WGU D104 PRE-ASSESSMENT V2
INTERMEDIATE ACCOUNTING II
(LATEST 2026/2027 UPDATE) 100
VERIFIED QUESTIONS & ANSWERS
GRADE A
SECTION 1: PROPERTY, PLANT & EQUIPMENT (PP&E) –
ACQUISITION & COST (QUESTIONS 1–12)
QUESTION 1
Which of the following costs should be capitalized as part of the cost of
equipment?
A. Repairs for damage during installation
B. Training costs for employees to operate the equipment
C. Sales tax on the purchase
D. Advertising costs to promote the new equipment
ANSWER: C
Rationale: Sales tax on the purchase is a necessary cost to acquire the
asset and should be capitalized as part of the equipment's cost.
Repairs for damage during installation are expensed as a loss.
Training costs and advertising costs are expensed as period costs
because they do not meet the criteria for capitalization.
,QUESTION 2
When can interest costs for an asset be capitalized?
A. Only when the asset is purchased with borrowed funds
B. When assets are being prepared for their intended use
C. Only for construction of new buildings
D. When the asset is fully operational
ANSWER: B
Rationale: Interest costs can be capitalized when assets are being
prepared for their intended use. This applies to assets constructed for
a company's own use or assets constructed as discrete projects for
sale or lease. Interest capitalization continues until the asset is
substantially complete and ready for its intended use.
QUESTION 3
A company purchases land for development into a subdivision. The land
has a factory building on it that will need to be demolished. Where
should the interest costs be allocated?
A. Cost of the land
B. Cost of the building
C. Expensed immediately
D. Allocated to the subdivision development
ANSWER: A
Rationale: When land is purchased with the intention of development
and an existing building must be demolished, the interest cos ts
incurred during the demolition and preparation period should be
allocated to the cost of the land. This is because the land is the asset
being prepared for its intended use.
,QUESTION 4
Watauga Company purchased equipment on July 1, 2017 for $70,000.
Sales tax on the purchase was $700. Other costs included freight charges
of $800, insurance during shipping of $150, repairs of $1,300 for damage
during installation, and installation costs of $1,050. What is the cost of
the equipment?
A. $72,700
B. $74,000
C. $73,700
D. $71,700
ANSWER: A
Rationale: The cost of equipment includes all expenditures necessary
to acquire the asset and prepare it for its intended use. Included costs
are: Purchase price ($70,000) + Sales tax ($700) + Freight ($800) +
Insurance during shipping ($150) + Installation costs ($1,050) =
$72,700. Repairs for damage during installation ($1,300) are expensed
as a loss, not capitalized, because they are not necessary to bring the
asset to its intended use.
QUESTION 5
A company purchases a building for $500,000. The company paid
$25,000 in legal fees related to the purchase and $10,000 to have the
building inspected before purchase. What amount should be capitalized
as the cost of the building?
A. $500,000
B. $525,000
, C. $535,000
D. $510,000
ANSWER: C
Rationale: The cost of a building includes the purchase price plus all
expenditures necessary to acquire the building and prepare it for its
intended use. This includes legal fees ($25,000) and inspection costs
($10,000). Total capitalized cost = $500,000 + $25,000 + $10,000 =
$535,000.
QUESTION 6
Which of the following is NOT a cost that should be capitalized as part of
the cost of land?
A. Purchase price of the land
B. Real estate commissions
C. Title search and legal fees
D. Annual property taxes after purchase
ANSWER: D
Rationale: Annual property taxes after purchase are period costs that
should be expensed as incurred, not capitalized as part of the land's
cost. Purchase price, real estate commissions, and title search and
legal fees are all necessary costs to acquire th e land and should be
capitalized.
QUESTION 7
A company purchases equipment with a list price of $100,000. The
INTERMEDIATE ACCOUNTING II
(LATEST 2026/2027 UPDATE) 100
VERIFIED QUESTIONS & ANSWERS
GRADE A
SECTION 1: PROPERTY, PLANT & EQUIPMENT (PP&E) –
ACQUISITION & COST (QUESTIONS 1–12)
QUESTION 1
Which of the following costs should be capitalized as part of the cost of
equipment?
A. Repairs for damage during installation
B. Training costs for employees to operate the equipment
C. Sales tax on the purchase
D. Advertising costs to promote the new equipment
ANSWER: C
Rationale: Sales tax on the purchase is a necessary cost to acquire the
asset and should be capitalized as part of the equipment's cost.
Repairs for damage during installation are expensed as a loss.
Training costs and advertising costs are expensed as period costs
because they do not meet the criteria for capitalization.
,QUESTION 2
When can interest costs for an asset be capitalized?
A. Only when the asset is purchased with borrowed funds
B. When assets are being prepared for their intended use
C. Only for construction of new buildings
D. When the asset is fully operational
ANSWER: B
Rationale: Interest costs can be capitalized when assets are being
prepared for their intended use. This applies to assets constructed for
a company's own use or assets constructed as discrete projects for
sale or lease. Interest capitalization continues until the asset is
substantially complete and ready for its intended use.
QUESTION 3
A company purchases land for development into a subdivision. The land
has a factory building on it that will need to be demolished. Where
should the interest costs be allocated?
A. Cost of the land
B. Cost of the building
C. Expensed immediately
D. Allocated to the subdivision development
ANSWER: A
Rationale: When land is purchased with the intention of development
and an existing building must be demolished, the interest cos ts
incurred during the demolition and preparation period should be
allocated to the cost of the land. This is because the land is the asset
being prepared for its intended use.
,QUESTION 4
Watauga Company purchased equipment on July 1, 2017 for $70,000.
Sales tax on the purchase was $700. Other costs included freight charges
of $800, insurance during shipping of $150, repairs of $1,300 for damage
during installation, and installation costs of $1,050. What is the cost of
the equipment?
A. $72,700
B. $74,000
C. $73,700
D. $71,700
ANSWER: A
Rationale: The cost of equipment includes all expenditures necessary
to acquire the asset and prepare it for its intended use. Included costs
are: Purchase price ($70,000) + Sales tax ($700) + Freight ($800) +
Insurance during shipping ($150) + Installation costs ($1,050) =
$72,700. Repairs for damage during installation ($1,300) are expensed
as a loss, not capitalized, because they are not necessary to bring the
asset to its intended use.
QUESTION 5
A company purchases a building for $500,000. The company paid
$25,000 in legal fees related to the purchase and $10,000 to have the
building inspected before purchase. What amount should be capitalized
as the cost of the building?
A. $500,000
B. $525,000
, C. $535,000
D. $510,000
ANSWER: C
Rationale: The cost of a building includes the purchase price plus all
expenditures necessary to acquire the building and prepare it for its
intended use. This includes legal fees ($25,000) and inspection costs
($10,000). Total capitalized cost = $500,000 + $25,000 + $10,000 =
$535,000.
QUESTION 6
Which of the following is NOT a cost that should be capitalized as part of
the cost of land?
A. Purchase price of the land
B. Real estate commissions
C. Title search and legal fees
D. Annual property taxes after purchase
ANSWER: D
Rationale: Annual property taxes after purchase are period costs that
should be expensed as incurred, not capitalized as part of the land's
cost. Purchase price, real estate commissions, and title search and
legal fees are all necessary costs to acquire th e land and should be
capitalized.
QUESTION 7
A company purchases equipment with a list price of $100,000. The
