Fall_08_Exam_III - AEM 3360 Fall 2008 Exam3: KEY PAGE 12-13...

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AEM 3360 Fall 2008 Exam3: KEY PAGE 12-13 1. 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. 2. Noach Company traded machinery with a book value of $190,000 and a fair value of $180,000. It received in exchange from Hinrich Company a machine with a fair value of $200,000. Noach also paid cash of $20,000 in the exchange. Hinrich's machine has a book value of $190,000. What amount of gain or loss should Noach recognize on the exchange? A) $20,000 gain B) $ -0-. C) $1,000 loss D) $10,000 loss 3. Which of the following statements is true regarding capitalization of interest? A) Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. B) The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. C) When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. D) The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period. 4. In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made? A) Expenditure made to increase the efficiency or effectiveness of an existing asset B) Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated C) Expenditure made to maintain an existing asset so that it can function in the manner intended D) Expenditure made to add new asset services Page 1
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5. Marlin Company traded machinery with a book value of $180,000 and a fair value of $300,000. It received in exchange from Keach Company a machine with a fair value of $270,000 and cash of $30,000. Keach's machine has a book value of $285,000. What amount of gain should Marlin recognize on the exchange? A) $ -0- B) $12,000 C) $30,000 D) $120,000 6. Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be A) classified as other income. B)
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Fall_08_Exam_III - AEM 3360 Fall 2008 Exam3: KEY PAGE 12-13...

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