Exam

Name___________________________________

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

1) Biological Assets may be classified as Property, plant and equipment or as inventory. 1)

2) Subsequent to acquisition, the cost of capital assets Land may include title search 2)

3) Goodwill is the premium above fair market value that a company is willing to pay for an 3)
acquired company's superior earnings potential.

4) Property, Plant & Equipment refers to both tangible and intangible assets. 4)

5) Land and buildings held for rent and/or capital appreciation are considered Investment 5)
Property under IFRS and may be accounted for using the Fair Value Model.

6) Under the revaluation model, assets can be written up above their fair values. 6)

7) A primary principle in recording and reporting capital assets other than land is that they 7)
are recorded at cost when acquired and subsequently are reported at cost or cost less
accumulated amortization.

8) Component accounting is mandated under both IFRS and ASPE. 8)

9) Spare parts are capitalized separately from the assets to which they pertain. 9)

10) Property taxes accrued up to the date of the purchase of a capital asset should be 10)
included in the recorded cost of the asset.

11) Borrowing costs on qualifying assets must be capitalized under both IFRS and ASPE. 11)

12) Involuntary safety costs must always be capitalized under both IFRS and ASPE. 12)

13) Internally generated intangibles will sometimes be eligible for capitalization. 13)

14) Under the Fair Value Model, tangible and intangible assets with a fair market value are 14)
revalued to fair value every year.

15) Donations of land and building usually result in an increase to equity. 15)

16) Under the fair value model, buildings must be depreciated over their useful lives. 16)

17) Training costs are not eligible for capitalization. 17)

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18) With respect to Investment properties, Level 3 inputs are frequently used to determine 18)
the fair value of the properties.

19) Higher capitalization of overhead costs means higher income over the asset's useful life. 19)

20) Startup costs are not eligible for capitalization. 20)

21) When a capital asset (such as land or buildings) is purchased, any unpaid property taxes 21)
(for the period prior to the purchase date) that are paid by the purchaser should be
recorded as part of the cost of the asset.

22) Exchanges of non-monetary assets must always be recorded at the fair values of the 22)
assets given up, with any gains or losses going to income.

23) Under
IFRS, Property, Plant and Equipment should be broken down to its major 23)
components and depreciated accordingly.

24) Under IFRS, bearer plants are carried at the lower of cost and net realizable values. 24)

25) Minorspare parts will normally be included in inventory, while major spare parts will be 25)
considered property, plant and equipment.

26) With respect to website development costs, costs incurred during the planning stage are 26)
to be expensed.

27) With respect to the development of website content, costs incurred thereof must be 27)
capitalized.

28) NegativeGoodwill effectively results from a bargain purchase of assets, resulting in an 28)
unrealized gain on the statement of earnings.

29) Capitalization of involuntary safety costs is mandatory under IFRS but not under ASPE. 29)

30) The cost of a major inspection of an airplane engine would be capitalized if it occurred 30)
several times per year.

31) Company B purchased a large machine at a cash equivalent cost of $25,000 on January 31)
1, 2001. On that date the company paid $10,000 cash and gave a one-year, 10 percent
interest-bearing note payable for the remaining $15,000. Therefore, the company should
debit the machinery account for $25,000.

32) Plant assets may properly include idle equipment awaiting sale. 32)

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33) When a basket purchase of several ling-lived assets is made, the purchase price will 33)
normally be assigned using the relative fair values of those assets.

34) Ifan asset is purchased by giving a non-interest-bearing note payable, the use of an 34)
unrealistically low interest rate will cause the asset to be recorded at a cost that is too low
and the interest expense amount reported on the income statement also will be too low.

35) Inthe case of exchanges of both similar and dissimilar assets, the asset acquired should 35)
never be recorded at an amount that is more than its market value.

36) Idle land is least likely to be classified in property, plant and equipment. 36)

37) The cost of rearranging the factory equipment to increase efficiency should be recorded 37)
as a capital expenditure in the normal situation.

38) Self-constructed assets may never be valued in excess of fair market value, regardless of 38)
cost.

39) Non-monetary assets, when exchanged, may be valued in excess of their fair market 39)
values.

40) Non-monetary exchanges should be valued using the book value method when two 40)
companies engage in an exchange of similar assets.

41) Additions and major inspections which are expected to benefit more than one period are 41)
capitalized, while routine maintenance expenditures are normally expensed.

42) Start-u and relocation costs generally meet the criteria for capitalization under IFRS. 42)

43) The cost of self-constructed assets includes a reasonable allowance for overhead specific 43)
to the construction, and this overhead should be applied at a rate approximating practical
capacity.

44) Land excavation costs incurred with the intention of constructing a building on the site 44)
would be added to the cost of the Land.

45) Inconformity with the historical cost principle, property donated to a corporation should 45)
be recorded by the recipient at the cost to the donor.

46) The excess of the cost of self-constructed assets over their cost if they had been 46)
purchased from outsiders should be recorded as an expense or loss of the period;
similarly, costs of self-constructed assets which result in a cost savings should result in
revenue or gain recognition.

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47) Under both ASPE and IFRS, borrowing costs on qualifying self-constructed assets may 47)
be capitalized or expensed.

48) Under IFRS, interest on generalized borrowings used to construct a qualifying asset must 48)
be capitalized using the company's weighted average cost of capital.

49) Under
the cost model, self-constructed assets may be recorded at fair market value if the 49)
company so wishes, regardless of costs incurred to date.

50) Research expenditures are usually expensed while development expenditures may be 50)
capitalized if certain conditions are met.

51) When a non-interest bearing note is issued as consideration for equipment acquired, the 51)
equipment will initially be recorded at the present value of the note payable.

52) Assume that a company shares are issued as consideration for equipment acquired. If 52)
there is no active market for the shares, the equipment and shares will initially both be
recorded at the fair market value of the equipment. An exchange such as this one lacks
commercial substance.

53) Leasehold improvements always are depreciated over their estimated useful life. 53)

54) The costof rearranging capital assets in a factory to attain greater efficiency in operations 54)
should be recorded as an expense in the period of rearrangement.

55) Donated land and buildings would normally be credited to a contributed capital account 55)
at their fair market values.

56) Under ASPE, both legal and constructive decommissioning liabilities are recognized on 56)
the financial statements.

57) Legalcosts and successful court defence with respect to internally generated patents may 57)
both be capitalized.

58) The costof an addition to an existing structure should be debited to an asset account and 58)
depreciated over the life of the structure or the addition, whichever is shorter.

59) Land improvements such as paving, fencing, and lighting should be debited in full to the 59)
land account.

60) With respect to software intended for resale, costs may only be capitalized once technical 60)
feasibility is established.

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61) When a company's shares are issued in exchange for equipment and the fair values of 61)
both are determinable, the equipment will be valued at the fair value of the shares.

62) Training and advertising costs must be expensed under IFRS. 62)

63) Computer software is always accounted for as a finite-lived intangible. 63)

64) Web content development costs may be expensed or capitalized. 64)

65) ASPE contains separate guidance on exploration and evaluation costs whereas IFRS 65)
does not.

66) Only identifiable intangible assets meet the criteria for capitalization. 66)

67) Under the cost model (IFRS) impairment losses are irreversible. 67)

68) The costincurred to enhance the service potential of a capital asset is betterment and 68)
should be expensed immediately.

69) Apatent should be amortized over its legal life, or useful life, whichever is shorter, but 69)
the term should not exceed 20 years.

70) Harris Company has an old asset that originally cost $115,000 (accumulated 70)
amortization, $56,000). Its current market value is $105,001. Harris Company purchased
another asset by paying cash $10,500 and trading in the old asset. The new asset had a
list price of $135,000 and a cash price of $120,001. The assets are similar. Harris
Company should record the cost of the new machine at $110,000.

71) An identifiable intangible asset developed internally is never recognized in the accounts 71)
as an asset.

72) Only purchased Goodwill is recognized on the financial statements. 72)

73) An intangible asset is usually amortized by a direct credit to the related asset account. 73)

74) The only costs of an internally developed patent that should be capitalized as patent costs 74)
are legal fees, other registration costs, and successful court tests.

75) Goodwillis measured as the excess of the price paid for an entity in excess of total 75)
market value of the identifiable net assets of the purchased entity.

76) The lack of Goodwill on a company's financial statements indicates poor earnings 76)
potential.

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 77) Negativegoodwill arises when one company purchases the net assets of another 77)
company for an amount less than their fair market value, and is recorded as a gain on the
statement of income/comprehensive income.

78) OnJanuary 1, 2014, Harris Company bought a machine on a $30,000, 14 percent, 3-year 78)
note payable. The note will be paid in six equal semi-annual payments starting June 30,
2001. CS should record the cost of the machine as $30,000.

