Deck 10: Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Question 1

The fair value of the asset,debt,or equity securities given in a noncash acquisition should determine the value of the consideration received.

Answer 1

True

Question 2

The FASB's required accounting treatment for research and development costs often understates both net income and assets.

Answer 2

True

Question 3

The initial cost of property,plant,and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use.

Answer 3

True

Question 4

Productive assets that are physically consumed in operations are:

A)Equipment.
B)Land.
C)Land improvements.
D)Natural resources.

Question 5

A distinguishing characteristic of intangible assets is the degree of uncertainty about when or if they will provide future benefits.

Question 6

The relative fair values are used to determine the valuation of individual assets acquired in a lump-sum purchase.

Question 7

A company that prepares its financial statements according to International Financial Reporting Standards must calculate amortization of capitalized software development costs in the same way as under U.S.GAAP.

Question 8

Costs incurred after discovery of a natural resource but before production begins are reported as expenses of the period in which the expenditures are made.

Question 9

An exclusive 20-year right to manufacture a product or use a process is a:

A)Patent.
B)Copyright.
C)Trademark.
D)Franchise.

Question 10

Under current GAAP,fair value is used to measure the components of all nonmonetary exchanges.

Question 11

Sales tax paid on equipment acquired for use in the business is not capitalized.

Question 12

A company that prepares its financial statements according to International Financial Reporting Standards accounts for a government grant by recognizing revenue for the amount of the grant.

Question 13

According to International Financial Reporting Standards,all research and development expenditures are expensed in the period incurred.

Question 14

Property,plant,and equipment and intangible assets are long-term,revenue producing assets.

Question 15

The acquisition costs of property,plant,and equipment do not include:

A)The ordinary and necessary costs to bring the asset to its desired condition and location for use.
B)The net invoice price.
C)Legal fees,delivery charges,installation,and any applicable sales tax.
D)Maintenance costs during the first 30 days of use.

Question 16

Goodwill is:

A)Amortized over the greater of its estimated life or 40 years.
B)Only recorded by the seller of a business.
C)The excess of the fair value of a business over the fair value of all net identifiable assets.
D)None of these answer choices are correct.

Question 17

Property,plant,and equipment and intangible assets are:

A)Created by the normal operation of the business and include accounts receivable.
B)All assets except cash and cash equivalents.
C)Current and long-term assets used in the production of either goods or services.
D)Long-term revenue-producing assets.

Question 18

The successful efforts method of accounting for oil and gas exploration costs allows costs incurred in searching for oil and gas within a large geographical area to be capitalized.

Question 19

The interest capitalization period for a self-constructed asset ends either when the asset is substantially complete and ready for use or when interest costs no longer are being incurred.

Question 20

Demolition costs to remove an old building from land purchased as a site for a new building are considered part of the cost of the new building.

Question 21

Assets acquired in a lump-sum purchase are valued based on:

A)Their assessed valuation.
B)Their relative fair values.
C)The present value of their future cash flows.
D)Their cost plus the difference between their cost and fair values.

Question 22

Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash.Lake assumed all of the liabilities of Huron.Book values and fair values of acquired assets and liabilities were:

Lake would record goodwill of:

A)$ 0.
B)$ 75,000.
C)$445,000.
D)$250,000.

Question 23

Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,000,000.The building included used but functional equipment.According to independent appraisals,the fair values were $4,500,000,$3,000,000,and $2,500,000 for the building,land,and equipment,respectively.The initial values of the building,land,and equipment would be:

Question 24

Grab Manufacturing Co.purchased a 10-ton draw press at a cost of $180,000 with terms of 5/15,n/45.Payment was made within the discount period.Shipping costs were $4,600,which included $200 for insurance in transit.Installation costs totaled $12,000,which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway.The capitalized cost of the 10-ton draw press is:

A)$171,000.
B)$183,600.
C)$187,600.
D)$185,760.

Question 25

When selling property,plant,and equipment for cash:

A)The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.
B)The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.
C)The seller recognizes losses,but not gains.
D)None of these answer choices are correct.

Question 26

Vijay Inc.purchased a three-acre tract of land for a building site for $320,000.On the land was a building with an appraised value of $120,000.The company demolished the old building at a cost of $12,000,but was able to sell scrap from the building for $1,500.The cost of title insurance was $900 and attorney fees for reviewing the contract were $500.Property taxes paid were $3,000,of which $250 covered the period subsequent to the purchase date.The capitalized cost of the land is:

A)$336,400.
B)$336,150.
C)$334,650.
D)$201,150.

Question 27

Asset retirement obligations:

A)Increase the balance in the related asset account.
B)Are measured at fair value in the balance sheet.
C)Are liabilities associated with the restoration of a long-term asset.
D)All of these answer choices are correct.

