Property Plant and Equipment MCQs

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Which of the following is not an appropriate basis for measuring the cost of property, plant, and equipment?

The purchase price, freight costs, and installation costs of a productive asset should be included in the assetâ€™s cost.
Proceeds obtained in the process of readying land for its intended purpose, such as from the sale of cleared timber, should be recognized immediately as income.
The costs of improvements to equipment incurred after its acquisition should be added to the assetâ€™s cost if they increase future service potential.
All costs incurred in the construction of a plant building, from excavation to completion, should be considered as part of the assetâ€™s cost.

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An entity installed an assembly line in Year 1. Four years later, $100,000 was invested to automate the line. The automation increased the market valu...

Report it as an expense in Year 5
Establish a separate account for the $100,000.
Allocate the cost of automation between the asset and accumulated depreciation accounts.
Debit the cost to the property, plant, and equipment account.

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"A theme park purchased a new, exciting ride and financed it through the manufacturer. The following facts pertain:" Purchase p...

$160,000
$184,000
$192,000
$204,000

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Which of the following is not an appropriate basis for measuring the historical cost of property, plant, and equipment?

Delivery and handling costs and installation costs of a productive asset should be included in the asset’s cost.
The cost should include the purchase price without a deduction for trade discounts.
The costs of improvements to equipment incurred after its acquisition should be added to the asset’s cost if they provide future economic benefits exceeding the originally assessed standard of performance.
All costs incurred in the construction of a plant building, from excavation to completion, should be considered as part of the asset’s cost.

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In making a cash flow analysis of property, plant, and equipment (PPE), the internal auditor discovered that depreciation expense for the period was $...

$91,000
$100,000
$110,000
$119,000

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On January 1, Year 1, an entity purchased an abandoned quarry for $1,200,000 to be used as a landfill to service its trash collection contracts with n...

$1,200,000
$900,000
$840,000
$360,000

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A new machine has an initial cost of $300,000, an estimated useful life of 2,000 hours of use over a 3-year period, and an estimated residual value of...

$57,500
$75,000
$80,500
$105,000

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A company uses straight-line depre accelerated depreciation for tax purposes. Which of the following account balances would be lower in the financial ...

Accumulated depreciation.
Cash.
Retained earnings.
Gross property, plant, and equipment.

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All of the following would be included as part of the cost of a depreciable asset except the

Costs to level land to make it usable for the company’s purposes.
Freight costs to ship new equipment to the company’s facility.
Actual interest costs incurred during the construction of a new building.
Costs to construct a driveway on the company’s property.

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The board of directors of Ingold Industries, Inc., authorized Don Burger, president of Ingold, to pay as much as $90,000 to purchase a tract of land a...

$76,620
$83,420
$87,720
$90,480

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Basic Brick, Inc., purchased manufacturing equipment for $100,000, with an estimated useful life of 10 years and a salvage value of $15,000. The secon...

$8,500
$13,600
$16,000
$20,000

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Which one of the following characteristics is not required for an asset to be properly described as property, plant, and equipment?

Held for use and not for investment.
Newly purchased
Expected life of more than 1 year.
Tangible.

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Equipment bought by Wilson Steam Generating Company 3 years ago was charged to equipment expense in error. The cost of the equipment was $100,000, wit...

$30,000
$70,000
$80,000
$100,000

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The types of assets that qualify for interest capitalization are

Assets that are being used in the earning activities of the reporting entity.
Assets that are ready for their intended use in the activities of the reporting entity.
Assets that are constructed for the reporting entityâ€™s own use.
Inventories that are manufactured in large quantities on a continuing basis.

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Wellington Industries has owned its present facilities since 1981, and Mary Dunlap, CEO, has authorized various expenditures to repair and improve the...

Treat all expenditures as expenses in the current year except the cost of rearrangement ($31,000), which should be amortized over a period not to exceed 20 years.
Capitalize all expenditures because they represent additions, improvements, and rearrangements.
Capitalize all costs with the exception of the upgrade to the phone and electrical systems and the painting because they represent maintenance expenses.
Capitalize all costs with the exception of the painting because it represents maintenance expense.

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Lakeside Electric purchased a truck for $38,600 to transport equipment to various job sites. For this purpose, storage bins were welded to the truck b...

$9,024
$9,264
$9,432
$9,672

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Albright Company uses the sum-of-the-yearsâ€™-digits (SYD) method of depreciation. On January 1, the company purchased a machine for $50,000. It...

$10,000
$15,000
$16,667
$20,000

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When a fixed plant asset with a 5-year estimated useful life is sold during the second year, how would the use of an accelerated depreciation method i...

