Chapter 10 Reading
GeoMines Corp. has the following costs related to a mine it acquired this year. Cost of land and natural resource rights $100,000 Development cost before production begins 20,000 Future cost to restore land after mining 15,000 Equipment used for mining 80,000 Exploration and drilling costs 30,000 What amount should be included as an asset for natural resources? Multiple choice question. $230,000 $255,000 $165,000 $150,000
$165,000 Cost of land and natural resource rights $100,000 Development cost before production begins 20,000 Future cost to restore land after mining 15,000 Exploration and drilling costs 30,000
South Company acquires North Corporation for $20 million. The book value of North Corporation's net assets is $15 million, while the fair value of the net assets is $18 million. The fair value of the liabilities assumed is $2 million. Goodwill associated with the acquisition is: Multiple choice question. $5 million $2 million $3 million $0 $4 million
$2 million Reason: $20 million - $18 million Net assets has already been reduced by the liabilities
On January 1, 2017, Sonic Corp. begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Sonic had the following expenditures on the project during 2017: January 1, 2017 $100,000 April 1, 2017 100,000 November 1, 2017 150,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in 2017? Multiple choice question. $200,000 $350,000 $175,000 $116,667
$200,000 Reason: $100,000 x 12/12 = $100,000; $100,000 x 9/12 = $75,000; $150,000 x 2/12 = $25,000. Total $200,000
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? Multiple choice question. $222,000 $224,000 $240,000 $236,000 $200,000
$224,000 Reason: $200,000 + $8,000 + $14,000 + $2,000 = $224,000
Northern Company incurred the following costs during the year related to the creation of a new product: Salaries $200,000 Depreciation on R&D equipment $50,000 Quality control during commercial production $10,000 Patent filing and legal costs $8,000 Payment for services in connection with R&D activities $20,000 Testing of preproduction prototypes and models $5,000 What amount should Northern report as research and development expense in its income statement? Multiple choice question. $285,000 $273,000 $293,000 $260,000 $275,000
$275,000
Quarry Corp. has the following costs related to a mine it acquired this year. Cost of land and natural resource rights $200,000 Asset retirement obligation to restore land 50,000 Costs of extraction during year 1 35,000 Equipment used for mining 100,000 Exploration and drilling costs to prepare quarry for extraction 40,000 What amount should be included as an asset for natural resources? Multiple choice question. $340,000 $290,000 $425,000 $325,000
$290,000 Cost of land and natural resource rights $200,000 Asset retirement obligation to restore land 50,000 Exploration and drilling costs to prepare quarry for extraction 40,000
Reese Co. constructs a new facility. The average accumulated expenditures were $800,000. Reese borrows $600,000 on a construction loan to build the facility. The interest rate on the construction loan is 5%. Reese also has an additional loan outstanding for $500,000 with an interest rate of 7%. What is the amount of annual interest that Reese should capitalize on the self-constructed facility?
$44,000 Reason: ($600,000 x 5%+ $200,000 x 7%) = $44,000
On January 1, 2017, Plaid Corporation begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Plaid had the following expenditures on the project during 2017: January 1, 2017 $200,000 July 1, 2017 $600,000 December 1, 2017 $120,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in 2017? Multiple choice question. $420,000 $310,000 $510,000 $460,000
$510,000 Jan 1: 200000 x 12/12 = 200000 July 1: 600000 x 6/12 = 300000 Dec 1: 120000x 1/12 = 10000
On January 2, 2022, McClelland Company purchased a machine and signed a noninterest-bearing note in payment. The note matures in 4 years and requires McClelland to pay $70,000 at maturity. McClelland also had the option to purchase the the machine in cash from a different vendor for $56,505. At what amount should the machine be recorded upon purchase? Multiple choice question. $70,000 $56,505 $13,495
$56,505
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 Multiple choice question. $60,400 $55,000 $57,400 $57,000
$57,400 Purchase price $50,000 Freight and handling 2,000 Concrete pad for equipment 5,000 Shipping insurance 400
A trademark registered with the U.S. Patent Office protects the trademark from use by others for a period of Multiple choice question. 10 years. 5 years. 50 years. 70 years.
10 years.
Joy Corp. builds a new office building. The average accumulated expenditures were $2,000,000. Joy borrows $1,500,000 on a construction loan specifically to build the office building. The interest rate on the construction loan is 6%. Joy also has an additional loan outstanding for $3,000,000, with an interest rate of 8%. What is the amount of interest that Joy should capitalize on the self-constructed office building? $90,000 $130,000 $160,000 $120,000 $140,000
130,000 Reason: ($1,500,000 x 6%) + ($500,000 x 8%) = $130,000
Mark Corp. is building a new office building. The office building qualifies as a self-constructed asset. During the year, Mark has weighted-average expenditures on the construction project of $1,500,000. Although Mark does not borrow money specifically to build the office building, Mark has two loans outstanding during the year. Loan A is for $400,000 at 9% interest, and Loan B is for $2,000,000 at 6% interest. What is the interest rate used to capitalize interest on the office building? Multiple choice question. 6.5% 6% 7.5% 10.4%
6.5% Reason: The interest on Loan A is $400,000 x 9% = 36,000. The interest on Loan B is $2,000,000 x 6% = 120,000. Total interest is $36,000 + $120,000 = $156,000. The weighted-average rate is $156,000/$2,400,000 = 6.5%.
