ACCT 3210: Review Chapter 10: PP&E and Intangible Assets-Acquisition

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

Marlin purchases land and the rights to explore for $200,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $40,000. The journal entry to record the acquisition of the mine will include which of the following entries?

Credit to asset retirement liability of $40,000.

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

Filing and legal costs for a patent.

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

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

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

Real estate commissions relating to purchase of building

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

A company acquires a mine and incurs costs such as expenditures to build tunnels and shafts before production may begin. These expenditures are classified as

development costs.

In accounting terminology, the life of a trademark is considered

indefinite.

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

Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $50,000 Freight and handling 2,000 Concrete pad for equipment 5,000 Maintenance during year 3,000 Shipping insurance 400

$57,400

When is it appropriate to recognize a liability for an asset retirement obligation? (Select all that apply.)

At the inception of the asset's life if a legal obligation exists. Over the asset's life as incurred.

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

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 _____ 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. (Enter only one word.)

Blank 1: incremental

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

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

expensed as incurred.

Assets that do not qualify for interest capitalization are

inventories routinely manufactured.

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

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

The distinction between land and land improvements is that:

land has an indefinite life

Which of the following costs are capitalized as an asset for an internally developed patent? (Select all that apply.)

legal fees filing fees

How does a company measure an asset retirement obligation?

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.

Asset retirement obligations are recorded as a liability and measured at

fair value.

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

full-cost approach

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

lump-sum purchase.

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

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

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

revenue is recorded.

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

the assets have different useful lives.

Interest capitalization on a self-constructed asset begins when

the first expenditure is made.

Which of the following are classified as natural resources? (Select all that apply.)

timber tracts mineral deposits

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.

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

book value of the asset given up.

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

capitalized

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

depletion

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

expensed immediately.

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.

Mining Ventures purchases land and the rights to explore for $100,000. Exploration costs are $20,000, and development costs are $30,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $50,000. The journal entry to record the acquisition of the mine will include which of the following entries? (Select all that apply.)

Credit to asset retirement liability of $50,000. Debit to mining assets of $200,000. Credit to cash $150,000

When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to

the related asset.

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

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.

When calculating the fair value of an asset retirement obligation, what rate is used to calculate the expected cash flows?

Credit-adjusted risk-free rate

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

insurance during transit freight-in set-up cost

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? Multiple choice question.

$114,000

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.)

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

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

depletion

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

revenue-producing long-lived

When the expected cash flow approach is used to measure an asset retirement obligation at fair value, what assumptions or estimates must be made by the accountant? (Select all that apply.)

the probabilities of cash flows the expected cash flows

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

Fair value

Western Company incurred the following costs during the year related to the creation of a new product: Salaries of researchers $100,000 Depreciation on R&D equipment $30,000 Utilities at R&D facility $5,000 Patent filing and legal costs $8,000 Payment for services in connection with R&D activities $10,000 Adaptation costs for specific needs of a customer $2,000 What amount should Western report as research and development expense in its income statement?

$145,000

Western Company incurred the following costs during the year related to the creation of a new product: Salaries of researchers $100,000 Depreciation on R&D equipment $30,000 Utilities at R&D facility $5,000 Patent filing and legal costs $8,000 Payment for services in connection with R&D activities $10,000 Adaptation costs for specific needs of a customer $2,000 What amount should Western report as research and development expense in its income statement? Multiple choice question.

$145,000

Northern Company incurred the following costs during the year related to the creation of a new product: Salaries $200,000 Depreciation on R&D equipment $50,000 Quality control during commercial production $10,000 Patent filing and legal costs $8,000 Payment for services in connection with R&D activities $20,000 Testing of preproduction prototypes and models $5,000 What amount should Northern report as research and development expense in its income statement? Multiple choice question.

$275,000

Quarry Corp. has the following costs related to a mine it acquired this year. Cost of land and natural resource rights $200,000 Asset retirement obligation to restore land 50,000 Costs of extraction during year 1 35,000 Equipment used for mining 100,000 Exploration and drilling costs to prepare quarry for extraction 40,000 What amount should be included as an asset for natural resources?

$290,000

A trademark registered with the U.S. Patent Office protects the trademark from use by others for a period of

10 years.

Collin Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $100,000 Freight and handling 8,000 Trial runs 6,000 Maintenance during year 3,000 Employee training during year 4,000

114,000

GeoMines Corp. has the following costs related to a mine it acquired this year. Cost of land and natural resource rights $100,000 Development cost before production begins 20,000 Future cost to restore land after mining 15,000 Equipment used for mining 80,000 Exploration and drilling costs 30,000 What amount should be included as an asset for natural resources

165,000

GeoMines Corp. has the following costs related to a mine it acquired this year. Cost of land and natural resource rights $100,000 Development cost before production begins 20,000 Future cost to restore land after mining 15,000 Equipment used for mining 80,000 Exploration and drilling costs 30,000 What amount should be included as an asset for natural resources?

165,000

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

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.

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

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

Obligations associated with the disposition of property, plant, equipment, and natural resources are called _____ _____ obligations. (Enter one word per blank.)

Blank 1: asset Blank 2: retirement

Accounting for land improvements requires that the land improvements are capitalized and then _____ over periods benefited by their use. (Enter only one word.)

Blank 1: depreciated or expensed

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

Blank 1: intangible

______ ______ 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

Mega Mines acquires a new mine for $1,000,000. Mega Mines determines at the date of acquisition that it will cost $140,000 to restore the land when the mining process is complete in 5 years. Mega Mines has a legal obligation to remove the equipment upon completion of the mining activities. Which of the following are acceptable choices for determining when to recognize an asset retirement obligation? (Select all that apply.)

Over the asset's life as incurred. At the inception of the asset's life.

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

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

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

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

an expense in the period incurred.

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.

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.

Computer software purchased for internal use should be

capitalized and amortized over its useful life.

Costs incurred after technological feasibility is established but before the software is available to customers should be

capitalized as an intangible asset.

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

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 sidewalks cost of driveways cost of lawn sprinkler system

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

cost of sidewalks cost of fences cost of parking lots

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

development costs.

What are the cost components for self-constructed assets? (Select all that apply.)

direct labor direct material manufacturing overhead

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

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

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

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.

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

interest charges and allocation of overhead.

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.

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

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

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

original cost.

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

overhead

What amount is used to measure the fair value of an asset retirement obligation?

present value of estimated future cash flows

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

realtor commissions legal fees to obtain title remodeling building

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

weighted-average expenditures during the construction period.