ch 10

franchises: a contractual arrangement under which the franchisor grants the franchisee the exclusive right to use the franchisor's ____and may include product and formula rights, within a geographical area, usually for a specified period of time.

trademark

the requirement to expense RD immediately leads to assets being ___ and expenses being ___

understated overstated

Goodwill: costs can't be directly associated with any specifically identifiable right and is NOT separable from the company itself. what does it represent?

unique value of a company as a whole over and above its identifiable tangible and intangible assets

Software development costs: technological feasibility refers to the point in time

when the enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements"

GAAP requires that total RD expense incurred must be disclosed either as a line item in the income statement or in a disclosure note

yes

are intangibles subject to asset impairment rules?

yes

because goodwill can't be separated from a company, it's not possible for a buyer to acquire it without also acquiring the whole company or a goodwill will appear as an asset in a balance sheet only when it is purchased in connection with the acquisition of control over another company.

portion of it.

cost of land: any expenditures such as clearing, filling, draining, and even removing, old buildings that are needed to prepare the land for its intended use are part of land's cost

proceeds from the sale of salvaged materials from old buildings torn down after purchase reduce the cost of land.

PPE and intangible assets can be acquired through

purchase, exchange, lease, donation, self-construction, or a business combination.

in general, RD costs pertain to activities that occur prior to the start of commercial production. what does commercial production refer to?

refers to the point in time where the company has no other plans to materially change the product prior to beginning production for intended sales to customers

unlike those of natural resources, equipment land and buildings physical characteristics usually ____ ____ during their useful lives.

remain unchanged

goodwill: the fair value of the net assers equals the fair value of all identifiable intangible and tangible assets less the fair value of any liabilities. Goodwill is a ____ asset, it's the amount left after other assests are ___ and ____

residual identified and valued

donated assets: GAAP requires that donated assets be recorded as

revenue

most purchased intangibles are ____ ____ . That is, cost can be directly associated with a specific intangible right. the exception is

specifically identifiable goodwill

the franchise capitalizes as an intangible asset the initial franchise fee plus any legal costs associated with the contract agreement. the franchise asset is then amortized over the life of the franchise agreement what about periodic payments?

the periodic payments usually relate to services provided by the franchisor on a continuing basis and are expensed as incurred

land improvements: how are these costs accounted for

these assets are separately identified and capitalized. we depreciate their cost over periods benefited by their use

general and admin costs should not be included in RD unless

they are clearly related to RD activity

Name the four types of non cash acquistions:

1. Deffered payments (notes payable) 2. issuance of equity securities 3. donated assets 4. exchanges of nonmonetary assets for other assets

There are three types of costs related to RD that are capitalized ( recorded as an asset). what are these exceptions:

1. Development costs for software that has reached the point of technological feasibility 2. RD perfomed by the company for sale to others 3. RD purchased in a business acquistion

types of assets:

1. PPE ( naturual resources included here) 2. intangible assets

in the situation of developing the natural resource, the initial valuation will include:

1. acquisition cost 2. exploration costs 3. development costs 4. restoration costs

Self - constructed assets: Qualifying assets: interest is capitalized during the construction period for:

1. assets built for a company's own use as well as for 2. assets constructed as DISCRETE projects for sale or lease (a ship or real estate development)

Self - constructed assets: the two difficulties with assigning costs to self-constructed assets

1. determining the amt of the company's indirect manufacturing costs (overhead) to be allocated to the construction 2. deciding the proper treatment of interest incurred during construction

RD costs include

1. salaries, wages, other labor costs for personnel engaged in the activites 2. costs of materials consumed 3. equipment 4. facilities 5. intangiblea used 6. the costs of services performed by others in connection with RD activities 7. reasonable allocation of indirect costs related to those activities

Exchanges: the amount of cash given or received has __ effect on the amount of gain or loss recognized

NO

Software development costs: any costs incurred after the software release date generally are expensed but not part of

RD

any costs incurred after the start of commercial production are not classified as ___ ___. these costs would be either expensed or treated as mfq overhead and included in the cost of ___

RD costs inventory

copyright: exclusive right of protection given to a creator of a published work. life of creator plus 70 years

accounting for the costs of copyrights is virtually identical to that of patents

for purchased intangible asset we value it at its original cost which includes its purchase price and

all other costs necessary to bring it to condition and location for intended use.

Cost of Natural Resources acquisition costs exploration costs

amounts paid to acquire the rights to explore for undiscovered natural resources or to extract proven natural resources. are expenditures such as drilling a well , or excavating a mine, or any other costs of searching for natural resources

trademarks: exclusive right to display a word, slogan, a symbol, or an emblem that distinctively identifies a company, a product, or a service. can renew every 10 years

an INDEFINITE asset

in the case of purchasing another company, goodwill will appear as an ___ in the __ ___ in that case, the capitalized cost of goodwill equals the

asset, BS fair value of the consideration exchanged ( acquisition price) for the company less the fair value net assets acquired

issuance of equity securities: because the common shares are not publicly traded, it's difficult to determine their fair value. in that case, the fair value of the ___ received by the corporation is probably the better indicator of the transaction's exchange value

assets

Cost of land: should include expenditures needed to get the land ready for its intended use. These include the purchase price plus closing costs such as: if the property is subject to back taxes, liens, mortgages, or other obligations, these amounts are included also

attorney fees real estate commissions title and title search recording

issuance of equity securities: most common situation in which equity securities are issued for PPE and intangible assets occurs when small companies incorporate and the owner/owners contribute assets to the new corporation in exchange for

ownership securities, usually common stock

payments to the franchisor usually include an initial payment plus

periodic payments over the life of the franchise agreement

Companies are required to expense all the costs related to a company's start up and organization activities in the period incurred rather than

capitalize those costs as an asset.