Baker is building a new warehouse. The warehouse qualifies as a self-constructed asset. During the year, Baker has weighted-average expenditures on the construction project of $600,000. Although Baker does not borrow money specifically to build the warehouse, it has two loans outstanding during the year. Loan A is for $400,000 at 6% interest, and Loan B is for $800,000 at 9% interest. What is the interest rate used to capitalize interest on the warehouse? Multiple choice question. 7.5% 0% 8% 16%
8% Reason: The interest on Loan A is $400,000 x 6% = 24,000. The interest on Loan B is $800,000 x 9% = 72,000. Total interest is $24,000 + $72,000 = $96,000. The weighted-average rate is $96,000/$1,200,000 = 8%.
Which of the following is true regarding a nonmonetary exchange of assets? Multiple choice question. The new asset is recorded at the book value of the old asset. The new asset is recorded at the book value of the old asset plus the cash paid. A gain or loss is recognized for the difference between the fair value and the book value of the asset given up. The gain or loss recognized is the difference between the historical cost of the asset given up and the fair value of the new asset received.
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 transaction that required the following journal entry: $41,323 debit to Equipment, $8,677 debit to Discount on note payable, and $50,000 credit to Note payable? Multiple choice question. Acquired an asset in a lump-sum purchase. Acquired an asset by signing a noninterest-bearing note payable. Acquired an asset in a business combination. Acquired an asset by signing an interest-bearing note payable.
Acquired an asset by signing a noninterest-bearing note payable.
Select all that apply The cost of natural resources includes which of the following? (Select all that apply.) Multiple select question. Employee salaries during production. Acquisition cost for the use of land. Restoration costs at the end of extraction. Exploration costs before production begins. Extractive and drilling equipment.
Acquisition cost for the use of land. Restoration costs at the end of extraction. Exploration costs before production begins.
Obligations associated with the disposition of property, plant, equipment, and natural resources are called ____ ____ obligations.
Blank 1: asset Blank 2: retirement
The cost of research and development performed for others is ______and recorded as_______
Blank 1: capitalized Blank 2: inventory
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
U.S. GAAP allows development costs to be capitalized when software reaches the point of ______ ______
Blank 1: technological Blank 2: feasibility
Select all that apply Mining Ventures purchases land and the rights to explore for $100,000. Exploration costs are $20,000, and development costs are $30,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $50,000. The journal entry to record the acquisition of the mine will include which of the following entries? (Select all that apply.) Multiple select question. Credit to cash $150,000 Debit to mining assets of $200,000. Credit to cash of $200,000. Credit to asset retirement liability of $50,000. Debit to asset retirement obligation of $150,000.
Credit to cash $150,000 Debit to mining assets of $200,000. Credit to asset retirement liability of $50,000.
Select all that apply Cheng Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The asset received had a fair value of $40,000 and a book value of $35,000. What journal entry should be recorded? (Select all that apply.) Multiple select question. Debit equipment $35,000. Debit loss on equipment $15,000. Credit equipment-old $50,000. Debit accumulated depreciation $40,000. Debit equipment-new $40,000. Debit loss on exchange $10,000. Credit equipment-old $90,000.
Debit accumulated depreciation $40,000. Debit equipment-new $40,000. Debit loss on exchange $10,000. Credit equipment-old $90,000.
Select all that apply Pearce Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The asset received had a fair value of $50,000 and a book value of $32,000. What journal entries should be recorded? (Select all that apply.) Multiple select question. Debit accumulated depreciation $40,000. Debit loss on exchange $30,000. Debit equipment-new $32,000. Debit equipment-new $50,000. Credit accumulated depreciation $40,000. Credit equipment-old $80,000. Credit equipment-old $120,000.
Debit accumulated depreciation $40,000. Debit loss on exchange $30,000. Debit equipment-new $50,000. Credit equipment-old $120,000.
True or false: Internally developed goodwill should be capitalized as an asset. True False
False Reason: Costs of internally developed goodwill should be expensed as incurred.
True or false: If a company has no borrowings, interest costs can be imputed on self-constructed assets.
False Reason: Interest costs may not be imputed; actual interest cost must be incurred.
Which of the following is not included in research and development expenses? Multiple choice question. Costs to develop a patented product. Filing and legal costs for a patent. Equipment purchased specifically for research project. Depreciation on equipment with alternative use.
