Chapter 10 Conceptual
1. Plant assets may properly include
a. deposits on machinery not yet received.
b. idle equipment awaiting sale.
c. land held for possible use as a future plant site.
d. None of these answers are correct
Answer D
2. 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 sched- uled
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.
Answer C
3. 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 in relation to the com-
bined cost of the land and building.
b. the length of time for which the building was held prior to its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was ac-
quired.
Answer D
4. The debit for a sales tax properly levied and paid on the purchase of machin- ery
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.
Answer A
5. Historical cost is the basis advocated for recording the acquisition of property,
plant, and equipment for all of the following reasons except
a. at the date of acquisition, cost reflects fair value.
b. property, plant, and equipment items are always acquired at their original
historical cost.
c. historical cost involves actual trans¬actions and, as such, is the most reliable basis.
d. gains and losses should not be anticipated but should be recognized when the
asset is sold.
Answer B
6. To be consistent with the historical cost principle, overhead costs incurred by an
enterprise constructing its own building should be
1. Plant assets may properly include
a. deposits on machinery not yet received.
b. idle equipment awaiting sale.
c. land held for possible use as a future plant site.
d. None of these answers are correct
Answer D
2. 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 sched- uled
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.
Answer C
3. 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 in relation to the com-
bined cost of the land and building.
b. the length of time for which the building was held prior to its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was ac-
quired.
Answer D
4. The debit for a sales tax properly levied and paid on the purchase of machin- ery
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.
Answer A
5. Historical cost is the basis advocated for recording the acquisition of property,
plant, and equipment for all of the following reasons except
a. at the date of acquisition, cost reflects fair value.
b. property, plant, and equipment items are always acquired at their original
historical cost.
c. historical cost involves actual trans¬actions and, as such, is the most reliable basis.
d. gains and losses should not be anticipated but should be recognized when the
asset is sold.
Answer B
6. To be consistent with the historical cost principle, overhead costs incurred by an
enterprise constructing its own building should be
