Deck 9: Property,Plant,and Equipment; Intangibles; and Goodwill

Question 1

Plant assets may properly include idle equipment awaiting sale.

Answer 1

False

Question 2

Land and buildings held for rent and/or capital appreciation are considered Investment Property under IFRS and may be accounted for using the Fair Value Model.

Answer 2

False

Question 3

The cost of rearranging the factory equipment to increase efficiency should be recorded as a capital expenditure in the normal situation.

Answer 3

True

Question 4

Under IFRS,Property,Plant and Equipment should be broken down to its major components and depreciated accordingly.

Question 5

When a basket purchase of several ling-lived assets is made,the purchase price will normally be assigned using the relative fair values of those assets.

Question 6

The cost of a major inspection of an airplane engine would be capitalized if it occurred several times per year.

Question 7

If an asset is purchased by giving a non-interest-bearing note payable,the use of an unrealistically low interest rate will cause the asset to be recorded at a cost that is too low and the interest expense amount reported on the income statement also will be too low.

Question 8

A primary principle in recording and reporting capital assets other than land is that they are recorded at cost when acquired and subsequently are reported at cost or cost less accumulated amortization.

Question 9

Minor spare parts will normally be included in inventory,while major spare parts will be considered property,plant and equipment.

Question 10

Property taxes accrued u
to the date of the purchase of a capital asset should be included in the recorded cost of the asset.

Question 11

Involuntary safety costs must always be capitalized under both IFRS and ASPE.

Question 12

Under the fair value model,buildings must be depreciated over their useful lives.

Question 13

When a capital asset (such as land or buildings) is purchased,any unpaid property taxes (for the period prior to the purchase date) that are paid by the purchaser should be recorded as part of the cost of the asset.

Question 14

Under the Fair Value Model,tangible and intangible assets with a fair market value are revalued to fair value every year.

Question 15

Goodwill is the premium above fair market value that a company is willing to pay for an acquired company's superior earnings potential.

Question 16

Idle land is least likely to be classified in property,plant and equipment.

Question 17

Company B purchased a large machine at a cash equivalent cost of $25,000 on January 1,2001.On that date the company paid $10,000 cash and gave a one-year,10 percent interest-bearing note payable for the remaining $15,000.Therefore,the company should debit the machinery account for $25,000.

Question 18

Subsequent to acquisition,the cost of capital assets Land may include title search

Question 19

In the case of exchanges of both similar and dissimilar assets,the asset acquired should never be recorded at an amount that is more than its market value.

Question 20

Biological Assets may be classified as Property,plant and equipment or as inventory.

Question 21

In conformity with the historical cost principle,property donated to a corporation should be recorded by the recipient at the cost to the donor.

Question 22

Assume that a company shares are issued as consideration for equipment acquired.If there is no active market for the shares,the equipment and shares will initially both be recorded at the fair market value of the equipment.An exchange such as this one lacks commercial substance.

Question 23

Under IFRS,interest on generalized borrowings used to construct a qualifying asset must be capitalized using the company's weighted average cost of capital.

Question 24

Legal costs and successful court defence with respect to internally generated patents may both be capitalized.

Question 25

Research expenditures are usually expensed while development expenditures may be capitalized if certain conditions are met.

Question 26

Non-monetary assets,when exchanged,may be valued in excess of their fair market values.

Question 27

Under ASPE,both legal and constructive decommissioning liabilities are recognized on the financial statements.

Question 28

Donated land and buildings would normally be credited to a contributed capital account at their fair market values.

Question 29

When a non-interest bearing note is issued as consideration for equipment acquired,the equipment will initially be recorded at the present value of the note payable.

Question 30

Additions and major inspections which are expected to benefit more than one period are capitalized,while routine maintenance expenditures are normally expensed.

Question 31

Land excavation costs incurred with the intention of constructing a building on the site would be added to the cost of the Land.

Question 32

Start-u and relocation costs generally meet the criteria for capitalization under IFRS.

Question 33

Under both ASPE and IFRS,borrowing costs on qualifying self-constructed assets may be capitalized or expensed.

