Accounting concepts chapter 10

What costs are capitalized as an intangible asset for a franchise?

Initial payment for the franchise Legal costs for the agreement

Which of the following items should be capitalized

Installation and testing equipment purchase price insurance on equipment during shipping freight to deliver the equipment to its location

Long-term assets are typically classified in one of these two categories

Intangible assets Property, plant, equipment

The FASB requires research and development costs to be expensed because

It is difficult to objectively determine the future benefits

What are the cost components for self-constructed assets?

Manufacturing overhead Direct labor Direct material

Which of the following costs should be capitalized in the costs of acquiring a building?

Purchase price legal fees to obtain title realtor commissions remodeling building

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

Real estate commissions relating to purchase of building

The interest capitalization period begins with the first expenditure and ends when which of the following occur?

The asset is substantially complete and ready for use Interest costs are no longer being incurred

When assets are exchanged and the transaction lacks commercial substance, which of the following occurs?

The asset received is valued at the book value of the asset given

Interest capitalization on a self-constructed asset begins when

The first expenditure is made

When the expected cashflow approach is used to measure an asset retirement obligation at fair value, what assumptions or estimates must be made by the accountant

The probabilities of cash flows The expected cash flows

T or F U.S. GAAP does not distinguish between research activities and development costs; however, IFRS does make this distinction

True

T or F: 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

True

Which of the following are included in research and development costs

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

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include

legal costs to acquire required filing fees purchase price

In accounting terminology, the life of a trade mark is considered

Indefinite

Which of the following is true regarding a non monetary 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

What is the GAAP disclosure requirement for research and development expenses?

As a separate line item on the income statement or in a disclosure note

which items qualify for interest capitalization?

Assets built as discrete projects for sale or lease Assets built for a company's own use

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 cash received

Which of the following statements describe the accounting rules for a franchise agreement?

Capitalize the cost of the franchise Expense periodic payments as incurred Amortize the cost of the franchise over its life

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

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

Capitalized as an intangible asset

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

Capitalized as part of the cost of land

Computer software purchased for internal use should be

Capitalized over its useful life

Franchise

Contractual arrangement under which the franchisor grants the franchise the exclusive right to use the franchisor's trade mark, as well as possibly product and formula rights, to operate a business within a geographical area and usually for a specified period of time

Under IFRS amortization of capitalized development costs begins when

Development is complete the asset is ready for use

Patent

Exclusive right to manufacture a product or to use a process- 20 years

Copyright

Exclusive right to the creator of a published work such as a song, film, painting, photograph, book, or computer software- life of the creator plus 70 years

If a company generates its own goodwill through advertising or training, how should these costs be treated?

Expense the costs as incurred

Consistent with U.S. GAAP and IFRS, donated assets generally are valued at ______ value

Fair or market

T or F If a company has no borrowings, interest costs can be inputed on self-constructed assets

False

T or F Internally developed goodwill should be capitalized as an asset

False

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

Filing and legal costs for a patent

Goodwill

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

When calculating the amount of interest to capitalize on a self-constructed asset, the critical inputs are an interest rate and

Weight average accumulated expenditures

When does technological feasibility occur in software development?

When all planning, designing, coding, and testing activities are completed and the product meets design specifications

The difference between an asset retirement liability and the probability weighted expected cash flows is recognized as ______ expense each period

accretion

If natural resources are developed by a company, the initial valuation should include

acquisition cost restoration cost development cost exploration cost

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

an expense in the period incurred

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

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

capitalized

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements

cost of sidewalks, cost of driveways cost of lawn sprinkler system

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

credit adjusted risk-free rate

The allocation of the cost of natural resources to the periods extracted is referred to as _____ expense

depletion

Accounting for land improvements requires that the costs of land improvements are...

depreciated or amortized over periods benefited capitalized

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

development costs

U.S. GAAP and IFRS treat research costs as a(n) _______, whereas for IFRS, development costs are treated as a(n) ______

expense intangible asset

For a patent to develop internally, the research and development costs are

expensed as incurred

Expenditures relating to a search for natural resources are referred to as

exploration costs

Asset retirement obligations are recorded as a liability and measured 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

Indicate which costs would be capitalized as part of the cost of manufacturing equipment

freight-in set-up cost insurance during transit

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

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

full-cost approach

A companies reputation and clientele, its trained employees, and favorable business location may give rise to ______

goodwill

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

interest charges and allocation of overhead

The rationale for capitalizing interest on a self-constructed asset is that....

interest expense is incurred while getting the asset ready for its intended use and therefore, should be capitalized

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land

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

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land

legal fees to secure title real estate commissions costs to remove an old building

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

lump-sum purchase

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

An asset retirement obligation must be recognized

only if it is a legal obligation

When is it appropriate to recognize a liability for an asset retirement obligation?

over the assets life as incurred at the inception of the assets life if a a legal obligation exists

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

present value of future cash flows

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

The costs included in the natural resource account includes

restoration costs exploration costs acquisition costs development costs

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics

revenue producing long-lived

The type of interest costs that can be treated as capitalized interest can pertain to borrowings that are

specifically for the construction project other loans during the period of construction

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

U.S. GAAP allows development costs to be capitalized when software reaches the point of _____ _____

technological feasibility

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

the related asset

For self-constructed assets, if no specific money is borrowed to construct the asset, but other debt is outstanding, the interest rate used to capitalize interest is

the weighted-average rate on all loans outstanding

which of the following are classified as natural resources

timber tracts mineral deposits

Trademark

word, slogan, or symbol that distinctively identifies a company, product, or service- 10 years