7a

Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition: Property taxes for current year$3,000 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

the following items should be capitalized as land improvements

Cost of parking lots Cost of fences Cost of sidewalks

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

capitalized, expensed

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

An asset that has no physical substance is referred to as a(n)

intangible asset

capitalized

means to record an expenditure as an asset.

The accounting for copyrights uses the same accounting rules as

patents

In a basket purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives.

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

trademark

Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.

False Reason: Goodwill is an intangible asset that can only be recognized if a company acquires another company. It is valued at the purchase price less the fair value of net assets acquired.

the following items typically are classified as equipment

Furniture and fixtures Machinery used in manufacturing Computers and printers used in office

the following items should be capitalized in the cost of equipment

Installation and testing of equipment Freight to deliver the equipment Sales tax Legal fees to establish title Insurance on equipment during shipping Purchase price

Capitalize on the balance sheet

The purchase price of an intangible asset

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 Costs to remove an old building Legal fees to secure title Grading the land

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.

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

For a patent developed internally, the research and development costs are

expensed as incurred.

Expenditures subsequent to acquisition may be properly capitalized when they increase the asset's service life or increase its productive capacity. However, most companies set thresholds for capitalizing these expenditures based on

materiality.

Land used in a company's ______ is classified as property, plant and equipment, while land held solely for the expected increase in value is classified as an ______

operations; investment

The accounting treatment for the cost of copyrights is identical to that of patents.

true

the following items are initially recorded as an expense on the income statement

Research and development costs Advertising costs

expense when incurred

Research and development costs incurred when developing a new product

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

Cost of lawn sprinkler system Cost of sidewalks Cost of driveways

If a company generates its own goodwill through advertising or training, how should these costs be treated?

Expense the costs as incurred.

The cost of a major improvement that extends the service life of an asset would be_____. whereas the cost of maintenance that does not increase the future benefits would be ______.

capitalized; expensed

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

basket purchase

A ____is the exclusive right to manufacture a product or use a process granted for a period of _____ years.

patent; 20

A subsequent expenditure for an asset increases the future benefits of the asset if it

increases the quality of the goods or services produced by the asset. increases the operating efficiency of the asset. extends the asset's service life.

Costs of periodically servicing equipment is an example of:

repair and maintenance

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.

is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

Goodwill may only be recognized

in a business acquisition

Which item qualifies as an addition and should be capitalized?

Adding a new computer-aided cutting device to an existing machine.

Polly Corporation purchases land for $200,000. Polly incurs the following costs associated with the land acquisition: Property taxes for current year$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 (Land improvements go into a separate account called land improvements)

the following are expenditures for assets subsequent to acquisition

Additions Improvements Repairs and maintenance

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.

the following items are capitalized into the cost of a patent

Purchase price Attorney fees to secure patent Filing fees

Repairs and maintenance expenditures that do not increase the future benefit of the asset are expensed.

True; Reason: Repairs and maintenance keep the asset in working order.

Attorney fees and other costs necessary to secure a patent should be

added to the patent account.

The types of expenditures that can occur subsequent to an asset's acquisition are

additions. repairs and maintenance. improvements.

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.

The rationale for expenditures being capitalized as assets is based on whether the expenditures benefit

future periods

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 cost of land improvements are capitalized separately from land because land improvements tend to have a _____ useful life.

limited

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 distinction between land and land improvements is that:

land has an indefinite life

If a company generates its own goodwill through advertising or training, how should these costs be treated

Expense the costs as incurred.

Green Inc. expenses the cost of small tools provided that the amount is less than $1,000. This accounting treatment is:

acceptable if the amount is considered immaterial

Goodwill is recognized only when one company _______ another company.

acquires

A new major component that is added to an existing asset is called

an addition.

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

capitalized

Internally developed goodwill should be capitalized as an asset.

false; Reason: Costs of internally developed goodwill should be expensed as incurred.

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

original cost

the following costs are capitalized as an asset for an internally developed patent

Legal fees Filing fees

the following costs should be capitalized in the costs of acquiring a building

Legal fees to obtain title purchase price Remodeling building Realtor commissions

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Legal fees to secure title Commissions Costs to remove an old building

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

patent