Chapter 10 SmartBook

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

Blank 1: patent Blank 2: twenty or 20 Explanation: A patent is an exclusive right to manufacture a product or to use a process. The US Patent and Trademark Office grants this right for a period of 20 years. LO10-1

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.)

copyright LO10-1

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

intangible LO10-1

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? (a) $114,000 (b) $110,000 (c) $117,000 (d) $100,000 (e) $112,000

(a) $114,000 Explanation: Purchase price $100,000 + Cost of removing old building 7,000 + Title insurance 1,000 + Cost of grading 4,000 + Delinquent property taxes 2,000 Amount capitalized $114,000 ***Property taxes of $4,000 were not included. These relate only to the current operating period and should be expensed separately as the property tax expense. LO10-1

Which of the following items should be capitalized in the cost of equipment? (Select all that apply.) (a) Purchase price (b) installation and testing of equipment (c) repair costs for first year of operations (d) freight to deliver the equipment to its location (e) insurance on equipment during shipping

(a) Purchase price (d) freight to deliver the equipment to its location (e) insurance on equipment during shipping LO10-1

Which of the following items are intangible assets? (Select all that apply.) (a) copyright (b) land (c) patent (d) trademark (e) equipment

(a) copyright (c) patent (d) trademark LO10-1

Which of the following items should be capitalized as land improvements? (Select all that apply.) (a) cost of parking lots (b) cost of sidewalks (c) cost of land (d) cost of fences

(a) cost of parking lots (b) cost of sidewalks (d) cost of fences LO10-1

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 (a) development costs. (b) restoration costs. (c) acquisitions costs. (d) exploration costs.

(a) development costs. LO10-1

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.) (a) grading the land (b) title insurance (c) current year's property taxes (d) legal fees to secure title (e) costs to remove an old building

(a) grading the land (b) title insurance (d) legal fees to secure title (e) costs to remove an old building LO10-1

Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.) (a) insurance during transit (b) training of equipment operator (c) freight-in (d) set-up cost (e) depreciation for the first month

(a) insurance during transit (c) freight-in (d) set-up cost LO10-1

Long-term assets are typically classified in one of these two categories: (a) intangible assets (b) leasehold improvements (c) investments (d) property, plant, and equipment (e) construction in progress

(a) intangible assets (d) property, plant, and equipment LO10-1

The distinction between land and land improvements is that: (a) land has an indefinite life (b) there is no distinction, they are treated the same for accounting purposes (c) land has a definite life (d) land is depreciated and land improvements are not

(a) land has an indefinite life LO10-1

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics (Select all that apply.) (a) long-lived (b) valued at fair value (c) short-lived (d) revenue-producing

(a) long-lived (d) revenue-producing PART A

Which of the following are classified as natural resources? (Select all that apply.) (a) mineral deposits (b) land and land improvements (c) building (d) timber tracts

(a) mineral deposits (d) timber tracts LO10-1

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) (a) purchase price (b) utilities for the building (c) legal fees to obtain title (d) interest on the loan

(a) purchase price (c) legal fees to obtain title LO10-1

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) (a) remodeling building (b) legal fees to obtain title (c) insurance on the building (d) realtor commissions (e) current year property taxes

(a) remodeling building (b) legal fees to obtain title (d) realtor commissions LO10-1

Which of the following items should always be capitalized in the cost of equipment? (Select all that apply.) (a) sales tax (b) installation and testing of equipment (c) freight to deliver the equipment (d) training costs for equipment operators (e) legal fees to establish title

(a) sales tax (b) installation and testing of equipment (c) freight to deliver the equipment (e) legal fees to establish title LO10-1

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 (a) $60,400 (b) $57,400 (c) $57,000 (d) $55,000

(b) $57,400 Explanation: Purchase price $50,000 + Freight and handling 2,000 + Concrete pad for equipment 5,000 + Shipping insurance 400 Amount capitalized $57,400 LO10-1

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. (a) True (b) False

(b) False LO10-1

Which of the following should be included in the cost of buildings? (a) Cost of paving parking lot in front of building (b) Real estate commissions relating to purchase of building (c) Cost of clearing land adjacent to building (d) Fire insurance premiums relating to building

(b) Real estate commissions relating to purchase of building LO10-1

The purchase price and all costs to bring an asset to its desired condition and location for use should be (a) accrued (b) capitalized (c) expensed

(b) capitalized LO10-1

Expenditures needed to get land ready for its intended use should be: (a) expensed as incurred (b) capitalized as part of the cost of land (c) capitalized as part of the cost of a related building

(b) capitalized as part of the cost of land LO10-1

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements? (Select all that apply.) (a) legal fees to acquire land (b) cost of lawn sprinkler system (c) cost of land (d) cost of sidewalks (e) cost of driveways

(b) cost of lawn sprinkler system (d) cost of sidewalks (e) cost of driveways LO10-1

Expenditures relating to a search for natural resources are referred to as (a) development costs. (b) exploration costs. (c) restoration costs. (d) acquisition costs.

(b) exploration costs. LO10-1

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 (a) exploration obligation. (b) retirement obligation. (c) development cost.

(b) retirement obligation. LO10-1

Obligations associated with disposition of property, plant, equipment, or natural resources are called (a) accumulated depreciation. (b) contra-asset-liabilities. (c) asset retirement obligations. (d) nonrecurring fixed assets.

(c) asset retirement obligations. LO10-1

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: (a) land (b) intangible asset - mineral rights (c) natural resources

(c) natural resources LO10-1

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a (a) franchise (b) copyright. (c) trademark. (d) patent.

(c) trademark. LO10-1

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 (a) $117,000 (b) $121,000 (c) $100,000 (d) $114,000 (e) $108,000

(d) $114,000 Explanation: Purchase price $100,000 + Freight and handling 8,000 + Trial runs 6,000 Amount capitalized $114,000 LO10-1

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? (a) $222,000 (b) $240,000 (c) $236,000 (d) $224,000 (e)$200,000

(d) $224,000 Explanation: Purchase price $200,000 + Delinquent property taxes 8,000 + Commission to broker 14,000 + Cost of grading 2,000 Amount capitalized $224,000 ***Property taxes of $4,000 were not included. These relate only to the current operating period and should be expensed separately as the property tax expense. LO10-1

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

depreciated or expensed LO10-1