US CPA · Financial Accounting and Reporting (FAR)
3 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on Property, Plant and Equipment.
A company had the following debt outstanding during the year while constructing a new facility:
- Specific construction loan: \(\$1,000,000\) at \(8\%\) interest.
- General long-term note: \(\$2,000,000\) at \(10\%\) interest.
Construction expenditures (all made on January 1) totaled \(\$1,500,000\). Total actual interest cost incurred by the company during the year was \(\$280,000\). What is the amount of interest that should be capitalized?
A company purchased a new industrial machine for its production line. The following costs were incurred:
- Purchase price: \(\$50,000\)
- Sales tax: \(\$4,000\)
- Freight-in and delivery: \(\$1,500\)
- Installation and setup: \(\$2,500\)
- One-year insurance policy for the machine's operation: \(\$1,200\)
- Training costs for employees to operate the machine: \(\$3,000\)
Under US GAAP, what is the total cost that should be capitalized as property, plant and equipment?
A company began constructing a new warehouse on January 1. The following expenditures were made during the year:
- January 1: \(\$200,000\)
- September 1: \(\$300,000\)
- December 31: \(\$100,000\)
What is the weighted-average accumulated expenditures for the purpose of calculating interest to be capitalized for the year ended December 31?
A company purchases a new factory machine for \( \$45,000 \). The company also pays \( \$2,000 \) for shipping, \( \$1,500 \) for a one-year insurance policy, and \( \$3,000 \) for site preparation and installation. What is the total cost of the machine that should be capitalized as property, plant and equipment?
Write your answer out first, then check it against the worked solution.
A company sells a piece of machinery for \( \$12,000 \) cash on June 30. The machinery originally cost \( \$50,000 \) and had accumulated depreciation of \( \$35,000 \) as of January 1 of the current year. Annual depreciation is \( \$6,000 \). Calculate the gain or loss on the disposal of the machinery.
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At the end of the reporting period, a machine has a carrying amount of \( \$90,000 \). The entity estimates that the machine's fair value less costs of disposal is \( \$75,000 \) and its value in use is \( \$78,000 \). Calculate the impairment loss, if any, that must be recognized for this machine.
Write your answer out first, then check it against the worked solution.
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