Question 1

Firms that incur research and development costs to develop a patented product:
A)must expense the costs as incurred.
B)must capitalize the costs and only reduce such costs if the patent becomes impaired.
C)must capitalize the costs and then amortize the costs over the expected economic life of the patent.
D)have a choice either to expense the costs as incurred or capitalize the costs and amortize the costs over the legal life of the patent.
E)have a choice either to expense the costs as incurred or capitalize the costs and amortize the costs over the expected economic life of the patent.

Accepted Answer

The answer of Firms that incur research and development costs...

Question 2

Springfield Company purchases new factory equipment.Per the terms of the contract, Springfield must pay the freight charges, will receive a manufacturer's discount off the invoice price on the equipment, and will have some setup expenses to pay. As a result, the acquisition cost of equipment recorded on Springfield's books will be the sum of the invoice price
A)less any discounts, plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use.
B)less any discounts and transportation costs, plus installation charges and any other costs incurred after the equipment is ready for use.
C)plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use.
D)less transportation costs, installation charges, and any other costs incurred after the equipment is ready for use.
E)less any discounts and installation charges, plus transportation charges and any other costs incurred after the equipment is ready for use.

Accepted Answer

The acquisition cost of equipment recorded on Springfield's books will be the sum of the invoice price less any discounts, plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use. This is because the contract specifies that Springfield must pay the freight charges and will receive a manufacturer's discount off the invoice price. Additionally, there are setup expenses to be paid. Therefore, the total cost incurred by Springfield to get the equipment up and running should be added to the invoice price, after subtracting any discounts received.

Question 3

Firms generally treat expenditures to develop intangibles internally as
A)expenses when incurred.
B)expenses over the useful life.
C)assets.
D)liabilities.
E)goodwill.

Accepted Answer

Firms typically treat expenditures to develop intangibles internally as expenses when incurred, according to accounting principles. This is because it's often uncertain whether future economic benefits will arise from these expenditures, making immediate expensing the conservative approach.

Question 4

Tangible long-lived assets include all of the following except
A)land.
B)buildings.
C)equipment.
D)factories.
E)franchise rights.

Accepted Answer

Franchise rights are considered an intangible long-lived asset. Land, buildings, equipment, and factories are all examples of tangible long-lived assets.

Question 5

Clarion Realty has decided to construct its own office building.The construction will be partially financed through a construction loan and any remainder will be financed from internally generated funds.The internal accountants have collected the following information concerning the construction.
$\begin{array}{llll}
& \text { Average Balance } & \text { Construction } & \text { Other } \
\text { Year } & \text { Construction Account } & \text { Debt } @ 6 \% & \text { Debt }(10 \%\
1 & \$ 2,000,000 & \$ 1,000,000 & \$ 500,000 \
2 & \$ 4,000,000 & \$ 1,000,000 & \$ 250,000 \
3 & \$ 3,000,000 & \$ 800,000 & \$ 200,000
\end{array}$ The amount, if any, of capitalized interest cost for Year 2 is
A)$0
B)$50,000
C)$60,000
D)$180,000
E)$230,000

Accepted Answer

The answer of  Clarion Realty has decided to construct...

Question 6

Intangible long-lived assets include:
A)patents.
B)brand names.
C)trademarks.
D)customer lists.
E)all of the above

Accepted Answer

Intangible long-lived assets are non-physical assets that have a useful life of more than one year. Examples of intangible long-lived assets include patents, brand names, trademarks, and customer lists. Therefore, the best choice is E, which includes all of the above options.

Question 7

For many technology and pharmaceutical firms:
A)a large portion of their value to an acquirer might relate to in-process research and development (IPR&D).
B)in-process research and development (IPR&D) acquired in a business combination that meets the separability criterion as an asset is recognized and measured initially at fair value.
C)The firm that developed the in-process research and development (IPR&D) expensed the costs as they were incurred.
D)all of the above
E)none of the above

Accepted Answer

All the statements are correct regarding technology and pharmaceutical firms. A) IPR&D often constitutes a significant part of a firm's value to an acquirer due to the potential future products or technologies it represents. B) According to accounting standards, IPR&D that is acquired in a business combination and meets the separability criterion is recognized as an asset at its fair value. C) The costs associated with developing IPR&D are typically expensed as incurred by the firm undertaking the research, reflecting the ongoing investment in development without immediate tangible return.