Increase Increase
Increase Decrease
Decrease Increase
Decrease Decrease

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Which one of the following methods of depreciation will result in the lowest reported net income in the early life of a depreciable asset?

Composite depreciation method.
Group depreciation method
Straight-line depreciation method.
Sum-of-the-years’-digits depreciation method.

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Silken, Inc., a distributor of silk goods, is in its first year of operation. The company has purchased ten computers at $3,500 each with an estimate...

Composite depreciation.
Group depreciation.
Inventory method.
Replacement method.

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In which of the following situations is the units-of-production method of depreciation most appropriate?

An assetâ€™s service potential declines with use.
An assetâ€™s service potential declines with the passage of time.
An asset is subject to rapid obsolescence.
An asset incurs increasing repairs and maintenance with use.

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Under IFRS, according to the revaluation model, an item of property, plant, and equipment must be carried at

Cost minus any accumulated depreciation.
Cost minus residual value.
Fair value minus any subsequent accumulated depreciation and impairment losses.
The lower of cost or net realizable value

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Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000...

$155,000
$145,000
$135,000
$125,000

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According to IFRS, which accounting policy may an entity apply to measure investment property in periods subsequent to initial recognition?

Cost model or revaluation model.
Cost model or fair value model
Fair value model only.
Fair value model or revaluation model.

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An expenditure to install an improved electrical system is a Capital Expenditure Revenue Expenditure

No Yes
No No
Yes No
Yes Yes

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"Brown Systems began operating January 1 and spent $900,000 in the first month of operations on the following items:" January...

$80,000
$310,000
$370,000
$440,000

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An entity sells a piece of machinery, for cash, prior to the end of its estimated useful life. The sale price is less than the carrying amount of the...

Cash
Accumulated depreciation -- machinery
Loss on disposal of machinery
Machinery
Cash
Accumulated depreciation -- machinery
Gain on disposal of machinery
Machinery
Cash
Expense -- disposal of machinery
Accumulated depreciation -- machinery
Machinery
Cash
Machinery
Accumulated depreciation -- machinery
Gain on disposal of machinery

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An entity purchased a machine for $700,000. The machine was depreciated using the straight-line method and had a residual value of $40,000. The machi...

$280,000
$240,000
$205,000
$115,000

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What is the journal entry recorded upon the sale of an item of property, plant, and equipment (PPE) that was sold for cash in excess of its carrying ...

No journal entry is required.
Debit cash
Debit accumulated depreciation
Debit income on disposal of PPE
Credit PPE
Debit cash
Debit PPE
Credit accumulated depreciation
Credit income on disposal of PPE
Debit cash
Debit accumulated depreciation
Credit PPE
Credit income on disposal of PPE

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An entity sold a depreciable asset in the middle of the fifth year of its estimated 10-year useful life. The original cost of the asset was $100,000, ...

$20,000
$25,000
$30,000
$35,000

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To determine whether to recognize the impairment of a depreciable fixed asset, a company must compare the

Carrying amount of the asset and the present value of the future cash flows expected to be generated by the asset.
Original cost of the asset and the fair value of the asset.
Carrying amount of the asset and the undiscounted future cash flows expected to be generated by the asset.
Original cost of the asset and the carrying amount of the asset.

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Fact Pattern: "Blake Corporation has determined that one of its machines has experienced an impairment in value. However, the compan...

$0
$12,000
$14,000
$15,000

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Fact Pattern: "Blake Corporation has determined that one of its machines has experienced an impairment in value. However, the compan...

$3,000
$5,000
$7,000
$8,000

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An entity purchased a machine on January 1, Year 1, for $1,000,000. The machine had an estimated useful life of 9 years and a residual value of $100,0...

$35,000 gain.
$65,000 loss.
$365,000 loss.
$465,000 loss.

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Which of the following statements is true regarding impairment of long-lived assets?

U.S. GAAP requires a one-step impairment test, and IFRS requires a two-step impairment test.
Both IFRS and U.S. GAAP permit reversal of an impairment loss in subsequent periods.
Both IFRS and U.S. GAAP prohibit reversal of an impairment loss in subsequent periods.
Under U.S. GAAP, but not IFRS, reversal of an impairment loss in subsequent periods is prohibited.

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An entity applies IFRS. On December 31, Year 1, it estimates the following information regarding its headquarters building: Fa...

$85,000
$90,000
$100,000
$82,000

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Testing for possible impairment of a long-lived asset (asset group) that an entity expects to hold and use is required

At each interim and annual balance sheet date.
At annual balance sheet dates only.
Periodically.
Whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

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A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flo...

