Question

Interest costs can be capitalized on

1. interest incurred during the period of construction on loans for self-constructed assets.
2. interest incurred on notes payable used to purchase inventory for resale.
3. interest incurred on installment loans secured by assets currently used in operations.
4. none of these choices; interest charges must always be expensed.

Companies record depreciation on equipment to

1. bring the asset's book value to its fair market value.
2. allocate its cost to expense over its useful life.
3. recognize gains in its fair market value.

The cost of land should be

1. expensed in the period of purchase.
2. capitalized as a depreciable asset.
3. capitalized as a nondepreciable asset.
4. included in the cost of the associated building.

Which of the following expenditures subsequent to asset acquisition may be capitalized?

1. a routine repair
2. a major overhaul that preserves the asset's intended useful life and purpose
3. a major overhaul that improves productivity and extends the asset's useful life
4. none of these choices; all of these expenditures must be expensed in the period incurred

A company replaces a costly machine part that restores some of the service potentials of the asset that had previously been depreciated. The journal entry to record this expenditure includes a debit to

1. Repairs Expense.
2. Accumulated Depreciation.
3. Overhead.
4. Equipment Expense

Answer 1

(1) (a) interest incurred during the period of construction on loans for self-constructed assets.

(2) (b) allocate its cost to expense over its useful life.

(3) (c) capitalized as a nondepreciable asset

(4) (c) a major overhaul that improves productivity and extends the asset's useful life

(5) (a) Repairs Expense.