Financial Accounting for
Decision Makers 3e
Mark DeFond (Test
Bank All Chapters, 100%
Original Verified, A+
Grade)
Part 2: Ch 11-21: Page 2-190
Part 1: Ch 1-10: Page 191-339
, Part 2
Chapter 11
Property, Plant, and Equipment:
Acquisition and Disposition
Learning Objectives – Coverage by question
Multiple Choice
LO 11-1 – Determine cost to capitalize for land, land improvements,
1-5
equipment, buildings, and construction in process
LO 11-2 – Determine costs to capitalize for lump-sum purchases of
6-8
property, plant, and equipment
LO 11-3 – Account for acquisition of property, plant, and equipment
9-11
through debt and equity issuances
LO 11-4 – Account for contributed property, plant, and equipment 12-13
LO 11-5 – Calculate capitalized interest 14-17
LO 11-6 – Account for asset retirement obligations 18-20
LO 11-7 – Account for property, plant, and equipment related costs after
21-23
acquisition
LO 11-8 – Account for disposal of property, plant, and equipment 24-26
LO 11-9 – Account for exchange of property, plant, and equipment 27-30
© Cambridge Business Publishers, 2023
11-1 Intermediate Accounting, 3rd Edition
,Chapter 11: Property, Plant, and Equipment: Acquisition and
Disposition
Multiple Choice
Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and
construction in process
LO: 1
1. Which of the following costs should not be capitalized as an acquisition cost?
A) Cost to update wiring to accommodate new factory equipment
B) Cost to ship newly purchased computer equipment to factory
C) Cost to calibrate measuring equipment before initial use
D) Cost to train employees to use new factory equipment.
E) All of the costs should be capitalized as acquisition costs
F) None of the cost should be capitalized as acquisition costs
Answer: D
Rationale: Training costs do not enhance the value of the asset; thus are expensed as incurred. The
other items are all capitalizable as acquisition costs under 360-10-30-1.
Use the following information to answer Questions 2 and 3.
Privett, Inc. purchased land in 2019. An existing structure was demolished, and a new warehouse was
constructed on the property in September of 2019. Privett hired construction workers at a rate of $25 per
hour to do the work (1,680 hours in total). Privett’s operations manager spent 25% of his time in
September supervising the construction.
Warehouse Construction Cost Data
Purchase price – Land $125,000 Cost to remove structure on land $10,000
Operation manager’s monthly Proceeds from sale of metal from
salary 5,000 demolished structure 3,000
Paving of parking lot 10,000 Landscaping costs 12,000
Foundation work 15,000 Direct materials – Warehouse 105,000
Parking lot lighting 10,000 Closing costs on land purchase 5,000
Electrical/Plumbing contractors 25,000
Hourly wage rate – Workers 25 Payroll tax rate (all employees) 10%
Privett had an appraisal done in October 2019. The land and land improvements were appraised for
$150,000 and $50,000, respectively; the building was appraised for $175,000.
© Cambridge Business Publishers, 2023
Test Bank, Chapter 11 11-2
, Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and
construction in process
LO: 1
2. What is the amount in the Land account related to this construction project?
A) $122,000
B) $127,000
C) $130,000
D) $125,000
E) $137,000
Answer: E
Rationale: Total cost capitalized as land includes $125,000 for the purchase of land, $5,000 for
closing costs, $10,000 for the removal of the existing structure, minus the sale of the existing
structure for $3,000.
Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and
construction in process
LO: 1
3. What is the depreciable cost of the warehouse project?
A) $220,250
B) $228,700
C) $207,000
D) $192,575
E) $196,700
Answer: C
Rationale: Fair value of the building $175,000 + Cost of land improvements $32,000 ($10,000, paving
+ $12,000, landscaping, + $10,000, lighting) = $207,000.
Note that the total cost of the building of $192,575 ($15,000, foundation +$105,000, direct materials +
$42,000, (1,680 hours x $25) + $1,250, (25% x $5,000 manager salary) + $4,325 (($1,250 + $42,000)
x 10% payroll tax rate) + $25,000, electrical and plumbing) exceeded the fair value of the building.
Thus, the appraised value is capitalized while the excess of actual costs is expensed.
Topic: Determine cost to capitalize for land, land improvements, equipment, buildings, and
construction in process
LO: 1
4. A company purchased a piece of equipment in 2009. The equipment was expected to have a useful
life of 10 years with no salvage value. The company failed to properly capitalize the cost of the
equipment.
Which of the following statements is(are) inaccurate? (Assume the equipment is still in use at the end
of the identified reporting period.)
A) Retained earnings at December 31, 2020, is understated.
B) Total assets at December 31, 2015, are understated.
C) Net income in 2009 is understated.
D) A and B
E) B and C
F) A and C
G) A, B, and C
© Cambridge Business Publishers, 2023
11-3 Intermediate Accounting, 3rd Edition