79) Anold machine with a book value of $30,000 was traded in on a new similar machine. 79)
The new machine, which had a cash price of $120,000, was purchased for $56,000 cash
plus the old machine. The cost of the new machine will be $80,000.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

80) A corporation which incurs costs in defending a patent in an infringement suit should: 80)
A) capitalize only the costs of unsuccessful suits.
B) expense currently the costs of all suits.
C) capitalize only the costs of successful suits.
D) capitalize the cost of all such suits.

81) Which of the following confers exclusive right to conduct business in a particular 81)
territory?
A) Patent
B) Trademark
C) Copyright
D) Franchise
E) Leasehold

82) Intangible assets have all of the following characteristics, except: 82)
A) their ownership
B) they provide benefits to current operations only.
C) confers rights, but no physical substance.
D) they have no physical substance.
E) they are relatively long-lived.

83) A consideration in determining the useful life of an intangible asset is not the: 83)
A) provisions for renewal or extension.
B) legal, regulatory, or contractual provisions.
C) expected actions of competitors.
D) initial cost.

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84) A change in the amortization rate for an intangible asset should be accounted for: 84)
A) on a prospective basis.
B) by means of retroactive basis.
C) by means of a prior period adjustment.
D) on a current basis.

85) With respect to exploration and evaluation assets, costs incurred in the pre-exploration 85)
and evaluation phase are:
A) expensed under IFRS and expensed or capitalized under ASPE.
B) capitalized.
C) expensed or capitalized.
D) expensed.

86) With respect to exploration and evaluation assets, until what point can a company 86)
capitalize costs?
A) Once the legal right to mine or explore the property has been established.
B) Until technical feasibility and commercial viability have both been established.
C) Until commercial viability has been established.
D) Until technical feasibility has been established.

87) Under the successful efforts method of accounting for exploration and evaluation of 87)
assets:
A) successful efforts are expensed while unsuccessful efforts are capitalized.
B) successful efforts are capitalized while unsuccessful efforts are expensed.
C) all efforts, whether successful or not, are expensed.
D) all efforts, whether successful or not, are capitalized.

88) Costs incurred by a company that may develop its own goodwill internally should be: 88)
A) capitalized and amortized over a period not to exceed 40 years.
B) capitalized and amortized as the company profits increased.
C) expensed when incurred as a current operating expense.
D) capitalized and amortized over the useful life of the goodwill.

89) All of the following items are identifiable intangible assets, except: 89)
A) patents. B) trade names. C) copyrights. D) goodwill.

90) Goodwill should be reported on the balance sheet as: 90)

A) part of investments and funds.
B) an intangible operational asset.
C) a footnote item only.
D) a contra or negative item under shareholders' equity.

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91) Goodwill should properly appear on the financial statements of a company which: 91)
A) has purchased an entity, and has not yet fully amortized the goodwill.
B) consistently reports above-normal profits.
C) meets all of the conditions regarding legal goodwill.
D) consistently operates profitably.

92) Forsome purposes, assets are classified as identifiable and unidentifiable. Which of the 92)
following is an unidentifiable asset?
A) Prepaid insurance B) Cash in a foreign bank
C) Patent D) Goodwill

93) Goodwill can be: 93)

A) valued for negotiating purposes on the basis of future earnings potential.
B) amortized for income tax purposes by the double-declining method.
C) amortized over a 40-year period, regardless of useful life.
D) incremented annually on the balance sheet if a company earns above normal profit.

94) CK incurred $68,000 of research and development costs in its laboratory to develop a 94)
patent, which was granted on January 2, 2001. Legal fees and other costs associated with
registration of the patent totalled $27,201. CK estimates that the economic life of the
patent will be eight years. What amount should CK charge to patent amortization
expense for the year ended December 31, 2008?
A) $1,600 B) $20,400 C) $3,400 D) $-0-

95) A purchased patent has a remaining legal life of 15 years. It should be: 95)
A) amortized over its useful life if less than 15 years.
B) expensed in the year of acquisition.
C) amortized over 15 years regardless of its useful life.
D) amortized over 40 years.

96) On January 1st, 2013, PC Inc. disposed off an old elevator for $10,000. The elevator had 96)
a carrying value $20,000 (Cost: $100,000, Accumulated Amortization: $80,000). The
gain or loss from this sale was:
A) a gain of $20,000. B) a loss of $10,000
C) a gain of $10,000. D) a loss of $20,000.

97) On January 1st, 2013, PC Inc. disposed of an old elevator for $10,000. The elevator had a 97)
carrying value $20,000 (Cost: $100,000, Accumulated Amortization: $80,000). On
January 2nd, 2013, a new elevator was purchased for $200,000 with an expected useful
life of 20 years and a salvage value of $40,000. Ignoring any of PC's other long-lived
assets, the amount of amortization expense that PC would record for 2013 would be:
A) $10,000. B) $20,000. C) $8,000. D) $25,000.

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 98) Should the following fees associated with the registration of an internally developed patent 98)
be capitalized?

Legal Fees Registration Fees

1 No No
2 No Yes
3 Yes No
4 Yes Yes

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

99) Accounting for tangible capital assets is primarily in conformity with the: 99)
A) matching principle and historical cost principle.
B) historical cost principle and reporting principle.
C) historical cost principle.
D) matching principle and reporting principle.
E) matching principle.

100) AB recently purchased an old building and the land on which it is located. The old 100)
building will be demolished at a net cost of $10,000. A new building will be built on the
site. The demolition cost should be:
A) capitalized as part of the cost of the new building.
B) capitalized as part of the cost of the land.
C) written off as an extraordinary loss in the year of demolition.
D) depreciated over the remaining life of the old building.

101) Plant assets may properly include: 101)

A) idle equipment awaiting sale.
B) land held for possible use as a future plant site.
C) property held for investment purposes.
D) deposits on machinery purchased and not yet received.
E) self-constructed assets currently in use.

102) Which of the following costs generally would be capitalized to a property, plant and 102)
equipment account?
A) freight-out
B) Import duties incurred on purchases
C) Interest on debt incurred to purchase the item
D) Property taxes relating to periods after acquisition

103) Which of the following is least likely to be classified in property, plant and equipment? 103)
A) Natural resources B) Idle land
C) Land D) Land improvements

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104) Which of the following would Bezel, Inc. capitalize to land? 104)
A) Cost to excavate a foundation for a building to be constructed on the land owned by
Bezel
B) Cost to pave a parking lot on land owned by Bezel
C) Cost to raze an old building on land just purchased by Bezel
D) Cost to raze an old building owned by Bezel

105) What is the general principle for capitalizing costs to property, plant and equipment? 105)
A) Only depreciable costs are capitalized.
B) All costs, which will provide a benefit beyond one year, are capitalized.
C) All costs incurred to bring the item to its intended condition and location are
capitalized.
D) All costs associated with the acquisition or construction of a plant asset are
capitalized.
E) All costs relevant to the acquisition and long-term maintenance of a plant asset are
capitalized.

106) The amount of provincial sales tax paid on the purchase of machinery (a capital asset) 106)
should be debited to a:
A) machinery account.
B) separate deferred charge account.
C) accumulated amortization account.
D) tax expense (which includes all taxes other than income tax) account.

107) Discounts given for early payment of credit purchases of capital assets should be: 107)
A) capitalized as a cost of the asset acquired and subsequently allocated to amortization
expense.
B) recorded as interest expense at purchase date.
C) deducted from the invoice price when determining the cost of the asset.
D) recorded as interest revenue at purchase date.

108) CH recently purchased the Elgin Hotel and the land on which it is located. The plans are 108)
to demolish the Elgin and to build a new luxury hotel on the site. CH should account for
the total purchase cost of the Elgin as follows:
A) Capitalize it as part of the cost of the land.
B) Depreciate it over the period from the acquisition until the Elgin is torn down.
C) Capitalize it as part of the cost of the new hotel.
D) Record it as an extraordinary loss in the year the Elgin is demolished.

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109) When a corporation issues preferred shares that are readily marketable, in exchange for 109)
land, the land should be recorded at the:
A) Total redemption value of the shares issued.
B) Current market value of the shares issued.
C) Total book value of the shares issued.
D) Appraised value of the land.

110) Discounts available for early payment of liabilities on purchases of capital assets should: 110)
A) be capitalized as a part of the cost of the asset, whether taken or not, and
subsequently included as amortization expense.
B) be given no recognition until taken or until the discount period has expired: if not
taken, the discounts should be added to the cost of the asset.
C) not be capitalized as cost of the asset whether taken or not.
D) be recorded and reported as a contra account to the related liability account.