Filing and legal costs for a patent.
Select all that apply What costs are capitalized as an intangible asset for a franchise? (Select all that apply.) Multiple select question. Initial payment for the franchise. Interest on the note payable to purchase the franchise. Legal costs for the franchise agreement. Periodic payments for services by the franchisor.
Initial payment for the franchise. Legal costs for the franchise agreement.
Select all that apply Which of the following are included in research and development costs? (Select all that apply.) Multiple select question. Materials used in the lab Allocation of indirect costs related to research General and administrative expenses for the company Salaries of researchers
Materials used in the lab Allocation of indirect costs related to research Salaries of researchers
Select all that apply Which of the following items should be capitalized in the cost of equipment? (Select all that apply.) Multiple select question. Purchase price installation and testing of equipment freight to deliver the equipment to its location repair costs for first year of operations insurance on equipment during shipping
Purchase price installation and testing of equipment freight to deliver the equipment to its location insurance on equipment during shipping
Which of the following are exceptions to expensing research and development costs and should instead be capitalized? (Select all that apply.) Multiple select question. R&D performed for sale to others Design and construction of prototypes Technologically feasible software development costs Salaries for employees engaged in R&D activities R&D purchased in a business acquisition
R&D performed for sale to others Technologically feasible software development costs R&D purchased in a business acquisition
Which of the following should be included in the cost of buildings? Multiple choice question. Cost of clearing land adjacent to building Cost of paving parking lot in front of building Real estate commissions relating to purchase of building Fire insurance premiums relating to building
Real estate commissions relating to purchase of building
Western Company incurred the following costs during the year related to the creation of a new product: Salaries of researchers $100,000 Depreciation on R&D equipment $30,000 Utilities at R&D facility $5,000 Patent filing and legal costs $8,000 Payment for services in connection with R&D activities $10,000 Adaptation costs for specific needs of a customer $2,000 What amount should Western report as research and development expense in its income statement? Multiple choice question. $115,000 $147,000 $155,000 $153,000 $145,000
S145000 Salaries of researchers $100,000 Depreciation on R&D equipment $30,000 Utilities at R&D facility $5,000 Payment for services in connection with R&D activities $10,000
Which of the following are exceptions to expensing research and development costs and should instead be capitalized? (Select all that apply.) Multiple select question. Technologically feasible software development costs R&D purchased in a business acquisition Salaries for employees engaged in R&D activities R&D performed for sale to others Design and construction of prototypes
Technologically feasible software development costs R&D purchased in a business acquisition R&D performed for sale to others
True or false: Asset retirement obligations (AROs) arise only from legal obligations associated with the retirement of a long-lived tangible asset. True false question. True False
True Reason: AROs are legal obligations that result from the retirement of an asset that results from the acquisition, construction, development, or normal operation of a long-lived asset.
When does technological feasibility occur in software development? Multiple choice question. When the designers agree on product design. When all planning, designing, coding, and testing activities are completed and the product meets design specifications. When the product is sold. When the patent is approved and the designers are ready to write the program.
When all planning, designing, coding, and testing activities are completed and the product meets design specifications.
Select all that apply Wall Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The asset received had a fair value of $80,000 and a book value of $65,000. The entry to record the transaction includes (Select all that apply.) Multiple select question. a credit to equipment-old for $100,000. a credit to equipment-old for $80,000. a credit to accumulated depreciation for $60,000. a credit to gain on exchange of asset for $40,000. a debit to equipment-new for $80,000. a debit to accumulated depreciation for $60,000. a debit to equipment-new for $65,000.
a credit to equipment-old for $100,000. a credit to gain on exchange of asset for $40,000. a debit to equipment-new for $80,000. a debit to accumulated depreciation for $60,000.
Select all that apply Wall Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The asset received had a fair value of $80,000 and a book value of $65,000. The entry to record the transaction includes (Select all that apply.) Multiple select question. a debit to accumulated depreciation for $60,000. a debit to equipment-new for $65,000. a debit to equipment-new for $80,000. a credit to accumulated depreciation for $60,000. a credit to gain on exchange of asset for $40,000. a credit to equipment-old for $100,000. a credit to equipment-old for $80,000.
a debit to accumulated depreciation for $60,000. a debit to equipment-new for $80,000. a credit to gain on exchange of asset for $40,000. a credit to equipment-old for $100,000.
Start-up costs such as legal fees and state filings to incorporate should be treated as Multiple choice question. accumulated other comprehensive income. an asset and amortized over 5 years. an extraordinary loss of the period. an expense in the period incurred.
an expense in the period incurred
Costs incurred after technological feasibility is established but before the software is available to customers should be Multiple choice question. expensed in the period incurred. treated as an ordinary loss in the period incurred. capitalized as an intangible asset. treated as research and development expenses.
capitalized as an intangible asset.
