Mark DeFond Test - Part 1: Ch 1-10: Page 191-339 Financial Account...

Part 2: Ch 11-21: Page 2-190 Part 1: Ch 1-10: Page 191-339 Financial Accounting for Decision Makers 3e Mark DeFond (Test Bank All Chapters, 100% Original Verified, A+ Grade) 1 / 4

© Cambridge Business Publishers, 2023 11-1 Intermediate Accounting, 3 rd Edition Chapter 11

Property, Plant, and Equipment:

Acquisition and Disposition Learning Objectives – Coverage by question Multiple Choice LO 11-1 – Determine cost to capitalize for land, land improvements, equipment, buildings, and construction in process 1-5 LO 11-2 – Determine costs to capitalize for lump-sum purchases of property, plant, and equipment 6-8 LO 11-3 – Account for acquisition of property, plant, and equipment through debt and equity issuances 9-11 LO 11-4 – Account for contributed property, plant, and equipment 12-13 LO 11-5 – Calculate capitalized interest 14-17 LO 11-6 – Account for asset retirement obligations 18-20 LO 11-7 – Account for property, plant, and equipment related costs after acquisition 21-23 LO 11-8 – Account for disposal of property, plant, and equipment 24-26 LO 11-9 – Account for exchange of property, plant, and equipment 27-30 Part 2 2 / 4

© Cambridge Business Publishers, 2023 Test Bank, Chapter 11 11-2 Chapter 11: Property, Plant, and Equipment: Acquisition and Disposition Multiple Choice Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and construction in process

LO: 1

1.Which of the following costs should not be capitalized as an acquisition cost?A)Cost to update wiring to accommodate new factory equipment B)Cost to ship newly purchased computer equipment to factory C)Cost to calibrate measuring equipment before initial use D)Cost to train employees to use new factory equipment.E)All of the costs should be capitalized as acquisition costs F)None of the cost should be capitalized as acquisition costs

Answer: D

Rationale: Training costs do not enhance the value of the asset; thus are expensed as incurred. The other items are all capitalizable as acquisition costs under 360-10-30-1.Use the following information to answer Questions 2 and 3.Privett, Inc. purchased land in 2019. An existing structure was demolished, and a new warehouse was constructed on the property in September of 2019. Privett hired construction workers at a rate of $25 per hour to do the work (1,680 hours in total). Privett’s operations manager spent 25% of his time in September supervising the construction.Warehouse Construction Cost Data Purchase price – Land $125,000 Cost to remove structure on land $10,000 Operation manager’s monthly salary 5,000 Proceeds from sale of metal from demolished structure 3,000 Paving of parking lot 10,000 Landscaping costs 12,000 Foundation work 15,000 Direct materials – Warehouse 105,000 Parking lot lighting 10,000 Closing costs on land purchase 5,000 Electrical/Plumbing contractors 25,000 Hourly wage rate – Workers 25 Payroll tax rate (all employees) 10% Privett had an appraisal done in October 2019. The land and land improvements were appraised for $150,000 and $50,000, respectively; the building was appraised for $175,000. 3 / 4

© Cambridge Business Publishers, 2023 11-3 Intermediate Accounting, 3 rd Edition Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and construction in process

LO: 1

• What is the amount in the Land account related to this construction project?

A) $122,000

B) $127,000

C) $130,000

D) $125,000

E) $137,000

Answer: E

Rationale: Total cost capitalized as land includes $125,000 for the purchase of land, $5,000 for closing costs, $10,000 for the removal of the existing structure, minus the sale of the existing structure for $3,000.

Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and construction in process

LO: 1

• What is the depreciable cost of the warehouse project?

A) $220,250

B) $228,700

C) $207,000

D) $192,575

E) $196,700

Answer: C

Rationale: Fair value of the building $175,000 + Cost of land improvements $32,000 ($10,000, paving

• $12,000, landscaping, + $10,000, lighting) = $207,000.

Note that the total cost of the building of $192,575 ($15,000, foundation +$105,000, direct materials + $42,000, (1,680 hours x $25) + $1,250, (25% x $5,000 manager salary) + $4,325 (($1,250 + $42,000) x 10% payroll tax rate) + $25,000, electrical and plumbing) exceeded the fair value of the building.Thus, the appraised value is capitalized while the excess of actual costs is expensed.

Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and construction in process

LO: 1

• A company purchased a piece of equipment in 2009. The equipment was expected to have a useful

life of 10 years with no salvage value. The company failed to properly capitalize the cost of the equipment.

Which of the following statements is(are) inaccurate? (Assume the equipment is still in use at the end of the identified reporting period.)

• Retained earnings at December 31, 2020, is understated.
• Total assets at December 31, 2015, are understated.
• Net income in 2009 is understated.
• A and B
• B and C
• A and C
• A, B, and C

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