acct

A nonmonetary exchange is considered to have__________substance if the future cash flows will change as a result of the exchange.

commercial

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.

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.

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

overhead

Joy Corp. builds a new office building. The average accumulated expenditures were $2,000,000. Joy borrows $1,500,000 on a construction loan specifically to build the office building. The interest rate on the construction loan is 6%. Joy also has an additional loan outstanding for $3,000,000, with an interest rate of 8%. What is the amount of interest that Joy should capitalize on the self-constructed office building?

$130,000 second lowest

Western Company incurred the following costs during the year related to the creation of a new product:

145

Northern Company incurred the following costs during the year related to the creation of a new product:

275,000 middle number

Which of the following are included in research and development costs? (Select all that apply.)

Materials used in the lab Allocation of indirect costs related to research Salaries of researchers allocation of overhead for lab facilities equipment in the lab labor costs of research personnel equipment in the lab

When does technological feasibility occur in software development?

When all planning, designing, coding, and testing activities are completed and the product meets design specifications.

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.

Which of the following are research and development costs? (Select all that apply.)

design, construction, and testing of pre-production prototypes research aimed at discovering new knowledge

When assets are exchanged in a nonmonetary exchange and the transaction has commercial substance, either a gain or a loss may be recognized. However, if the transaction lacks commercial substance and no cash is exchanged, a(n)

gain loss

The _______approach for self-constructed assets advocates including only the additional overhead costs incurred in the construction of the asset, whereas the full-cost approach requires the allocation of overhead to self-constructed assets.

incremental

The interest capitalization period begins with the first expenditure and ends when which of the following occur? (Select all that apply.)

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

The rationale for capitalizing interest on a self-constructed asset is that

interest expense is incurred while getting the asset ready for its intended use and therefore, should be capitalized.

For self-constructed assets, if no specific money is borrowed to construct the asset, but other debt is outstanding,

interest is capitalized because other debt was outstanding.

Assets that do not qualify for interest capitalization are

inventories routinely manufactured.

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits.

Reese Co. constructs a new facility. The average accumulated expenditures were $800,000. Reese borrows $600,000 on a construction loan to build the facility. The interest rate on the construction loan is 5%. Reese also has an additional loan outstanding for $500,000 with an interest rate of 7%. What is the amount of annual interest that Reese should capitalize on the self-constructed facility?

second lowest 44000

U.S. GAAP allows development costs to be capitalized when software reaches the point of .

technological feasibility

Under IFRS, amortization of capitalized development costs begins when (Select all that apply.)

the asset is ready for use development is complete

Interest capitalization on a self-constructed asset begins when

the first expenditure is made.

Capitalizing interest on a self-constructed asset as a cost to get the asset ready for its intended use is consistent with

the historical cost principle.

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

treatment of interest charges. allocation of overhead.

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.

On January 1, 2017, 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 2017: January 1, 2017 $100,000 April 1, 2017 100,000 November 1, 2017 150,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in 2017?

200000 2nd highest highest 510,000

Baker is building a new warehouse. The warehouse qualifies as a self-constructed asset. During the year, Baker has weighted-average expenditures on the construction project of $600,000. Although Baker does not borrow money specifically to build the warehouse, it has two loans outstanding during the year. Loan A is for $400,000 at 6% interest, and Loan B is for $800,000 at 9% interest. What is the interest rate used to capitalize interest on the warehouse?

8 2nd highest 6.5 second lowest

Which of the following are true regarding capitalized software development costs under IFRS?

Amortization begins when development is complete and the asset is available for sale.

Which items qualify for interest capitalization?

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

Which of the following is not included in research and development expenses?

Filing and legal costs for a patent.

expensed immediately.

If equipment is purchased specifically for one research and development project, the cost of the equipment is

Which of the following are exceptions to expensing research and development costs and should instead be capitalized? (Select all that apply.)

Technologically feasible software development costs R&D purchased in a business acquisition R&D performed for sale to others

The amount of interest capitalized on a self-constructed asset is limited to the

actual interest incurred

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

book value of the asset given up.

If equipment is purchased for research and development, but has an alternative future use, the cost of the equipment is

capitalized and depreciated as R&D expense in the current and future periods.

Accounting for software is an exception to the general rule to expense research and development costs. Expenditures made after the software is determined to be technologically feasible but before it is ready for commercial production are

capitalized.

What are the cost components for self-constructed assets

direct material manufacturing overhead direct labor

An exchange of assets that has commercial substance is valued at the_______value of the assets given or received, whichever is more clearly evident, but an exchange that lacks commercial substance is valued at the_____value of the assets given

fair book

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

fair value.

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

false

The approach used for accounting for self-constructed assets where all overhead costs are allocated to production and to self-constructed assets is called the ______ approach.

full-cost

Which approach to accounting for self-constructed assets is required by U.S. GAAP?

full-cost approach

A nonmonetary exchange has commercial substance if the ______ will change as a result of the exchange.

future cash flows

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 type of interest costs that can be treated as capitalized interest can pertain to borrowings that are (Select all that apply.)

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

If the amount of interest calculated to be capitalized on a self-constructed asset is greater than the amount actually incurred, then

the interest capitalized is limited to the actual interest incurred.

For self-constructed assets, if no specific money is borrowed to construct the asset, but other debt is outstanding, the interest rate used to capitalize interest is

the weighted-average rate on all loans outstanding.

True or false: The formula for capitalizing interest is the interest rate times the weighted average accumulated expenditures.

true

When calculating the amount of interest to capitalize on a self-constructed asset, the critical inputs used are an interest rate and

weighted average accumulated expenditures.

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

weighted-average expenditures during the construction period.