Costs incurred after technological feasibility is established but before the software is available to customers should be Multiple choice question. treated as an ordinary loss in the period incurred. expensed in the period incurred. capitalized as an intangible asset. treated as research and development expenses.
capitalized as an intangible asset.
Accounting for software is an exception to the general rule to expense research and development costs. Expenditures made after the software is determined to be technologically feasible but before it is ready for commercial production are Multiple choice question. liabilities until completed. expensed as incurred. written off as impaired.
capitalized.
Select all that apply Accounting for land improvements requires that the costs of land improvements are (Select all that apply.) Multiple select question. capitalized. expensed in the current period. depreciated or amortized over the periods benefited. included in the cost of land.
capitalized. depreciated or amortized over the periods benefited.
Costs of an asset that produce future benefits are ______, but costs that produce benefits only in the current period are ______. Multiple choice question. capitalized; expensed current assets; noncurrent assets expensed; capitalized operating activities; investing activities
capitalized; expensed
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. Multiple choice question. trademark franchise patent copyright
copyright
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
Select all that apply Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements? (Select all that apply.) Multiple select question. cost of driveways cost of lawn sprinkler system cost of sidewalks cost of land legal fees to acquire land
cost of driveways cost of lawn sprinkler system cost of sidewalks
select all that apply 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.) Multiple select question. costs to remove an old building real estate agent commissions legal fees to secure title current year's property taxes
costs to remove an old building real estate agent commissions legal fees to secure title
Select all that apply Smith company acquires equipment by signing a noninterest-bearing note payable requiring the future payment of $20,000. The present value of the note payable is $15,000. Assuming Smith uses a contra account, Smith should record (Select all that apply.) Multiple select question. credit note payable $20,000 debit machine $20,000 debit discount on note payable $5,000 credit note payable $15,000 debit machine $15,000
credit note payable $20,000 debit discount on note payable $5,000 debit machine $15,000
Select all that apply The City of Metropolis agrees to pay 10% of the cost of a building to encourage Mega Corp. to relocate to its city. The total cost of the building was $5,000,000, and Mega agrees to pay the remaining amount in cash. The journal entry for Mega Corp to record this transaction includes which of the following entries? (Select all that apply.) Multiple select question. credit to other comprehensive income $500,000 credit to cash $5,000,000 credit to cash $4,500,000 debit to donated assets $500,000 credit to donated assets $5,000,000 credit to revenue $500,000 debit to building $5,000,000
credit to cash $4,500,000 credit to revenue $500,000 debit to building $5,000,000
Select all that apply Krasel Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The asset received had a fair value of $50,000 and a book value of $45,000. The entry to record the transaction includes (Select all that apply.) Multiple select question. credit to equipment-old for $90,000. credit to gain on exchange of asset for $30,000. credit to equipment for $70,000. debit to accumulated depreciation $70,000 debit to equipment-new for $50,000. debit to equipment for $45,000.
credit to equipment-old for $90,000. credit to gain on exchange of asset for $30,000. debit to accumulated depreciation $70,000 debit to equipment-new for $50,000.
Depreciation expense is recorded for tangible fixed assets, whereas ______ expense is recorded for natural resources. Multiple choice question. amortization depletion depreciation accretion
depletion
Accounting for land improvements requires that the land improvements are capitalized and then _______ over periods benefited by their use.
depreciated or expensed
Which of the following are research and development costs? (Select all that apply.) Multiple select question. design, construction, and testing of pre-production prototypes research aimed at discovering new knowledge quality control during production engineering follow-through in production
design, construction, and testing of pre-production prototypes research aimed at discovering new knowledge
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 Multiple choice question. exploration costs. acquisitions costs. development costs. restoration costs.
development costs.
Select all that apply Under IFRS, amortization of capitalized development costs begins when (Select all that apply.) Multiple select question. development is complete development begins the asset is ready for use the asset is sold research is complete
development is complete the asset is ready for use
Which of the following are included in research and development costs? (Select all that apply.) Multiple select question. equipment in the lab labor costs of research personnel allocation of overhead for lab facilities administrative expenses sales commissions
equipment in the lab labor costs of research personnel allocation of overhead for lab facilities
For a patent developed internally, the research and development costs are Multiple choice question. capitalized into the cost of the patent. recorded as patent amortization expense. recorded as a contra-asset to the patent. expensed as incurred.
expensed as incurred.
When a company acquires assets by issuing debt or equity securities, the first indicator of fair value is the Multiple choice question. net present value of assets received. fair value of the assets received. fair value of the debt or equity securities given. book value of the assets received.
fair value of the debt or equity securities given.
Asset retirement obligations are recorded as a liability and measured at Multiple choice question. net realizable value. net present value. fair value. historical cost.
fair value.
The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at Multiple choice question. book value of the asset given up. fair value. book value plus the cash given. book value of the asset received plus cash received.
fair value.