Question 34

The excess of the cost of self-constructed assets over their cost if they had been purchased from outsiders should be recorded as an expense or loss of the period; similarly,costs of self-constructed assets which result in a cost savings should result in revenue or gain recognition.

Question 35

The cost of rearranging capital assets in a factory to attain greater efficiency in operations should be recorded as an expense in the period of rearrangement.

Question 36

Under the cost model,self-constructed assets may be recorded at fair market value if the company so wishes,regardless of costs incurred to date.

Question 37

The cost of self-constructed assets includes a reasonable allowance for overhead specific to the construction,and this overhead should be applied at a rate approximating practical capacity.

Question 38

Leasehold improvements always are depreciated over their estimated useful life.

Question 39

Self-constructed assets may never be valued in excess of fair market value,regardless of cost.

Question 40

Non-monetary exchanges should be valued using the book value method when two companies engage in an exchange of similar assets.

Question 41

Goodwill is measured as the excess of the price paid for an entity in excess of total market value of the identifiable net assets of the purchased entity.

Question 42

Under the cost model (IFRS) impairment losses are irreversible.

Question 43

Training and advertising costs must be expensed under IFRS.

Question 44

The only costs of an internally developed patent that should be capitalized as patent costs are legal fees,other registration costs,and successful court tests.

Question 45

The cost of an addition to an existing structure should be debited to an asset account and depreciated over the life of the structure or the addition,whichever is shorter.

Question 46

Harris Company has an old asset that originally cost $115,000 (accumulated amortization,$56,000).Its current market value is $105,001.Harris Company purchased another asset by paying cash $10,500 and trading in the old asset.The new asset had a list price of $135,000 and a cash price of $120,001.The assets are similar.Harris Company should record the cost of the new machine at $110,000:

Question 47

ASPE contains separate guidance on exploration and evaluation costs whereas IFRS does not.

Question 48

Only purchased Goodwill is recognized on the financial statements.

Question 49

Land improvements such as paving,fencing,and lighting should be debited in full to the land account.

Question 50

Only identifiable intangible assets meet the criteria for capitalization.

Question 51

An intangible asset is usually amortized by a direct credit to the related asset account.

Question 52

Computer software is always accounted for as a finite-lived intangible.

Question 53

With respect to software intended for resale,costs may only be capitalized once technical feasibility is established.

Question 54

The lack of Goodwill on a company's financial statements indicates poor earnings potential.

Question 55

A patent should be amortized over its legal life,or useful life,whichever is shorter,but the term should not exceed 20 years.

Question 56

When a company's shares are issued in exchange for equipment and the fair values of both are determinable,the equipment will be valued at the fair value of the shares.

Question 57

Negative goodwill arises when one company purchases the net assets of another company for an amount less than their fair market value,and is recorded as a gain on the statement of income/comprehensive income.

Question 58

An identifiable intangible asset developed internally is never recognized in the accounts as an asset.

Question 59

Web content development costs may be expensed or capitalized.

Question 60

The cost incurred to enhance the service potential of a capital asset is betterment and should be expensed immediately.

Question 61

Goodwill should be reported on the balance sheet as:

A)a footnote item only.
B)a contra or negative item under shareholders' equity.
C)part of investments and funds.
D)an intangible operational asset.

Question 62

Under the successful efforts method of accounting for exploration and evaluation of assets:

A)all efforts, whether successful or not, are capitalized.
B)all efforts, whether successful or not, are expensed.
C)successful efforts are capitalized while unsuccessful efforts are expensed.
D)successful efforts are expensed while unsuccessful efforts are capitalized.

Question 63

Which of the following confers exclusive right to conduct business in a particular territory?

A)Leasehold
B)Trademark
C)Franchise
D)Patent
E)Copyright

Question 64

A corporation which incurs costs in defending a patent in an infringement suit should:

A)expense currently the costs of all suits.
B)capitalize only the costs of unsuccessful suits.
C)capitalize only the costs of successful suits.
D)capitalize the cost of all such suits.

