Intermediate Accounting II D104; Pre-Assessment 1 Units 2-3 (QUESTIONS AND VERIFIED ANSWERS)

When can interest costs for an asset be capitalized? When assets are being prepared for its intended use Which method should be used to handle indirect costs of selfconstructed assets? Assigning a pro rata portion of all overhead to the asset 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? Cost of the land In which situation can capitalization of interest be included in the cost of land? When purchasing land with the intension of developing it for lots sales Which item is an asset's involuntary conversion? Condemnation of property Which description accurately characterizes intangible assets? They lack physical substance. Company X replaced its packaging machine with a more efficient one. The old packaging machine was sold for $5,000. The following information was available on the date of the replacement: Purchase price of new packaging machine: $145,000Carrying amount of old packaging machine: $15,000Fair value of old packaging machine: $4,000Installation cost of new packaging machine: $25,000 Which amount should Company X capitalize as the cost of the new packaging machine? $170,000 $145,000 + $25,000 A company purchases land and a building for $400,000 in a lump sum transaction. How should these assets be valued? Use the relative fair market values of each asset Which annual test is performed for indefinite life intangible assets? Impairment Which value should be used to record machinery that was purchased with a longterm note? Present value of the future payments A company's accountant makes a yearend adjusting entry to account for the amortization of a patent.