Acct-322 Chapter 10 Questions

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Chapter 10 Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition

Questions for Review of Key Topics

Question 10-1

The difference between tangible and intangible long-lived, revenue-producing assets is that intangible assets lack physical substance and they primarily refer to the ownership of rights.

Question 10-2

The cost of property, plant, and equipment and intangible assets includes the purchase price (less any discounts received from the seller), transportation costs paid by the buyer to transport the asset to the location in which it will be used, expenditures for installation, testing, legal fees to establish title, and any other costs of bringing the asset to its condition and
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Assets qualifying for capitalization exclude inventories that are routinely manufactured in large quantities on a repetitive basis and assets that are in use or ready for their intended purpose. Only assets that are constructed as discrete projects qualify for interest capitalization.

Answers to Questions (continued)

Question 10-14

Average accumulated expenditures for a period is an approximation of the average amount of debt the company would have had outstanding if it borrowed all of the funds necessary for construction. If construction expenditures are incurred equally throughout the period, the average accumulated expenditures for the period can be estimated by adding the accumulated expenditures at the beginning of the period to the accumulated expenditures at the end of the period and dividing by two. If expenditures on the project are unequal throughout the period, individual expenditures, perhaps expenditures grouped by month, should be weighted by the amount of time outstanding until the end of the construction period or the end of the company’s fiscal year, whichever comes first.

Question 10-15

Applying the specific interest method, the interest rate on any construction related debt is used up to the amount of the construction debt and any excess average accumulated expenditures is multiplied by a weighted-average interest
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