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CPA FAR Property, Plant, Equipment, and Intangibles
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In the Financial Accounting and Reporting (FAR) section of the CPA exam, Property, Plant, and Equipment (PP&E) and Intangible Assets are core topics focusing on the lifecycle of long-term assets: from initial acquisition and capitalization to periodic depreciation/amortization and eventual disposal or impairment.  1. Property, Plant, and Equipment (PP&E) PP&E are tangible, long-lived assets used in operations.  Initial Measurement: Reported at historical cost, which includes the purchase price plus all costs necessary to get the asset ready for its intended use (e.g., freight-in,... Show more
CPA FAR Property, Plant, Equipment, and Intangibles
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18 Questions

1. Frimette Fabricating Corp. was constructing fixed assets that qualified for interest capitalization and had the following outstanding debt issuance during the entire year of construction: $5,000,000 face value, 7% interest $7,000,000 face value, 10% interest None of the borrowings were specified for the construction of the qualified fixed asset. Average expenditures for the year were $800,000. What interest rate should Frimette Fabricating Corp. use to calculate capitalized interest on the construction?
2. Downey Co. purchased an office building and the land on which it is located for $800,000 cash and an existing $200,000 mortgage. For realty tax purposes, the property is assessed at $944,000, 65% of which is allocated to the building. At what amount should Downey record the building?
3. Capitalization of interest cost is appropriate to finance the cost of items held for resale (inventory) if the assets are:
I. self-constructed
II. acquired in the open market
4. Lavroff Corp. is purchasing an asset for use in its meat packaging business. Which of the following costs associated with the machine’s purchase needs to be capitalized rather than expensed?
I. Cost of shipping the machine to Lavroff’s plant
II. Cost of readying the machine for its intended use
5. Which of the following is correct regarding land improvements?
I. Costs incurred to construct sidewalks and fences would be capitalized to land improvements rather than to land.
II. Land improvements can be depreciated.
6. Interest cost after construction is completed is capitalized if the asset being constructed is:
I. built to use
II. built to sell
7. The Fleer Corp. spends $100,000 for land and building. The land was recently appraised for $20,000, but the building was appraised for $120,000. If only $100,000 is spent, how much is allocated to the land?
8. When replacing an asset in which the cost of the old asset is known:
I. replace the old carrying value with the capitalized cost of the new asset
II. reduce accumulated depreciation of the asset class to increase book value
9. Lavroff Corp. is purchasing an asset for use in its meat packaging business. Which of the following costs associated with the machine’s purchase needs to be capitalized rather than expensed?
I. Cost of shipping the machine to Lavroff’s plant
II. Cost of readying the machine for its intended use
10. When replacing an asset in which the cost of the old asset is known:
I. replace the old carrying value with the capitalized cost of the new asset
II. reduce accumulated depreciation of the asset class to increase book value
11. Baker Corp. purchases land for use as a future plant site. An old building on the site needs to be razed and the scrap materials will be sold. Legal fees will need to be paid to record ownership, and title insurance will need to be acquired. Which of the following should be capitalized rather than expensed in connection with the acquisition?
I. Title insurance
II. Legal fees for recording ownership
III. Razing of old building less proceeds from sale of scrap
12. Medina Corp. is constructing a warehouse for use in manufacturing operations. The capitalization of interest cost is appropriate during a construction delay that is:
I. intentional
II. related to permit processing or inspections
13. A company has a parcel of land to be used for a future production facility. The company applies the revaluation model under IFRS to this class of assets. In Year 3, the company acquired the land for $80,000. At the end of Year 3, the carrying amount was reduced to $70,000, which represented the fair value at that date. At the end of Year 4, the land was revalued and the fair value increased to $85,000. How should the company account for the Year 4 change in fair value?
14. At the end of Year 1, Buck Inc. had a class of assets with a carrying value of $1,200,000 and recorded a revaluation gain of $150,000. On December 31, Year 2, the assets had a carrying value of $900,000 and a recoverable amount of $720,000. Under the IFRS, what amount of impairment loss will Buck Inc. report on its December 31, Year 2, income statement?
15. LaRue Corp. is a Canadian corporation that uses IFRS. LaRue Corp. has the following account balances as of December 31, Year 5: Under IFRS, what will LaRue Corp. report as investment property on its December 31, Year 5, balance sheet?
16. Fixed assets can be revalued upward from the asset’s carrying amount if the reporting framework is:
I. US generally accepted accounting principles (GAAP)
II. IFRS
17. Capitalization of interest cost is appropriate to finance the cost of items held for resale (inventory) if the assets are:
I. self-constructed
II. acquired in the open market
18. LaRue Corp. is a Canadian corporation that uses IFRS. LaRue Corp. has the following account balances as of December 31, Year 5: Under IFRS, what will LaRue Corp. report as investment property on its December 31, Year 5, balance sheet?

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