Chapter 10

U.S. GAAP allows development costs to be capitalized when software reaches the point of:

Technological feasibility

True or false: Start-up costs such as legal fees and state filings to incorporate should be expensed in the period incurred.

True

Start-up costs such as legal fees and state filings to incorporate should be treated as:

an expense in the period incurred.

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.

Which of the following are start-up costs? (Select all that apply.)

organization costs legal costs to incorporate one-time opening costs for a retailer

The costs to organize a new entity or costs to introduce a new product or services are considered __________ costs, and should be expensed as incurred.

start-up

Walnut Corp. purchases land, building, and equipment for $420,000 from Pine Corp. The values of the assets are as follows: At what amount should Walnut record the building?

$262,500

Spartan Corp. purchases inventory, land, building, and equipment for $540,000 from Klein Corp. The values of the assets are as follows: At what amount should Spartan record the inventory?

$90,000

Pearce Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The asset received had a fair value of $50,000 and a book value of $32,000. What journal entries should be recorded? (Select all that apply.)

Debit equipment-new $50,000. Credit equipment-old $120,000. Debit accumulated depreciation $40,000. Debit loss on exchange $30,000.

Which of the following are exceptions to expensing research and development costs and should instead be capitalized? (Select all that apply.)

R&D purchased in a business acquisition Technologically feasible software development costs R&D performed for sale to others

Costs of an asset that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

capitalized; expensed

The cost of a major improvement that extends the useful life of an asset would be ______; the cost of maintenance that does not increase the future benefits would be ______.

capitalized; expensed

Krasel Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The asset received had a fair value of $50,000 and a book value of $45,000. The entry to record the transaction includes (Select all that apply.)

debit to accumulated depreciation $70,000 debit to equipment-new for $50,000. credit to gain on exchange of asset for $30,000. credit to equipment-old for $90,000.

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 FASB requires research and development costs to be expensed because:

it is difficult to objectively determine the future benefits.

Cheng Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The asset received had a fair value of $40,000 and a book value of $35,000. What journal entry should be recorded? (Select all that apply.)

Debit loss on exchange $10,000. Debit equipment-new $40,000. Debit accumulated depreciation $40,000. Credit equipment-old $90,000.

Wall Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The asset received had a fair value of $80,000 and a book value of $65,000. The entry to record the transaction includes (Select all that apply.)

a credit to gain on exchange of asset for $40,000. a credit to equipment-old for $100,000. a debit to equipment-new for $80,000. a debit to accumulated depreciation for $60,000.