Question 1

Goodwill is recognized only when the purchase price of a company is greater than the fair value of the assets less the liabilities of that company.

Accepted Answer

A) True 
 B)False  True

Question 2

Average age of a company's long-term operating assets is computed as ________.

Accepted Answer

A)   the amount of depreciation expense divided by accumulated depreciation
B)   the amount of accumulated depreciation divided by depreciation expense
C)   the amount of depreciation expense divided by the balance of ending net fixed assets
D)   the balance of ending net fixed assets divided by depreciation expense B

Question 3

During its first year of operation, Dovery Company incurred $355,000 of research costs undertaken with the prospect of gaining new technical understanding about a new nanotechnology procedure. An additional $495,000 was incurred to develop a production process to use that new technology to produce a new lubricant product. Under U.S. GAAP, which of the following is the appropriate accounting for these costs?

Accepted Answer

A)   expense $850,000
B)   expense $355,000 and capitalize $495,000 as an intangible asset
C)   expense $495,000 and capitalize $355,000 as an intangible asset
D)   capitalize $850,000 as an intangible asset A

Question 4

If the intangible asset has a finite useful life, the company must include in their financial statement disclosures whether to use the useful life or the legal life. Assume U.S. GAAP is followed.

Accepted Answer

A) True 
 B)False

Question 5

What criteria does a company use to decide whether to include an expenditure in the cost of property, plant, and equipment rather than expensing it? Provide an example of a type of expenditure included in the cost of property, plant, and equipment as a result of applying these criteria.

Accepted Answer

The answer of What criteria does a company use to...

Question 6

Firms recognize all gains and losses, computed as the difference between the carrying value and the fair value of the asset given up, on a nonmonetary exchange with commercial substance.

Accepted Answer

A) True 
 B)False

Question 7

The period of time for which interest is to be capitalized ends when ________.

Accepted Answer

A)   no additional interest cost is actually being incurred on direct financing for the acquisition of the asset
B)   a constructed asset is substantially complete and put into use
C)   a constructed asset is substantially complete and ready for its intended use
D)   an acquired asset is received and ready for its intended use

Question 8

In a nonmonetary exchange with commercial substance, if the fair value of the assets given in exchange is not readily determinable, then the fair value of the assets received is used to measure the transaction.

Accepted Answer

A) True 
 B)False

Question 9

Scrap value is also referred to as depreciable value.

Accepted Answer

A) True 
 B)False

Question 10

During 2018, Dosekis Co. calculated weighted-average accumulated expenditures of $200,000 after construction of assets that qualified for capitalization of interest. The only debt outstanding during 2018 was a $300,000, 10%, 5-year note payable dated January 1, 2015. What is the amount of interest that should be capitalized by Dosekis during 2018?

Accepted Answer

A)   $10,000
B)   $20,000
C)   $30,000
D)   $40,000

Question 11

IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.

Accepted Answer

A) True 
 B)False

Question 12

What are IFRS disclosure requirements for intangible assets?

Accepted Answer

The answer of What are IFRS disclosure requirements for intangible...

Question 13

How does a firm determine the appropriate period of time over which an intangible asset should be amortized?

Accepted Answer

The answer of How does a firm determine the appropriate...

Question 14

Capitol Company decided to sell one of its subsidiaries, Subsidiary ABC. BiRite Inc, is the purchaser of this subsidiary. BiRite paid $2,000,000 for Subsidiary ABC. BiRite performed a valuation analysis of Subsidiary ABC's assets acquired and liabilities. The following table presents book values from Subsidiary ABC's financial statements and fair values determined by BiRite:
 $$\begin{array} { | l | r | r | } 
\hline \text { Description } & \text { Book Value } & \text { Fair Value } \
\hline \text { Inventory } & 420,000 & \$ 450,000 \
\hline \text { Accounts Receivable } & 330,000 & 330,000 \
\hline \text { Prepaid Assets } & 70,000 & 60,000 \
\hline \text { Equipment } & 290,000 & 410,000 \
\hline \text { Right-of-Use Building } & 330,000 & 360,000 \
\hline \text { Patent } & & 220,000 \
\hline \text { Trademark } & & 150,000 \
\hline \text { Current Liabilities } & 125,000 & 125,000 \
\hline \text { Lease Obligation } & 170,000 & 170,000 \
\hline \text { Other Long-term Liabilities } & 135,000 & 135,000 \
\hline & & \
\hline
\end{array}$$ 
a. Prepare the journal entry made by BiRite to record the acquisition of Subsidiary ABC.
b. Describe how the journal entry would be different if the acquisition price was $1 million.

Accepted Answer

The answer of Capitol Company decided to sell one of...

Question 15

Natural resources are initially recorded at cost and then depreciated over their economic lives.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is a finite-life intangible asset?

Accepted Answer

A)   goodwill
B)   building
C)   trademark
D)   copyright

Question 17

Use of the double-declining balance method ________.

Accepted Answer

A)   ignores the scrap value of the asset for all purposes
B)   results in twice the depreciation expense that would be recognized by the straight-line method each period
C)   means that the amount of depreciation expense decreases year after year
D)   All of the above are true.

Question 18

Rinky-Dink Inc. incurred research and development costs of $210,000 and legal fees of $110,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should the company record as patent amortization expense in the first year?

Accepted Answer

A)   $11,000
B)   $16,000
C)   $21,000
D)   $32,000

Question 19

For constructed assets, the amount of capitalized interest is calculated as total construction costs times the applicable interest rate.

Accepted Answer

A) True 
 B)False

Question 20

Seeder Inc. made a lump-sum purchase of three pieces of machinery for $120,000 from an unaffiliated company. At the time of acquisition, Seeder paid $4,000 to determine the appraised value of the machinery. The appraisal disclosed the following values: Machine A $60,000
Machine B $36,000
Machine C $24,000
What cost should be assigned to Machines A, B, and C, respectively?

Accepted Answer

A)   A: $60,000; B: $36,000; C: $24,000
B)   A: $62,000; B: $37,200; C: $24,800
C)   A: $64,000; B: $33,600; C: $22,400
D)   A: $41,333; B: $41,333; C: $41,333

Exam 11: Long-Term Operating Assets: Acquisition, Cost Allocation

Goodwill is recognized only when the purchase price of a company is greater than the fair value of the assets less the liabilities of that company.

Average age of a company's long-term operating assets is computed as ________.

If the intangible asset has a finite useful life, the company must include in their financial statement disclosures whether to use the useful life or the legal life. Assume U.S. GAAP is followed.

What criteria does a company use to decide whether to include an expenditure in the cost of property, plant, and equipment rather than expensing it? Provide an example of a type of expenditure included in the cost of property, plant, and equipment as a result of applying these criteria.

Firms recognize all gains and losses, computed as the difference between the carrying value and the fair value of the asset given up, on a nonmonetary exchange with commercial substance.

The period of time for which interest is to be capitalized ends when ________.

In a nonmonetary exchange with commercial substance, if the fair value of the assets given in exchange is not readily determinable, then the fair value of the assets received is used to measure the transaction.

Scrap value is also referred to as depreciable value.

IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.

What are IFRS disclosure requirements for intangible assets?

How does a firm determine the appropriate period of time over which an intangible asset should be amortized?

Natural resources are initially recorded at cost and then depreciated over their economic lives.

Which of the following is a finite-life intangible asset?

Use of the double-declining balance method ________.

Rinky-Dink Inc. incurred research and development costs of $210,000 and legal fees of $110,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should the company record as patent amortization expense in the first year?

For constructed assets, the amount of capitalized interest is calculated as total construction costs times the applicable interest rate.