The following questions are used in the Kaplan CPA Review Course to study property, plant, and equipment and intangible assets while preparing for the CPA examination. Determine the response that best completes the statements or questions.

1. Simons Company purchased land to build a new factory. The following expenditures were made in conjunction with the land purchase:
• Purchase price of the land, $150,000
• Real estate commissions of 7% of the purchase price
• Land survey, $5,000
• Back taxes, $5,000

What is the initial value of the land?
a. $160,000
b. $160,500
c. $165,500
d. $170,500

2. During 2011, Burr Co. made the following expenditures related to the acquisition of land and the construction of a building:
Purchase price of land ........... $ 60,000
Legal fees for contracts to purchase land .... 2,000
Architects' fees .............. 8,000
Demolition of old building on site ........ 5,000
Sale of scrap from old building ......... 3,000
Construction cost of new building ...... 350,000

What amounts should be recorded as the initial values of the land and the building?

3. On December 31, 2011, Bart Inc. purchased a machine from Fell Corp. in exchange for a noninterest-bearing note requiring eight payments of $20,000. The first payment was made on December 31, 2011, and the remaining seven payments are due annually on each December 31, beginning in 2012. At the date of the transaction, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:

The initial value of the machine is
a. $ 94,240
b. $102,920
c. $104,620
d. $114,240

4. Amble Inc. exchanged a truck with a book value of $12,000 and a fair value of $20,000 for a truck and $5,000 cash. The exchange has commercial substance. At what amount should Amble record the truck received?
a. $12,000
b. $15,000
c. $20,000
d. $25,000

5. Dahl Corporation has just built a machine to produce car doors. Dahl had to build this machine because it couldn't purchase one that met its specifications. The following are the costs related to the machine's construction and the first month of operations:
• Construction materials, $20,000
• Labor, $9,000 (construction, $3,000; testing, $1,000; operations, $5,000)
• Engineering fees, $5,000
• Utilities, $4,000 (construction, $1,000; testing, $1,000; operations, $2,000)

What is the initial value of the machine?
a. $28,000
b. $29,000
c. $31,000
d. $38,000

6. Cole Co. began constructing a building for its own use in January 2011. During 2011, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 2011 was $40,000. What amount of interest should Cole capitalize?
a. $20,000
b. $40,000
c. $50,000
d. $70,000

7. On December 31, 2010, Bit Co. had capitalized costs for a new computer software product with an economic life of five years. Sales for 2011 were 30 percent of expected total sales of the software. At December 31, 2011, the software had a fair value equal to 90 percent of the capitalized cost. What percentage of the original capitalized cost should be reported as the net amount in Bit's December 31, 2011, balance sheet?
a. 70%
b. 72%
c. 80%
d. 90%

8. During the current year, Orr Company incurred the following costs:
Research and development services performed by Key Corp. for Orr ... $150,000
Design, construction, and testing of preproduction prototypes and models . 200,000
Testing in search for new products or process alternatives ......... 175,000

In its income statement for the current year, what amount should Orr report as research and development expense?
a. $150,000
b. $200,000
c. $350,000
d. $525,000

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