The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at Multiple choice question. book value plus the cash given. book value of the asset given up. fair value. book value of the asset received plus cash received.
fair value.
A ratio used to measure how effectively a manager is using plant, property, and equipment is the ______ ratio. Multiple choice question. fixed-asset turnover return on equity return on sales current
fixed-asset turnover
A(n) _______ is 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.
franchise
A company's reputation and clientele, its trained employees, and favorable business location may give rise to ______
goodwill
An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as _________
goodwill
The two important accounting issues related to self-constructed assets are Multiple choice question. interest charges and date placed in service. allocation of overhead and depreciation rates. interest charges and allocation of overhead. historical cost and useful life.
interest charges and allocation of overhead.
Select all that apply The interest capitalization period begins with the first expenditure and ends when which of the following occur? (Select all that apply.) Multiple select question. interest costs are no longer being incurred the loan is paid off at the end of the asset's life the asset is substantially complete and ready for use the construction project is subcontracted to another party
interest costs are no longer being incurred the asset is substantially complete and ready for use
The rationale for capitalizing interest on a self-constructed asset is that Multiple choice question. interest expense is incurred while getting the asset ready for its intended use and therefore, should be capitalized. interest expense is not part of labor, material, or overhead in calculating construction costs. interest expense is an operating activity and should be treated as a period expense. interest expense is a financing activity and should be treated as expense in the period incurred.
interest expense is incurred while getting the asset ready for its intended use and therefore, should be capitalized.
Assets that do not qualify for interest capitalization are Multiple choice question. inventories routinely manufactured. assets built for a company's own use. assets constructed as a discrete project for sale or lease.
inventories routinely manufactured.
A company that performs research and development activities for other companies under contract should capitalize the costs related to research and development in the Multiple choice question. inventory account. income statement as other gains and losses. income statement as expenses. R&D fixed asset account.
inventory account.
The FASB requires research and development costs to be expensed because Multiple choice question. it is difficult to objectively determine the future benefits. research and development costs have no future value. the costs of research are greater than the benefits.
it is difficult to objectively determine the future benefits.
What are the cost components for self-constructed assets? (Select all that apply.) Multiple select question. manufacturing overhead direct labor direct material operating expenses
manufacturing overhead direct labor direct material
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: Multiple choice question. land intangible asset - mineral rights natural resources
natural resources
The fixed-asset turnover ratio is calculated as ______ divided by average fixed assets. Multiple choice question. net income current assets total assets net sales
net sales
For capitalized interest on self-constructed assets, weighted-average expenditures is determined by weighting the individual expenditures by the Multiple choice question. average interest rate for the period. average risk-free rate for the period. weighted-average amount borrowed during the period. number of months from incurrence to the end of the construction period.
number of months from incurrence to the end of the construction period.
An asset retirement obligation must be recognized Multiple choice question. for all fixed assets. when the asset is retired. only for restoration of natural resources. only if it is a legal obligation.
only if it is a legal obligation.
Select all that apply The type of interest costs that can be treated as capitalized interest can pertain to borrowings that are (Select all that apply.) Multiple select question. other loans during the period of construction. specifically for the construction project. imputed interest costs for those situations when the company is not incurring interest costs
other loans during the period of construction. specifically for the construction project.
For self-constructed assets, the costs incurred include labor, materials, and Multiple choice question. overhead. depreciation expense. operating costs. research and development.
overhead.
The exclusive legal right to manufacture a product or to use a process is called a(n)
patents
When an asset is acquired by signing a noninterest-bearing note payable, and the estimated fair value of the asset is not known, the asset should be recorded at the fair value of the note, which is the Multiple choice question. estimated resale value of the equipment. present value of the note discounted at the market rate. future value of payments on the note. maturity value of the note payable.
present value of the note discounted at the market rate.
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 Multiple choice question. present value of the note payable, which is the face amount of the note. retail selling price of the equipment as indicated in the dealer's catalog. net present value of future cash flows of the equipment. future value of payments on the note payable.
present value of the note payable, which is the face amount of the note.
Select all that apply Which of the following are noncurrent tangible assets? (Select all that apply.) Multiple select question. property accounts receivable equipment copyright trademark
property equipment
Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) Multiple select question. interest on the loan purchase price legal fees to obtain title utilities for the building
purchase price legal fees to obtain title
A lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ______. Multiple choice question. depreciable values relative fair value book values residual values
relative fair value
The costs to organize a new entity or costs to introduce a new product or services are considered __________ costs, and should be expensed as incurred. Multiple choice question. capitalized overhead allocation research and development start-up
start-up
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 Multiple choice question. land. stock.
stock.
In a lump-sum purchase of assets, the cost must be allocated to the individual assets because Multiple choice question. the assets have different useful lives. goodwill must be expensed immediately. intangible assets must be identified and expensed.
the assets have different useful lives.