111) When a firm receives a plant asset as a donation, what account should be credited? 111)
A) Contributed capital
B) Income
C) Revenue
D) Deferred credit
E) Liability

112) Choose the correct statement about a restriction placed on the donation of equipment to a 112)
firm.
A) The firm records an asset and a liability until the restriction is eliminated; the
liability is removed from the books when the restriction is eliminated
B) The firm records the donation as it would any other donation
C) The firm must wait until the restriction is eliminated before recording the donation
D) The firm records an asset and a liability until the restriction is met; the liability is
removed from the books upon meeting the restriction

113) In a charitable action, one firm is relieved of an obligation to a second firm. As a result, 113)
the debtor firm debits:
A) a revenue B) an asset
C) a liability D) an owners' equity account

114) Assets received in donation should: 114)

A) be depreciated based on their market value at the time of the donation.
B) should not be depreciated.
C) be depreciated based on their book value at the time of the donation.
D) be expensed upon receipt.

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115) A firm received services that qualify as a donation. The recognition of the donation has 115)
what effect on income?
A) No effect B) Increase
C) Depends on the value of the services D) Decrease

116) A firm received an asset as a donation from a shareholder. However, the shareholder 116)
imposed a condition to be met before title transfers to the firm. The firm will be unable
to meet the condition during the current fiscal year. How should the firm account for this
donated asset?
A) Credit a liability
B) Credit revenue
C) Debit a liability
D) No recognition is necessary until the condition is met

117) Under IFRS, which of the following assets need not be disclosed separately on the face 117)
of the financial statements?
A) Investment Property B) Trademarks
C) Biological Assets D) Goodwill

118) An exchange of similar assets with no cash involved: 118)

A) results in recognition of a loss or gain to each party.
B) records the asset received at the market value of the asset given.
C) culminates an earnings process.
D) records the cost of the asset received at the book value of the asset given.

119) Apportionment of the purchase price in a lump-sum acquisition of different assets may 119)
be based on all of the following except:
A) appraised values.
B) book values of the assets to the seller.
C) tax assessment values.
D) relative market values.

120) ER received a building as a donation at no cost, except for transfer costs and some 120)
ordinary repair costs. The company agreed to start operations within one year with an
expected payroll for 1,000 employees. The preferred financial accounting at the transfer
date is for ER to:
A) record the building at its current market value less transfer and repair costs.
B) record the building at its current market value plus transfer costs and repair costs.
C) make only a memorandum entry (i.e. no journal entry) to reflect that there was no
acquisition cost.
D) record the building at the sum of transfer costs and repair costs.
E) record the building at market value plus transfer costs.

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121) An asset should be recorded at cost in conformity with the historical cost principle 121)
except:
A) in an exchange of similar assets when the book value of the asset given is equal to
the market price of the asset received.
B) in an exchange of dissimilar assets.
C) when a capital asset is acquired with a note that specifies an unrealistic interest rate.
D) when a capital asset is donated to a company.

122) When a capital asset is acquired by donation, the preferred accounting at acquisition date 122)
is to:
A) record its cost at its current market value plus transfer costs, if any.
B) record its cost as the total of all transfer costs related to the asset.
C) recognize its market value at acquisition less transfer costs as revenue.
D) make a memo entry only.

123) Costs of reinstalling or rearranging factory machinery to attain greater productive 123)
efficiency should be:
A) capitalized, then amortized during current and subsequent accounting periods.
B) expensed in the period in which the outlays occur.
C) debited to related accumulated amortization accounts with no change in the
amortization rate.
D) treated as a correction of prior years' errors.

124) ABC Inc. is a public entity which applies the Fair Value Model to all of its Investment 124)
property. On January 1, Year 1, the company purchased Land held for resale for
$120,000. This land was independently appraised at $100,000 on December 31st, Year 1.
The year-end adjusting journal entry would include:
A) a credit to depreciation expense of $20,000.
B) a debit to contributed surplus of $20,000.
C) a loss of $20,000.
D) a debit to Revaluation surplus - OCI- Land.

125) ABC Inc. is a public entity which applies the Fair Value Model to all of its Investment 125)
property. On January 1, Year 1, the company purchased a rental property for $1,200,000.
This property was independently appraised at $1,100,000 on December 31st, Year 1. The
present value of the property's cash flows was $1,150,000 on that date. The year-end
adjusting journal entry would include:
A) a debit to contributed surplus of $20,000.
B) a credit to depreciation expense of $20,000.
C) a debit to Revaluation surplus - OCI- Land.
D) a loss of $50,000.

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126) Company B acquired a capital asset, terms 1 percent discount if paid within 30 days. The 126)
invoice cost was $5,000. The asset should be recorded by Company B at:
A) $5,000 regardless of whether the discount is taken.
B) $5,000 if this is the amount of cash paid.
C) $4,950 regardless of whether the discount is taken.
D) $4,950 if this is the amount of cash paid.

127) On January 1, 2013, DB purchased a used cement truck from NC. The carrying value of 127)
the truck on NC's books was $12,500. DB paid cash of $2,000 and gave a 2-year note
that required semi-annual payments of $4,000 each payable at the end of each
semi-annual period (the market rate of interest was 12 percent). A similar truck
reportedly was sold recently for $14,000. DB Company should record the cost of the
truck as (rounded to the nearest dollar):
A) $14,000 B) $17,000 C) $15,860 D) $16,080

128) JB purchased a machine that had a list price of $70,000. JB paid $10,000 cash and signed 128)
a one-year non-interest-bearing note for $60,000. In addition, Baker paid 2 percent
provincial sales tax on the list price, transportation costs of $150, and installation costs
of $200. The going rate of interest is 12 percent. JB Company should record the cost of
the machine as (rounded to the nearest dollar):
A) $41,150 B) $65,321 C) $37,536 D) $37,936

129) CZ purchased a new machine on June 1. A $1,200 down payment was made. In addition, 129)
four monthly payments of $4,000 each are to be made starting July 1. The cash price
would have been $14,400. Installation costs of $200 also were incurred. The amount
capitalized as the cost of the machine is:
A) $13,400. B) $13,200. C) $14,600. D) $14,400.

130) JP acquired a tract of land and paid for it in full by issuing (A) $400,000 of its 9 percent 130)
bonds payable after a year and (B) 50,000 of its common shares. The shares were selling
at $17.82 per share. The land should be recorded at a cost of (rounded to the nearest
thousands):
A) $900,000. B) $832,000. C) $1,284,000. D) $1,258,000.

131) A machine was purchased at an invoice price of $30,000, subject to a 2 percent cash 131)
discount if paid within 10 days. Installation of the machine cost $500. Costs incurred in
testing the machine were $80 for the operator's time and $150 for materials. The discount
was lost because of late payment of the invoice. Provincial sales tax on invoice price, 4
percent, and amortization during the testing period was $200. The cost that should be
recorded for the machine is:
A) $31,530. B) $30,600. C) $31,330. D) $31,100.

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132) RB purchased a machine on January 1, 2014. The invoice price was $1,000, terms 1/10, 132)
n/31. Provincial sales tax on the invoice price was 4 percent. Other related cash
payments by RB were: shipping, $75, and installation, $100. The invoice was paid on
January 23, 2014. The machine account should be debited for:
A) $1,215. B) $1,130. C) $1,205. D) $1,105.

133) On January 1, 2014, CS bought a machine on a $60,000, 14 percent, 3-year note payable. 133)
The note will be paid in six equal semi-annual payments starting June 30, 2014. CS
should record the cost of the machine as:
A) $51,600. B) $39,980. C) $40,498. D) $60,000.

134) TZ acquired a machine and gave 10 instalment notes of $2,000 each. One note matures 134)
on the last day of each of the next 10 semi-annual periods. No interest was specified on
the notes or the purchase contract. The going rate of interest for such transactions was 20
percent per annum. The cost of the new machine should be recorded by TZ as (rounded
to the nearest dollar):
A) $7,710. B) $20,000. C) $12,290. D) $18,000.

135) A firm currently occupies a facility on land it also owns. The firm decides to raze this 135)
facility and in its place construct a new state-of-the-art complex. The gross cost to raze
the old facility is $100,000 but the firm was able to sell some of the salvage material for
$15,000. The book value of the old facility was $30,000 before demolition. The new
complex was built at a cost of $400,000, excluding any other items mentioned previously
in this question.
What is the capitalized cost of the new complex?
A) $400,000 B) $515,000 C) $485,000 D) $385,000

136) A firm currently occupies a facility on land it also owns. The firm decides to raze this 136)
facility and in its place construct a new state-of-the-art complex. The gross cost to raze
the old facility is $100,000 but the firm was able to sell some of the salvage material for
$15,000. The book value of the old facility was $30,000 before demolition. What is the
recognized loss on the old facility?
A) $85,000
B) $15,000
C) Zero; the loss is capitalized as part of the new complex
D) $115,000
E) $130,000

15
137) The following information pertains to equipment constructed by a firm for its own use. 137)
The construction is finished.

