CHAPTER 9
ACQUISITION AND DISPOSITION OF
PROPERTY, PLANT, AND EQUIPMENT
TRUE-FALSE—Conceptual
1. Assets classified as property, plant, and equipment can be either acquired for use in
operations or acquired for resale.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Standard Setting, IFRS: None
2. Assets classified as property, plant, and equipment must be both long-term in nature and
possess physical substance.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Standard Setting, IFRS: None
3. When land with an old building is purchased as a future building site, the cost of removing
an existing building from the site is part of the cost of the new building.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of
the equipment.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
5. The rationale for including freight costs incurred to ship equipment in the cost of
equipment is that historical cost includes all costs incurred to ready the asset for its
intended use.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation
Analysis and Interpretation,, AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
6. Special assessments for local improvements such as streetlights and sewers should be
accounted for as land improvements.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation
Analysis,, AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
7. Variable overhead costs incurred to self-construct an asset should be included in the cost
of the asset.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
8. Fixed overhead is not allocated to self-constructed assets.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
9. When a landfill company acquires land, it incurs not only the cost of the landfill but also a
future liability for remediation costs when the landfill is no longer useful.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
,9-2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. When capitalizing interest during the construction of an asset, an imputed interest cost on
stock financing must be included.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
11. Companies should always offset interest revenue against interest cost when determining
the amount of interest to be capitalized as part of the construction cost of assets.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
12 . Avoidable interest is the amount of interest cost that a company could theoretically avoid if
it had not made expenditures for the asset.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
13. When a company purchases land to develop it for a particular use, interest costs
associated with those expenditures qualify for interest capitalization.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
14. If the weighted-average accumulated expenditures exceed the specific borrowings, a
weighted-average interest rate is calculated based on the interest rates of the specific
borrowings and any other debt outstanding.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
15. Assets purchased on long-term credit contracts are recorded at the present value of the
consideration exchanged.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
16. Unlike other assets, property, plant, and equipment are recorded at the fair value of what
is given up or the fair value of what is received, whichever is more clearly evident.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
17. A transaction lacks commercial substance if the economic position of the company does
not change significantly as a result of the exchange.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
18. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial
loss is recognized.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: Decision Making, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
19. When a company exchanges nonmonetary assets and a loss results, the company
recognizes the loss only if the exchange has commercial substance.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
20. Costs incurred after the acquisition of an asset are capitalized if they provide future
benefits.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
, Acquisition and Disposition of Property, Plant, and Equipment 9-3
21. Improvements are often referred to as betterments and involve the substitution of a better
asset for the one currently used.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
22. When an ordinary repair occurs, several periods will usually benefit.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
23. Companies always treat gains or losses from an involuntary conversion as comprehensive
income.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: Decision Making, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
24. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the
asset’s book value.
Ans: T, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
MULTIPLE CHOICE—Conceptual
25. Which of the following would not be considered property, plant, and equipment?
a. an asset that will provide services over a number of years
b. a tangible piece of equipment
c. a warehouse used to store inventory available for sale
d. an idle building
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
26. Which of the following is not a major characteristic of a plant asset?
a. possesses physical substance
b. acquired for resale
c. acquired for use
d. yields services over a number of years
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Record Keeping, IFRS: None
27. Which of these is not part of the historical cost of an asset?
a. acquisition price
b. sales tax on acquisition price
c. freight and shipping costs to bring the asset to the location where it will be used
d. training costs
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Record Keeping, IFRS: None
, 9-4 Test Bank for Intermediate Accounting, Eighteenth Edition
28. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is
located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the
site. The cost of the Emporia Hotel should be
a. depreciated over the period from acquisition to the date the hotel is scheduled to be
torn down.
b. written off as a loss in the year the hotel is torn down.
c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 3, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
29. The cost of land purchased as a building site does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
30. Land Improvements typically include all of the following except
a. fencing.
b. parking lots.
c. removal of old buildings.
d. lighting.
Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
31. If a corporation purchases land and building and subsequently tears down the building
and uses the property as a parking lot, the proper accounting treatment of the cost of the
building would depend on
a. the significance of the cost allocated to the building relative to the combined cost of
the land and building.
b. the length of time for which the building was held before its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was acquired.
Ans: D, LO: 1, Bloom: K, Difficulty: Difficult, Min: 3, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
32. The debit for a sales tax properly levied and paid on the purchase of machinery preferably
would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than those on income).
d. accumulated depreciation--machinery.
Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
33. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property, plant, and equipment.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation; IFRS: None
ACQUISITION AND DISPOSITION OF
PROPERTY, PLANT, AND EQUIPMENT
TRUE-FALSE—Conceptual
1. Assets classified as property, plant, and equipment can be either acquired for use in
operations or acquired for resale.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Standard Setting, IFRS: None
2. Assets classified as property, plant, and equipment must be both long-term in nature and
possess physical substance.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Standard Setting, IFRS: None
3. When land with an old building is purchased as a future building site, the cost of removing
an existing building from the site is part of the cost of the new building.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of
the equipment.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
5. The rationale for including freight costs incurred to ship equipment in the cost of
equipment is that historical cost includes all costs incurred to ready the asset for its
intended use.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation
Analysis and Interpretation,, AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
6. Special assessments for local improvements such as streetlights and sewers should be
accounted for as land improvements.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation
Analysis,, AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
7. Variable overhead costs incurred to self-construct an asset should be included in the cost
of the asset.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
8. Fixed overhead is not allocated to self-constructed assets.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
9. When a landfill company acquires land, it incurs not only the cost of the landfill but also a
future liability for remediation costs when the landfill is no longer useful.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
,9-2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. When capitalizing interest during the construction of an asset, an imputed interest cost on
stock financing must be included.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
11. Companies should always offset interest revenue against interest cost when determining
the amount of interest to be capitalized as part of the construction cost of assets.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
12 . Avoidable interest is the amount of interest cost that a company could theoretically avoid if
it had not made expenditures for the asset.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
13. When a company purchases land to develop it for a particular use, interest costs
associated with those expenditures qualify for interest capitalization.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
14. If the weighted-average accumulated expenditures exceed the specific borrowings, a
weighted-average interest rate is calculated based on the interest rates of the specific
borrowings and any other debt outstanding.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
15. Assets purchased on long-term credit contracts are recorded at the present value of the
consideration exchanged.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
16. Unlike other assets, property, plant, and equipment are recorded at the fair value of what
is given up or the fair value of what is received, whichever is more clearly evident.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
17. A transaction lacks commercial substance if the economic position of the company does
not change significantly as a result of the exchange.
Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
18. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial
loss is recognized.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: Decision Making, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
19. When a company exchanges nonmonetary assets and a loss results, the company
recognizes the loss only if the exchange has commercial substance.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
20. Costs incurred after the acquisition of an asset are capitalized if they provide future
benefits.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
, Acquisition and Disposition of Property, Plant, and Equipment 9-3
21. Improvements are often referred to as betterments and involve the substitution of a better
asset for the one currently used.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
22. When an ordinary repair occurs, several periods will usually benefit.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
23. Companies always treat gains or losses from an involuntary conversion as comprehensive
income.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: Decision Making, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
24. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the
asset’s book value.
Ans: T, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
MULTIPLE CHOICE—Conceptual
25. Which of the following would not be considered property, plant, and equipment?
a. an asset that will provide services over a number of years
b. a tangible piece of equipment
c. a warehouse used to store inventory available for sale
d. an idle building
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
26. Which of the following is not a major characteristic of a plant asset?
a. possesses physical substance
b. acquired for resale
c. acquired for use
d. yields services over a number of years
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Record Keeping, IFRS: None
27. Which of these is not part of the historical cost of an asset?
a. acquisition price
b. sales tax on acquisition price
c. freight and shipping costs to bring the asset to the location where it will be used
d. training costs
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Record Keeping, IFRS: None
, 9-4 Test Bank for Intermediate Accounting, Eighteenth Edition
28. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is
located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the
site. The cost of the Emporia Hotel should be
a. depreciated over the period from acquisition to the date the hotel is scheduled to be
torn down.
b. written off as a loss in the year the hotel is torn down.
c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 3, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
29. The cost of land purchased as a building site does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
30. Land Improvements typically include all of the following except
a. fencing.
b. parking lots.
c. removal of old buildings.
d. lighting.
Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
31. If a corporation purchases land and building and subsequently tears down the building
and uses the property as a parking lot, the proper accounting treatment of the cost of the
building would depend on
a. the significance of the cost allocated to the building relative to the combined cost of
the land and building.
b. the length of time for which the building was held before its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was acquired.
Ans: D, LO: 1, Bloom: K, Difficulty: Difficult, Min: 3, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
32. The debit for a sales tax properly levied and paid on the purchase of machinery preferably
would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than those on income).
d. accumulated depreciation--machinery.
Ans: A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
33. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property, plant, and equipment.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation; IFRS: None