$0
$5,000
$15,000
$20,000

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An impairment loss on a long-lived asset (asset group) to be held and used is reported by a business enterprise in

Discontinued operations.
Extraordinary items.
Other comprehensive income.
Income from continuing operations.

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Last year, Katt Co. reduced the carrying amount of its long-lived assets used in operations from $120,000 to $100,000, in connection with its annual ...

$0
$10,000
$20,000
$30,000

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Under IFRS, an asset is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount of an asset is

The lower of its fair value plus cost to sell or value in use.
The greater of its fair value plus cost to sell or value in use
The lower of its fair value minus cost to sell or value in use.
The greater of its fair value minus cost to sell or value in use.

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Under IFRS when accounting for plant, property, and equipment, a company

Must use the cost model for presenting the assets.
May elect to use the cost model or the revaluation model on any individual asset.
May elect to use the cost model or the revaluation model on any asset class.
Must use the cost model for land.

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Under the IFRS revaluation model for accounting for plant, property, and equipment

Assets must be revaluated quarterly.
Assets must be revaluated annually.
Assets must be revaluated biannually.
There are no rules regarding the frequency of revaluation.

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Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the followi...

When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.
When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset belongs can be revalued.
Revaluations of property, plant, and equipment must be made at least every three years.
Increases in an asset’s carrying value as a result of the first revaluation must be recognized as a component of profit or loss.

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Fred Berk bought a plot of land with a cash payment of $40,000 and a purchase money mortgage of $50,000. In addition, Berk paid $200 for a title ins...

$40,000
$40,200
$90,000
$90,200

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Smith made a gift of property to Thompson. Smith’s basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Tho...

$0
$1,100
$1,300
$2,500

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Julie received a parcel of land as a gift from her Aunt Agnes. At the time of the gift, the land had a fair market value of $83,000 and an adjusted ...

$23,000
$35,000
$36,000
$82,000

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In 2010 Iris King bought shares of stock as an investment, at a cost of $10,000. During 2012, when the fair market value was $8,000, Iris gave the s...

$3,000
$2,000
$1,000
$0

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In 2010 Iris King bought shares of stock as an investment, at a cost of $10,000. During 2012, when the fair market value was $8,000, Iris gave the s...

Started in 2010.
Started in 2012.
Started in 2013.
Is irrelevant because Ruth received the stock for no consideration of money or money’s worth.

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Laura’s father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2012. Albert’s basis for the Liba stock was $4,000. ...

$5,000
$4,000
$3,000
$0

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Laura’s father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2012. Albert’s basis for the Liba stock was $4,000. ...

$4,000
$3,000
$2,000
$0

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Laura’s father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2012. Albert’s basis for the Liba stock was $4,000. ...

$3,500 gain.
$ 500 gain.
$ 500 loss.
$0.

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On June 1, 2012, Ben Rork sold 500 shares of Kul Corp. stock. Rork had received this stock on May 1, 2012, as a bequest from the estate of his uncle...

Short-term.
Long-term.
Short-term if sold at a gain; long-term if sold at a loss.
Long-term if sold at a gain; short-term if sold at a loss.

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Fred Zorn died on June 5, 2012, bequeathing his entire $6,000,000 estate to his sister, Ida. The alternate valuation date was validly elected by the...

$380,000
$400,000
$450,000
$480,000

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On October 1, 2012, Lois Rice learned that she was bequeathed 1,000 shares of Elin Corp. common stock under the will of her uncle, Pat Prevor. Pat h...

$ 5,000
$ 8,000
$ 9,000
$11,000

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On October 1, 2012, Lois Rice learned that she was bequeathed 1,000 shares of Elin Corp. common stock under the will of her uncle, Pat Prevor. Pat h...

Short-term Section 1231 asset.
Long-term Section 1231 asset.
Short-term capital asset.
Long-term capital asset.

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In January 2013, Joan Hill bought one share of Orban Corp. stock for $300. On March 1, 2013, Orban distributed one share of preferred stock for each...

$300 $0
$225 $ 75
$200 $100
$150 $150

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In January 2013, Joan Hill bought one share of Orban Corp. stock for $300. On March 1, 2013, Orban distributed one share of preferred stock for each...

January 2013.
March 2013.
September 2013.
December 2013.

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On July 1, 2007, Lila Perl paid $90,000 for 450 shares of Janis Corp. common stock. Lila received a nontaxable stock dividend of 50 new common share...