Materials used in construction $40,000

Labour cost during construction 20,000
Fringe benefits on above labour 5,000
Incremental overhead due to Construction 8,000
Interest expense on debt during Construction (assume this meets the 4,000
requirements for interest capitalization)

The market value of the equipment immediately after construction was completed was
$65,000. What is the loss on construction incurred by the firm?
A) $5,000 B) $12,000 C) $0 D) $8,000 E) $4,000

138) A firm acquired used equipment on January 1st, 2014, by issuing a note calling for four 138)
equal payments to be made each December 31 starting in 2014. The note's principal
value equals the negotiated price of $40,000, and the interest rate implied in the note is
consistent with the market rate of interest for this level of risk (8%). What is the amount
to be recorded for the equipment?
A) $40,000 B) Less than $40,000
C) More than $40,000 D) Insufficient information

139) A firm acquired used equipment on January 1st, 2014 by issuing a note calling for four 139)
equal payments to be made each December 31 starting in 2014. The note's principal
value equals the negotiated price of $40,000, and the interest rate implied in the note is
consistent with the market rate of interest for this level of risk (8%). What is the net
present value of the note payable as on January 1st, 2014?
A) $12,077 B) $11,182 C) $37,037 D) $10,987

140) CAC acquired a gym in exchange for two $200,000 bonds. The bonds pay 12 percent 140)
annual interest and mature at the end of 10 years. They have no determinable market
value. The going rate of interest on liabilities with this level of risk is 16 percent. CAC
should record the cost of the gymnasium at:
A) $400,000. B) $464,000. C) $161,344. D) $322,667.

141) On January 1, 2014, RC purchased a machine for capital use. The invoice price was 141)
$5,000; terms 2/10, n/31. Provincial sales tax on the invoice price was 4 percent. Other
cash payments by RC were: shipping, $250; installation, $500; breaking-in, $100, and
$300 for a 3-year insurance policy on the machine. RC paid the invoice on January 15,
2014. The machine account should be debited for:
A) $5,950. B) $6,250. C) $5,000. D) $5,850. E) $6,050.

16
142) VC purchased a machine for use in operations at a quoted price of $35,120. Full payment 142)
was cash of $8,000, plus a two-year non-interest-bearing note for $27,121. The market
rate of interest for this note is 8 percent. VC should record the cost of the machine as
(rounded to the nearest dollar):
A) $32,950. B) $31,250. C) $23,250. D) $35,120.

143) ABC acquired equipment on January 1st, 2014 for $3,000 cash, plus a note which is 143)
payable in 5 annual instalments of $2,000 each beginning on 12/31/2014. If the market
interest rate on similar notes is 10 percent (and is implicitly included in the annual
instalments) the cost of the equipment (rounded to the nearest dollar) is:
A) $10,580. B) $13,000. C) $11,626. D) $12,000.

144) DC purchases a tract of land with a current market value of $130,000. Its book value in 144)
the accounts of the seller was $73,501. In exchange for the land, DC issued 10,000 of its
common shares, with an estimated market value of $15 per share (these shares are not
traded in an established market). DC should record the cost of the land at:
A) $73,500. B) $130,000. C) $150,000. D) $100,000.

145) An old machine with a book value of $20,000 was traded in on a new similar machine. 145)
The new machine, which had a cash price of $80,000, was purchased for $62,000 cash
plus the old machine. The cost of the new machine was:
A) $96,000. B) $81,000. C) $78,000. D) $80,000.

146) EC has an old asset that originally cost $150,000; the accumulated amortization is 146)
$76,000. Its current market value is $81,000. This old asset is exchanged for another asset
(new) that has a list price of $100,000. EC should record the following as the cost of the
new asset received, assuming that the two assets are:

Dissimilar Similar
1 $100,000 $81,000
2 81,000 76,000
3 81,000 74,000
4 90,000 74,000

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

147) SC has an old asset that originally cost $225,000 (accumulated amortization, $114,000). 147)
Its current market value is $114,001. SC purchased another asset by paying cash $13,500
and trading in the old asset. The new asset had a list price of $150,000 and a cash price
of $135,000. The assets are similar. SC should record the cost of the new machine at:
A) $124,500. B) $121,500. C) $163,500. D) $135,000.

17
148) SB traded in printing press A with a book value of $5,200 and a market value of $6,000 148)
for printing press B that had a market value of $8,801. Press B was both larger and faster
than the one exchanged and was quoted at $10,000. SB also paid $2,800 cash boot. What
should SB record as the cost of press B?
A) $10,000 B) $6,000 C) $8,800 D) $8,000

149) EC exchanged an old widget-making machine (Model A) that originally cost $46,000 149)
(accumulated amortization, $37,400) plus $10,000 cash for an improved widget-making
machine (model B) owned by IC. IC originally acquired the Model B machine for
$77,000 (accumulated amortization to date, $42,000). EC's machine has a current market
value of $5,000 and IC's has a current market value of $20,000. These are similar assets.
EC should record the cost of the Model B widget-making machine acquired at:
A) $15,000. B) $18,600. C) $20,000. D) $17,600.

150) Asset A is owned by TC and has a book value at 12/31/2012 of $9,000. TC exchanged 150)
Asset A and $60,000 cash with CE for Asset B. At 12/31/2013, the market value of
Asset A is $20,000 and the list price of Asset B is $90,000. Assuming that these assets
are dissimilar in nature, at what amount should Asset B be recorded by TC?
A) $69,000 B) $70,000 C) $90,000 D) $80,000

151) On December 1, 2013, HC acquired a new delivery truck in exchange for an old delivery 151)
truck that it had acquired in 2011. The old truck was purchased for $28,000 and had a
book value of $11,200. On the date of the exchange, the old truck had a market value of
$12,000. In addition, HC paid $14,000 cash for the new truck, which had a cash price of
$32,000. At what amount should HC record the new truck for financial accounting
purposes?
A) $32,000 B) $28,000 C) $25,200 D) $26,000

152) Asset A, owned by LC, had a book value of $8,000 at 12/31/2011. At that time, LC 152)
exchanged Asset A and $50,000 cash with AE for Asset B. The market value of Asset A
and the asking price of Asset B were $13,000 and $77,000, respectively, at 12/31/11.
Assuming that these assets were dissimilar in nature, at what amount should Asset B be
recorded by LC?
A) $58,000 B) $50,000 C) $63,000 D) $77,000

153) WC purchased an asset that had a list price of $25,000 and a cash price of $22,500. WC 153)
paid for this asset by paying $3,750 cash and trading in an old asset that originally cost
$37,500 (accumulated amortization to date, $19,000). The two assets are dissimilar. WC
should recognize a gain or loss of:
A) $1,750 gain. B) $250 gain. C) $2,000 loss. D) $2,750 gain.

18
154) Ivory has a Model B widget-making machine that originally cost $77,000 (accumulated 154)
amortization, $44,000). It has a current market value of $20,000. Ivory exchanged this
machine for a similar widget-making machine (a smaller one, Model A) owned by EC.
The Model A originally cost $46,000 (accumulated amortization to date, $37,400). It has
a current market value of $18,000. Ivory received $10,000 cash on the exchange. Ivory
should record the cost of the Model A widget-making machine acquired at:
A) $10,000. B) $25,000. C) $18,000. D) $20,000.

155) XYZ purchased a plant, including land, building, and machinery, for $110,000. These 155)
items were carried on the books of the seller as follows: land, $30,000; building,
$80,000, and machinery, $40,000. Immediately after the purchase, the assets were
appraised at the following values: land, $24,000; building, $30,000, and machinery,
$66,000. What cost should XYZ record for the land, building and machinery?

Land Building Machinery

1 $22,000 $27,500 $60,500
2 $36,666 $36,667 $36,667
3 $30,000 $80,000 $40,000
4 $22,000 $58,667 $29,333

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

156) DC bought Assets A, B, and C for a total cash price of $324,000. The assets were 156)
reflected in the accounts of the seller as follows: A, $75,000, B, $60,000, and C,
$65,000. The property tax assessments were: A, $15,000, B, $4,000, and C, $6,000.
Because the tax assessments were made by untrained people, they bear little resemblance
to actual market prices. An independent and competent appraisal showed the following:
A, $105,000, B, $70,000, and C, $95,000. DC should record the costs of the assets as
follows:

Asset A Asset B Asset C

1 $108,000 $108,000 $108,000
2 126,000 84,000 114,000
3 105,000 70,000 95,000
4 75,000 60,000 65,000

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

19
157) MB replaced a major component of its plant (original cost of the component, $12,000 (60 157)
percent depreciated), with a new component that cost $17,500 in cash. Therefore, MB
should make the following entry:

1) Accumulated amortization 7,200

Plant 17,500
Gain on disposal 7,200
Cash 17,500
2) Plant (or accumulated amortization) 17,500
Cash 17,500
3) Accumulated amortization 7,200
Plant 5,500
Loss on disposal 4,800
Cash 17,500
4) Plant 17,500
Loss on disposal 12,000
Plant 12,000
Cash 1,7500

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

158) RJ owns a used crane that was originally purchased on August 1, 2012, for $180,000. 158)
Straight-line monthly amortization has been recorded on the basis of an estimated useful
life of 5 years and no residual value. On January 31, 2015, RJ sold the crane for $92,000
cash. The pre-tax gain (loss) on the disposal was:
A) $-0- B) $88,000 loss. C) $2,000 gain. D) $4,000 gain.

