various factors such as market conditions, demand, and depreciation.

Question 5

A company that is self-constructing a new store, which will open upon completion, is permitted to capitalize the interest during the period of construction if they ﬁnance the construction with actual loans.

Accepted Answer

According to generally accepted accounting principles (GAAP), interest incurred during self-construction of an asset can be capitalized if actual loans are obtained to finance the construction.

Question 6

The ﬁxed asset turnover ratio is computed by dividing proﬁt by the average ﬁxed assets amount.

Accepted Answer

The fixed asset turnover ratio is computed by dividing the net sales by the average fixed assets amount, not by the profit.

Question 7

The cost of a major addition to an operational asset should be recorded as an asset and depreciated over its useful life.

Accepted Answer

The cost of a major addition to an operational asset should be capitalized as an asset and depreciated over its useful life. This treatment is in accordance with the matching principle of accounting, as it spreads the cost of the addition over the periods in which it is expected to generate benefits for the company.

Question 8

A corporation may choose to list its operational assets in the current assets section of the statement of ﬁnancial position.

Accepted Answer

Operational assets are typically classified as non-current assets because they are long-term resources used in the operations of a business, not expected to be converted into cash within a year.

Question 9

When events or changes in circumstances reduce the estimated future cash ﬂows of long-lived assets below their book value, the book values should be written down (by recording a loss) to the fair value of the assets.

Accepted Answer

This statement is true according to the accounting principle of impairment. When the estimated future cash flows of a long-lived asset decreases, the company should adjust/book the loss by reducing the book value to the fair value of the asset.

Question 10

Behren Company purchased a building and the parcel of land on which the building was located for a total purchase price of $810,000. To record the acquisition, the account, Building, should be debited for $810,000.

Accepted Answer

The total purchase price of $810,000 should be allocated between the building and the land based on their relative fair market values, not all debited to the Building account.

Question 11

Building and equipment are recorded at their cost at acquisition and are subsequently reported at cost less accumulated depreciation.

Accepted Answer

Building and equipment are recorded at their cost at acquisition and are subsequently depreciated over their useful lives, with the accumulated depreciation being subtracted from the original cost to obtain the net book value of the asset.

Question 12

If a second-hand machine is purchased for operational use in a business, all renovation and repair costs on the used machine incurred by the purchaser prior to its operational use should be excluded from the cost of the asset.

Accepted Answer

Renovation and repair costs incurred to prepare a second-hand machine for its intended use should be included in the asset's cost, as they are necessary to bring the asset to the condition and location necessary for it to operate in the manner intended by management.

Question 13

Operating expenditures are expensed as incurred.

Accepted Answer

Operating expenditures are considered as current expenses and are recorded as they occur, rather than being capitalized as an asset.

Question 14

Expenditures made after the asset is in use are always capital expenditures.

Accepted Answer

Expenditures made after the asset is in use can be either capital expenditures or revenue expenditures, depending on whether they maintain or improve the asset's productivity and extend its useful life.

Question 15

A tangible asset must be fully depreciated before it can be removed from the books.

Accepted Answer

A tangible asset can be removed from the books before it is fully depreciated. This can happen if the asset is sold, scrapped or otherwise disposed of before the end of its useful life. In this case, the remaining value of the asset may be written off as a loss.

Question 16

In conformity with the historical cost principle, cost (less any estimated residual value) is allocated to periodic expense over the periods beneﬁted.

Accepted Answer

The answer of In conformity with the historical cost principle,...

Question 17

One of the most important challenges facing managers is forecasting the level of productive capacity (ﬁxed assets) needed in the long run to meet customer demand.

Accepted Answer

Forecasting the level of productive capacity in the long run is indeed an important challenge for managers to ensure they can meet customer demand.

Question 18

Land improvements are not a depreciable asset.

Accepted Answer

Land improvements are a depreciable asset and are subject to depreciation. Examples of land improvements include landscaping, paving, and installing fences. However, the land itself is not a depreciable asset as it is considered to have an indefinite useful life.

Question 19

The cost allocation method utilized affects the amount of net property, plant, and equipment that is used in the computation of the ﬁxed asset turnover ratio.

Accepted Answer

The cost allocation method used for property, plant, and equipment affects the depreciation expense and the carrying amount of the fixed assets. These values are used in the computation of the fixed asset turnover ratio, which measures a company's efficiency in generating sales from its investment in fixed assets. Therefore, the choice of cost allocation method can impact the ratio result.

Question 20

Acquisition cost of property, plant, and equipment is the cash-equivalent purchase price plus all reasonable and necessary expenditures made to acquire and prepare the asset for its intended use.

Accepted Answer

This is the definition of acquisition cost of property, plant and equipment as per accounting principles.

Quiz 8: Receivables, Bad Debt Expense, and Interest Revenue