Hist. and Theory; test 3
Companies may not use the fair value option for investments that follow the equity method of accounting.
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Companies rarely have to allocate the transaction price to more than one performance obligation in a contract.
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Companies should always offset interest revenue against interest cost when determining the amount of interest to be capitalized as part of the construction cost of assets
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Companies should assign no portion of fixed overhead to self-constructed assets
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Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property, plant, and equipment
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Costs in the research phase are expensed under GAAP, but capitalized under IFRS
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Debt securities include corporate bonds and convertible debt, but not US government securities
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Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee.
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GAAP requires start-up costs and initial operating losses during the early years to be capitalized
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If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs
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If a company transfers held-to-maturity securities to available-for-sale securities, the unrealized gain or loss is recognized in income.
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If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis.
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If fair value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.
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Intangible assets derive their value from the right (claim) to receive cash in the future
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Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.
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Internally generated intangible assets are initially recorded at fair value
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Periodic alterations to existing products are an example of research and development costs.
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Research and development costs are reported as intangible assets if they will provide economic benefits in future years.
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Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.
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The Construction in Process account includes only construction costs under the percentage-of-completion method.
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The Fair Value Adjustment account has a normal credit balance
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The Unrealized Holding Gain/Loss—Income account for equity securities is reported as a part of other comprehensive income.
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The accounting profession has concluded that an investment of 50 percent or more of the voting stock of an investee should lead to a presumption of only significant influence over an investee.
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The cost of a purchased patent should be amortized over the remaining legal life of the patent
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The first step in the revenue recognition process is to identify the separate performance obligations in the contract
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The increased acceptance of IFRS has caused costs associated with internally generated intangible assets to be capitalized under GAAP.
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The new revenue recognition standard adopts a liability approach as the basis for revenue recognition.
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The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment
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The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles
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Under GAAP, impairment loss is measured as the excess of the carrying amount over the assets discounted cash flow
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Under the completed-contract method, companies recognize costs only when the contract is completed.
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Under the fair value method, the investor reports as revenue its share of the net income reported by the investee
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Unrealized holding gains and losses are recognized in net income for available-for-sale debt securities.
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When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.
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When a company sells a product but gives the buyer the right to return it, revenue should not be recognized until the sale is collected.
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When an ordinary repair occurs, several accounting periods will usually benefit
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When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included
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When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building
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IFRS permits some capitalization of internally generated intangible assets, if it is probable there will be a future benefit and the amount can be readily measured.
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If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset's book value
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If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent
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If a nonmonetary exchange lacks commercial substance and cash is received, a partial gain or loss is recognized.
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If the difference between the Construction in Process and the Billings on Construction in Process account balances is a debit, the difference is reported as a current asset
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If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized
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If the performance obligation is not highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately.
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Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently being used
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In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder recorded as goodwill
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Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.
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Internally generated goodwill should not be capitalized in the accounts
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Limited-life intangibles are amortized by systematic charges to expense over their useful lives
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Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.
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Revenue from a contract with a customer cannot be recognized until a contract exists
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Revenue is recognized in the accounting period when the performance obligation is satisfied
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Significant influence over an investee may be indicated by material intercompany transactions and interchange of managerial personnel.
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The cost of acquiring a customer list from another company is recorded as an intangible asset
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The flexibility involved in accounting for intangibles is an example of finite uniformity
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The most popular input measure used to determine the progress toward completion in long-term contracts is the cost-to-cost basis
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The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates.
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The trade-off made with respect to the valuation of PPE is verifiability over predictive ability
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Trading securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences
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Variable overhead costs incurred to self-construct an asset should be included in the cost of the asse
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Warranties that the product meets agreed-upon specifications in the contract at the time the product is sold are referred to as assurance-type warranties
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When a company makes an unconditional promise to pledge an asset in the future, the company should report the contribution expense and related payable immediately.
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When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization
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When a company sells a bundle of goods at a discount, the discount should be allocated to the product that caused the discount and not to the entire bundle
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Commercial substance exists if one party to the exchange books a gain or loss
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Companies always treat gains or losses from an involuntary conversion as comprehensive income
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A company can classify a debt security as held-to-maturity if it has the positive intent to hold the securities to maturity.
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A performance obligation is a written guarantee in a contract to provide a product or service to a customer.
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Amortization of limited-life intangible assets should not be affected by expected residual values.
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Assets classified as PPE can be either acquired for use in operations or acquired for resale
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Changes in the fair value of a company's available-for-sale debt instruments are included as part of earnings in any given period.
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A company recognizes revenue from a performance obligation over time by measuring the progress toward completion
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A contract liability is a company's obligation to transfer goods or services to a customer for which the company has received consideration from the customer.
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A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation
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A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but also shows unrealized gains/losses as part of other comprehensive income.
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After an impairment loss is recorded for a limited-life intangible asset, the carrying amount becomes the basis for the impaired asset and is used to calculate amortization in future periods
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All cash dividends received by an investor from the investee decrease the investment's carrying value under the equity method.
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All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs
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As in GAAP, under IFRS the costs associated with research and development are segregated into two components.
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Assets classified as PPE must be both long-term in nature and possess physical substance
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Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged
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Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset
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Companies do not report changes in the fair value of available-for-sale debt securities as income until the security is sold
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Companies report trading securities at fair value with unrealized holding gains and losses reported in net income.
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Companies use the expected value, a probability-weighted amount to estimate variable consideration
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Costs in the research phase are always expensed under both IFRS and GAAP.
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Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future economic benefits.
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Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets
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IFRS allows reversal of impairment losses when there has been a change in economic conditions or in the expected use of the asset. Under GAAP, impairment losses cannot be reversed for assets to be held and used
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IFRS differs from GAAP in the development phase in that IFRS requires that costs are capitalized once technological feasibility is achieved.
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When a sales transaction involves a significant financing component, the fair value is determined either by measuring the consideration received or by discounting the payment using an imputed interest rate.
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