159) On January 1, 2013, VW purchased a new machine for $30,000. The estimated useful 159)
life was 10 years with an estimated residual value of $6,000. Straight-line amortization is
used and is computed to the nearest month. On July 1, 2021, the machine was sold for
$9,000 cash. The gain (loss) on disposal was:
A) $1,800 gain. B) $3,000 loss. C) $1,200 gain. D) $1,000 gain.

160) When a company purchases land with a building on it and immediately tears down the 160)
building so that the land can be used for the construction of a plant, the costs incurred to
tear down the building should be:
A) amortized over the estimated time period between the tearing down of the building
and the completion of the plant.
B) expensed as incurred.
C) added to the cost of the land.
D) added to the cost of the plant.

20
161) On September 1, 2013, SI exchanged 2,000 shares of its common shares for a parcel of 161)
land to be held for a future plant site. SI's common shares had a fair market value of $80
per share on September 1, 2013. (Based on several recent large trading volumes.) SI
received netted $9,000 from the demolition of an existing building on the site. The book
value of the land acquired is:
A) $169,000. B) $160,000. C) $151,000. D) $120,000.

162) RST and XYZ exchanged non-monetary assets with no monetary consideration involved. 162)
The exchange did not culminate an earning process for either RST or XYZ. Both firms
should value the asset received at:
A) fair value only if a loss occurs. B) fair value.
C) book value. D) book value only if a loss occurs.

163) (Appendix 1) ABC Inc. purchased a shopping complex and with it, a large condominium 163)
complex attached to it in the amount of $20,000,000 on January 1, 2013 Both complexes
are designated investment property. Both facilities are estimated to have a useful life of
eighteen years and a salvage value of $2 million dollars. On December 31st, 2013, the
fair value of both complexes was $25 million. ABC Inc. prepares its financial statements
under IFRS. Assuming that ABC uses the Cost Model to account for the complex, the
carrying value of both complexes on December 31st, 2013 would be:
A) $16 million. B) $18 million. C) $25 million. D) $19 million.

164) (Appendix 1) ABC Inc. purchased a shopping complex and with it, a large condominium 164)
complex attached to it in the amount of $20,000,000 on January 1, 2013. Both
complexes are designated investment property. Both facilities are estimated to have a
useful life of eighteen years and a salvage value of $2 million dollars. On December 31st,
2013, the fair value of both complexes was $25 million. ABC Inc. prepares its financial
statements under IFRS. Assuming that ABC uses the Fair Value Model to account for
the complex, the carrying value of both complexes on December 31st, 2013 would be:
A) $16 million. B) $18 million. C) $19 million. D) $25 million.

165) (Appendix 1) ABC Inc. purchased a shopping complex and with it, a large condominium 165)
complex attached to it in the amount of $20,000,000 on January 1, 2013. Both
complexes are designated investment property. Both facilities are estimated to have a
useful life of eighteen years and a salvage value of $2 million dollars. On December 31st,
2013, the fair value of both complexes was $25 million. ABC Inc. prepares its financial
statements under IFRS. Assuming that ABC uses the Fair Value Model to account for
the complex, the amount of amortization expense to be recorded on ABC's 2013
financial statements would be:
A) $1 million. B) $2 million. C) Nil. D) $1.8 million.

21
166) MD owns a tract of land, which it purchased in 2010 for $100,000. The land is held as a 166)
future plant site and has a fair market value of $140,000 on July 1, 2013. HC also owns a
tract of land held as a future plant site. HC paid $180,000 for the land in 2011 and the
land has a fair market value of $200,000 on July 1, 2013. On this date, MD exchanged its
land and paid $50,000 cash for the land owned by HC. At what amount should MD
record the land acquired in the exchange?
A) $150,000 B) $200,000 C) $190,000 D) $160,000

167) In December 2000, RJ exchanged an old bottling machine, which cost $60,000 and was 167)
two-thirds depreciated, for a similar used machine having a current fair value of $24,000,
and received a cash difference of $1,000. What is the amount of gain that RJ should
recognize on this exchange in the year ended December 31, 2000?
A) $3,000 B) $8,000 C) $0 D) $5,000

168) On April 1, 2013, MC purchased for $270,000 a tract of land on which was located a 168)
warehouse and office building. The following data were collected concerning the property:

Current Assessed Valuation Vendor's Original Cost

Land $87,500 $70,000
Warehouse 37,500 40,000
Office building 100,000 90,000

What are the appropriate amounts that MC should record for the land, warehouse, and
office building, respectively?
A) Land, $87,500; Warehouse, $37,500; Office building, $110,000
B) Land, $94,500; Warehouse, $54,000; Office building, $121,500
C) Land, $70,000; Warehouse, $40,000; Office building, $90,000
D) Land, $105,000; Warehouse, $45,000; Office building, $120,000

169) A donated fixed asset for which the fair value has been determined should be recorded as 169)
a debit to capital assets and a credit to:
A) retained earnings. B) revenue or gain.
C) contributed capital. D) deferred income.

22
 170) The following expenditures were among those incurred by JB during the year ended 170)
December 31, 2013:

Replacement of tiles on portion of roof that had been leaking = $4,000

Overhaul of machinery that is expected to extend its useful life for another two years =
$6,000

How much should be charged to repairs and maintenance expense in 2013?

A) $6,000 B) $10,000 C) 0 D) $4,000

171) (Appendix 2) ABC Inc. purchased Machinery in the amount of $50,000 on January 1st, 171)
2013. The machinery is estimated to have a 5-year useful life with no salvage value. The
machinery qualifies for a 20% government subsidy. As a result, ABC Inc. received a
government subsidy of $10,000 toward the purchase of the equipment. What is the effect
of this subsidy on the company's 2013 Statement of Earnings/Comprehensive Income?
A) A $5,000 increase to the amortization expense for 2013.
B) A $5,000 decrease to the amortization expense for 2013.
C) A $2,000 increase to the amortization expense for 2013.
D) A $2,000 decrease to the amortization expense for 2013.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

172) CY acquired some land in exchange for 80 of its own common shares. The shares were traded
widely and sold at the time for $120 per share. The land is similar to other tracts, which recently
sold for $10,000. Give the entry for the acquisition of the land. Below the entry, justify the basis for
the amount you used in the entry.

173) On January 1, 2013, LR purchased a 1,000 acre ranch. The asking price was $1,300,000.
Approximately 10 percent of the total value of the ranch was allocable to ranch improvements.
Payment in full was made as follows: Cash, $371,930, 10,000 shares LR common shares (market
$25 per share based on several recent large market exchanges) and a $500,000 non-interest-bearing
note payable in full on December 31, 2014 (going interest rate, 15 percent). Give the journal entry
for LR to record this purchase (rounded).

174) CA acquired a tract of land. The seller quoted a price of $30,000 cash, plus a $50,000, 16 percent,
one-year, interest-bearing note payable. During later negotiations, the land was appraised by a local
real estate agent at $76,000 and was shown on the city tax rolls at an assessed value for tax purposes
at $63,000. After considerable negotiation, CA paid $25,000 cash and signed a two-year
non-interest-bearing note, payable in two instalments of $30,000 each at the end of each of the next
2 years. The going rate of interest for such transactions was 12 percent. Give the entry to record the
land acquisition.

23
175) On January 1, 2013, WT purchased a new machine to be used in the business. It paid $10,000 cash
down payment and signed an interest-bearing note payable that required it to make three equal
annual payments of $5,000 each (including principal and interest). The first payment will be made
on December 31, 2013. Assume an 11 percent per annum interest rate, and use the net approach.

(a) Give the entry on January 1, 2013, to record the acquisition:

(b) Give the entry on December 31, 2013, to record the first payment on the note payable:

176) A new machine was acquired by JR that had a quoted price of $6,000. JR paid $1,500 cash and
transferred 100 shares common shares (current market value, $40 per share, based on several recent
large trading transactions.). Other payments related to the acquisition were: transportation, $150;
provincial sales tax, $50, and installation costs, $200. The asset account should be debited for
$________.

