Intermediate II test 1
Periodic alterations to existing products are an example of research and development costs.
False
US GAAP allows for recovering a write down loss on a held for use long lived asset. TRUE OR FALSE
False
Impairment testing is performed in the same way for indefinite-life intangibles and limited-life intangibles. TRUE OR FALSE
False limited life= event, recoverability, fair value Indefinite life= qualitative review, fair value (annually)
Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.
False- R&D is expensed not capitalized
The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles. TRUE OR FALSE
False- the same recoverability test is use for limited life intangibles
Depletion is normally calculated using the straight-line method. TRUE OR FALSE
False- units of production
Are internally created intangible expensed or capitalized?
Generally expensed (only capitalize direct costs such as legal fees)
The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?
Limited Life intangibles
How do you calculate goodwill?
Purchase Price - Future value of net assets
How do you test indefinite life intangibles for impairment?
Qualitative review, Fair value test
Which of the following research and development related costs should be capitalized and depreciated over current and future periods?
Research and development general laboratory building which can be put to alternative uses in the future
What do you get when you get an intangible asset?
Rights and Privileges
The write off of value on a long lived asset is called
impairment
What is included in developmental costs?
intangible development such as cost to drill, tunnels, shafts, and wells
Natural resources include all of the following except: land improvements timber minerals petroleum
land improvements
When accumulated net income is less than dividends being paid then the dividends are called
liquidating dividends
Purchased Goodwill should
not be amortized
Full cost and successful efforts accounting are methods of accounting for
oil and gas industry
What are some types of intangible assets?
patents, copyrights, goodwill, trademarks
An asset impairment occurs when the asset's carrying amount exceeds the:
present value of expected future net cash flows.
What is included in acquisition costs?
price to obtain property to search, price for already discovered resources, lease for property with resources
Revise the depletion rate on a __________________ basis.
prospective
What is a bargain purchase?
purchase price less than the fair value of net assets acquired
What is included in restoration costs?
restoring the property to natural state or fair value asked for
What are examples or natural resources that are depleted?
timber, petroleum, minerals
Natural resources are also called
wasting assets
What is the recoverability test?
Book value (carrying amount) > Future net cash flows
How do you calculate the amount of impairment?
Book value - fair value
What are the 4 factors that go into a depletion base?
1) Acquisition cost 2) Exploration cost 3) Development cost 4) Restoration cost
What are the 6 categories of intangibles?
1) Market related (trademark) 2) Customer related (customer list) 3) Artistic related (copyright) 4) contract related (franchise) 5) Technology related (patent) 6) Goodwill
What are the two main features of natural resources?
1) complete removal/ consumption of asset 2) replacement of the asset only by act of nature
What are three typical costs of purchased intangibles?
1) purchase price 2) legal fees 3) incidental expenses
What is the fair value test?
Book value (carrying amount) > Fair value
What is successful efforts?
Capitalize on only the expenses incurred when oil or gas is successfully found
What is the journal entry to record Impairment for PPE?
Debit: Loss on Impairment Credit: Accumulated Depreciation
How do you test limited life intangibles for impairment?
Event, Recoverability test, Fair value test
When an impairment loss is found, what becomes the new carrying value?
The fair value
Internally generated goodwill should not be capitalized in the accounts TRUE OR FALSE
True
A company can write up or write down an asset held for disposal in future periods as long as the carrying value after the write-up does not exceed the carrying amount before the impairment. TRUE OR FALSE
True - you cant write up an asset held for use
The write off for a long lived asset is the amount that the carrying value exceeds its
fair value
What do liquidating dividends represent?
a return of capital
The total cost of natural resources includes all of the following except: exploration costs all of the options are included in the total cost restorations costs intangible development costs
all of the options are included in the total cost
What is depletion?
allocating the cost of natural resources
What does the purchaser of a bargain purchase record it?
as a gain
Where is an impairment loss reported?
as part of income from continuing operations in the "other expenses and losses" sections
How do you find future value of net assets?
assets- liabilites
How are purchased intangibles recorded?
at cost (includes all cost necessary to make the intangible asset ready for its intended use)
How do you calculate impairment of goodwill?
book value of the unit (including goodwill) - fair value of the unit
What is full cost accounting?
capitalize on all operating expenses while trying to locate oil and gas, whether you are successful or not
A loss on impairment of an intangible asset is the difference between the asset's
carrying amount and its fair value
What is included in exploration costs?
cost to explore land, when substantial capitalize into depletion base. Large companies expense at cost
How do you revise the depletion base?
divide the remaining cost by the new estimate of recoverable reserves
Depletion is a function of ____________ during the period.
extraction