Intermediate Accounting Chapter 10
A(n) ______ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.
copyright
Which of the following items should be capitalized as land improvements?
cost of fences cost of sidewalks cost of parking lots
Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?
cost of sidewalks cost of lawn sprinkler system cost of driveways
What amount is used to measure the fair value of an asset retirement obligation?
present value of estimated future cash flows
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
purchase price. legal costs to acquire. required filing fees.
Which of the following costs should be capitalized in the costs of acquiring a building?
remodeling building realtor commissions legal fees to obtain title
From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics
revenue-producing long-lived
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?
the probabilities of cash flows the expected cash flows
When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to
the related asset.
A(n) ____ Blank 1Blank 1 trademark, Correct Unavailable is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.
trademark
Which of the following items are intangible assets?
trademarks goodwill
For capitalization of interest on self-constructed assets, the average accumulated expenditures is the
weighted-average expenditures during the construction period.
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.
An asset is exchanged for another asset and cash is received in the transaction. The fair value of the assets are not determinable. At what amount should the new asset be recorded?
Book value of the asset given up less the cash received.
The cost of natural resources includes which of the following?
Restoration costs at the end of extraction. Acquisition cost for the use of land. Exploration costs before production begins.
True or false: 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
A(n) ____ Blank 1Blank 1 trademark, Incorrect Unavailable is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.
copyright
Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?
costs to remove an old building legal fees to secure title real estate agent commissions
The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at
fair value
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
Which of the following are research and development costs?
design, construction, and testing of pre-production prototypes research aimed at discovering new knowledge
An asset is exchanged for another asset and no cash is exchanged in the transaction. The fair value of the assets are not determinable. At what amount should the new asset be recorded?
Book value of the asset given.
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.
When calculating the fair value of an asset retirement obligation, what rate is used to calculate the expected cash flows?
Credit-adjusted risk-free rate
A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include
legal costs to acquire. required filing fees. purchase price.
Which of the following costs should be capitalized in the costs of acquiring a building?
legal fees to obtain title purchase price
Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?
legal fees to secure title costs to remove an old building real estate agent commissions
Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ______ purchase.
lump-sum
Mega Mines acquires a new mine for $1,000,000. Mega Mines determines at the date of acquisition that it will cost $140,000 to restore the land when the mining process is complete in 5 years. Mega Mines has a legal obligation to remove the equipment upon completion of the mining activities. Which of the following are acceptable choices for determining when to recognize an asset retirement obligation?
At the inception of the asset's life. Over the asset's life as incurred.
Which of the following is not included in research and development expenses?
Filing and legal costs for a patent.
When is it appropriate to recognize a liability for an asset retirement obligation?
Over the asset's life as incurred. At the inception of the asset's life if a legal obligation exists.
Which of the following should be included in the cost of buildings?
Real estate commissions relating to purchase of building
The two important accounting issues related to self-constructed assets are
allocation of overhead. treatment of interest charges.
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 ____ ____ obligations.
asset retirement
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.
capitalized
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.
Expenditures needed to get land ready for its intended use should be:
capitalized as part of the cost of land
A nonmonetary exchange is considered to have ____ substance if the future cash flows will change as a result of the
commercial
Depreciation expense is recorded for tangible fixed assets, whereas ______ expense is recorded for natural resources.
depletion
The allocation of a natural resource to the periods extracted is referred to as
depletion expense.
Accounting for land improvements requires that the costs of land improvements are
depreciated or amortized over the periods benefited. capitalized.
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.
The costs included in the natural resource account includes
development costs. acquisition costs. restoration costs. exploration costs.
What are the cost components for self-constructed assets?
direct labor direct material manufacturing overhead
Which of the following are included in research and development costs?
equipment in the lab allocation of overhead for lab facilities labor costs of research personnel
If equipment is purchased specifically for one research and development project, the cost of the equipment is
expensed immediately.
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
Asset retirement obligations are recorded as a liability and measured at
fair value
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?
grading the land legal fees to secure title costs to remove an old building title insurance
The ____ approach for self-constructed assets advocates including only the additional overhead costs incurred in the construction of the asset, whereas the full-cost approach requires the allocation of overhead to self-constructed assets.
incremental
Indicate which costs would be capitalized as part of the cost of manufacturing equipment.
insurance during transit set-up cost freight-in
The FASB requires research and development costs to be expensed because
it is difficult to objectively determine the future benefits.
______ ______ 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.
natural resources
For capitalized interest on self-constructed assets, weighted-average expenditures is determined by weighting the individual expenditures by the
number of months from incurrence to the end of the construction period.
The initial valuation of purchased intangible assets requires that the intangible asset is recorded at
original cost
Mining Ventures purchases land and the rights to explore for $100,000. Exploration costs are $20,000, and development costs are $30,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $50,000. The journal entry to record the acquisition of the mine will include which of the following entries?
Debit to mining assets of $200,000. Credit to asset retirement liability of $50,000. Credit to cash $150,000
A(n) ____ Blank 1Blank 1 ,, Incorrect Unavailable is 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.
franchise
Which of the following items should be capitalized in the cost of equipment?
freight to deliver the equipment to its location installation and testing of equipment Purchase price insurance on equipment during shipping
Which of the following items should be capitalized in the cost of equipment?
freight to deliver the equipment to its location installation and testing of equipment insurance on equipment during shipping Purchase price
Which approach to accounting for self-constructed assets is required by U.S. GAAP?
full-cost approach
A nonmonetary exchange has commercial substance if the ______ will change as a result of the exchange.
future cash flows
A company's reputation and clientele, its trained employees, and favorable business location may give rise to
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
For self-constructed assets, the costs incurred include labor, materials, and
overhead
The exclusive legal right to manufacture a product or to use a process is called a(n) ____
patent
A(n) ____ is the exclusive right to manufacture a product or use a process granted for a period of ____ years.
patent 20
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
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.