Question 28

Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000.The building was completely furnished.According to independent appraisals,the fair values were $1,300,000,$780,000,and $520,000 for the building,land,and furniture and fixtures,respectively.The initial values of the building,land,and furniture and fixtures would be:

Question 29

Assets acquired by the issuance of equity securities are valued based on:

A)Their fair values.
B)The fair value of the equity securities.
C)A or B,whichever is more reasonably determinable.
D)A or B,whichever is smaller.

Question 30

Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000.Shipping costs totaled $15,000.Foundation work to house the centrifuge cost $8,000.An additional water line had to be run to the equipment at a cost of $3,000.Labor and testing costs totaled $6,000.Materials used up in testing cost $3,000.The capitalized cost is:

A)$455,000.
B)$446,000.
C)$437,000.
D)$435,000.

Question 31

Use the following to answer questions
Montana Mining Co.(MMC)paid $200 million for the right to explore and extract rare metals from land owned by the state of Montana.To obtain the rights,MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities.MMC incurred exploration and development costs of $60 million on the project.
MMC has a credit-adjusted risk free interest rate is 7%.It estimates the possible cash flows for restoring the land,three years after its extraction activities begin,as follows:

The asset retirement obligation (rounded)that should be reported on MMC's balance sheet one year after the extraction activities begin is:

A)$0.
B)$14.7 million.
C)$15.7 million.
D)$19.3 million.

Question 32

Use the following to answer questions
Montana Mining Co.(MMC)paid $200 million for the right to explore and extract rare metals from land owned by the state of Montana.To obtain the rights,MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities.MMC incurred exploration and development costs of $60 million on the project.
MMC has a credit-adjusted risk free interest rate is 7%.It estimates the possible cash flows for restoring the land,three years after its extraction activities begin,as follows:

The asset retirement obligation (rounded)that should be recognized by MMC at the beginning of the extraction activities is:

A)$ 8.2 million.
B)$14.7 million.
C)$ 18 million.
D)$ 30 million.

Question 33

If a company incurs disposition obligations as a result of acquiring an asset:

A)The company recognizes the obligation at fair value when the asset is acquired.
B)The company recognizes the obligation at fair value when the asset is disposed.
C)The company records the difference between the fair value of the asset and the obligation when the asset is acquired.
D)None of these answer choices are correct.

Question 34

On July 1,2016,Larkin Co.purchased a $400,000 tract of land that is intended to be the site of a new office complex.Larkin incurred additional costs and realized salvage proceeds during 2016 as follows:

What would be the balance in the land account as of December 31,2016?

A)$400,000.
B)$475,000.
C)$477,000.
D)$487,000.

Question 35

Assets acquired under multi-year deferred payment contracts are:

A)Valued at their fair value on the date of the final payment.
B)Valued at the present value of the payments required by the contract.
C)Valued at the sum of the payments required by the contract.
D)None of these answer choices are correct.

Question 36

The exclusive right to benefit from a creative work,such as a film,is a:

A)Patent.
B)Copyright.
C)Trademark.
D)Franchise.

Question 37

The exclusive right to display a symbol of product identification is a:

A)Patent.
B)Copyright.
C)Trademark.
D)Franchise.

Question 38

The capitalized cost of equipment excludes:

A)Maintenance.
B)Sales tax.
C)Shipping.
D)Installation.

Question 39

Juliana Corporation purchased all of the outstanding stock of Caldwell Inc. ,paying $2,700,000 cash.Juliana assumed all of the liabilities of Caldwell.Book values and fair values of acquired assets and liabilities were:
Juliana would record goodwill of:

A)$1,180,000.
B)$ 600,000.
C)$ 880,000.
D)$ 100,000.

Question 40

Which of the following does not pertain to accounting for asset retirement obligations?

A)They accrete (increase over time)at the company's credit-adjusted risk-free rate.
B)They must be recognized according to GAAP.
C)Statement of Financial Accounting Concepts No.7 is applied when adjusting cash flow obligations for uncertainty.
D)All of these answer choices pertain to accounting for asset retirement obligations.

Question 41

In Case B,Grand Forks would record a gain/(loss)of:

A)$ 5,000.
B)$ 3,000.
C)$(5,000).
D)$(3,000).

Question 42

In Case A,Grand Forks would record the new equipment at:

A)$65,000.
B)$75,000.
C)$50,000.
D)$60,000.

Question 43

Assuming that the exchange lacks commercial substance,Horton would record land-new and a gain/(loss)of:

Question 44

Assuming that the exchange lacks commercial substance,Alamos would record a gain/(loss)of:

A)$26,000.
B)$ 8,000.
C)$(8,000).
D)$ 0.