Capitalizing interest on a self-constructed asset as a cost to get the asset ready for its intended use is consistent with Multiple choice question. conservatism. faithful representation. the historical cost principle. predictive value.
the historical cost principle.
If the amount of interest calculated to be capitalized on a self-constructed asset is greater than the amount actually incurred, then Multiple choice question. the interest capitalized is limited to the actual interest incurred. the full amount of interest calculated is capitalized. no interest can be capitalized. the implicit rate must be used.
the interest capitalized is limited to the actual interest incurred.
If the amount of interest calculated to be capitalized on a self-constructed asset is greater than the amount actually incurred, then Multiple choice question. the interest capitalized is limited to the actual interest incurred. the implicit rate must be used. no interest can be capitalized. the full amount of interest calculated is capitalized.
the interest capitalized is limited to the actual interest incurred.
In a lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times Multiple choice question. the residual value percentages of each asset. the relative fair value percentages of each asset. the relative book value percentages of each asset. the estimated percentages allocated to each asset.
the relative fair value percentages of each 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 Multiple choice question. the incremental borrowing rate. the risk-free rate on the loans outstanding. zero. the weighted-average rate on all loans outstanding.
the weighted-average rate on all loans outstanding.
Select all that apply Which of the following are classified as natural resources? (Select all that apply.) Multiple select question. patents timber tracts land improvements equipment mineral deposits
timber tracts mineral deposits
A(n)_______ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.
trademark or tradename
In accounting terminology, the life of a trademark is considered Multiple choice question. infinite. indefinite. definite. finite.
indefinite
The difference between an asset retirement liability and the probability weighted expected cash flows is recognized as ______ expense each period. Multiple choice question. amortization depletion depreciation accretion
accretion
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 Multiple choice question. $117,000 $121,000 $114,000 $108,000 $100,000
$114,000 Purchase price $100,000 Freight and handling 8,000 Trial runs 6,000
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? Multiple choice question. $112,000 $114,000 $117,000 $110,000 $100,000
$114,000 Reason: $100,000 + $7,000 + $1,000 + $4,000 + $2,000 = $114,000
Spartan Corp. purchases inventory, land, building, and equipment for $540,000 from Klein Corp. The values of the assets are as follows: Asset Klein Corp's Book Value Fair Value Inventory $ 80,000 $100,000 Land 140,000 180,000 Equipment 80,000 120,000 Building 200,000 200,000 At what amount should Spartan record the inventory? Multiple choice question. $80,000 $86,400 $90,000 $100,000
$90,000 Reason: The lump-sum price is allocated based on the relative fair values of the assets. The amount allocated to the inventory is $100,000/$600,000 (total fair value of the assets purchased) x $540,000 = $90,000.
Western Company showed the following: Year 1 Year 2 Property, plant, equipment $100,000 $150,000 Net sales $1,000,000 $1,200,000 What is the fixed asset turnover for year 2? Multiple choice question. 10 8.8 9.6 8
9.6 Reason: Net sales/average fixed assets $1,200,000/($100,000 + $150,000/2)
Select all that apply Which items qualify for interest capitalization? (Select all that apply.) Multiple select question. Purchased assets Assets built for a company's own use Assets built as discrete projects for sale or lease Inventories routinely manufactured in large quantities Franchise agreements
Assets built for a company's own use Assets built as discrete projects for sale or lease
An asset is acquired by signing a noninterest-bearing note payable. The interest rate on the note is unknown; however, the fair value of the asset is available from price lists and previous purchases. How should the asset be valued? Multiple choice question. At the book value of the asset on the date of exchange. At the net present value of the asset on the date acquired. At the fair value of the asset. At the present value of the note discounted at the risk-free rate.
At the fair value of the asset.
The amount of interest capitalized on a self-constructed asset is limited to the _____ _____ _____
Blank 1: actual Blank 2: interest Blank 3: incurred
The allocation of the cost of natural resources to the periods extracted is referred to as ______ expense.
Blank 1: depletion
Marlin purchases land and the rights to explore for $200,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $40,000. The journal entry to record the acquisition of the mine will include which of the following entries? Multiple choice question. Debit to mining assets of $200,000. Credit to asset retirement liability of $40,000. Debit to mining assets of $160,000. Credit to cash of $240,000.
Credit to asset retirement liability of $40,000.
Select all that apply Mining Ventures purchases land and the rights to explore for $100,000. Exploration costs are $20,000, and development costs are $30,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $50,000. The journal entry to record the acquisition of the mine will include which of the following entries? (Select all that apply.) Multiple select question. Credit to cash of $200,000. Credit to cash $150,000 Credit to asset retirement liability of $50,000. Debit to mining assets of $200,000. Debit to asset retirement obligation of $150,000.
Credit to cash $150,000 Credit to asset retirement liability of $50,000. Debit to mining assets of $200,000.
