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A company recently purchased a
building that it plans to renovate to get ready for use in its operations. All
expenditures to repair and renovate the existing building for its intended use
are charged to:
A) land.
B) land
improvements.
C) land
improvements expense.
D) building.
7.1-32 Maxco Company acquired land and
buildings for $1,000,000. The land is appraised at $450,000 and the buildings
are appraised at $800,000. The debits to the Land and Buildings accounts will
be:
A) Land
$360,000; Building $640,000.
B) Land
$500,000; Building $500,000.
C) Land
$450,000; Building $800,000.
D) Land
$562,500; Building $437,500.
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall. 9
7.1-33 In a lump-sum
purchase of assets, the relative-sales-value is defined as the:
A) total price
paid less the value of the most valuable asset.
B) total
price paid compared to the total market value.
C) ratio of
each asset’s market value to the total market value.
D) ratio of
each asset’s market value to the total book value.
7.1-34 Bixby Corporation purchased land and a building for $
800,000. An appraisal indicates that the land’s value is $400,000 and the
building’s value is $500,000. When recording this transaction Galaxy should
debit:
A) Land for
$800,000.
B) Building
for $355,555.
C) Land
Improvement-Building for $500,000.
D) Building
for $444,444.
7.1-35 The Augusta Health Company purchased land, buildings and
equipment for $2,400,000. The land has been appraised at $915,000, the
buildings at $1,125,000 and the equipment at $510,000. The equipment account
will be debited for:
A) $541,875.
B) $500,000.
C) $480,000.
D) $410,156.
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall. 10
7.1-36 An expenditure that increases an asset’s capacity or
efficiency or extends its useful life is a(n):
A) capital expenditure.
B) expense.
C) addition.
D) improvement.
7.1-37 A capital expenditure is:
A) debited to
an expense account.
B) credited
to an expense account.
C) debited to
an asset account.
D) debited to
a stockholders’ equity account.
7.1-38 Costs that do not extend the asset’s capacity or its useful
life, but merely maintain the asset or restore it to working order are recorded
as:
A) capital
expenditures.
B) expenses.
C) additions.
D) improvements.
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall. 11
7.1-39 Which of the following costs
associated with a delivery van should be capitalized? I. The van is repainted.
II. The van’s
transmission is completely overhauled to extend useful life for two years.
III. The van is modified for a specific use.
A) I and II
B) I and III
C) II and III
D) All of
these answers are correct.
7.1-40 The journal entry to record a major expenditure to upgrade
equipment that extends its useful life beyond the original estimate would
include a:
A) credit to
Depreciation Expense.
B) debit to
Equipment.
C) debit to
Depreciation Expense.
D) debit to
Repair Expense.
