McGraw Hill Intermediate Accounting SB Chapter 10

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

book value of the asset given up.

Which of the following are noncurrent tangible assets? (Select all that apply.)

equipment property

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

expensed immediately.

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

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

fair value

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.

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

fair, market, appraised

Assets that do not qualify for interest capitalization are

inventories routinely manufactured.

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include (Select all that apply.)

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

In a business acquisition, goodwill equals the fair value of the consideration exchanged for the company

less the fair value of net assets acquired.

James Company acquires Smith Corporation for $10 million. The book value of Smith Corporation's net assets is $7 million, while the fair value of the net assets is $9 million. Goodwill associated with the acquisition is:

$1 million

South Company acquires North Corporation for $20 million. The book value of North Corporation's net assets is $15 million, while the fair value of the net assets is $18 million. The fair value of the liabilities assumed is $2 million. Goodwill associated with the acquisition is:

$2 million

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.

What is the transaction that required the following journal entry: $41,323 debit to Equipment, $8,677 debit to Discount on note payable, and $50,000 credit to Note payable?

Acquired an asset by signing a noninterest-bearing note payable.

Which items qualify for interest capitalization? (Select all that apply.)

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

Which of the following should be included in the cost of buildings?

Real estate commissions relating to purchase of building

Pearce Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The asset received had a fair value of $50,000 and a book value of $32,000. What journal entries should be recorded? (Select all that apply.)

Credit equipment-old $120,000. Debit accumulated depreciation $40,000. Debit equipment-new $50,000. Debit loss on exchange $30,000.

Cheng Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The asset received had a fair value of $40,000 and a book value of $35,000. What journal entry should be recorded? (Select all that apply.)

Debit accumulated depreciation $40,000. Credit equipment-old $90,000. Debit equipment-new $40,000. Debit loss on exchange $10,000.

The cost of natural resources includes which of the following? (Select all that apply.)

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

Donated assets should be recorded on the balance sheet at what amount?

Fair value

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

False

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

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

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

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

Wall Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The asset received had a fair value of $80,000 and a book value of $65,000. The entry to record the transaction includes (Select all that apply.)

a debit to equipment-new for $80,000. a credit to gain on exchange of asset for $40,000. a credit to equipment-old for $100,000. a debit to accumulated depreciation for $60,000.

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

actual interest incurred

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

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

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

an expense in the period incurred.

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.

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

capitalized

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.

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

capitalized as part of the cost of land

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements? (Select all that apply.)

cost of lawn sprinkler system cost of driveways cost of sidewalks

Which of the following items should be capitalized as land improvements? (Select all that apply.)

cost of parking lots cost of fences cost of sidewalks

The City of Metropolis agrees to pay 10% of the cost of a building to encourage Mega Corp. to relocate to its city. The total cost of the building was $5,000,000, and Mega agrees to pay the remaining amount in cash. The journal entry for Mega Corp to record this transaction includes which of the following entries? (Select all that apply.)

credit to cash $4,500,000 debit to building $5,000,000 credit to revenue $500,000

Krasel Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The asset received had a fair value of $50,000 and a book value of $45,000. The entry to record the transaction includes (Select all that apply.)

credit to equipment-old for $90,000. debit to accumulated depreciation $70,000 debit to equipment-new for $50,000. credit to gain on exchange of asset for $30,000.

Smith company acquires equipment by signing a noninterest-bearing note payable requiring the future payment of $20,000. The present value of the note payable is $15,000. Assuming Smith uses a contra account, Smith should record (Select all that apply.)

debit discount on note payable $5,000 credit note payable $20,000 debit machine $15,000

Smith company acquires equipment by signing a noninterest-bearing note payable requiring the future payment of $20,000. The present value of the note payable is $15,000. Assuming Smith uses a contra account, Smith should record (Select all that apply.)

debit machine $15,000 debit discount on note payable $5,000 credit note payable $20,000

Depreciation expense is recorded for tangible fixed assets, whereas ______ expense is recorded for natural resources.

depletion

The allocation of the cost of natural resources to the periods extracted is referred to as _______ expense. (Enter only one word.)

depletion

The allocation of a natural resource to the periods extracted is referred to as

depletion expense.

Property, plant, and equipment typically include (Select all that apply.)

furniture cars and trucks machinery

A company's reputation and clientele, its trained employees, and favorable business location may give rise to ________

goodwill

An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as ________. (Enter only one word.)

goodwill

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.

Which of the following items should be capitalized in the cost of equipment? (Select all that apply.)

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

An asset, other than financial assets, that has no physical substance is called a(n) ________ asset. (Enter only one word.)

intangible

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.

What are the cost components for self-constructed assets?

manufacturing overhead direct material direct labor

Which of the following are start-up costs? (Select all that apply.)

one-time opening costs for a retailer legal costs to incorporate organization costs

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

original cost.

The type of interest costs that can be treated as capitalized interest can pertain to borrowings that are

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

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

overhead.

Which of the following items are intangible assets? (Select all that apply.)

patent copyright trademark

Land, building, machinery, furniture, and equipment are typically are reported as part of:

property, plant, and equipment

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.)

purchase price legal fees to obtain title

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.)

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

A lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ______.

relative fair value

The costs included in the natural resource account includes (Select all that apply.)

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

If natural resources are developed by a company, the initial valuation should include (Select all that apply.)

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

Josh Corp. receives equipment donated from an unrelated party. Josh records the assets by debiting equipment and crediting

revenue

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

revenue is recorded.

Which of the following items should always be capitalized in the cost of equipment? (Select all that apply.)

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

Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.)

set-up cost insurance during transit freight-in

The costs to organize a new entity or costs to introduce a new product or services are considered __________ costs, and should be expensed as incurred.

start-up

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

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.

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.

In a lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times

the relative fair value percentages of each asset.

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? (Select all that apply.)

title insurance costs to remove an old building grading the land legal fees to secure title

Goodwill may only be recognized

when another company is acquired.