177) House of Deals Ltd. bought a machine, which had a list price of $20,000 subject to terms of 2/10,
net/30.

(A) Give the entry to record the acquisition, assuming no cash was paid on acquisition date.
(B) Give the entry to record the payment for the machine, assuming payment is made within the
10-day discount period.
(C) Give the entry to record the payment for the machine, assuming payment is made after the
10-day discount period.

178) A machine was purchased for use in operations at a "marked" price of $8,750. Cash paid at purchase
date was $2,000, the balance of the marked price was for a note payable "without interest" to the end
of one year. The going rate of interest was 8 percent.
Give the entry to record the purchase.

179) On January 1, 2013, The Landing Strip Inc. purchased a 5-acre tract of land with a building thereon.
The asking price was $17,500. Payment in full was as follows: Cash, $6,822; The Landing Strip Inc.
common shares, par $5 (market value $20 per share based on several recent transactions on the
market) 250 shares, and a $5,000 non-interest bearing note payable due December 31, 2016. The
current market rate of interest is 12 percent. Allocate 20 percent of the cost to the building.
Give the entry to record this transaction on January 1, 2013.

24
180) From the following transaction information for PANTS-PRESSO Inc. for the current year,
determine the ending balances for all property, plant and equipment accounts (including
construction in progress). Show how you arrived at your answer for each. Ignore amortization,
assume there were no beginning balances, and there is no need to show subsidiary accounts or
include discussion.

Acquired new equipment, paid $50,000 down, and signed a 5%, $200,000 note payable. Both the
principal and one-year's interest is due one year from the date of purchase. The cost to install the
equipment was $4,000; the cost to test it before placing it on-line was $2,000.

PANTS-PRESSO spent $20,000 to train employees on the above new equipment.

Materials, labour and overhead amounted to $400,000 for the construction of a building started and
completed in the current year. The building was worth $600,000 at completion and will house the
office operations for the company. Total interest cost recognized during the year was $50,000;
$35,000 of that amount qualifies to be capitalized to this building. The land on which the building was
constructed cost $100,000, also purchased this year.

A second tract of land was acquired as a building site, for $45,000. A second building on this land
also was started during the year but not completed. $5,000 was spent for surveying this second land
parcel; $30,000 was spent to excavate the foundation of the building; and $8,000 was spent to clear
oak trees on the property.

PANTS-PRESSO was assessed $12,000 by the county for sewers and other infrastructure costs for
the site of the completed building.

181) RC owned Asset X, which was reflected in the accounts as follows: Cost, $120,000; accumulated
amortization, $80,000. Its market value was estimated to be $84,000. RC acquired Asset Y (a similar
asset) which had a firm cash price of $60,000, by trading in asset X in full payment, and RC received
cash of $2,000.
Give the entry for RC to record the above transaction.

182) XYZ acquired Machine N from ABC. The machine had a cash price of $6,250. XYZ paid for the
machine with $1,500 cash and traded in used Machine O, which is similar to N. Machine O originally
cost $7,500 and had accumulated amortization of $3,000. Machine N had a market value of $5,500.
Give the entry for XYZ to record the exchange.

183) SAMTO, Inc. transferred $400 cash and a machine (cost, $10,000; accumulated amortization
$9,000) to SLO UGH, Inc. in return for SLO UGH's similar machine (cost $12,000, accumulated
amortization, $10,500). Provide SAMTO's entry for the exchange assuming the market value of
SAMTO's machine was $1,600.

25
184) SAMTO, Inc. transferred $400 cash and a machine (cost, $10,000; accumulated amortization
$9,000) to SLO UGH, Inc. in return for SLO UGH's similar machine (cost $12,000, accumulated
amortization, $10,500). Provide SLO UGH's entry for the exchange assuming the market value of
Santo's machine was $1,600 and SLO UGH's Inc. machine was $2,000.

185) XZ owned Asset A that was reflected in the accounts as: cost, $30,000 and accumulated amortization,
$20,000. Its market value in present condition is reliably estimated to be $12,000. XZ acquired Asset
B (a similar asset) that had a firm cash price of $16,000. The asset acquired (B) was paid for by
trading in Asset A and paying cash of $8,000.
Give the entry XZ should make to record this transaction.

186) HF had asset A that was reflected in the company records as follows: Cost, $25,000; accumulated
amortization, $20,000. Its market value: $6,000. HF acquired asset B that had a cash price of
$13,500 and paid for it by trading in asset A plus paying cash boot of $8,000. Give the entry by HF
to record the acquisition of asset B, assuming the two assets was:

(A) Similar:
(B) Dissimilar:

187) CK exchanged Truck A with SD for Truck B; SD paid cash to CK of $9,600. Assume that the
following data relate to the transaction:

Carrying value of Truck A to JB $8,000

Carrying value of Truck B to SD 3,600
Fair market value of Truck B (per "blue book") 2,400

(A) CK should account for this transaction (assume similar assets) as a:

A. 100% exchange.
B. 1/5 sale, 4/5 exchange.
C. 100% Sale.
D. 4/5 sale, 1/5 exchange.
(B) Give the entry to record the exchange in the accounts of CK.
(C) Give the entry to record the exchange in the accounts of SD.

26
188) On January 1, 2015, The Bargain Bin owned capital asset X that was reflected in the accounts as
follows: Cost, $20,000; accumulated amortization, $15,000. The company acquired capital asset Y
that had a nonnegotiable actual cash price of $10,750. In full payment, Asset X was traded in and
cash of $6,000 was paid by The Bargain Bin.
Give the journal entry required for The Bargain Bin under each of the two independent assumptions:

Assumption A-Similar assets.

Assumption B-Dissimilar assets.

189) BR acquired a new machine that had a cash price of $10,800. The company paid $1,000 cash and
traded in an old machine that originally cost $24,000 with accumulated amortization of $14,000. Give
the exchange entry for BR under each of the two assumptions:

Assumption A-the assets are similar:

Assumption B-the assets are dissimilar:

190) MC exchanged one of its milling machines, which had cost $60,000 and on which amortization of
$50,000 had been recorded for a smaller milling machine with a firm cash asking price of $14,000.
MC received a cash difference (boot) of $6,000.

(A) Give the entry on MC's books to record the exchange.

(B) Refer to the data given immediately above. Assume the same facts, except that MC paid cash
boot of $6,000. Record the exchange on MC's books.

191) Machines Unlimited acquired Machine N (new) in exchange for a slightly used machine (Machine O)
and received $3,000 cash (Machine O was in high demand). The machines were similar. Machine N
had a market value (cash equivalent price) of $27,000. Machine O originally cost $45,000 and
accumulated amortization at the date of exchange was $24,000.
Give the entry to record the exchange by Machines Unlimited.

192) City Y sets property valuations for tax assessment purposes low in relation to economic values but
are reasonably proportionate among different properties. PQ bought improved property in City Y for
$40,000 cash. It consisted of land assessed at $6,000, and a building assessed at $10,000. On PQ's
books, the land should be valued at $________ and the building at $________.

193) XY purchased a plant, including land, buildings, and machinery, for $50,000. These items were
carried on the books of the seller as follows: land, $15,000; building, $40,000, and machinery,
$20,000. Immediately after the purchase, XY employed a reliable firm to appraise the assets with
the following results: land, $12,000; building, $15,000, and machinery, $33,000.
At what amount should each separate asset be recorded on the books of XY?
Land, $________ Building, $________ Machinery, $________.

27
194) CT has been using the "expense as incurred" approach in recording ordinary repairs. For 2013, CT
decided to use the allocation approach on an annual basis. Estimated expenditures for ordinary
repairs for the year 2013 were $6,000. Actual cash expenditures for ordinary repairs for January
2013 were $550. Give the indicated journal entries for January 2013.

195) CM replaced a major component in Plant A which has been operating 20 years and has a 30-year
estimated useful life. The new replacement component cost $150,000 cash. When the plant was
constructed, the old component cost $60,000. Give the entry (or entries) to record this transaction.

196) During 2013, DB incurred the following expenditures (cash) on its office building. For each item,
give the required entry (entries).

(A) Normal, recurring, maintenance and repairs, $1,350.

(B) Unusual, high cost repairs, $48,000, which added additional value to the building.
(C) Replaced the original freight elevator in the building with a new elevator that cost $40,000 (cash).
The old elevator (original cost, $30,000; accumulated amortization, $23,000) was sold for $7,700.

197) During 2013, RB incurred the following expenditures (cash) on its office building. For each item,
give the required entry (entries).

(A) Normal, recurring, maintenance and repairs, $1,250.

