Chapter 10 SmartBook

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.

Obligations associated with the disposition of property, plant, equipment, and natural resources are called _____ _____ obligations.

asset retirement

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

asset retirement obligations.

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

capitalized as part of the cost of land

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

commercial

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.

copyright

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

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 legal fees to secure title real estate agent commissions

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

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.

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

development costs.

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

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 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

Which method in oil and gas accounting allows all costs to be capitalized as assets, and then expensed in the future as oil and gas are extracted?

full-cost method

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

future cash flows

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.)

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

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

lump-sum

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

lump-sum purchase.

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

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

restoration costs.

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.

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

revenue is recorded.

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.

The two generally accepted methods for oil and gas accounting for U.S. GAAP are the

successful efforts method. full-cost method.

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

the assets have different useful lives.

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

trademark

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

trademark copyright patent

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.

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.

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

legal fees to obtain title realtor commissions remodeling building

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.

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

Fair value

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

Real estate commissions relating to purchase of building

Which method in oil and gas accounting requires the cost of unsuccessful wells be expensed in the current period?

Successful efforts method

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

intangible asset.

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

interest charges and allocation of overhead.

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits.

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

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

patent

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

patent 20

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.

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

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.