1. Assets classified as Property, Plant, and Equipment can be either acquired for use in

operations, or acquired for resale.

2. Assets classified as Property, Plant, and Equipment must be both long-term in nature and

possess physical substance.

3. When land with an old building is purchased as a future building site, the cost of removing

the old building is part of the cost of the new building.

4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of

the equipment.

5. Special assessments for local improvements such as street lights and sewers should be

accounted for as land improvements.

6. Variable overhead costs incurred to self-construct an asset should be included in the cost

of the asset.

7. Companies should assign no portion of fixed overhead to self-constructed assets.

8. When capitalizing interest during construction of an asset, an imputed interest cost on

stock financing must be included.

9. Assets under construction for a company’s own use do not qualify for interest cost

capitalization.

10. Avoidable interest is the amount of interest cost that a company could theoretically avoid if

it had not made expenditures for the asset.

11. When a company purchases land with the intention of developing it for a particular use,

interest costs associated with those expenditures qualify for interest capitalization.

12. Assets purchased on long-term credit contracts should be recorded at the present value of

the consideration exchanged.

13. Companies account for the exchange of nonmonetary assets on the basis of the fair value

of the asset given up or the fair value of the asset received.

14. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial

gain or loss is recognized.

15. When a company exchanges nonmonetary assets and a loss results, the company

recognizes the loss only if the exchange has commercial substance.

16. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide

future benefits.

17. Improvements are often referred to as betterments and involve the substitution of a better

asset for the one currently used.

18. When an ordinary repair occurs, several periods will usually benefit.

19. Companies always treat gains or losses from an involuntary conversion as extraordinary

items.

20. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the

asset’s book value.

1. Assets classified as Property, Plant, and Equipment can be either acquired for use in

operations, or acquired for resale.

2. Assets classified as Property, Plant, and Equipment must be both long-term in nature and

possess physical substance.

3. When land with an old building is purchased as a future building site, the cost of removing

the old building is part of the cost of the new building.

4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of

the equipment.

5. Special assessments for local improvements such as street lights and sewers should be

accounted for as land improvements.

6. Variable overhead costs incurred to self-construct an asset should be included in the cost

of the asset.

7. Companies should assign no portion of fixed overhead to self-constructed assets.

8. When capitalizing interest during construction of an asset, an imputed interest cost on

stock financing must be included.

9. Assets under construction for a company’s own use do not qualify for interest cost

capitalization.

10. Avoidable interest is the amount of interest cost that a company could theoretically avoid if

it had not made expenditures for the asset.

11. When a company purchases land with the intention of developing it for a particular use,

interest costs associated with those expenditures qualify for interest capitalization.

12. Assets purchased on long-term credit contracts should be recorded at the present value of

the consideration exchanged.

13. Companies account for the exchange of nonmonetary assets on the basis of the fair value

of the asset given up or the fair value of the asset received.

14. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial

gain or loss is recognized.

15. When a company exchanges nonmonetary assets and a loss results, the company

recognizes the loss only if the exchange has commercial substance.

16. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide

future benefits.

17. Improvements are often referred to as betterments and involve the substitution of a better

asset for the one currently used.

18. When an ordinary repair occurs, several periods will usually benefit.

19. Companies always treat gains or losses from an involuntary conversion as extraordinary

items.

20. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the

asset’s book value.