Question 45

Assuming that the exchange has commercial substance,Horton would record land-new and a gain/(loss)of:

Question 46

Average accumulated expenditures:

A)Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.
B)Is computed as a simple average if all construction expenditures are made at the end of the period.
C)Are irrelevant if the company's total outstanding debt is less than total costs of construction.
D)All of these answer choices are true statements.

Question 47

The fixed-asset turnover ratio provides:

A)The rate of decline in asset lives.
B)The rate of replacement of fixed assets.
C)The amount of sales generated per dollar of fixed assets.
D)The decline in book value of fixed assets compared to capital expenditures.

Question 48

In Case B,Pensacola would record a gain/(loss)of:

A)$ 4,000.
B)$ (4,000).
C)$ (10,000).
D)None of these answer choices are correct.

Question 49

In Case A,Pensacola would record the new equipment at:

A)$68,000.
B)$63,750.
C)$67,250.
D)$80,000.

Question 50

In a nonmonetary exchange of equipment,if the exchange has commercial substance,a gain is recognized if:

A)The fair value of the equipment received exceeds the book value of the equipment received.
B)The book value of the equipment received exceeds the fair value of the equipment given up.
C)The fair value of the equipment surrendered exceeds the book value of the equipment given up.
D)None of these answer choices are correct.

Question 51

The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2016.The fixed-asset turnover ratio for 2016 was 4.0,and sales for the year totaled $1,480,000.Net fixed assets at the end of 2015 were:

A)$470,000.
B)$370,000.
C)$420,000.
D)None of these answer choices are correct.

Question 52

Interest is eligible to be capitalized as part of an asset's cost,rather than being expensed immediately,when:

A)The interest is incurred during the construction period of the asset.
B)The asset is a discrete construction project for sale or lease.
C)The asset is self-constructed,rather than acquired.
D)All of these answer choices are correct.

Question 53

In computing capitalized interest,average accumulated expenditures:

A)Is the arithmetic mean of all construction expenditures.
B)Is determined by time-weighting individual expenditures made during the asset construction period.
C)Is multiplied by the company's most recent financing rates.
D)All of these answer choices are correct.

Question 54

Donated assets are recorded at:

A)Zero (memo entry only).
B)The donor's book value.
C)The donee's stated value.
D)Fair value.

Question 55

Interest may be capitalized:

A)On routinely manufactured goods as well as self-constructed assets.
B)On self-constructed assets from the date an entity formally adopts a plan to build a discrete project.
C)Whether or not there is specific borrowing for the construction.
D)Whether or not there are actual interest costs incurred.

Question 56

Interest is not capitalized for:

A)Assets that are constructed as discrete projects for sale or lease.
B)Assets constructed for a company's own use.
C)Inventories routinely and repetitively produced in large quantities.
D)Interest is capitalized for all of these items.

Question 57

Assuming that the exchange has commercial substance,Alamos would record a gain/(loss)of:

A)$26,000.
B)$ 8,000.
C)$(8,000).
D)$ 0.

Question 58

P.Chang & Co.exchanged land and $9,000 cash for equipment.The book value and the fair value of the land were $106,000 and $90,000,respectively.
Chang would record equipment and a gain/(loss)of:

Question 59

The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at:

A)Fair value of the asset(s)given up.
B)The book value of the asset given plus any cash or other monetary consideration received.
C)Fair value or book value,whichever is smaller.
D)Book value of the asset given.

Question 60

Bloomington Inc.exchanged land for equipment and $3,000 in cash.The book value and the fair value of the land were $104,000 and $90,000,respectively.
Bloomington would record equipment and a gain/(loss)of:

Question 61

The cost of self-constructed fixed assets should:

A)Include allocated indirect costs just as they are for production of products.
B)Include only incremental indirect costs.
C)Include only specifically identifiable indirect costs.
D)Not include indirect costs.

Question 62

Use the following to answer questions
On June 1,2015,the Crocus Company began construction of a new manufacturing plant.The plant was completed on October 31,2016.Expenditures on the project were as follows ($ in millions):
On July 1,2015,Crocus obtained a $70 million construction loan with a 6% interest rate.The loan was outstanding through the end of October,2016.The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%.This note was outstanding during all of 2015 and 2016.The company's fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2016,using the specific interest method (rounded to the nearest thousand dollars)?

A)$7,248,000 (rounded).
B)$7,283,000 (rounded).
C)$8,740,000 (rounded).
D)None of these answer choices are correct.

Question 63

Average accumulated expenditures for 2017 was:

A)$ 536,000.
B)$1,236,000.
C)$1,200,000.
D)$1,036,000.

