Chapter 10 - Acquisition and Disposition of PPE - LO 4 & 5

An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be

• expensed.

• debited to accumulated depreciation.

• capitalized in the machinery account.

• allocated between accumulated depreciation and the machinery account.

Which of the following is a capital expenditure?

• Payment of an account payable

• Retirement of bonds payable

• Payment of income taxes

• None of these answer choices are correct

Which of the following is not a capital expenditure?

• Repairs that maintain an asset in operating condition

• An addition

• A betterment

• A replacement

In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made?

• Expenditure made to increase the efficiency or effectiveness of an existing asset

• Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated

• Expenditure made to maintain an existing asset so that it can function in the manner intended

• Expenditure made to add new asset services

An expenditure made in connection with a machine being used by a company should be

• expensed immediately if it merely extends the useful life but does not improve the quality.

• expensed immediately if it merely improves the quality but does not extend the useful life.

• capitalized if it maintains the machine in normal operating condition.

• capitalized if it increases the quantity of units produced by the machine

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

• less than current fair value.

• greater than cost.

• greater than book value.

• less than book value.

Which of the following statements about involuntary conversions is false?

• An involuntary conversion may result from condemnation or fire.

• The gain or loss from an involuntary conversion is reported in other income and expense on the income statement.

• The gain or loss from an involuntary conversion should not be recognized when the company reinvests in replacement assets.

• None of these answer choices are false.