Hist. and Theory; test 3
Companies may not use the fair value option for investments that follow the equity method of accounting.
f
Companies rarely have to allocate the transaction price to more than one performance obligation in a contract.
f
Companies should always offset interest revenue against interest cost when determining the amount of interest to be capitalized as part of the construction cost of assets
f
Companies should assign no portion of fixed overhead to self-constructed assets
f
Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property, plant, and equipment
f
Costs in the research phase are expensed under GAAP, but capitalized under IFRS
f
Debt securities include corporate bonds and convertible debt, but not US government securities
f
Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee.
f
GAAP requires start-up costs and initial operating losses during the early years to be capitalized
f
If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs
f
If a company transfers held-to-maturity securities to available-for-sale securities, the unrealized gain or loss is recognized in income.
f
If a decline in a security's value is judged to be temporary, a company needs to write down the cost basis of the individual security to a new cost basis.
f
If fair value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.
f
Intangible assets derive their value from the right (claim) to receive cash in the future
f
Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.
f
Internally generated intangible assets are initially recorded at fair value
f
Periodic alterations to existing products are an example of research and development costs.
f
Research and development costs are reported as intangible assets if they will provide economic benefits in future years.
f
Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.
f
The Construction in Process account includes only construction costs under the percentage-of-completion method.
f
The Fair Value Adjustment account has a normal credit balance
f
The Unrealized Holding Gain/Loss—Income account for equity securities is reported as a part of other comprehensive income.
f
The accounting profession has concluded that an investment of 50 percent or more of the voting stock of an investee should lead to a presumption of only significant influence over an investee.
f
The cost of a purchased patent should be amortized over the remaining legal life of the patent
f
The first step in the revenue recognition process is to identify the separate performance obligations in the contract
f
The increased acceptance of IFRS has caused costs associated with internally generated intangible assets to be capitalized under GAAP.
f
The new revenue recognition standard adopts a liability approach as the basis for revenue recognition.
f
The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment
f
The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles
f
Under GAAP, impairment loss is measured as the excess of the carrying amount over the assets discounted cash flow
f
Under the completed-contract method, companies recognize costs only when the contract is completed.
f
Under the fair value method, the investor reports as revenue its share of the net income reported by the investee
f
Unrealized holding gains and losses are recognized in net income for available-for-sale debt securities.
f
When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.
f
When a company sells a product but gives the buyer the right to return it, revenue should not be recognized until the sale is collected.
f
When an ordinary repair occurs, several accounting periods will usually benefit
f
When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included
f
When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building
f
IFRS permits some capitalization of internally generated intangible assets, if it is probable there will be a future benefit and the amount can be readily measured.
t
If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset's book value
t
If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent
t
If a nonmonetary exchange lacks commercial substance and cash is received, a partial gain or loss is recognized.
t
If the difference between the Construction in Process and the Billings on Construction in Process account balances is a debit, the difference is reported as a current asset
t
If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized
t
If the performance obligation is not highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately.
t
Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently being used
t
In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder recorded as goodwill
t
Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.
t
Internally generated goodwill should not be capitalized in the accounts
t
Limited-life intangibles are amortized by systematic charges to expense over their useful lives
t
Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.
t
Revenue from a contract with a customer cannot be recognized until a contract exists
t
Revenue is recognized in the accounting period when the performance obligation is satisfied
t
Significant influence over an investee may be indicated by material intercompany transactions and interchange of managerial personnel.
t
The cost of acquiring a customer list from another company is recorded as an intangible asset
t
The flexibility involved in accounting for intangibles is an example of finite uniformity
t
The most popular input measure used to determine the progress toward completion in long-term contracts is the cost-to-cost basis
t
The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates.
t
The trade-off made with respect to the valuation of PPE is verifiability over predictive ability
t
Trading securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences
t
Variable overhead costs incurred to self-construct an asset should be included in the cost of the asse
t
Warranties that the product meets agreed-upon specifications in the contract at the time the product is sold are referred to as assurance-type warranties
t
When a company makes an unconditional promise to pledge an asset in the future, the company should report the contribution expense and related payable immediately.
t
When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization
t
When a company sells a bundle of goods at a discount, the discount should be allocated to the product that caused the discount and not to the entire bundle
t
Commercial substance exists if one party to the exchange books a gain or loss
f
Companies always treat gains or losses from an involuntary conversion as comprehensive income
f
A company can classify a debt security as held-to-maturity if it has the positive intent to hold the securities to maturity.
f
A performance obligation is a written guarantee in a contract to provide a product or service to a customer.
f
Amortization of limited-life intangible assets should not be affected by expected residual values.
f
Assets classified as PPE can be either acquired for use in operations or acquired for resale
f
Changes in the fair value of a company's available-for-sale debt instruments are included as part of earnings in any given period.
f
A company recognizes revenue from a performance obligation over time by measuring the progress toward completion
t
A contract liability is a company's obligation to transfer goods or services to a customer for which the company has received consideration from the customer.
t
A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation
t
A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but also shows unrealized gains/losses as part of other comprehensive income.
t
After an impairment loss is recorded for a limited-life intangible asset, the carrying amount becomes the basis for the impaired asset and is used to calculate amortization in future periods
t
All cash dividends received by an investor from the investee decrease the investment's carrying value under the equity method.
t
All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs
t
As in GAAP, under IFRS the costs associated with research and development are segregated into two components.
t
Assets classified as PPE must be both long-term in nature and possess physical substance
t
Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged
t
Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset
t
Companies do not report changes in the fair value of available-for-sale debt securities as income until the security is sold
t
Companies report trading securities at fair value with unrealized holding gains and losses reported in net income.
t
Companies use the expected value, a probability-weighted amount to estimate variable consideration
t
Costs in the research phase are always expensed under both IFRS and GAAP.
t
Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future economic benefits.
t
Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets
t
IFRS allows reversal of impairment losses when there has been a change in economic conditions or in the expected use of the asset. Under GAAP, impairment losses cannot be reversed for assets to be held and used
t
IFRS differs from GAAP in the development phase in that IFRS requires that costs are capitalized once technological feasibility is achieved.
t
When a sales transaction involves a significant financing component, the fair value is determined either by measuring the consideration received or by discounting the payment using an imputed interest rate.
t