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Ppe Problems 1

The document discusses 10 multiple choice questions regarding accounting for costs related to property, plant, and equipment. Specifically, it addresses calculating costs for land, buildings, equipment, and self-constructed assets. It also discusses determining average accumulated expenditures and depreciation expense using the straight-line method.

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venice cambry
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911 views4 pages

Ppe Problems 1

The document discusses 10 multiple choice questions regarding accounting for costs related to property, plant, and equipment. Specifically, it addresses calculating costs for land, buildings, equipment, and self-constructed assets. It also discusses determining average accumulated expenditures and depreciation expense using the straight-line method.

Uploaded by

venice cambry
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PROPERTY, PLANT AND EQUIPMENT PROBLEMS

1. Seiler Co. purchased land as a factory site for $600,000. Seiler paid $60,000 to tear down
two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title
investigation and making the purchase. Architect's fees were $31,200. Title insurance cost
$2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The
contractor was paid $2,200,000. An assessment made by the city for pavement was $6,400.
Interest costs during construction were $170,000.

1.1 The cost of the land that should be recorded by Seiler Co. is
a. $660,480.
b. $666,880.
c. $669,880.
d. $676,280.
b. $600,000 + $60,000 – $5,400 + $3,480 + $2,400 + $6,400 = $666,880.

1.2 The cost of the building that should be recorded by Seiler Co. is
a. $2,403,800.
b. $2,404,840.
c. $2,413,200.
62. d. $2,414,240.
d.$31,200 + $2,600 + $10,440 + $2,200,000 + $170,000 = $2,414,240.

2. Tyson Chandler Company purchased equipment for $10,000. Sales tax on the purchase was
$500. Other costs incurred were freight charges of $200, repairs of $350 for damage during
installation, and installation costs of $225. What is the cost of the equipment?
a. $10,000
b. $10,500
c. $10,925
d. $11,275

c. $10,000 + $500 + $200 + $225 = $10,925.

3. Carpenter Company purchased equipment for $12,000. Sales tax on the purchase was $600.
Other costs incurred were freight charges of $240, repairs of $420 for damage during
installation, and installation costs of $270. What is the cost of the equipment?
a. $12,000.
b. $12,600.
c. $13,110.
d. $13,530.
c. $12,000 + $600 + $240 + $270 = $13,110.

4. During self-construction of an asset by Jannero Pargo Company, the following were among
the costs incurred:

Fixed overhead for the year $1,000,000


Portion of $1,000,000 fixed overhead that would
be allocated to asset if it were normal production 40,000
Variable overhead attributable to self-construction 35,000

What amount of overhead should be included in the cost of the self-constructed asset?
a. $ -0-
b. $35,000
c. $40,000
d. $75,000
d. $40,000 + $35,000 = $75,000.

5. During self-construction of an asset by Mitchellson Company, the following were among the
costs incurred:

Fixed overhead for the year $1,000,000


Portion of $1,000,000 fixed overhead that would
be allocated to asset if it were normal production 60,000
Variable overhead attributable to self-construction 55,000

What amount of overhead should be included in the cost of the self-constructed asset?
a. $ -0-
b. $ 55,000
c. $ 60,000
d. $115,000

d. $60,000 + $55,000 = $115,000.

6. Ben Gordon Corporation constructed a building at a cost of $10,000,000. Average


accumulated expenditures were $4,000,000, actual interest was $600,000, and avoidable
interest was $300,000. If the salvage value is $800,000, and the useful life is 40 years,
depreciation expense for the first full year using the straight-line method is
a. $237,500.
b. $245,000.
c. $257,500.
d. $337,500.

a. [($10,000,000 + $300,000) – $800,000] ÷ 40 = $237,500.

7. Sweet Knee Company is constructing a building. Construction began in 2008 and the building
was completed 12/31/08. Sweet Knee made payments to the construction company of
$1,000,000 on 7/1, $2,100,000 on 9/1, and $2,000,000 on 12/31. Average accumulated
expenditures were
a. $1,025,000.
b. $1,200,000.
c. $3,100,000.
d. $5,100,000.
b. ($1,000,000 × 6/12) + ($2,100,000 × 4/12) = $1,200,000.

8. Wheeler Corporation constructed a building at a cost of $20,000,000. Average accumulated


expenditures were $8,000,000, actual interest was $1,200,000, and avoidable interest was
$600,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation
expense for the first full year using the straight-line method is
a. $475,000.
b. $490,000.
c. $515,000.
d. $675,000.
a. [($20,000,000 + $600,000) – $1,600,000] ÷ 40 = $475,000.

9. Hackleman Company is constructing a building. Construction began in 2008 and the building
was completed 12/31/08. Hackleman made payments to the construction company of
$1,500,000 on 7/1, $3,300,000 on 9/1, and $3,000,000 on 12/31. Average accumulated
expenditures were
a. $1,575,000.
b. $1,850,000.
c. $4,800,000.
d. $7,800,000.
b. ($1,500,000 × 6/12) + ($3,300,000 × 4/12) = $1,850,000

10. On May 1, 2007, Royster Company began construction of a building. Expenditures of


$120,000 were incurred monthly for 5 months beginning on May 1. The building was completed
and ready for occupancy on September 1, 2007. For the purpose of determining the amount of
interest cost to be capitalized, the average accumulated expenditures on the building during
2007 were
a. $100,000.
b. $120,000.
c. $480,000.
d. $600,000.

a. ($120,000 × 4/12) + ($120,000 × 3/12) + ($120,000 × 2/12) + ($120,000 × 1/12)


= $100,000.

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