Question 64

Software development costs are capitalized if they are incurred:

A)Prior to the point at which technological feasibility has been established.
B)After commercial production has begun.
C)After technological feasibility has been established but prior to the product availability date.
D)None of these answer choices are correct.

Question 65

Use the following to answer questions
On June 1,2015,the Crocus Company began construction of a new manufacturing plant.The plant was completed on October 31,2016.Expenditures on the project were as follows ($ in millions):
On July 1,2015,Crocus obtained a $70 million construction loan with a 6% interest rate.The loan was outstanding through the end of October,2016.The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%.This note was outstanding during all of 2015 and 2016.The company's fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2015,using the specific interest method?

A)$1.90 million.
B)$1.95 million.
C)$2.96 million.
D)None of these answer choices are correct.

Question 66

What was the final cost of Dreamworld's warehouse?

A)$2,154,480.
B)$2,143,860.
C)$1,950,000.
D)$1,254,000.

Question 67

Research and development costs for projects other than software development should be:

A)Expensed in the period incurred.
B)Expensed in the period they are determined to be unsuccessful.
C)Deferred pending determination of success.
D)Expensed if unsuccessful,capitalized if successful.

Question 68

Average accumulated expenditures for 2016 was:

A)$300,000.
B)$350,000.
C)$500,000.
D)$400,000.

Question 69

Amortization of capitalized computer software costs is:

A)Either the percentage-of-revenue method or the straight-line method at the company's option.
B)The greater of the percentage-of-revenue method or the straight-line method.
C)The lesser of the percentage-of-revenue method or the straight-line method.
D)Based on neither the percentage-of-revenue nor the straight-line method.

Question 70

Interest capitalized for 2017 was:

A)$104,625.
B)$ 86,805
C)$ 87,875.
D)$ 67,500.

Question 71

Interest capitalized for 2016 was:

A)$48,000.
B)$42,000.
C)$60,000.
D)$36,000.

Question 72

The average accumulated expenditures for 2017 by the end of the construction period was:

A)$1,950,000.
B)$1,554,000.
C)$1,254,000.
D)$ 975,000.

Question 73

Use the following to answer questions
On June 1,2015,the Crocus Company began construction of a new manufacturing plant.The plant was completed on October 31,2016.Expenditures on the project were as follows ($ in millions):
On July 1,2015,Crocus obtained a $70 million construction loan with a 6% interest rate.The loan was outstanding through the end of October,2016.The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%.This note was outstanding during all of 2015 and 2016.The company's fiscal year-end is December 31.
In computing the capitalized interest for 2016,Crocus' average accumulated expenditures are:

A)$ 46.30 million.
B)$103.54 million.
C)$122.30 million.
D)$124.25 million.

Question 74

Axcel Software began a new development project in 2015.The project reached technological feasibility on June 30,2016,and was available for release to customers at the beginning of 2017.Development costs incurred prior to June 30,2016,were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000.The 2017 revenues from the sale of the new software were $4,000,000,and the company anticipates additional revenues of $6,000,000.The economic life of the software is estimated at four years.2017 amortization of the software development costs would be:

A)$0.
B)$ 350,000.
C)$1,840,000.
D)$ 560,000.

Question 75

Research and development (R&D)costs:

A)Generally pertain to activities that occur prior to the start of production.
B)May be expensed or capitalized,at the option of the reporting entity.
C)Must be capitalized and amortized.
D)None of these answer choices are correct.

Question 76

Dreamworld's average accumulated expenditures for 2016 was:

A)$300,000.
B)$450,000.
C)$525,000.
D)$600,000.

Question 77

Under International Financial Reporting Standards,research expenditures are:

A)Expensed in the period incurred.
B)Expensed in the period they are determined to be unsuccessful.
C)Capitalized if certain criteria are met.
D)Expensed if unsuccessful,capitalized if successful.

Question 78

Liddy Corp.began constructing a new warehouse for its operations during the current year.In the year Liddy incurred interest of $30,000 on a working capital loan,and interest on a construction loan for the warehouse of $60,000.Interest computed on the average accumulated expenditures for the warehouse construction was $50,000.What amount of interest should Liddy expense for the year?

A)$ 30,000.
B)$ 40,000.
C)$ 90,000.
D)$140,000.

Question 79

Dreamworld's capitalized interest in 2016 was:

A)$72,000.
B)$63,000.
C)$54,000.
D)$36,000.

Question 80

Research and development expense for a given period includes:

A)The full cost of newly acquired equipment that has an alternative future use.
B)Depreciation on a research and development facility.
C)Research and development conducted on a contract basis for another entity.
D)Patent filing and legal costs.