Smart book Chapter 7
The cost of successfully defending a patent should be added to:
Patent account
Capitalized
Purchase price plus costs necessary to get asset ready for use
A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include.
Required filing fees legal costs to acquire purchase price
Expensed
Research and development costs
Expense when incurred
The purchase price of an intangible asset
On January 1, 20X1, Claire Corp. purchases a patent. One month after acquiring the patent, Claire paid $3,000 in legal fees to successfully defend its right to the patent. The $3,000 should be:
added to the Patent account
Attorney fees and other costs necessary to secure a patent should be
added to the patent account
A new major component that is added to an existing asset is called
addition
A new major component that is added to an existing asset is considered a(n) _________ and should be capitalized.
addition
True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.
false
A(n) _____________ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time.
franchise
The key factor in classifying items as repairs and maintenance is that
future benefits are not provided beyond those originally anticipated from the asset.
Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as
internally developed intangibles.
The exclusive legal right to manufacture a product or to use a process is called a(n) .
patent
A(n) _____ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.
trademark
True or false: Repairs and maintenance expenditures related to an asset do not increase future benefits.
true
Which of the following are expenditures for assets subsequent to acquisition?
Additions Improvements Repairs and maintenance
Which of the following items are capitalized into the cost of a patent?
Attorney fees to secure patent Purchase price Filing fees
Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?
Debit accumulated depreciation $60,000 Credit gain on exchange of asset $40,000 Debit equipment $80,000 Credit equipment $100,000
Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?
Debit equipment $50,000 Credit gain on exchange of asset $30,000 Credit equipment $90,000 Debit accumulated depreciation $70,000
What is the formula for the profit margin ratio?
Net income divided by net sales.
Capitalize on the balance sheet
Research and development costs incurred when developing a new product
Which of the following are classified as natural resources?
Timber tracts Mineral deposits
Goodwill is recognized only when one company _____________ another company.
acquires
The gain or loss on disposal of an asset is calculated as:
amount received less the book value of asset sold
The journal entry to retire old equipment that is not fully depreciated includes a:
debit to accumulated depreciation credit to equipment debit to loss
Machines used in manufacturing, computers, printers, vehicles, furniture, and fixtures generally are classified as _____.
equipment
If a company generates its own goodwill through advertising or training, how should these costs be treated?
expense the costs as incurred
For a patent developed internally, the research and development costs are
expensed as incurred
When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.
goodwill
The types of expenditures that can occur subsequent to an asset's acquisition are
improvements additions repairs and maintenance
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?
title insurance, legal fees to secure title, grading the land, costs to remove an old building
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
The profit margin ratio is defined as __________ _________ divided by net sales
net income
The distinction between land and land improvements is that:
land has an indefinite life
Which of the following costs should be capitalized in the costs of acquiring a building?
realtor commissions legal fees to obtain title purchase price
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
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
True or false: Internally developed goodwill should be capitalized as an asset.
false
Otto Inc. retires old equipment with a book value of $2,400. Otto should
recognize a loss of $2,400
When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.
book
A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a
franchise
Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?
Commissions Legal fees to secure title Costs to remove an old building
Which of the following costs should be capitalized in the costs of acquiring a building?
Realtor commissions Remodeling building Legal fees to obtain title
Linx purchases an intangible asset for $10,000. How should the $10,000 be reported in the financial statements?
As an asset for $10,000.
Linx Corporation internally develops an intangible asset with research and development costs of $10,000. How should Linx report this $10,000?
As an expense on the income statement.
Which of the following items typically are classified as equipment?
Furniture and fixtures Machinery used in manufacturing Computers and printers used in office
An asset that has no physical substance is referred to as a(n)
intangible asset.
The initial valuation of purchased intangible assets requires that the intangible asset is recorded at
original cost
Costs of periodically servicing equipment is an example of:
repair and maintenance
When an asset is no longer useful, but cannot be sold, we have a
retirement
Which of the following items are initially recorded as an expense on the income statement?
Advertising costs Research and development costs
When assets are purchased in a group for a single sum, it is referred to as a
basket purchase
Goodwill may only be recognized
in a business acquisition
Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?
Cost of driveways Cost of lawn sprinkler system Cost of sidewalks
Which of the following items should be capitalized as land improvements?
Cost of fences Cost of parking lots Cost of sidewalks
Which of the following costs are capitalized as an asset for an internally developed patent?
Legal fees Filing fees
Which of the following items should be capitalized in the cost of equipment?
Purchase price Installation and testing of equipment Freight to deliver the equipment to its location Insurance on equipment during shipping
A retirement or abandonment of an asset is different from a sale of an asset because
a loss must be recognized for the remaining book value no cash is received.
The allocation of the cost of a tangible fixed asset is referred to as ____________, whereas the allocation of the cost of an intangible asset is referred to as ___________ .
depreciation, amortization
In a basket purchase of assets, the cost must be allocated to the individual assets because
the assets have different useful lives
Which of the following items should be capitalized in the cost of equipment?
Legal fees to establish title Installation and testing equipment Sales tax Freight to deliver the equipment
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
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
