Interm accounting chap 10 SB

Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price 50,000 Freight and handling 2,000 Concrete pad for equipment 5,000 Maintenance during year 3,000 Shipping insurance 400

$57,400 (50,000+2,000+5000+400)

True or false: If a company has no borrowings, interest costs can be imputed on self-constructed assets.

False Reason: Interest costs may not be imputed; actual interest cost must be incurred.

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 should be included in the cost of buildings?

Real estate commissions relating to purchase of building

Which method in oil and gas accounting requires the cost of unsuccessful wells be expensed in the current period?

Successful efforts method

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 Reason: All costs should be capitalized to bring the asset to its intended and useful state.

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.

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.

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

book value of the asset given up.

A(n) Blank______ 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

A company acquires equipment by signing an interest-bearing note payable for $20,000. The interest rate is realistic so the company will record (Select all that apply.)

credit note payable $20,000 debit machine $20,000

Purchased research and development that has received technological feasibility is capitalized as a(n) ______ intangible asset, and purchased in-process R&D that has not reached feasibility is considered a(n) ______ intangible asset.

finite-life; indefinite-life

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.

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.

An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as __________

goodwill

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at

original cost.

In a cloud computing arrangement, if the customer has a contractual right to take possession of the software without significant penalty and the customer could run the software on its own, the costs are treated as

purchased intangibles.

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

restoration costs.

The two generally accepted methods for oil and gas accounting for U.S. GAAP are the Multiple select question. successful efforts method. completed contract method. full-cost method. cost-basis method.

successful efforts method. full-cost method.

Interest capitalization on a self-constructed asset begins when

the first expenditure is made.

When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to

the related asset.

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.

Which of the following items are intangible assets? (Select all that apply.) Multiple select question. buildings trademarks accounts receivable goodwill land

trademarks goodwill

Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition: property taxes for current year $3000 cost of removing old building 7,000 title insurance 1,000 cost of grading 4,000 delinquent property taxes 2,000 What is the cost that Sherman should capitalize in the cost of land?

$114,000 Reason: $100,000 + $7,000 + $1,000 + $4,000 + $2,000 = $114,000

On January 1, Sonic Corp. begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Sonic had the following expenditures on the project during the year: Jan 1 100,000 April 1 100,000 November 1 150,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in the current year?

$200,000 Reason: $100,000 x 12/12 = $100,000; $100,000 x 9/12 = $75,000; $150,000 x 2/12 = $25,000. Total $200,000

Polly Corporation purchases land for $200,000. Polly incurs the following costs associated with the land acquisition: Property taxes for current yr $4,000 Delinquent property taxes 8,000 Commission to broker 14,000 Cost of grading 2,000 Cost of land improvements 12,000 What is the amount that Polly should capitalize in the land account?

$224,000 Reason: $200,000 + $8,000 + $14,000 + $2,000 = $224,000

On January 1, Plaid Corporation begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Plaid had the following expenditures on the project during the current year: Jan 1 $200,000 July1 600,000 December1 120,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in the current year?

$510,000 Reason: ($200,000×12/12)+($600,000×6/12)+($120,000×1/12)

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.

The cost of natural resources includes which of the following? (Select all that apply.) Multiple select question. Acquisition cost for the use of land. Employee salaries during production. Extractive and drilling equipment. Restoration costs at the end of extraction. Exploration costs before production begins.

Acquisition cost for the use of land. Restoration costs at the end of extraction. Exploration costs before production begins.

Which of the following are included in research and development costs? (Select all that apply.) Multiple select question. Allocation of indirect costs related to research Salaries of researchers General and administrative expenses for the company Materials used in the lab

Allocation of indirect costs related to research Salaries of researchers Materials used in the lab

Which items qualify for interest capitalization? (Select all that apply.) Multiple select question. Assets built as discrete projects for sale or lease Inventories routinely manufactured in large quantities Purchased assets Franchise agreements Assets built for a company's own use

Assets built as discrete projects for sale or lease Assets built for a company's own use

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.

The cost of natural resources includes which of the following? (Select all that apply.) Multiple select question. Restoration costs at the end of extraction. Acquisition cost for the use of land. Exploration costs before production begins. Extractive and drilling equipment. Employee salaries during production

Restoration costs at the end of extraction. Acquisition cost for the use of land. Exploration costs before production begins.

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

True Reason: Start-up costs should be expensed in the period incurred.

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

capitalized as part of the cost of land

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

copyright

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.) Multiple select question. current year's property taxes costs to remove an old building real estate agent commissions legal fees to secure title

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

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.

If natural resources are developed by a company, the initial valuation should include (Select all that apply.) Multiple select question. development costs. exploration costs. restoration costs. acquisition cost. equipment costs.

development costs. exploration costs. restoration costs. acquisition cost.