If a company generates its own goodwill through advertising or training, how should these costs be treated? Capitalize the costs and amortize them over the expected life of the goodwill. Capitalize the costs and test for impairment at year-end. Expense the costs as incurred. Record as an extraordinary loss in the current year.
Expense the costs as incurred.
Donated assets should be recorded on the balance sheet at what amount? Multiple choice question. Book value of the donor Zero Fair value Net realizable value
Fair value
Select all that apply When is it appropriate to recognize a liability for an asset retirement obligation? (Select all that apply.) Multiple select question. When the asset is impaired and the cost is not recoverable. At the asset's retirement date. Over the asset's life as incurred. At the inception of the asset's life if a legal obligation exists.
Over the asset's life as incurred. At the inception of the asset's life if a legal obligation exists.
Select all that apply Mega Mines acquires a new mine for $1,000,000. Mega Mines determines at the date of acquisition that it will cost $140,000 to restore the land when the mining process is complete in 5 years. Mega Mines has a legal obligation to remove the equipment upon completion of the mining activities. Which of the following are acceptable choices for determining when to recognize an asset retirement obligation? (Select all that apply.) Multiple select question. Over the asset's life as incurred. At the asset's retirement date. At the inception of the asset's life.
Over the asset's life as incurred. At the inception of the asset's life.
True or false: The formula for capitalizing interest is the interest rate times the weighted average accumulated expenditures.
True
Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as Multiple choice question. an asset on the balance sheet. a contra asset on the balance sheet. an expense on the income statement. a liability on the balance sheet.
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 Multiple choice question. appraised value of the land. estimated value of the stock.
appraised value of the land.
Obligations associated with disposition of property, plant, equipment, or natural resources are called Multiple choice question. accumulated depreciation. asset retirement obligations. contra-asset-liabilities. nonrecurring fixed assets.
asset retirement obligations.
How does a company measure an asset retirement obligation? Multiple choice question. at lower-of-cost-or-market at net realizable value at the net present value at fair value
at fair value
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______. Multiple choice question. capitalized expensed accrued
capitalized
Computer software purchased for internal use should be Multiple choice question. capitalized and amortized over its useful life. capitalized as part of the computer hardware. expensed immediately.
capitalized and amortized over its useful life.
If equipment is purchased for research and development, but has an alternative future use, the cost of the equipment is Multiple choice question. capitalized and depreciated as R&D expense in the current and future periods. expensed immediately. capitalized and not expensed to research and development. expensed in the year the equipment is retired.
capitalized and depreciated as R&D expense in the current and future periods.
The cost of a major improvement that extends the useful life of an asset would be ______; the cost of maintenance that does not increase the future benefits would be ______. Multiple choice question. expensed; expensed capitalized; expensed capitalized; capitalized expensed; capitalized
capitalized; expensed
Select all that apply 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.) Multiple select question. debit machine $20,000 debit discount on note payable debit machine for an amount less than $20,000 credit note payable $20,000
debit machine $20,000 credit note payable $20,000
If equipment is purchased specifically for one research and development project, the cost of the equipment is Multiple choice question. expensed immediately. capitalized and expensed over its useful life. never expensed. expensed in the year the equipment is retired.
expensed immediately.
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. Multiple choice question. estimated book net realizable fair
fair
The two important accounting issues related to self-constructed assets are Multiple choice question. interest charges and allocation of overhead. historical cost and useful life. allocation of overhead and depreciation rates. interest charges and date placed in service.
interest charges and allocation of overhead.
Select all that apply Which of the following are start-up costs? (Select all that apply.) Multiple select question. purchase of initial inventories legal costs to incorporate one-time opening costs for a retailer organization costs first-year salaries
legal costs to incorporate one-time opening costs for a retailer organization costs
Select all that apply Which of the following costs are capitalized as an asset for an internally developed patent? (Select all that apply.) Multiple select question. accretion expense legal fees filing fees research and development
legal fees filing fees
Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) Multiple select question. legal fees to obtain title remodeling building current year property taxes insurance on the building realtor commissions
legal fees to obtain title remodeling building realtor commissions
Select all that apply 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.) Multiple select question. legal fees to secure title costs to remove an old building real estate agent commissions current year's property taxes
legal fees to secure title costs to remove an old building real estate agent commissions
In a business acquisition, goodwill equals the fair value of the consideration exchanged for the company Multiple choice question. less the fair value of net assets acquired. less the fair value of liabilities of the acquired company. less the book value of stock acquired. plus the book value of assets acquired.
less the fair value of net assets acquired.
Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ______ purchase. Multiple choice question. single-sum lump-sum bargain
lump-sum
Property, plant, and equipment typically include (Select all that apply.) Multiple select question. machinery cars and trucks furniture goodwill patents
machinery cars and trucks furniture
What amount is used to measure the fair value of an asset retirement obligation? Multiple choice question. lower-of-cost-or-market of the asset retirement obligation future value of the retirement obligation present value of estimated future cash flows expected net realizable value of the asset
present value of estimated future cash flows
A company acquires equipment by signing a note payable. If the note does not bear interest, the company should record the equipment at the Multiple choice question. present value of the equipment or note. future value of payments on the note payable. maturity value of the note payable.
present value of the equipment or note.
