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
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
3. Which of the following statements is true regarding capitalization of interest?
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.
The amount of interest cost capitalized during the period should not exceed the
actual interest cost incurred.
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.
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?
Expenditure made to increase the efficiency or effectiveness of an existing asset
Expenditure made to extend the useful life of an existing asset beyond the time
frame originally anticipated
Expenditure made to maintain an existing asset so that it can function in the manner
Expenditure made to add new asset services