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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.