(B) Unusual, high cost repairs, $22,000, which added additional value to the property.
(C) Replaced the original freight elevator in the building with a new elevator that cost $45,000 (cash).
The old elevator (original cost, $16,500, accumulated amortization, $12,500) was sold for $4,750.

198) On January 1, 2012, BC debited $4,000 of ordinary repairs to the asset account, Machinery. The
machinery is depreciated on a straight-line basis over 10-years with no residual value. On December
31, 2014, the error was discovered. Give the entry, or entries, to correct the accounts on that date.

199) Indicate for each transaction below the account(s) and amount(s) that should be debited and credited.
Use abbreviated account titles.

Item Accounts Amounts

(a) Jan. 1, 2001 purchased land with a usable
office building thereon for cash of $200,000.
Tax assessment values: Land $20,000;
building $60,000
(b) Jan. 1, 2001 purchased land for future
building site for a cash cost of $40,000; an
old building on this site, appraised at $2,000
at the date of purchase, is to be torn down
immediately.
(c) Net cash cost of demolishing the old
building in (b) above amounted to $2,000.
(d) Cash cost of excavation for basement of
28
 the new building (b above) was $6,000.
(e) Lawyers' fees paid in connection with
purchase of real estate in (b) $900.
(f) Taxes paid on land purchased in (b)
assessed before completion of building, $300.
(g) Factory superintendent's salary for 2001
was $24,000. During 2001, the
superintendent spent the first six months
supervising construction of the new building;
the next three months supervising installation
of productive machinery in the new building,
and the last three months supervising
operations in the new building.
(h) Cost of grading and paying parking space
and walks behind new building, $9,500.

(i) Brick work amounting to $900 was performed on the building's exterior. This amount is deemed
material and the work is expected to last for 20 years.

200) What is the rationale for the difference in accounting treatment for exchanges of similar and
dissimilar assets? Comment on both cases where cash is paid and cash is received.

201) Firm A purchased all the outstanding common shares of firm B for $300,000. Information about firm
B follows:

Book value Market value

Total assets $600,000 $800,000
Total liabilities 550,000 550,000

How much will Firm A record as goodwill on this purchase?

29
202) Firm B (buyer) agreed to buy all the outstanding common shares of firm S (seller). Relevant data for S
at the time of the purchase:

Total owners' equity $10,000

Total market value of identifiable assets 50,000
Total market value of liabilities 20,000
Average earnings per year 20,000

The average rate of return for S's industry is 30%, based on net assets. B demands a 10% return on its
investment, but allows the average rate of return to be applied to S's market value of net assets for
purposes of computing goodwill. Any earnings in excess of the industry average are considered to
extend for 5 years after purchase. How much did B pay for S's shares if the two parties agree to
value goodwill at the present value of excess earnings over the industry average?

203) At the end of the annual reporting period, December 31, 2013, LTX had the accounting situations
given below under consideration for adjusting entries. Give the appropriate adjusting entry for each
situation. Assume straight-line amortization in all cases. If an adjusting entry is not needed, explain
why.
Situation A-A patent that cost $51,000 has been amortized for six years on the basis of a 17-year life.
Now, it is estimated that the total life should have been estimated at 12 years.
Situation B-The balance in the prepaid insurance account on January 1, 2013, was $4,000. On June 1,
2013, a new 3-year insurance premium of $36,000 was paid because the old policy expired. The new
premium was recorded in the Prepaid Insurance Account (current asset).

204) Shimoon Co. has recently accepted the proposal from the Township of Cane that publicly owned
property with a warehouse located on it will be donated to Shimoon if Shimoon will build a branch
plant in Cane. The appraised value of the land is $520,000 and of the warehouse is $1,286,000.
Prepare the journal entry for this transaction:

205) On April 30, 2013, a fire destroyed a machine that cost $24,000 when acquired on January 1, 2011.
The machine has an estimated 4-year useful life and no residual value. Straight-line amortization on
the machine has been recognized through December 31, 2011. Give the entries at date of the fire to
record the fire loss, assuming the insurance company paid $9,000 cash on the claim.

206) Strong Co. purchased a trademark from Wall Co. for $60,000 on July 1, 2000. Expenditures of
$10,000 for successful litigation in defence of the trademark were paid on July 1, 2002. Strong
estimates that the useful life of the trademark will be 20 years from the date of acquisition.
Calculate the carrying value of the trademark at December 31, 2002.

30
207) Early in January, 2000, Vars Co. purchased a patent for a new consumer product for $540,000. At
the time of the purchase, the patent was valid for fifteen years. Due to the competitive nature of the
product, however, the patent was estimated to have a useful life of only 10 years. During 2004, the
product was permanently removed from the market under governmental order because of a potential
health hazard present in the product. Calculate the amount Vars should charge to expense in 2004,
assuming amortization is only recorded at the end of the fiscal year.

208) On January 1st, 2008, ABC Inc. purchased a copper mine for $400,000. The company is required by
provincial law to restore the land on which the mine is located to its initial condition at the end of
the mine's ten year useful life. Restoration costs are estimated to be $35,000. ABC is subject to an
interest rate of 5%. Prepare the journal entries required on January 1st and December 31st, 2008.
Round all entries to the nearest dollar.

31
Answer Key
Testname: UNTITLED2

1) TRUE
2) TRUE
3) TRUE
4) FALSE
5) FALSE
6) FALSE
7) TRUE
8) FALSE
9) TRUE
10) TRUE
11) FALSE
12) FALSE
13) TRUE
14) FALSE
15) TRUE
16) FALSE
17) TRUE
18) TRUE
19) FALSE
20) TRUE
21) TRUE
22) FALSE
23) TRUE
24) FALSE
25) TRUE
26) TRUE
27) FALSE
28) TRUE
29) TRUE
30) FALSE
31) TRUE
32) FALSE
33) FALSE
34) FALSE
35) TRUE
36) FALSE
37) TRUE
38) TRUE
39) FALSE
40) TRUE
41) TRUE
42) FALSE
43) TRUE
44) FALSE
45) FALSE
46) FALSE
47) FALSE
48) TRUE
49) FALSE
50) TRUE
32
Answer Key
Testname: UNTITLED2

51) TRUE
52) TRUE
53) FALSE
54) FALSE
55) TRUE
56) FALSE
57) TRUE
58) TRUE
59) FALSE
60) TRUE
61) TRUE
62) TRUE
63) FALSE
64) TRUE
65) TRUE
66) TRUE
67) FALSE
68) FALSE
69) TRUE
70) FALSE
71) FALSE
72) TRUE
73) TRUE
74) TRUE
75) TRUE
76) FALSE
77) TRUE
78) TRUE
79) FALSE
80) C
81) D
82) B
83) D
84) A
85) D
86) B
87) B
88) C
89) D
90) B
91) A
92) D
93) A
94) C
95) A
96) B
97) C
98) D
99) A
100) B
33
Answer Key
Testname: UNTITLED2

101) E
102) B
103) B
104) C
105) C
106) A
107) C
108) A
109) B
110) A
111) A
112) B
113) C
114) A
115) A
116) A
117) B
118) D
119) B
120) E
121) D
122) A
123) A
124) C
125) A
126) C
127) C
128) B
129) C
130) D
131) C
132) C
133) D
134) C
135) A
136) D
137) B
138) A
139) B
140) C
141) A
142) B
143) A
144) B
145) D
146) C
147) A
148) C
149) A
150) D
34
Answer Key
Testname: UNTITLED2

151) D
152) C
153) B
154) A
155) A
156) B
157) D
158) C
159) B
160) C
161) C
162) A
163) D
164) D
165) C
166) C
167) C
168) D
169) C
170) D
171) D
172)
Land (80 x $120) 9,600
Common shares (80 shares x $120) 9,600

Cost principle: Use market value of consideration given, if reliably determinable. In this case, the share
valuation is probably more reliable than the land appraisal.
173)
Land ($1,000,000 x 90%) 900,000
Ranch improvements ($1,000,000 x 10%) 100,000
Capital stock ($25 x 10,000 shares) 250,000
Note payable 500,000 x (PV1, 15%, 2) 378,070
(.756140)
Cash 371,930

174)
Land 75,702
Cash 25,000
Note payable [$30,000 x (PVA, 12%, 2) 50,702
(1.69005)

35
Answer Key
Testname: UNTITLED2

175) (a)

Machinery 22,219
Cash 10,000
Note payable, long term ($5,000) x (PVA, 12,219
11%, 3) 2.44371

(b)

Interest expense, ($12,219 x 11%) 1,344

Note payable, long term 3,656
Cash 5,000

176) $1,500 + $4,000 + $150 + $50 + $200 = $5,900

177)
(a) Machinery 19,600
Current liability 19,600
(b) Current liability 19,600
Cash 19,600
(c) Current liability 19,600
Interest Expense 400
Cash 20,000