$0
$ 1,000
$ 2,000
$11,000

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In a “like-kind” exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be re...

Convertible debentures.
Convertible preferred stock.
Partnership interests.
Rental real estate located in different states.

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Pat Leif owned an apartment house that he bought in 2000. Depreciation was taken on a straight-line basis. In 2013, when Pat’s adjusted basis for ...

$400,000 Section 1250 gain.
$400,000 Section 1231 gain.
$400,000 long-term capital gain.
$0

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On July 1, 2013, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received fro...

$ 30,000
$ 70,000
$ 90,000
$100,000

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On October 1, 2012, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $...

$0
$ 25,000
$125,000
$175,000

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An office building owned by Elmer Bass was condemned by the state on January 2, 2011. Bass received the condemnation award on March 1, 2012. In orde...

August 1, 2013.
January 2, 2014.
March 1, 2015.
December 31, 2015.

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In March 2012, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and pa...

$160,000
$ 90,000
$ 40,000
$0

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The following information pertains to the sale of Al and Beth Oran’s principal residence: Date of sale February 2013 Date of purchase October 199...

$ 90,000
$150,000
$340,000
$400,000

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Ryan, age fifty-seven, is single with no dependents. In January 2013, Ryan’s principal residence was sold for the net amount of $400,000 after all...

$250,000
$220,000
$125,000
$0

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Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, 2012, and an additional fifty...

$3,000 recognized loss; $4,000 basis for her remaining stock.
$1,500 recognized loss; $5,500 basis for her remaining stock.
$1,500 recognized loss; $4,000 basis for her remaining stock.
$0 recognized loss; $7,000 basis for her remaining stock.

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Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2012, and an additional 100 s...

$0 $0
$0 $2,000
$1,000 $1,000
$2,000 $0

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On March 10, 2012, James Rogers sold 300 shares of Red Company common stock for $4,200. Rogers acquired the stock in 2009 at a cost of $5,000. On A...

A long-term capital loss of $800.
A long-term capital gain of $1,000.
A long-term capital gain of $1,600.
A long-term capital loss of $800 and a short-term capital gain of $2,400.

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Murd Corporation, a domestic corporation, acquired a 90% interest in the Drum Company in 2009 for $30,000. During 2013, the stock of Drum was declar...

Long-term capital loss of $1,000.
Long-term capital loss of $15,000.
Ordinary loss of $30,000.
Long-term capital loss of $30,000.

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If an individual incurs a loss on a nonbusiness deposit as the result of the insolvency of a bank, credit union, or other financial institution, the...

Miscellaneous itemized deduction.
Casualty loss.
Short-term capital loss.
Long-term capital loss.

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Conner purchased 300 shares of Zinco stock for $30,000 in 2008. On May 23, 2012, Conner sold all the stock to his daughter Alice for $20,000, its th...

$0
$ 3,000
$ 5,000
$10,000

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Conner purchased 300 shares of Zinco stock for $30,000 in 2008. On May 23, 2012, Conner sold all the stock to his daughter Alice for $20,000, its th...

$0.
$5,000 long-term gain.
$5,000 short-term loss.
$5,000 long-term loss.

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In 2013, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in 2009. Subsequently in 2013, Mar...

$0
$1,000
$4,000
$5,000

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Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?

Mother-in-law and daughter-in-law.
Uncle and nephew.
Brother and sister.
Ancestors, lineal descendants, and all in-laws.

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On May 1, 2012, Daniel Wright owned stock (held for investment) purchased two years earlier at a cost of $10,000 and having a fair market value of $...

As a short-term capital loss of $1,000.
As a long-term capital loss of $1,000.
As a short-term capital loss of $4,000.
As a long-term capital loss of $4,000.

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Al Eng owns 50% of the outstanding stock of Rego Corp. During 2013, Rego sold a trailer to Eng for $10,000, the trailer’s fair value. The trailer ...

$0
$2,000 capital loss.
$2,000 Section 1231 loss.
$2,000 Section 1245 loss.

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For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the

Trade date.
Settlement date.
Date of receipt of cash proceeds.
Date of delivery of stock certificate.

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Lee qualified as head of a household for 2012 tax purposes. Lee’s 2012 taxable income was $100,000, exclusive of capital gains and losses. Lee had...

$0
$3,000
$4,000
$8,000

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For the year ended December 31, 2012, Sol Corp. had an operating income of $20,000. In addition, Sol had capital gains and losses resulting in a net...

$5,000
$3,000
$1,500
$0

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In 2012, Nam Corp., which is not a dealer in securities, realized taxable income of $160,000 from its business operations. Also, in 2012, Nam sustai...

