Q: A company purchases land and a building for a lump-sum price of $$2,800,000. The land’s appraised value is 300$$,000 and the building’s is $2,700,000. What is the cost assigned to the land using the relative-sales-value method?

$$2,800,000 \times \frac{300,000}{3,000,000} = 280$$,000$

Q: Which formula is used to allocate the cost of a lump-sum purchase among assets?

$$\text{Allocated Cost} = \text{Total Cost} \times \frac{\text{Asset Market Value}}{\text{Total Market Value}}$$

Q: A company purchases several assets as a basket for $$1,000,000. The appraised values are: Land 200$$,000, Building $$600,000, Equipment 200$$,000. What is the cost assigned to the equipment?

$$1,000,000 \times \frac{200,000}{1,000,000} = 200$$,000$

Question 1

Which of the following costs should NOT be included in the cost of land when recording it as a plant asset?

Accepted Answer

Paving the parking lot

Question 2

A company purchases land for $$500,000 and pays 20$$,000 in legal fees, $$10,000 in back property taxes, and 5$$,000 to remove an old building. It also spends $50,000 to install fencing. What is the total cost to be capitalized as land?

Accepted Answer

$535,000

Question 3

Which expense account is associated with land improvements on the income statement?

Accepted Answer

Depreciation Expense

Question 4

FedEx signs a $$300,000 note payable to purchase land and pays 10$$,000 commission, $$8,000 back property tax, 5$$,000 for removal of an old building, and $1,000 survey fee. What is the total cost of the land to be recorded?

Accepted Answer

$324,000

Question 5

Which of the following is TRUE regarding the cost of constructing a building?

Accepted Answer

Architectural fees are included in the cost.

Question 6

A company purchases equipment for $$100,000, pays 2$$,000 for transportation, $$1,000 for insurance while in transit, 3$$,000 in sales taxes, and $4,000 for installation. What is the total cost of the equipment?

Accepted Answer

$110,000

Question 7

Which of the following is depreciated or amortized over the lease term?

Accepted Answer

Leasehold improvements

Question 8

A company purchases land and a building for a lump-sum price of $$2,800,000. The land’s appraised value is 300$$,000 and the building’s is $2,700,000. What is the cost assigned to the land using the relative-sales-value method?

Accepted Answer

$$2,800,000 	imes \frac{300,000}{3,000,000} = 280$$,000$

Question 9

Which of the following is NOT considered a plant asset?

Accepted Answer

Natural resources

Question 10

Which formula is used to allocate the cost of a lump-sum purchase among assets?

Accepted Answer

$$	ext{Allocated Cost} = 	ext{Total Cost} 	imes \frac{	ext{Asset Market Value}}{	ext{Total Market Value}}$$

Question 11

Which of the following costs is capitalized as part of equipment?

Accepted Answer

Expenditures to test the asset before it’s placed in service

Question 12

Which expense account is associated with intangible assets on the income statement?

Accepted Answer

Amortization Expense

Question 13

A company makes improvements to leased property. How should these costs be accounted for?

Accepted Answer

Capitalized and depreciated or amortized over the lease term

Question 14

Which of the following is a key difference between land and land improvements?

Accepted Answer

Land is not depreciated, but land improvements are.

Question 15

Which of the following is NOT included in the cost of purchasing a building?

Accepted Answer

Routine maintenance after purchase

Question 16

Which of the following is the correct journal entry to record the purchase of land and building for cash?

Accepted Answer

Debit Land and Building, Credit Cash

Question 17

A company purchases several assets as a basket for $$1,000,000. The appraised values are: Land 200$$,000, Building $$600,000, Equipment 200$$,000. What is the cost assigned to the equipment?

Accepted Answer

$$1,000,000 	imes \frac{200,000}{1,000,000} = 200$$,000$

Question 18

Which of the following is a real-world example of a land improvement?

Accepted Answer

Installing a sprinkler system in a company’s parking lot

Question 19

Which of the following costs is NOT included in the cost of equipment?

Accepted Answer

Insurance after the equipment is placed in service

Question 20

Which of the following best describes the working rule for measuring the cost of an asset?

Accepted Answer

The cost is the sum of all costs incurred to bring the asset to its intended use.

Plant Assets, Natural Resources, and Intangibles: Key Concepts and Accounting Procedures

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