Which of the following are research and development costs? (Select all that apply.) Multiple select question. quality control during production research aimed at discovering new knowledge engineering follow-through in production design, construction, and testing of pre-production prototypes
research aimed at discovering new knowledge design, construction, and testing of pre-production prototypes
The costs to return land or other property to its original condition after extracting natural resources are referred to as Multiple choice question. exploration costs. acquisition costs. restoration costs. development costs.
restoration costs.
Select all that apply The costs included in the natural resource account includes (Select all that apply.) Multiple select question. restoration costs. equipment costs. exploration costs. acquisition costs. development costs.
restoration costs. exploration costs. acquisition costs. development costs.
When a company receives an asset from an unrelated party by a donation, the assets are valued at fair value and Multiple choice question. a gain is recorded. revenue is recorded. paid-in capital is increased. a liability is increased.
revenue is recorded.
Josh Corp. receives equipment donated from an unrelated party. Josh records the assets by debiting equipment and crediting Multiple choice question. other comprehensive income. additional paid-in capital. revenue. retained earnings.
revenue.
The fixed-asset turnover ratio indicates the level of ______ generated by each dollar of fixed assets. Multiple choice question. sales receivables cash net income
sales
Select all that apply Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.) Multiple select question. set-up cost depreciation for the first month freight-in training of equipment operator insurance during transit
set-up cost freight-in insurance during transit
Interest capitalization on a self-constructed asset begins when Multiple choice question. interest costs can be imputed. the asset is placed in service. the first expenditure is made. the asset is substantially complete.
the first expenditure is made.
When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to Multiple choice question. loss on asset obligation. a contra-asset. the related asset. other comprehensive income.
the related asset.
When calculating the amount of interest to capitalize on a self-constructed asset, the critical inputs used are an interest rate and Multiple choice question. weighted average accumulated expenditures. long-term debt outstanding at year-end. total amount paid to construct the asset. historical cost of the building.
weighted average accumulated expenditures.
For capitalization of interest on self-constructed assets, the average accumulated expenditures is the Multiple choice question. average total assets during the period. the weighted average of all assets purchased during the period. the total expected cost of the construction project. weighted-average expenditures during the construction period.
weighted-average expenditures during the construction period.
Goodwill may only be recognized Multiple choice question. when another company is acquired. when intangible assets are undervalued. when assets are impaired. when a company pays less than fair value for an intangible.
when another company is acquired.
Which of the following are true regarding capitalized software development costs under IFRS? Multiple choice question. US GAAP distinguishes between research activities and development activities, but IFRS does not. Amortization begins when development is complete and the asset is available for sale. Research activities undertaken to gain new technical knowledge are capitalized.
Amortization begins when development is complete and the asset is available for sale.
James Company acquires Smith Corporation for $10 million. The book value of Smith Corporation's net assets is $7 million, while the fair value of the net assets is $9 million. Goodwill associated with the acquisition is: Multiple choice question. 0 $ 3 million $1 million
$1 million Reason: cost of acquisition less fair value of net assets ($10 - $9 million)
Select all that apply Which of the following statements describe the accounting rules for a franchise agreement? (Select all that apply.) Multiple select question. Amortize the cost of the franchise over its life. Capitalize the cost of the franchise. Expense the cost of the franchise in the year of acquisition. Capitalize the periodic payments each year. Expense periodic payments as incurred.
Amortize the cost of the franchise over its life. Capitalize the cost of the franchise. Expense periodic payments as incurred.
Select all that apply The two important accounting issues related to self-constructed assets are Multiple select question. date placed in service. residual value. allocation of overhead. treatment of interest charges.
allocation of overhead. treatment of interest charges.
An asset is acquired by signing a 4-year noninterest-bearing note payable for $100,000. The fair value of the equipment is $80,000. The difference between the maturity value of the note and the fair value of the equipment is recognized as Multiple choice question. other comprehensive income/loss for the period. interest expense over the life of the note. interest expense in the year the note is signed. a contra asset to the equipment account.
interest expense over the life of the note.
For self-constructed assets, if no specific money is borrowed to construct the asset, but other debt is outstanding, Multiple choice question. interest is capitalized because other debt was outstanding. interest is only capitalized at the implicit rate. no interest is capitalized on the self-constructed assets.
interest is capitalized because other debt was outstanding.
Expenditures needed to get land ready for its intended use should be: Multiple choice question. expensed as incurred capitalized as part of the cost of land capitalized as part of the cost of a related building
capitalized as part of the cost of land
When an asset is purchased with a noninterest-bearing note, some portion of the payment(s) required by the note is, in reality,_______
interest