Use $3,000 of the loss to reduce 2012 taxable income, and carry $21,000 of the long-term capital loss forward for five years.
Use $6,000 of the loss to reduce 2012 taxable income by $3,000, and carry $18,000 of the long-term capital loss forward for five years.
Use $24,000 of the long-term capital loss to reduce 2012 taxable income by $12,000.
Carry the $24,000 long-term capital loss forward for five years, treating it as a short-term capital loss.

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For assets acquired in 2013, the holding period for determining long-term capital gains and losses is more than

18 months.
12 months.
9 months.
6 months.

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On July 1, 2012, Kim Wald sold an antique for $12,000 that she had bought for her personal use in 2010 at a cost of $15,000. In her 2012 return, Kim...

A nondeductible loss.
Ordinary loss.
Short-term capital loss.
Long-term capital loss.

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Paul Beyer, who is unmarried, has taxable income of $30,000 exclusive of capital gains and losses and his personal exemption. In 2012, Paul incurred...

$0
$1,000
$3,000
$5,000

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Capital assets include

A corporation’s accounts receivable from the sale of its inventory.
Seven-year MACRS property used in a corporation’s trade or business.
A manufacturing company’s investment in US Treasury bonds.
A corporate real estate developer’s unimproved land that is to be subdivided to build homes, which will be sold to customers.

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Joe Hall owns a limousine for use in his personal service business of transporting passengers to airports. The limousine’s adjusted basis is $40,0...

$320,000
$280,000
$ 40,000
$0

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In 2013, Ruth Lee sold a painting for $25,000 that she had bought for her personal use in 2007 at a cost of $10,000. In her 2013 return, Lee should ...

Ordinary income.
Long-term capital gain.
Section 1231 gain.
No taxable gain.

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In 2012, a capital loss incurred by a married couple filing a joint return

Will be allowed only to the extent of capital gains.
Will be allowed to the extent of capital gains, plus up to $3,000 of ordinary income.
Will be allowed to the extent of capital gains, plus up to $6,000 of ordinary income.
Is not an allowable loss.

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Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. With regard to capital...

Capital Capital
Section 1231 Capital
Capital Section 1231
Section 1231 Section 1231

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In 2009, Iris King bought a diamond necklace for her own use, at a cost of $10,000. In 2013, when the fair market value was $12,000, Iris gave this ...

Capital asset.
Section 1231 asset.
Section 1245 asset.
Section 1250 asset.

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Which of the following is a capital asset?

Delivery truck.
Personal-use recreation equipment.
Land used as a parking lot for customers.
Treasury stock, at cost.

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Don Mott was the sole proprietor of a high-volume drug store which he owned for fifteen years before he sold it to Dale Drug Stores, Inc. in 2012. B...

$30,000 ordinary income in 2012.
$30,000 short-term capital gain in 2012.
$30,000 long-term capital gain in 2012.
Ordinary income of $5,000 a year for six years.

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An individual’s losses on transactions entered into for personal purposes are deductible only if

The losses qualify as casualty or theft losses.
The losses can be characterized as hobby losses.
The losses do not exceed $3,000 ($6,000 on a joint return).
No part of the transactions was entered into for profit.

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Which one of the following would not be Sec. 1231 property even though held for more than twelve months?

Business inventory.
Unimproved land used for business.
Depreciable equipment used in a business.
Depreciable real property used in a business.

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Vermont Corporation distributed packaging equipment that it no longer needed to Michael Jason who owns 20% of Vermont’s stock. The equipment, whic...

$0
$3,000
$6,000
$7,000

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Tally Corporation sold machinery that had been used in its business for a loss of $22,000 during 2013. The machinery had been purchased and placed i...

Capital loss.
Sec. 1245 loss.
Sec. 1231 loss.
Casualty loss because the machinery was held less than two years.

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On January 2, 2010, Bates Corp. purchased and placed into service seven-year MACRS tangible property costing $100,000. On July 31, 2012, Bates sold ...

$0
$ 2,000
$47,525
$49,525

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Thayer Corporation purchased an apartment building on January 1, 2009, for $200,000. The building was depreciated using the straight-line method. On...

Section 1231 gain of $42,500 and ordinary income of $7,500.
Section 1231 gain of $44,000 and ordinary income of $6,000.
Ordinary income of $50,000.
Section 1231 gain of $50,000.

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David Price owned machinery which he had acquired in 2011 at a cost of $100,000. During 2012, the machinery was destroyed by fire. At that time it h...

$14,000
$15,000
$25,000
$39,000