Exam 10: Investments in Noncurrent Operating Assets-Acquisition

Goodwill should be recorded in the accounting records only when

On July 31, 2011, Cleveland Company purchased for $4,000,000 cash all of the outstanding common stock of Gem Company when Gem's balance sheet showed net assets of $3,200,000. Gem's assets and liabilities had fair values different from the book values as follows: As a result of the transaction, what amount will be shown as goodwill in the July 31, 2011, consolidated balance sheet of Cleveland Company and its wholly owned subsidiary, Gem Company?

Which of the following best describes the proper treatment of cash discounts on acquired machinery?

On January 1, 2011, Sky Airlines contracted with Dover Aircraft to construct an aircraft to Sky's specifications at a cost of $2,000,000. During 2011, Sky paid Dover $400,000 on January 1, and another $250,000 on September 30. On January 1, Sky borrowed $360,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2011. The remaining amount paid to Dover was financed from available working capital. Sky has approximately $1,600,000 of additional debt outstanding at an average interest cost of 12%. Required: What is the total capitalized cost of the aircraft under construction at the end of 2011?

Which of the following research and development related costs should be capitalized and amortized over current and future periods?

Delb Company is an oil and gas exploration firm. During 2011, Delb engaged in five different exploration projects. The costs associated with these projects are as follows: Only Projects 2 and 5 were successful. As of the end of the year, production had not yet started at either of these two sites. Assuming that all exploration costs were paid for in cash, make the journal entry to record the expenditures for the year using

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

You have just been promoted to the position of senior accountant with the public accounting firm of Watts and Zimmerman. Your first audit client as senior accountant is to be the Delta Manufacturing Company. You have had a considerable amount of experience both in planning and conducting the audit procedures for current asset accounts such as cash, receivables, and inventory. This is your first experience, however, in planning the audit of the property, plant, and equipment accounts. Compare the nature of current assets with property, plant, and equipment, and describe how any differences might affect your audit generally. The audit work required to verify the property, plant, and equipment accounts generally is substantially less than that required for current assets. This is due to the nature of the assets included in the property accounts.

An expenditure subsequent to acquisition of assembly-line manufacturing equipment benefits future periods. The expenditure should be capitalized if it is a

RGW Industries purchased the net assets of SP Company for $1,100,000 cash . A schedule of the net assets of SP Company, as recorded on SP Company's books at the time of the acquisition, is as follows: The following schedule shows the differences between the recorded costs and market values of the assets of SP Company at the date of the acquisition: Prepare the journal entry to record this acquisition using the acquisition method prescribed by SFAS 141R,, "Business Combinations."

Blocker Company recently acquired two items of equipment. The transactions are described below: June 10: Acquired a press at an invoice price of $5,000, subject to a 2% cash discount which was taken. Costs of freight and insurance during shipment were $120. Installation costs were $250. November 12: Acquired a welding machine at an invoice price of $4,000, subject to a 3% cash discount which was NOT taken. Additional welding supplies were acquired at a total cost of $200. The increase in the equipment account as a result of the above transactions would be

Which of the following ordinarily would be treated as a revenue expenditure rather than a capital expenditure?

Broadcast rights are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

The Callister Company exchanged 25,000 shares of its own $50 par value common stock for a turret lathe from Payne Company. The market value of the Callister Company stock was $68 per share at the date of exchange. The equipment had a carrying value of $1,625,000. Record the exchange on the books of Callister Company in general journal form.

Which of the following intangible assets does not have the characteristic of exchangeability?

The Oscar Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $180,000. At the time of acquisition, Oscar paid $12,000 to have the assets appraised. The appraisal disclosed the following values: What cost should be assigned to the land, buildings, and equipment, respectively?

When a company replaces an old asphalt roof on its plant with a new fiberglass insulated roof, which of the following types of expenditure has occurred?

Which of the following most accurately describes the position taken by generally accepted accounting principles regarding the accounting for the costs of drilling dry wells in the oil and gas industry?

During the year just ended, Morton Company made the following expenditures relating to its plant building: How much should be charged to repair and maintenance expense during the year just ended?

Which of the following is true regarding the traditional approach to estimating the fair value of an intangible asset?