Deck 9: Long-Lived Assets

Question 1

With respect to Investment properties, Level 3 inputs are frequently used to determine the fair value of the properties.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

Higher capitalization of overhead costs means higher income over the asset's useful life.

Question 5

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

Question 6

Donations of land and building usually result in an increase to equity.

Question 7

Training costs are not eligible for capitalization.

Question 8

Under the revaluation model, assets can be written up above their fair values.

Question 9

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

Question 10

Property taxes accrued up 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

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.

Question 13

Internally generated intangibles will sometimes be eligible for capitalization.

Question 14

Borrowing costs on qualifying assets must be capitalized under both IFRS and ASPE.

Question 15

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

Question 16

Spare parts are capitalized separately from the assets to which they pertain.

Question 17

Property, Plant & Equipment refers to both tangible and intangible assets.

Question 18

Component accounting is mandated under both IFRS and ASPE.

Question 19

Startup costs are not eligible for capitalization.

Question 20

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

Question 21

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

Question 22

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 23

Under IFRS, bearer plants are carried at the lower of cost and net realizable values.

Question 24

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

Question 25

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 26

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

Question 27

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

Question 28

Plant assets may properly include idle equipment awaiting sale.

Question 29

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 30

Negative Goodwill effectively results from a bargain purchase of assets, resulting in an unrealized gain on the statement of earnings.

Question 31

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

Question 32

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 33

Exchanges of non-monetary assets must always be recorded at the fair values of the assets given up, with any gains or losses going to income.

Question 34

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

Question 35

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 36

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

Question 37

Capitalization of involuntary safety costs is mandatory under IFRS but not under ASPE.

Question 38

With respect to website development costs, costs incurred during the planning stage are to be expensed.

Question 39

With respect to the development of website content, costs incurred thereof must be capitalized.

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

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 42

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

Question 43

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 44

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

Question 45

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

Question 46

Leasehold improvements always are depreciated over their estimated useful life.

Question 47

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 48

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

Question 49

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 50

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

Question 51

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 52

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

Question 53

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 54

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

Question 55

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 56

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

Question 57

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

Question 58

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 59

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

Question 60

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 61

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 62

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 63

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 64

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

Question 65

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

Question 66

Only identifiable intangible assets meet the criteria for capitalization.

Question 67

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 68

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

Question 69

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

Question 70

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 71

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

Question 72

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 73

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 74

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

Question 75

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

Question 76

Web content development costs may be expensed or capitalized.

Question 77

Only purchased Goodwill is recognized on the financial statements.

Question 78

Training and advertising costs must be expensed under IFRS.

Question 79

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

Question 80

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.