What are the cost components for self-constructed assets? (Select all that apply.) Multiple select question. direct material direct labor operating expenses manufacturing overhead

direct material direct labor manufacturing overhead

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

fair, market, appraised, or appraisal

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

fair, market, appraised, or appraisal

Which of the following items should always be capitalized in the cost of equipment? (Select all that apply.) Multiple select question. installation and testing of equipment freight to deliver the equipment legal fees to establish title training costs for equipment operators sales tax

installation and testing of equipment freight to deliver the equipment legal fees to establish title sales tax

Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.) Multiple select question. freight-in depreciation for the first month training of equipment operator set-up cost insurance during transit

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

The interest capitalization period begins with the first expenditure and ends when which of the following occur? (Select all that apply.) Multiple select question. the construction project is subcontracted to another party the loan is paid off at the end of the asset's life interest costs are no longer being incurred the asset is substantially complete and ready for use

interest costs are no longer being incurred the asset is substantially complete and ready for use

A company that performs research and development activities for other companies under contract should capitalize the costs related to research and development in the

inventory account.

Which of the following are included in research and development costs? (Select all that apply.) Multiple select question. administrative expenses sales commissions labor costs of research personnel equipment in the lab allocation of overhead for lab facilities

labor costs of research personnel equipment in the lab allocation of overhead for lab facilities

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include (Select all that apply.) Multiple select question. legal costs to acquire. net present value of future cash flows. purchase price. required filing fees. accretion expense.

legal costs to acquire. purchase price. required filing fees.

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics (Select all that apply.) Multiple select question. valued at fair value long-lived short-lived revenue-producing

long-lived revenue-producing

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

lump-sum purchase.

Which of the following are classified as natural resources? (Select all that apply.) Multiple select question. mineral deposits building land and land improvements timber tracts

mineral deposits timber tracts

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 exclusive legal right to manufacture a product or to use a process is called a(n) _________.

patent

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

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) Multiple select question. insurance on the building current year property taxes remodeling building legal fees to obtain title realtor commissions

remodeling building legal fees to obtain title realtor commissions

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.

The two important accounting issues related to self-constructed assets are Multiple select question. treatment of interest charges. date placed in service. residual value. allocation of overhead.

treatment of interest charges. allocation of overhead.

For capitalization of interest on self-constructed assets, the average accumulated expenditures is the

weighted-average expenditures during the construction period.

Accounting for land improvements requires that the land improvements are capitalized and then ____________ over periods benefited by their use.

depreciated or expensed

Assets that do not qualify for interest capitalization are

inventories routinely manufactured

An asset, other than financial assets, that has no physical substance is called a(n) ______ asset

intangible

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

interest charges and allocation of overhead.

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

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

If a company purchases research and development that is technologically feasible in a business acquisition, the

fair value is capitalized as an intangible asset.

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.

Asset retirement obligations are recorded as a liability and measured at

fair value.

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

fair value.

The cost of research and development performed for others is capitalized and recorded as __________

inventory

Which of the following items should be capitalized as land improvements? (Select all that apply.) Multiple select question. cost of land cost of parking lots cost of fences cost of sidewalks

cost of parking lots cost of fences cost of sidewalks

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.

Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ______ purchase.

lump-sum

The type of interest costs that can be treated as capitalized interest can pertain to borrowings that are (Select all that apply.) Multiple select question. imputed interest costs for those situations when the company is not incurring interest costs. other loans during the period of construction. specifically for the construction project.

other loans during the period of construction. specifically for the construction project.

For self-constructed assets, the costs incurred include labor, materials, and

overhead.

A(n) _______ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark or tradename

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.

Collin Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $100,000 Freight & Handling 8,000 Trial runs 6,000 Maintenance Durning year 3000 Employee training during year 4000

$114,000 Reason: items only associated with getting the part up and running:Cost = Purchase Price + Freight + Trial Runs

A(n) _________is the exclusive right to manufacture a product or use a process granted for a period of __________ years

Blank 1: patent Blank 2: twenty or 20

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

capitalized

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

revenue is recorded.

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

an expense in the period incurred.

In a cloud computing arrangement, if the customer cannot run the software on its own, the costs

are expensed as incurred.

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements? (Select all that apply.) Multiple select question. cost of lawn sprinkler system cost of driveways cost of sidewalks legal fees to acquire land cost of land

cost of lawn sprinkler system cost of driveways cost of sidewalks

Accounting for land improvements requires that the costs of land improvements are (Select all that apply.) Multiple select question. depreciated or amortized over the periods benefited. included in the cost of land. expensed in the current period. capitalized.

depreciated or amortized over the periods benefited. capitalized.

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits.