Chapter 7 | LO7-1; LO7-2; LO7-3

The legal life of a patent is _____ years.

20

The research and development (R&D) team at a pharmaceutical company is developing a drug for colon cancer. Which of the following is true of the R&D costs incurred in developing this drug during the current year?

They are expensed directly in the income statement.

A company pays $16,000 in property taxes on land that it acquired ten years ago. The property taxes pertain only to the current year. The company should record the property taxes as an expense in its current-year income statement.

True

A long-term asset is reported on the balance sheet at its original cost plus all expenditures necessary to get the asset ready for use.

True

Land has an unlimited useful life.

True

Repairs and maintenance expenditures that benefit future periods are capitalized as an asset.

True

The cost of an oil change for a company's delivery truck is expensed in the current period.

True

We record purchased intangible assets at their original cost plus all other costs, such as legal fees, necessary to get the assets ready for use.

True

When an expenditure is not large enough to influence a decision, it is typically recorded as an expense regardless of its expected period of benefit.

True

A trademark is:

a word, slogan, or symbol that distinctively identifies a company, product, or service.

Anderson Company acquires Thompson Company by paying $30 million in cash. The fair value of the identifiable assets acquired is $38 million. The fair value of the identifiable liabilities acquired is $6 million. What will be the amount of goodwill that Anderson Company would record as part of this acquisition?

$0

Light Company acquires Photon Company by paying $25 million in cash. The fair value of the identifiable assets acquired is $30 million. The fair value of the identifiable liabilities acquired is $8 million. What will be the amount of goodwill that Light Company would record as part of this acquisition?

$3 million

Industrial Metals purchases land, building, and equipment together for $1.2 million. The estimated fair values of the land, buildings, and equipment are $500,000, $800,000, and $200,000, respectively. What amount should be recorded in the separate account for the land?

$400,000

KPR, Inc. just purchased a plot of land on which it expects to build a new manufacturing facility. The land account will NOT include:

All of these costs will be included in the Land account.

An automobile manufacturer replaces a major component of a machine used in its assembly line. This cost should be expensed in the current period.

False

Kelly Cakes Bakery purchases a new building to use for its baking operations. In addition to the purchase price, the acquisition requires the company owner to pay a commission to a realtor and fees to an attorney. The realtor commissions and legal fees will be expensed in the current period.

False

The cost of ordinary repairs to equipment during the first year of service is added to the Equipment account.

False

The exclusive right of protection given to the creator of a published work is known as a patent.

False

The owner of an established McDonald's franchise pays fees on a continuing basis to the franchisor. These periodic payments should be capitalized as an intangible asset.

False

When a firm develops a trademark internally through advertising, it records the advertising costs as part of the cost of the intangible asset.

False

Which of the following is not an example of a tangible asset?

Franchise rights

We record goodwill as an intangible asset in the balance sheet only when _____.

It is part of an acquisition of another business

Which of the following is an example of an intangible asset?

Patents of a drug manufacturer

As natural resources are used, their cost is allocated to an expense through a process known as _____________.

depletion

An attorney adds an air purification system to his office building. The addition:

increases future benefits and should be capitalized.