ACCY 391 Chapter 9: Property, Plant, and Equipment

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What is a major characteristic of property, plant, and equipment?

They possess physical substance. (correct)

They are acquired for resale.

They are intangible assets.

They are short-term in nature.

What is the basis for valuing property, plant, and equipment?

Market value

Fair value

Historical cost (correct)

Present value

What is included in the cost of land?

All expenditures made to acquire and prepare the land for use (correct)

Only the purchase price

Only the costs incurred in getting the land in condition for use

The purchase price and closing costs

What is not a characteristic of property, plant, and equipment?

They are expected to increase in value over time. Signup and view all the answers

What is the treatment of property, plant, and equipment once recorded?

Companies should not write up PPE to fair value when it is above cost. Signup and view all the answers

What is included in the historical cost of property, plant, and equipment?

The acquisition price, sales tax, freight costs, and installation costs Signup and view all the answers

What is the purpose of treating salvage receipts as a reduction in the cost of land?

To reflect the cost of acquiring the land in its intended use Signup and view all the answers

How is the cost of structural additions to land treated in accounting?

As a separate long-term asset account, depreciated over its useful life Signup and view all the answers

What is included in the cost of equipment?

The cash purchase price, sales tax, freight or shipping charges, and assembly costs Signup and view all the answers

What is the purpose of recognizing an asset retirement obligation?

To recognize the estimated costs to retire the asset once its useful life is over Signup and view all the answers

How is the initial recognition and measurement of an asset retirement obligation recorded?

Debit the cost of the related long-term asset, credit the asset retirement obligation Signup and view all the answers

What is an example of an existing legal obligation that requires recognition of an asset retirement obligation?

Cleaning up groundwater contamination Signup and view all the answers

ACCY 391 Chapter 9: Property, Plant, and Equipment

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Questions and Answers

What is a major characteristic of property, plant, and equipment?

What is the basis for valuing property, plant, and equipment?

What is included in the cost of land?

What is not a characteristic of property, plant, and equipment?

What is the treatment of property, plant, and equipment once recorded?

What is included in the historical cost of property, plant, and equipment?

What is the purpose of treating salvage receipts as a reduction in the cost of land?

How is the cost of structural additions to land treated in accounting?

What is included in the cost of equipment?

What is the purpose of recognizing an asset retirement obligation?

How is the initial recognition and measurement of an asset retirement obligation recorded?

What is an example of an existing legal obligation that requires recognition of an asset retirement obligation?

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