Questions 7,8,9,10,11,12 7. When may a company include interest costs as part of the cost of the asset?A. When they buy a piece of equipment and finance its acquisition by a bank loan.B. When they must borrow money to finance the manufacture of their inventory items.C. When they are self-constructing a piece of equipment they will use to manufacture their products, but only during theperiod of construction.D. Interest is never allowed to be capitalized.8.Johnson Company acquires land and building for $4,000,000 including all fees related to acquisition. The land is appraisedat $2,700,000 and the building at $2,100,000. The building is then renovated at a cost of $750,000. What amount iscapitalized to the building account?A. $2,078,125B. $2,500,000C. $2,375,000D. $4,000,0009. Newson's Courier Service recently purchased a new delivery van for $29,000. The van is estimated to have a useful lifeof 8 years or 250,000 kilometres. The van will have a residual value of $1,000. The company uses the units-of-production method of depreciation. Assuming the van travelled 36,000 kms. during the first year, what is thedepreciation expense for the van in year 1?A. $3,625B. $3,500C. $4,032D. $4,17610. A company decided to use the units-of-production method to calculate depreciation on a car to be driven by the salesmanager. The amount of annual depreciation will vary with which of the following?A. Age of the car.B. Balance in accumulated depreciation.C. Number of kilometres the car is driven.D. Amount of maintenance expense incurred on the car.11. Angstrom Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years andestimated residual value of $5,000. At the beginning of year three, Angstrom's managers concluded that the total usefullife would be four years, rather than five. There was no change in the estimated residual value. What is the amount ofdepreciation that Angstrom should record for year 3 under the straight-line method?A. $8,250B. $11,000C. $15,500D. $16,500Calculation: ($60,000 - {[($60,000 - $5,000) ÷ 5] x 2} - $5,000) ÷2= $16,50012. How is the matching principle related to the recording of depreciation on tangible operational assets?A. The matching principle requires a company to use the same depreciation.B. Once a particular depreciation method is adopted for a particular asset, the owner must continue to use the samemethod.

Lets understand the basics. As per IAS 23 "Borrowing costs", borrowing cost incurred to acquisition,…

7. When may a company include interest costs as part of the cost of the asset? A. When they buy a piece of equipment and finance its acquisition by a bank loan. B. When they must borrow money to finance the manufacture of their inventory items. C. When they are self-constructing a piece of equipment they will use to manufacture their products, but only during the period of construction. D. Interest is never allowed to be capitalized.

7. When may a company include interest costs as part of the cost of the asset? A. When they buy a piece of equipment and finance its acquisition by a bank loan. B. When they must borrow money to finance the manufacture of their inventory items. C. When they are self-constructing a piece of equipment they will use to manufacture their products, but only during the period of construction. D. Interest is never allowed to be capitalized.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments

Section: Chapter Questions

Problem 14GI

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Similar questions

One financial accounting issue encountered when a companyconstructs its own plant is whether the interest coston funds borrowed to finance construction should becapitalized and then amortized over the life of the assetsconstructed. What is the justification for capitalizingsuch interest?
Which of the following statements is false? A.For a self constructed asset, capitalized interest should never exceed actual interest cost. B.A loss on exchange will always be recognized regardless of commercial substance. C.The cost to build an addition to an existing building should be expensed immediately. D.If a long-lived asset is acquired and will be paid over a number of years, the time value of money should be considered.
A company can either purchase or lease an asset. When comparing the two alternatives, which of the following is not an advantage of buying and financing the asset? (a) the possibility of receiving an investment tax credit (b) Obtaining a tax deduction for the depreciation expense (c) The potential of the asset to appreciate in value (d) Improved financial leverage
When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be? A) multiplied by an appropriate interest rate to determine the amount of interest to be capitalized. B) offset against interest cost incurred during construction. C) recognized as revenue of the period. D) used to reduce the cost of assets being constructed.
Reasons a company may choose to lease an asset include all of the following, except for short-term need for the asset.O high risk of obsolescence.O lack of cash.O preferential tax treatment of leased assets.
A company should immediately recognize: A) any gain when it constructs a piece of equipment at a cost savings. B) any gain when it makes a bargain purchase. C) any gain when a company receives no cash for an asset received in an exchange. D) any loss when it ignorantly pays too much for an asset originally.
Peak Industrial Corp. recently secured a loan to fund its new manufacturing facility. As part of the loan agreement, Peak Industrial incurred certain financing fees. How should these financing fees be treated in Peak Industrial’s financial statements? A)The fees should be immediately expensed in the income statement as they are directly associated with the loan acquisition. B) The fees should be capitalized and presented as a direct reduction of the carrying amount of the loan liability, amortizing the fees over the life of the loan. C) The fees should be recognized as a separate asset on the balance sheet and amortized over the life of the loan using a straight-line method. D)The fees should be deferred and amortized over the maximum possible term of the loan, including all extension options, regardless of the initial term agreed upon.
Which of the following costs are NOT typically capitalized when acquiring a new piece of equipment? Calibration costs Interest on the loan necessary to acquire the equipment Freight charges to bring the equipment to its intended location Installation costs
1. Please explain the concept of depreciation in your own words and discuss why it is important. Wouldn't it make more sense for companies to fully expense fixed assets in the year of purchase rather than depreciating them over time? 2. 1. What is the definition of a fixed asset and which expenditures can be added to the capitalized cost of a fixed asset? 3. 2. Please define the term "Net book value."
Which of the following would be considered a capital expenditure? (A 22) O Making a payment on accounts payable O Paying accumulated income taxes O Paying shipping insurance on new equipment Retiring a bond payable taken out for construction Which of the following costs CANNOT be capitalized as part of land? Price paid to purchase the land. Clearing old buildings and other obstructions Obligations assumed when buying the land Overhead costs for construction projects on the land
Which of the following statements regarding the acquisition of PP&E is false? A. For a self constructed asset, capitalized interest can exceed actual interest cost. B. If a long-lived asset is acquired and will be paid over a number of years, the time value of money should be considered. C. The general rule of PP&E valuation is to value the asset received at the fair market value of what was given up. D. The acquisition cost of land should include all things that prepared it for it's use including excavation. In interest capitalization related to self constructed assets, all of the following must occur before the capitalization window begins except: A. Expenditures for the assets have been incurred B. Depreciation of the asset being built has been recognized C. Activities that are necessary to get the asset ready for its intended use are in progress D.Interest has to be incurred
If a company purchases a limited-life intangible asset, they _____________ amortize the asset and they should test the asset for impairment using_______________ a.) should; the recoverability test and then the fair value test. b.) should not; the fair value test only. c.) should; the fair value test only. d.) should not; the recoverability test and then the fair value test.