Question 65

On January 1,2014,Harris Company bought a machine on a $30,000,14 percent,3-year note payable.The note will be paid in six equal semi-annual payments starting June 30,2001.CS should record the cost of the machine as $30,000:

Question 66

A consideration in determining the useful life of an intangible asset is not the:

A)initial cost.
B)legal, regulatory, or contractual provisions.
C)provisions for renewal or extension.
D)expected actions of competitors.

Question 67

Goodwill should properly appear on the financial statements of a company which:

A)has purchased an entity, and has not yet fully amortized the goodwill.
B)consistently operates profitably.
C)consistently reports above-normal profits.
D)meets all of the conditions regarding legal goodwill.

Question 68

On January 1^st,2013,PC Inc.disposed of an old elevator for $10,000.The elevator had a carrying value $20,000 (Cost: $100,000,Accumulated Amortization: $80,000).On January 2^nd,2013,a new elevator was purchased for $200,000 with an expected useful life of 20 years and a salvage value of $40,000.Ignoring any of PC's other long-lived assets,the amount of amortization expense that PC would record for 2013 would be:

A)$25,000.
B)$20,000.
C)$10,000.
D)$8,000.

Question 69

For some purposes,assets are classified as identifiable and unidentifiable.Which of the following is an unidentifiable asset?

A)Goodwill
B)Patent
C)Cash in a foreign bank
D)Prepaid insurance

Question 70

Goodwill can be:

A)amortized over a 40-year period, regardless of useful life.
B)valued for negotiating purposes on the basis of future earnings potential.
C)amortized for income tax purposes by the double-declining method.
D)incremented annually on the balance sheet if a company earns above normal profit.

Question 71

An old machine with a book value of $30,000 was traded in on a new similar machine.The new machine,which had a cash price of $120,000,was purchased for $56,000 cash plus the old machine.The cost of the new machine will be $80,000.

Question 72

With respect to exploration and evaluation assets,costs incurred in the pre-exploration and evaluation phase are:

A)expensed.
B)capitalized.
C)expensed or capitalized.
D)expensed under IFRS and expensed or capitalized under ASPE.

Question 73

A purchased patent has a remaining legal life of 15 years.It should be:

A)expensed in the year of acquisition.
B)amortized over 40 years.
C)amortized over its useful life if less than 15 years.
D)amortized over 15 years regardless of its useful life.

Question 74

Intangible assets have all of the following characteristics,except:

A)their ownershi
B)confers rights, but no physical substance.
C)they provide benefits to current operations only.
D)they are relatively long-lived.
E)they have no physical substance.

Question 75

On January 1^st,2013,PC Inc.disposed off an old elevator for $10,000.The elevator had a carrying value $20,000 (Cost: $100,000,Accumulated Amortization: $80,000).The gain or loss from this sale was:

A)a gain of $20,000.
B)a loss of $20,000.
C)a gain of $10,000.
D)a loss of $10,000

Question 76

Costs incurred by a company that may develo its own goodwill internally should be:

A)capitalized and amortized as the company profits increased.
B)capitalized and amortized over the useful life of the goodwill.
C)expensed when incurred as a current operating expense.
D)capitalized and amortized over a period not to exceed 40 years.

Question 77

With respect to exploration and evaluation assets,until what point can a company capitalize costs?

A)Once the legal right to mine or explore the property has been established.
B)Until technical feasibility has been established.
C)Until commercial viability has been established.
D)Until technical feasibility and commercial viability have both been established.

Question 78

A change in the amortization rate for an intangible asset should be accounted for:

A)by means of retroactive basis.
B)by means of a prior period adjustment.
C)on a prospective basis.
D)on a current basis.

Question 79

All of the following items are identifiable intangible assets,except:

A)trade names.
B)copyrights.
C)patents.
D)goodwill.

Question 80

CK incurred $68,000 of research and development costs in its laboratory to develo a patent,which was granted on January 2,2001.Legal fees and other costs associated with registration of the patent totalled $27,201.CK estimates that the economic life of the patent will be eight years.What amount should CK charge to patent amortization expense for the year ended December 31,2008?

A)$-0-
B)$1,600
C)$3,400
D)$20,400