,WGU D104 OA 1 Intermediate Accounting II 2026/2027 Questions
And Answers
Q1. Which characteristic best distinguishes property, plant, and
equipment from inventory?
A) PP&E is always purchased with cash.
B) PP&E is held for use in operations rather than primarily for resale.
C) PP&E never loses value.
D) PP&E consists only of buildings.
Correct Answer: B) PP&E is held for use in operations rather than primarily
for resale.
Rationale: Property, plant, and equipment consists of long-lived tangible
assets acquired for use in the business rather than for resale in the ordinary
course of operations.
Q2. Which item of property, plant, and equipment is normally not
depreciated?
A) Equipment
B) Building
C) Land improvements
D) Land
Correct Answer: D) Land
Rationale: Land normally has an unlimited useful life and is therefore not
systematically depreciated.
Q3. What does it mean to capitalize an expenditure?
A) Record the cost directly in retained earnings.
B) Record the expenditure as an immediate operating loss.
C) Record the expenditure as revenue.
D) Record the expenditure as an asset rather than immediately as an
expense.
Correct Answer: D) Record the expenditure as an asset rather than
immediately as an expense.
Rationale: Capitalization records a cost as part of an asset when the
expenditure is expected to provide future economic benefits.
,Q4. Equipment has a purchase price of $80,000, freight charges of
$3,000, installation costs of $5,000, and employee training costs of
$2,000. What amount should initially be capitalized as equipment
cost?
A) $80,000
B) $88,000
C) $90,000
D) $85,000
Correct Answer: B) $88,000
Rationale: Equipment cost includes purchase price, freight, and installation
necessary to place the asset into operating condition. Training costs are
expensed.
Q5. Which expenditure associated with acquiring equipment is
generally expensed rather than capitalized?
A) Freight to bring equipment to the plant
B) Installation cost
C) Employee training to operate the equipment
D) Testing necessary before normal use
Correct Answer: C) Employee training to operate the equipment
Rationale: Training costs relate to employees rather than bringing the
equipment itself to the location and condition necessary for its intended use.
Q6. A company purchases land for $600,000 and pays $30,000 in
legal fees and $12,000 for title insurance. What amount should be
recorded as the cost of land?
A) $600,000
B) $642,000
C) $630,000
D) $612,000
Correct Answer: B) $642,000
Rationale: Legal fees and title insurance incurred to acquire clear ownership
are included in the capitalized cost of land.
Q7. A company buys land containing an old building that will be
demolished immediately so a new headquarters can be constructed.
How is the net demolition cost generally treated?
, A) Expense it immediately.
B) Include it in the cost of land.
C) Include it in the cost of the new building.
D) Record it as goodwill.
Correct Answer: B) Include it in the cost of land.
Rationale: When an unwanted structure is removed to prepare acquired
land for its intended purpose, the net removal cost is generally included in
land cost.
Q8. Land is purchased for $500,000. An unwanted building is
demolished for $40,000, and salvage from the demolition is sold for
$6,000. What amount related to demolition is added to the land
cost?
A) $34,000
B) $40,000
C) $46,000
D) $6,000
Correct Answer: A) $34,000
Rationale: Net demolition cost equals $40,000 less the $6,000 salvage
proceeds, or $34,000.
Q9. Which expenditure is normally classified as a land improvement
rather than as part of the land account?
A) Title-search fees
B) Cost of grading land before construction
C) Cost of a parking lot with a limited useful life
D) Purchase price of the land
Correct Answer: C) Cost of a parking lot with a limited useful life
Rationale: Parking lots, fences, and similar improvements have finite useful
lives and are depreciable separately from land.
Q10. A company pays $25,000 to pave a parking area expected to
last 10 years. How should the expenditure generally be recorded?
A) Land
B) Land Improvements
C) Repairs Expense
D) Building
And Answers
Q1. Which characteristic best distinguishes property, plant, and
equipment from inventory?
A) PP&E is always purchased with cash.
B) PP&E is held for use in operations rather than primarily for resale.
C) PP&E never loses value.
D) PP&E consists only of buildings.
Correct Answer: B) PP&E is held for use in operations rather than primarily
for resale.
Rationale: Property, plant, and equipment consists of long-lived tangible
assets acquired for use in the business rather than for resale in the ordinary
course of operations.
Q2. Which item of property, plant, and equipment is normally not
depreciated?
A) Equipment
B) Building
C) Land improvements
D) Land
Correct Answer: D) Land
Rationale: Land normally has an unlimited useful life and is therefore not
systematically depreciated.
Q3. What does it mean to capitalize an expenditure?
A) Record the cost directly in retained earnings.
B) Record the expenditure as an immediate operating loss.
C) Record the expenditure as revenue.
D) Record the expenditure as an asset rather than immediately as an
expense.
Correct Answer: D) Record the expenditure as an asset rather than
immediately as an expense.
Rationale: Capitalization records a cost as part of an asset when the
expenditure is expected to provide future economic benefits.
,Q4. Equipment has a purchase price of $80,000, freight charges of
$3,000, installation costs of $5,000, and employee training costs of
$2,000. What amount should initially be capitalized as equipment
cost?
A) $80,000
B) $88,000
C) $90,000
D) $85,000
Correct Answer: B) $88,000
Rationale: Equipment cost includes purchase price, freight, and installation
necessary to place the asset into operating condition. Training costs are
expensed.
Q5. Which expenditure associated with acquiring equipment is
generally expensed rather than capitalized?
A) Freight to bring equipment to the plant
B) Installation cost
C) Employee training to operate the equipment
D) Testing necessary before normal use
Correct Answer: C) Employee training to operate the equipment
Rationale: Training costs relate to employees rather than bringing the
equipment itself to the location and condition necessary for its intended use.
Q6. A company purchases land for $600,000 and pays $30,000 in
legal fees and $12,000 for title insurance. What amount should be
recorded as the cost of land?
A) $600,000
B) $642,000
C) $630,000
D) $612,000
Correct Answer: B) $642,000
Rationale: Legal fees and title insurance incurred to acquire clear ownership
are included in the capitalized cost of land.
Q7. A company buys land containing an old building that will be
demolished immediately so a new headquarters can be constructed.
How is the net demolition cost generally treated?
, A) Expense it immediately.
B) Include it in the cost of land.
C) Include it in the cost of the new building.
D) Record it as goodwill.
Correct Answer: B) Include it in the cost of land.
Rationale: When an unwanted structure is removed to prepare acquired
land for its intended purpose, the net removal cost is generally included in
land cost.
Q8. Land is purchased for $500,000. An unwanted building is
demolished for $40,000, and salvage from the demolition is sold for
$6,000. What amount related to demolition is added to the land
cost?
A) $34,000
B) $40,000
C) $46,000
D) $6,000
Correct Answer: A) $34,000
Rationale: Net demolition cost equals $40,000 less the $6,000 salvage
proceeds, or $34,000.
Q9. Which expenditure is normally classified as a land improvement
rather than as part of the land account?
A) Title-search fees
B) Cost of grading land before construction
C) Cost of a parking lot with a limited useful life
D) Purchase price of the land
Correct Answer: C) Cost of a parking lot with a limited useful life
Rationale: Parking lots, fences, and similar improvements have finite useful
lives and are depreciable separately from land.
Q10. A company pays $25,000 to pave a parking area expected to
last 10 years. How should the expenditure generally be recorded?
A) Land
B) Land Improvements
C) Repairs Expense
D) Building
