ACCT 3210: Chapter 10 Preview. PP&E and Intangible Assets: Acquisition

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.)

Blank 1: goodwill

The exclusive legal right to manufacture a product or to use a process is called a(n) _____. (Enter only one word.)

Blank 1: patent

A(n) _____ is the exclusive right to manufacture a product or use a process granted for a period of _____ years. (Enter one word per blank.)

Blank 1: patent Blank 2: twenty or 20

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.

Obligations associated with disposition of property, plant, equipment, or natural resources are called

asset retirement obligations.

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

Berner Mining Company estimates that after it completes extraction of valuable metals from a tract of land, $245,000 will be necessary to return the land to its original condition. This cost is considered a(n)

restoration cost

Manfred Mining Company is required to restore a piece of land to its original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset

retirement obligation.

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics (Select all that apply.)

revenue-producing long-lived

In a lump-sum purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives.

An asset, other than financial assets, that has no physical substance is referred to as a(n)

intangible asset.

Long-term assets are typically classified in one of these two categories:

intangible assets property, plant, and equipment

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

interest charges and allocation of overhead.

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

capitalized as part of the cost of land

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

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

copyright trademark patent

Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ______ purchase.

lump-sum

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.

A nonmonetary exchange is considered to have _____ substance if the future cash flows will change as a result of the exchange. (Enter only one word.)

Blank 1: commercial

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

Blank 1: intangible

When a company receives an asset from an unrelated party by a donation, the assets are valued at _____ value. (Enter only one word.)

fair

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

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.

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

fair value.

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. (Enter only one word.)

Blank 1: copyright

A(n) _____ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time. (Enter only one word.)

Blank 1: franchise

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits.

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

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

allocation of overhead. treatment of interest charges.

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.

The distinction between land and land improvements is that:

land has an indefinite life

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

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

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

legal fees to obtain title purchase price

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.)

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

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

Fair value

______ ______ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process, whereas equipment, land, and buildings have physical characteristics that remain unchanged.

Natural resources

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

Real estate commissions relating to purchase of building

A company acquires equipment by signing an interest-bearing note payable for $20,000. The interest rate is realistic so the company will record (Select all that apply.)

credit note payable $20,000 debit machine $20,000

Accounting for land improvements requires that the costs of land improvements are (Select all that apply.)

depreciated or amortized over the periods benefited. capitalized.

The costs incurred after a natural resource has been discovered but before production begins are referred to as

development costs.

Expenditures relating to a search for natural resources are referred to as

exploration costs.

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the

present value of the note payable, which is the face amount of the note.

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 are classified as natural resources? (Select all that apply.)

timber tracts mineral deposits

Norbert Company has an exclusive right to display a specific symbol and routinely uses it on its promotional materials, company letterhead, and other media to distinguish its company from other firms. This right is referred to as a

trademark.

Superior mining Inc. purchases a large piece of land with rich mineral deposits and plans to start extracting the mineral-rich ore immediately. The cost of the piece of land should be reported in this category:

natural resources

A(n) _____ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service. (Select all that apply.)

Blank 1: trademark or tradename

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.

An asset is exchanged for another asset and no cash is exchanged 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.

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

capitalized

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

lump-sum purchase.

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.

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.)

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

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time is called a

franchise.

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

freight-in insurance during transit set-up cost

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

future cash flows

The costs to return land or other property to its original condition after extracting natural resources are referred to as

restoration costs.