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?

  • 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?

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

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

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

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

    <p>The acquisition price, sales tax, freight costs, and installation costs</p> Signup and view all the answers

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

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

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

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

    What is included in the cost of equipment?

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

    What is the purpose of recognizing an asset retirement obligation?

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

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

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

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

    <p>Cleaning up groundwater contamination</p> Signup and view all the answers

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