Chapter 10 intermediate financial 1

Expenditures needed to get land ready for its intended use should be:

capitalized as part of the cost of land

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

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

Superior mining Inc. purchases a large piece of land with rich mineral deposits and plans to start extracting the mineral-rich ore immediately. The cost of the piece of land should be reported in this category:

natural resources

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.

Obligations associated with the disposition of property, plant, equipment, and natural resources are called obligations. (Enter one word per blank.)

Blank 1: asset Blank 2: retirement

A(n) is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book. (Enter only one word.)

Blank 1: copyright

Accounting for land improvements requires that the land improvements are capitalized and then over periods benefited by their use. (Enter only one word.)

Blank 1: depreciated or expensed

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

Blank 1: goodwill

An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as . (Enter only one word.)

Blank 1: goodwill

The exclusive legal right to manufacture a product or to use a process is called a(n) . (Enter only one word.)

Blank 1: patent

A(n) is the exclusive right to manufacture a product or use a process granted for a period of years. (Enter one word per blank.)

Blank 1: patent Blank 2: twenty or 20

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.

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.

A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the

appraised value of the land.

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

asset retirement obligations.

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.

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

- capitalized. - depreciated or amortized over the periods benefited.

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

- costs to remove an old building - real estate agent commissions - legal fees to secure title

Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.)

- freight-in - set-up cost - insurance during transit

Which of the following items should be capitalized in the cost of equipment? (Select all that apply.)

- insurance on equipment during shipping - Purchase price - freight to deliver the equipment to its location - installation and testing of equipment

Which of the following items should always be capitalized in the cost of equipment? (Select all that apply.)

- legal fees to establish title - freight to deliver the equipment - sales tax - installation and testing of 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 - remodeling building - realtor commissions

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.)

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

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

- purchase price - legal fees to obtain title

Which of the following are classified as natural resources? (Select all that apply.)

- timber tracts - mineral deposits

Which of the following items are intangible assets? (Select all that apply.)

- trademark - copyright - patent

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

- treatment of interest charges. - allocation of overhead.

Donated assets should be recorded on the balance sheet at what amount?

Fair value

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

Real estate commissions relating to purchase of building

When assets are exchanged and the transaction lacks commercial substance, which of the following occurs? (Select all that apply.)

The asset received is valued at the book value of the asset given.

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 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 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 basic principle for valuing assets in a nonmonetary exchange is to value the asset received at

fair value.

A(n) 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. (Enter only one word.)

franchise

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.

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.

An asset, other than financial assets, that has no physical substance is referred to as a(n)

intangible asset.

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits.

The distinction between land and land improvements is that:

land has an indefinite life

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.

When a company receives an asset from an unrelated party by a donation, the assets are valued at fair value and

revenue is recorded.

A company issues its equity securities to purchase land. The common stock is publicly traded, and both the value of the stock and the land is known. The best indicator of fair value is the value of the

stock.

In a lump-sum purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives.

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark.

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.

When assets are exchanged and the transaction lacks commercial substance, the asset received is valued at the

book value of the asset given up.

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

capitalized

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

lump-sum purchase.

The costs to return land or other property to its original condition after extracting natural resources are referred to as

restoration costs.