Acc Ch 10

When calculating the fair value of an asset retirement obligation, what rate is used to calculate the expected cash flows?

Cred Adj Risk Free Rate

Marlin purchases land and the rights to explore for $200,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $40,000. The journal entry to record the acquisition of the mine will include which of the following entries?

Credit to asset retirement liability of $40,000.

For a patent developed internally, the research and development costs are

Expensed as incurred

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time is called a

Franchise

Which approach to accounting for self-constructed assets is required by U.S. GAAP?

Full Cost Approach

A company's reputation and clientele, its trained employees, and favorable business location may give rise to . (Enter only one word.)

Goodwill

An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as

Goodwill

The future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized are referred to as

Goodwill

The two important accounting issues related to self-constructed assets are

Int Charges and Alloc to Overhead

Assets that do not qualify for interest capitalization are

Inventories Routinely Manufactured

What are the cost components for self-constructed assets? (Select all that apply.)

Manufacturing Overhead, Direct Materials, Direct labor

Which of the following are included in research and development costs? (Select all that apply.)

Materials used in the lab Salaries of researchers Allocation of indirect costs related to research

For capitalized interest on self-constructed assets, weighted-average expenditures is determined by weighting the individual expenditures by the

Number of Months from start to end of construction project

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at

Original Cost

The exclusive legal right to manufacture a product or to use a process is called a(n)

Patent

Which of the following should be included in the cost of buildings?

Real estate commissions relating to purchase of building

is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or

Trademark

is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service. (Select all that apply.)

Trademark

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? (Select all that apply.)

costs to remove an old building grading the land legal fees to secure title title insurance

If natural resources are developed by a company, the initial valuation should include (Select all that apply.)

exploration costs. restoration costs. development costs. acquisition cost.

Which of the following items should always be capitalized in the cost of equipment?

legal fees to establish title installation and testing of equipment sales tax freight to deliver the equipment

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.)

legal fees to obtain title realtor commissions remodeling building

What amount is used to measure the fair value of an asset retirement obligation?

present value of estimated future cash flows

When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to

the related asset.

For capitalization of interest on self-constructed assets, the average accumulated expenditures is the

weighted-average expenditures during the construction period.

The costs included in the natural resource account includes (Select all that apply.)

exploration costs. acquisition costs. restoration costs. development costs.

When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets.

fair

When a company acquires assets by issuing debt or equity securities, the first indicator of fair value is the

fair value of the debt or equity securities given.

The distinction between land and land improvements is that:

land has an indefinite life

Accounting for land improvements requires that the costs of land improvements are (Select all that apply.)

capitalized. depreciated or amortized over the periods benefited.

Which of the following is true regarding a nonmonetary exchange of assets?

A gain or loss is recognized for the difference between the fair value and the book value of the asset given up.

Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as

An expense on the income statement

Obligations associated with the disposition of property, plant, equipment, and natural resources are called

Asset Retirement Obligations

When is it appropriate to recognize a liability for an asset retirement obligation? (Select all that apply.)

At the inception of the asset's life if a legal obligation exists. Over the asset's life as incurred.

The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

The interest capitalization period begins with the first expenditure and ends when which of the following occur? (Select all that apply.)

the asset is substantially complete and ready for use interest costs are no longer being incurred

The allocation of the cost of natural resources to the periods extracted is referred to as

Depletion

______ ______ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process, whereas equipment, land, and buildings have physical characteristics that remain unchanged

Natty Resources

When the expected cash flow approach is used to measure an asset retirement obligation at fair value, what assumptions or estimates must be made by the accountant? (Select all that apply.)

the expected cash flows the probabilities of cash flows

A company acquires a mine and incurs costs such as expenditures to build tunnels and shafts before production may begin. These expenditures are classified as

Development Costs

When assets are purchased in a group for a single sum, it is referred to as a

Lump Sum Purchase

The cost of natural resources includes which of the following?

Restoration costs at the end of extraction. Exploration costs before production begins. Acquisition cost for the use of land.

Manfred Mining Company is required to restore a piece of land to its original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset

Retirement Obligation

Norbert Company has an exclusive right to display a specific symbol and routinely uses it on its promotional materials, company letterhead, and other media to distinguish its company from other firms. This right is referred to as a

TradeMark

If equipment is purchased for research and development, but has an alternative future use, the cost of the equipment is

capitalized and depreciated as R&D expense in the current and future periods.

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the

present value of the note payable, which is the face amount of the note.

Long-term assets are typically classified in one of these two categories:

property, plant, and equipment intangible assets

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include (Select all that apply.)

purchase price. required filing fees. legal costs to acquire.

Berner Mining Company estimates that after it completes extraction of valuable metals from a tract of land, $245,000 will be necessary to return the land to its original condition. This cost is considered a(n)

restoration cost

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics

revenue-producing long-lived