WESTERN GOVERNORS UNIVERSITY
WGU D104 OA #1
Practice Question Bank
Intermediate Accounting I — NCLEX-Style Practice Questions with
Rationales
Comprehensive Review: Property, Plant & Equipment, Intangible Assets &
More
Edition 1 · July 2026
Table of Contents
1. Instructions for Use 2
2. Practice Questions with Answers & Rationales 2
WGU D104 · Western Governors University Page 1
,WGU D104 OA #1 PRACTICE GUIDE INSTRUCTIONS & PRACTICE QUESTIONS
How to Use This Guide
Read each stem, choose your answer, then check the rationale directly below it. The correct
option is marked, and each wrong option is explained so you understand why it's wrong — not
just that it is.
Category: Intermediate Accounting I — Property, Plant & Equipment &
Intangible Assets
1 Watauga Company had the following events: Purchase of equipment on July 1, 2017
for $70,000; Sales tax $700; Freight charges $800; Insurance during shipping $150;
Repairs for damage during installation $1,300; Installation costs $1,050. What is the
cost of the equipment?
A $72,700
B $73,450
C $74,000
D $71,650
Why A is correct: Equipment cost = Purchase price + Sales tax + Freight + Insurance +
Installation costs = 70,000 + 700 + 800 + 150 + 1,050 = $72,700. Repairs for damage during
installation are expensed, not capitalized.
B — This incorrectly includes the $1,300 repair cost.
C — This overstates the cost.
D — This understates the cost.
,2 Cotton Hotel Corporation purchased Emporia Hotel and the land on which it is
located with the plan to tear down the hotel and build a new luxury hotel. How
should the cost of the Emporia Hotel be treated?
A Capitalized as part of the cost of the land
B Expensed immediately
C Capitalized as part of the new building
D Depreciated over the remaining useful life
Why A is correct: When land is purchased with a building that will be demolished, the cost
of the building is capitalized as part of the land cost.
B — The cost is not expensed; it is capitalized to land.
C — The cost is capitalized to land, not the new building.
D — The building is not depreciated as it will be demolished.
3 How are fences and parking lots reported on the balance sheet?
A Land improvements
B Land
C Buildings
D Equipment
Why A is correct: Fences and parking lots are considered land improvements and are
reported separately from land.
B — Land improvements are distinct from land.
C — These are not buildings.
D — These are not equipment.
, 4 Land was purchased to be used as the site for construction of a plant. A building on
the property was sold and removed by the buyer so construction could begin. How
should the proceeds from the sale of the building be treated?
A Deducted from the cost of the land
B Recorded as a gain on sale
C Added to the cost of the land
D Recorded as income
Why A is correct: Proceeds from the sale of a building on land purchased for development
are deducted from the cost of the land.
B — This is not a gain; it reduces land cost.
C — Proceeds reduce, not add to, land cost.
D — This is not income; it reduces land cost.
5 Wilson Co. purchased land as a factory site for $1,350,000. Costs: demolition
$120,000 (salvage sold for $8,100), legal fees $5,220, architect's fees $46,800, title
insurance $3,600, liability insurance during construction $3,900, excavation $15,660,
contractor $4,200,000, city pavement assessment $9,600. At what cost should Wilson
record the land?
A $1,480,320
B $1,527,120
C $1,480,320
D $5,680,320
Why A is correct: Land cost = Purchase price + Demolition - Salvage + Legal fees + Title
insurance + Pavement assessment = 1,350,000 + 120,000 - 8,100 + 5,220 + 3,600 + 9,600 =
$1,480,320. Architect, liability insurance, excavation, and contractor costs are for the
building.
B — This incorrectly includes excavation or other building costs.
C — This is the same as A.
D — This includes all costs including building construction.
WGU D104 OA #1
Practice Question Bank
Intermediate Accounting I — NCLEX-Style Practice Questions with
Rationales
Comprehensive Review: Property, Plant & Equipment, Intangible Assets &
More
Edition 1 · July 2026
Table of Contents
1. Instructions for Use 2
2. Practice Questions with Answers & Rationales 2
WGU D104 · Western Governors University Page 1
,WGU D104 OA #1 PRACTICE GUIDE INSTRUCTIONS & PRACTICE QUESTIONS
How to Use This Guide
Read each stem, choose your answer, then check the rationale directly below it. The correct
option is marked, and each wrong option is explained so you understand why it's wrong — not
just that it is.
Category: Intermediate Accounting I — Property, Plant & Equipment &
Intangible Assets
1 Watauga Company had the following events: Purchase of equipment on July 1, 2017
for $70,000; Sales tax $700; Freight charges $800; Insurance during shipping $150;
Repairs for damage during installation $1,300; Installation costs $1,050. What is the
cost of the equipment?
A $72,700
B $73,450
C $74,000
D $71,650
Why A is correct: Equipment cost = Purchase price + Sales tax + Freight + Insurance +
Installation costs = 70,000 + 700 + 800 + 150 + 1,050 = $72,700. Repairs for damage during
installation are expensed, not capitalized.
B — This incorrectly includes the $1,300 repair cost.
C — This overstates the cost.
D — This understates the cost.
,2 Cotton Hotel Corporation purchased Emporia Hotel and the land on which it is
located with the plan to tear down the hotel and build a new luxury hotel. How
should the cost of the Emporia Hotel be treated?
A Capitalized as part of the cost of the land
B Expensed immediately
C Capitalized as part of the new building
D Depreciated over the remaining useful life
Why A is correct: When land is purchased with a building that will be demolished, the cost
of the building is capitalized as part of the land cost.
B — The cost is not expensed; it is capitalized to land.
C — The cost is capitalized to land, not the new building.
D — The building is not depreciated as it will be demolished.
3 How are fences and parking lots reported on the balance sheet?
A Land improvements
B Land
C Buildings
D Equipment
Why A is correct: Fences and parking lots are considered land improvements and are
reported separately from land.
B — Land improvements are distinct from land.
C — These are not buildings.
D — These are not equipment.
, 4 Land was purchased to be used as the site for construction of a plant. A building on
the property was sold and removed by the buyer so construction could begin. How
should the proceeds from the sale of the building be treated?
A Deducted from the cost of the land
B Recorded as a gain on sale
C Added to the cost of the land
D Recorded as income
Why A is correct: Proceeds from the sale of a building on land purchased for development
are deducted from the cost of the land.
B — This is not a gain; it reduces land cost.
C — Proceeds reduce, not add to, land cost.
D — This is not income; it reduces land cost.
5 Wilson Co. purchased land as a factory site for $1,350,000. Costs: demolition
$120,000 (salvage sold for $8,100), legal fees $5,220, architect's fees $46,800, title
insurance $3,600, liability insurance during construction $3,900, excavation $15,660,
contractor $4,200,000, city pavement assessment $9,600. At what cost should Wilson
record the land?
A $1,480,320
B $1,527,120
C $1,480,320
D $5,680,320
Why A is correct: Land cost = Purchase price + Demolition - Salvage + Legal fees + Title
insurance + Pavement assessment = 1,350,000 + 120,000 - 8,100 + 5,220 + 3,600 + 9,600 =
$1,480,320. Architect, liability insurance, excavation, and contractor costs are for the
building.
B — This incorrectly includes excavation or other building costs.
C — This is the same as A.
D — This includes all costs including building construction.
