Question

1. If a corporation purchases land and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on

A) the intention of management for the property when the building was acquired.

B) the significance of the cost allocated to the building in relation to the combined cost of the land and building.

C) the length of time for which the building was held prior to its demolition.

D) the contemplated future use of the parking lot.

2. Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except

A) gains and losses should not be anticipated but should be recognized when the asset is sold.

B) historical cost involves actual transactions and, as such, is the most reliable basis.

C) at the date of acquisition, cost reflects fair value.

D) property, plant, and equipment items are always acquired at their original historical cost.

3. Which of the following nonmonetary exchange transactions may result in recorded gains or losses?

A) Exchange of assets with a difference in future cash flows.

B) Exchange of assets with no difference in future cash flows.

C) Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.

D) Exchange of products by companies in the same line of business with no difference in future cash flows

4. Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will

A) effectively reduce the amount to be recorded as the cost of the new asset.

B) be credited directly to the owner's capital account.

C) be reported in the Other Revenues and Gains section of the income statement.

D) effectively increase the amount to be recorded as the cost of the new asset.

Answer 1

Part 1

Answer is option A

A. the intention of management for the property when the building was acquired

Management’s discretion is used for proper accounting of building.

Part 2

Answer is option D

D) property, plant, and equipment items are always acquired at their original historical cost.

Many times they are acquired at fair value.

Part 3

Answer is option A

A) Exchange of assets with a difference in future cash flows.

If there is difference in future cash flows, there is possibility of gain or loss.

Part 4

Answer is option A

A) Effectively reduce the amount to be recorded as the cost of the new asset.

The cost of new asset ill decrease due to gain during exchange.