Self - constructed assets: interest capitalization the company must be financed in some way during this construction. in keeping with the historical cost principle, all costs during this period, including interest, should be ____

capitalized

Software development costs: if we purchase computer software for internal use, those costs are generally

capitalized

the costs of an asset that produce future benefits are

capitalized

Software development costs: Costs incurred after technological feasibility but before the software is available for general release to customers are these costs include items such as further coding and testing and the production of product masters. what kind of asset?

capitalized as an intangible asset

for in process RD from a business acquistion, GAAP requires

capitlixation at fair value but its viewed as an indefinite life intangible asset and we do not amortize

intangible assets: the issue involved in accounting for them are similar to PPE. one key difference is that the future benefits that we attribute to intangible assets usually are much less

certain than those attributed to tangible assets

Exchanges: a nonmonetary exchange is considered to have commercial substance if future cash flows will ___ as a result of the exchange

change

good will can emerge from a company's ___ and ____, its trained employees and management team, its favorable business location, and any other unique features of the company that can;'t be associated with a specific ___

clientele, reputation asset

Software development costs: much easier to determine revenues for software

comapred to other indistry

Exchanges: to prevent a company from exchanging an asset whose fair value is greater than book value for the sole purpose of recognizing a gain, fair value can be used only in gain situations that have

commercial substance

Cost of Equipment: The cost of equipment includes the purchase price plus any sales tax, transportation costs, expenditures for installation, testing, legal fees to establish title, and any other costs of bringing the asset to its to the extent that these costs can be identified and measured, they should be included in the asset's initial valuation rather than

condition and location for use expensed currently

Deferred payments: discount on not payable is a

contra liability account

an intangible should be recognized as an asset apart from goodwill if it arises from

contractual or other legal rights or is capable of being separated from the acquired entity such as patents, copyrights, employee contracts, license agreements

Land improvements: examples of land improvements include costs of these assets are separately identified and capitalized. we depreciate their cost over periods benefited by their use.

costs of establishing parking lots, driveways, and private roads and costs of fences and lawn and garden sprinkler systems.

cost of natural resources: include timber tracts, mineral deposits, and oil and gas deposits. they can be distinguished from other assets by the fact that their benefits are derived from their ___ ___

physical consumption

sometimes a company buys natural resources from another company. in that case, initial valuation is simply the purchase price plus any other costs necessary to bring the asset to condition and location for use. more frequently, the company will ___ the natural resource.

develop

Cost of Equipment: some costs are difficult. for example, the costs of training personnel to operate machinery could be considered a cost necessary to make the asset ready for use. however since it is diffiuclt to measure the amount of training costs associated with specific assets, these costs usually are

expensed

Software development costs: GAAP establishes a timeline for purposes of accounting for software development costs. Any software costs incurred from initial development activity until technological feasibility of the software are treated like other RD costs: ____ as ___

expensed as incurred

the costs of an asset that produce benefits only in the current period are recorded as

expesnes

Exchanges: the basic principle followed in these nonmonetary asset exchanges is to value the asset received at

fair value

Non cash acquisitions: the controlling principle in each of these situations is that in any noncash transaction, the asset acquired is recorded at its

fair value

Even though the costs to develop the patented product are expensed, the

filing and legal costs for the patent are capitalized and amortized in future periods

exchanges: when fair value is not determinable, fair value cannot be used to record the asset being received. The asset is simply recorded

for the book value of the asset given, adjusted for the effects of any cash exchanged

Self - constructed assets: overhead allocation generally accepted method is the

full cost approach. its based on the relative amount of a chose cost drive ( labor hours)

our objective in identifying the costs of an asset is to distinguish the expenditures that produce ___ benefits from those that produce benefits only in the

future current periods

Patent: an exclusive right to manufacture a product or use a process. granted for a period of 20 years

if a patent is purchased from and inventor or another individual or company, the amount paid is its initial valuation. the cost might also include such other costs as legal and filing fees to secure the patent. any attorney fees and other costs of successfully defending a patent are added to the patent account

Research and Development: FASB takes a conservative approach and requires R&D costs to be expensed ___

immediately

if an asset is purchased specifically for a single RD project, its cost is considered RD and expensed ___. However, the cost of an asset that has an alternative future use beyond the current RD project is __ a current RD expense instead the depreciation or amortization of these alternative use assets are included as RD expense in the current and futre periods the assets are used for RD activities

immediately not

Cost of Natural Resources development costs restoration costs

incurred after the resource has been discovered but before production begins. they include a variety of costs such as expenditures for tunnels, wells, shafts these are costs to restore land or other property to its original condition after extraction of the natural resource ends

good will is a ____ asset so we do not ___ goodwill

indefinite amortize

land improvements: important to distinguish between the cost of land and the cost of land improvements because land has an ____ life and land improvements usually have useful lives that are ___

indefinite estimable

patent: when a patent is developed internally, the R&D costs of doing so are expensed as incurred and we capitalize legal and filing fees to secure the patent even if

internally developed

exchanges: losses in exchanges that lack commercial substance are fully recognized regardless of cash received or paid

just like losses when fair value is determinable

intangible assets: this uncertainty is a discriminating characteristic of intangible assets that perhaps better distinguished them from tangible assets than their

lack of physical substance

Self - constructed assets: the critical accounting issue in these instances is identifying the cost of the self- constructed asset. it is difficult because there is

no external transaction to establish exchange price

Cost of Buildings: the cost of acquiring a building usually includes realtor commissions and legal fees in addition to the purchase price. quite often a building mist be refurbished, remodeled, or otherwise modified to suit the needs of the new owner. These reconditioning costs are part

of the building's acquisition cost