178)
Machine $2,000 + ($6,750 / 1.08) 8,250
Cash 2,000
Note payable 6,250

179)
Building ($15,000 x 20%) 3,000
Land ($15,000 x 80%) 12,000
Common shares 5,000
Cash 6,822
Note payable* 3,178
*$5,000 x (PV, 12%, 4)(.63552) = $3,178

36
Answer Key
Testname: UNTITLED2

180)
Land $100,000 + $45,000 + $5,000 + $8,000 + $12,000 = $170,000
Equipment $50,000 + $200,000 + $4,000 + $2,000 = $256,000
Buildings $400,000 + $35,000 = $435,000
Construction in progress = $30,000

181) Tentative entry:

Cash 2,000
Accumulated amortization, Asset X 80,000
Asset Y (tentative) 60,000
Asset X 120,000
Gain on disposal 22,000

Since the cash consideration was less than 10% of the total consideration, the gain must not be recognized -
revise with the following final entry:

Gain on Disposal 22,000

Asset Y 22,000

182)
Machine N 6,250 < 7,000 6,250
Accumulated amortization 3,000
Gain on disposal 250
Machine O 7,500
Cash 1,500

183)
Asset 2,000 ($1,600 +
$400)
Accumulated amortization 9,000
Asset 10,000
Cash 400
Gain on Disposal of 600
Equipment

The gain is allowed because the assets are similar and the cash consideration is more than 10% of the total
consideration.

37
Answer Key
Testname: UNTITLED2

184)
Asset 1,600
Accumulated amortization 10,500
Asset 400
Cash 12,000
Gain on Disposal of Equipment 500

Recognized gain = 2,000 - 1,500 = 500 which must be recognized since the cash consideration exceeded
10% of the total consideration.
185)
Asset B 16,000
Accumulated amortization, Asset A 20,000
Loss on disposal of Asset A 2,000
Asset A 30,000
Cash 8,000

(the new asset's recorded value cannot exceed its market value)
186) (A)

Asset B 13,500*
Accumulated amortization, Asset A 20,000
Asset A 25,000
Cash 8,000
Gain on disposal of operational asset 500

Since the cash consideration exceeds 10% of the total consideration the gain is to be recognized.
(B) Dissimilar:

Asset B 13,500*
Accumulated amortization, Asset A 20,000
Asset A 25,000
Cash 8,000
Gain on disposal of operational asset 500

*Cannot exceed its FMV.

38
Answer Key
Testname: UNTITLED2

187) (A) A
(B) Final entry:

Cash 9,600
Truck B 2,400
Truck A 8,000
Gain on exchange of trucks 4,000

(C) Final entry:

Truck A ($9,600 + $2,400) 12,000*

Loss on exchange of trucks 1,200
Truck B 3,600
Cash 9,600

*implied market value of truck A: SD transferred $9,600 cash and a truck worth $2,400
188) Assumption A - Similar assets:

Asset Y 10,750
Accumulated amortization, Asset X 15,000
Loss on disposal of Asset X 250
Asset X 20,000
Cash 6,000

Assumption B - Dissimilar assets: Same entry as assumption A

189) Assumption A (similar)

New machine 10,800

Accumulated amortization 14,000
Loss on disposal of machine 200
Old machine 24,000
Cash 1,000

Assumption B (dissimilar) -- Same entry as assumption A

39
Answer Key
Testname: UNTITLED2

190) (a) Combined entry:

Cash 6,000
Milling machine (new) 14,000
Accumulated amortization (old) 50,000
Milling machine (old) 60,000
Gain on disposal of machine 10,000

(b)
Milling machine (new) 14,000
Accumulated amortization 50,000
Loss on disposal of machine 2,000
Milling machine (old) 60,000
Cash 6,000

191) Composite entry:

Cash (given) 3,000

Machine N 27,000
Accumulated amortization, Machine O (given) 24,000
Machine O (original cost, given) 45,000
Gain on disposal 9,000

192) Land: $40,000 × ($6,000/$16,000) = $15,000.

Building: $40,000 × ($10,000/$16,000) = $25,000
193) Computation using relative sales value:
Land: $12,000/$60,000 × $50,000 = $10,000.
Building: $15,000/$60,000 × $50,000 = $12,500.
Machinery: $33,000/$60,000 × $50,000 = $27,500.
194)
Repair expense ($6,000 / 12) 500
Estimated liability for repair 500
Estimated liability for repair 550
Cash or payable 550

40
Answer Key
Testname: UNTITLED2

195)
Accumulated amortization ($60,000 x 2/3) 40,000
Loss on disposal of asset 20,000
Plant A (component) 60,000

Plant A (component) 150,000

Cash 150,000

196)
(a) Repair expense (ordinary repairs) 1,350
Cash 1,350
(b) Accumulated amortization, building (or 48,000
building)
Cash 48,000
(c) Building (new elevator installed) 40,000
Cash 40,000

Cash (for old elevator) 7,700

Accumulated amortization, building 23,000
Building (old elevator removed) 30,000
Gain on disposal of old elevator 700

197)
(a) Repair expense 1,250
Cash 1,250
(b) Accumulated amortization, building (or 22,000
building)
Cash 22,000
(c) Building 45,000
Cash 45,000

Cash 4,750
Accumulated amortization, building 12,500
Building 16,500
Gain 750

41
Answer Key
Testname: UNTITLED2

198)
Accumulated amortization (2 x $4,000/10) 800
Retained Earnings 3,200
Machinery 4,000

199)
(a) Land 50,000
Building 150,000
Cash 200,000
(b) Land 40,000
Cash 40,000
(c) Land 2,000
2,000
(d) Building 6,000
Cash 6,000
(e) Land 900
Cash 900
(f) Land 300
Cash 300
(g) Building 12,000
Machinery 6,000
Factory overhead 6,000
Cash 24,000
(h) Land improvements 9,500
Cash 9,500
(i) Building 900
Cash 900

200) When dissimilar assets are exchanged, the earnings process associated with those assets is considered
completed. Any gain or loss is recognized because an arm's length transaction has occurred which is
accounted for at market value.
When similar assets are exchanged (and no cash is involved, or cash is paid) the firm has not substantively
changed its earnings process. The way the firm generates revenue is not changed; rather, only the identity of
specific assets has been changed. If the new asset is superior, earnings will reflect this in higher revenues or
lower costs. Therefore, no gain is recognized. However, losses are recognized in full due to conservatism.
Gain on exchange of similar non-monetary assets should be recognized when the amount of monetary
consideration received or given is not minimal (i.e. greater than 10% of the fair value of the total
consideration received or given). In these instances, exchanges of similar non-monetary assets are
accounted for in the same way as exchanges of dissimilar assets and the entire gain/loss is recognized.
201) Excess of net assets at market value over price
$300,000 - ($800,000 less $550,000 = $250,000) = $50,000
42
Answer Key
Testname: UNTITLED2

202) $30,000 + $20,000 + (0.30)($30,000)(PVA,10%,5) 3.79079 = $84,117(rounded)

203) Situation A (a change in estimate):

Amortization expense, patent 5,500

Patent 5,500

$51,000 x 11/17 = $33,000 unamortized

$33,000 / (12 - 6 years) = $5,500

Situation B (insurance premium expired):

Insurance expense 11,000

Prepaid insurance 11,000

$4,000 + ($36,000 x 7/36 = $7,000) = $11,000

204)
Land 520,000
Building — Warehouse 1,286,000
Contributed Capital 1,806,000

205) The asset cost $24,000 and was half depreciated at the end of 2012; therefore, the accumulated amortization
at that date was $12,000. An additional 1/3 of a year of amortization would need to be recognized for the
period January 1 through April 30, 2013.

Amortization expense ($24,000 / 4 x 1/3) 2,000

Accumulated amortization 2,000
Cash 9,000
Fire loss 1,000
Accumulated amortization 14,000
Operational asset (machine) 24,000

43
Answer Key
Testname: UNTITLED2

206)
Cost of the trademark $60,000
Amortization to July 1, 2002
(60,000 / 20 x 2 years) -6,000
Book value July 1, 2002 54,000
Cost of successful litigation 10,000
Carrying amount 64,000
Amortization for 6 months (64,000 / 18 x .5 years) -1778
Book value on December 31, 2002 $62,222

207)
Cost of the patent $540,000
Amortization from 2000 to 2004 (540,000 / 10 x 4) (216,000)
Book value Jan. 1, 2004 $324,000

Expense book value in 2005 as permanently impaired.

208) January 1, 2008:

Mine $400,000
Account Payable $400,000
Mine $21,487
Asset Retirement Obligation $21,487

December 31, 2008:

Amortization expense $42,149

Accumulated Amortization $42,149
Accretion Expense $1,074
Asset Retirement Obligation $1,074

44