Valuation of plant asset, land and intangible assets.
Questions 1 and 2 are based on the following information:
Poin Company recently incurred the following costs:
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(1) Purchase price of land and dilapidated building
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$280,000
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(2) Real estate broker's commission
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14,000
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(3) Net demolition costs of dilapidated building
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42,000
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(4) Excavation costs for new building
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44,000
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(5) Architect's fees and building permits
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35,000
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(6) Costs associated with new building construction
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930,000
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(7) Costs associated with new furniture and equipment
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250,000
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(8) Actual interest costs during building construction
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135,000
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(9) Actual interest cost after completion of building construction
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120,000
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(10) Costs of walks, driveways, and parking lot
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55,000
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1. The building should be recorded on Poin's books at
a. $1,144,000.
b. $1,319,000.
c. $ 930,000.
d. $1,264,000.
2. Land should be recorded on Poin's books at
a. $280,000.
b. $336,000.
c. $322,000.
d. $380,000.
3. Jenson Supply bought equipment at a cost of $24,000 on January 2, 2002. It originally had an estimated life of ten years and a salvage value of $4,000. Jenson uses the straight-line depreciation method. On December 31, 2006, Jenson decided the useful life likely would end on December 31, 2007, with a salvage value of $2,000. The depreciation expense recorded on December 31, 2006, should be
a. $2,000.
b. $7,000.
c. $4,000.
d. $3,500.
4. In order to be relevant, accounting information must
a. be neutral.
b. be verifiable.
c. help predict future events.
d. be a faithful representation.
5. The cost of intangible assets should be
a. amortized over the assets' estimated useful life, or its legal life, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets' estimated useful life.
d. charged to an expense account at acquisition.
6. In a period of rising prices, the inventory method that results in the lowest income tax payment is
a. LIFO.
b. FIFO.
c. average cost.
d. specific identification.
7. On November 30, Catcher Company issued a $8,000, 6%, 6-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
a. $8,000.
b. $8,480.
c. $8,120.
d. $8,240.
8. The inventory methods that result in the most current costs in the income statement and balance sheet are
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Income Statement
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Balance Sheet
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a.
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FIFO
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FIFO
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b.
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LIFO
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FIFO
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c.
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LIFO
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LIFO
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d.
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FIFO
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LIFO
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9. One of the two constraints in accounting is
a. comparability.
b. materiality.
c. reliability.
d. relevance.
10. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. time period assumption.