CCIFP Construction Equipment and Asset Management 3

Question 1

A construction company trades in old equipment (book value $20,000) for new equipment (list price $80,000) and receives a $25,000 trade-in allowance. What is the recorded cost of the new equipment?

Accepted Answer

$55,000

Answer

$80,000

Answer

$60,000

Answer

$75,000

Question 2

Which costing approach charges equipment ownership costs (depreciation, insurance, taxes) to projects based on time on-site?

Accepted Answer

Ownership cost allocation

Answer

Activity-based costing

Answer

Variable costing

Answer

Standard costing

Question 3

An impairment loss on construction equipment must be recognized when:

Accepted Answer

The carrying amount exceeds the recoverable amount

Answer

The equipment is fully depreciated

Answer

Equipment is idle for more than 30 days

Answer

Maintenance costs exceed 10% of original cost

Question 4

What distinguishes a capital expenditure from a revenue expenditure for construction equipment?

Accepted Answer

Capital expenditures extend useful life or improve capacity; revenue expenditures maintain current condition

Answer

Capital expenditures are paid in cash; revenue expenditures are financed

Answer

Capital expenditures are tax-deductible; revenue expenditures are not

Answer

Capital expenditures are under $5,000; revenue expenditures are over $5,000

Question 5

In construction equipment lease-versus-buy analysis, which factor favors leasing?

Accepted Answer

Desire to avoid obsolescence risk

Answer

High residual value of equipment

Answer

Need to build equity in the asset

Answer

Lower total lifetime cost

Question 6

Which financial ratio best measures a construction company's ability to replace aging equipment from internally generated funds?

Accepted Answer

Capital expenditure coverage ratio

Answer

Current ratio

Answer

Quick ratio

Answer

Debt service coverage ratio