Question 8

How are tangible long-lived assets' acquisition cost and accumulated depreciation disclosed?
A)Tangible long-lived assets typically appear under the title Property, Plant, and Equipment.
B)Information is displayed on the balance sheet.
C)Tangible long-lived assets typically appear under noncurrent assets.
D)Acquisition cost and accumulated depreciation are omitted from the balance sheet but are detailed in the notes.
E)all of the above

Accepted Answer

Tangible long-lived assets typically appear under the title Property, Plant, and Equipment as noncurrent assets on the balance sheet. The acquisition cost and accumulated depreciation are disclosed in the notes to the financial statements, providing additional information on the asset. Therefore, all of the given options are correct.

Question 9

An expenditure qualifies as an asset if it has which of the following characteristics?
A)It embodies a probable future benefit.
B)A particular entity can obtain the benefit and control others' access to it.
C) The transaction or other event giving rise to the entity's right to, or control of, the benefit has already occurred.
D)The fair value of the item at the time of initial recognition can be measured with sufficient reliability.
E)all of the above

Accepted Answer

All of the above characteristics are necessary for an expenditure to qualify as an asset. It must embody a probable future benefit, be controlled by a particular entity, have already occurred, and have a fair value that can be reliably measured at the time of recognition.

Question 10

Clarion Realty Clarion Realty has decided to construct its own office building.The construction will be partially financed through a construction loan and any remainder will be financed from internally generated funds.The internal accountants have collected the following information concerning the construction.
$\begin{array}{llll}& \text { Average Balance } & \text { Construction } & \text { Other } \
\text { Year } & \text { Construction Account } & \text { Debt } @ 6 \% & \text { Debt@ } 10 \%\
1 & \$ 2,000,000 & \$ 1,000,000 & \$ 500,000 \
2 & \$ 4,000,000 & \$ 1,000,000 & \$ 250,000 \
3 & \$ 3,000.000 & \$ 800.000 & \$ 200.000
\end{array}$ The amount, if any, of capitalized interest cost for Year 1 is
A)$0
B)$50,000
C)$60,000
D)$110,000
E)$170,000

Accepted Answer

The capitalized interest cost is calculated on the average balance of the construction account using the weighted average interest rate of the debt. For Year 1, the weighted average interest rate is calculated as follows: $(1,000,000 \times 6\% + 500,000 \times 10\%) / 1,500,000 = 7.33\%$. The capitalized interest is then $2,000,000 \times 7.33\% = 146,600$. However, since the construction loan is $1,000,000 at 6%, the interest on this is $60,000, and the remaining $1,000,000 is financed internally, so the capitalized interest is $110,000.

Question 11

An expenditure qualifies as a(n) _____ if it has the following characteristics: 1.It embodies a probable future benefit.
2)A particular entity can obtain the benefit and control others' access to it.
3)The transaction or other event giving rise to the entity's right to, or control of, the benefit has already occurred.
4)The fair value of the item at the time of initial recognition can be measured with sufficient reliability.
A)asset
B)liability
C)shareholders' equity
D)revenue
E)expense

Accepted Answer

An expenditure qualifies as an asset if it embodies a probable future benefit, a particular entity can obtain the benefit and control others' access to it, the transaction or event giving rise to the entity's right to, or control of, the benefit has already occurred, and the fair value of the item at the time of initial recognition can be reliably measured. Assets are resources owned by the entity and have the potential to generate future economic benefits.

Question 12

Firms treat expenditures as assets when they:
A)have acquired rights to the future use of a resource as a result of a past transaction or event.
B)can reliably measure the cost of the expected benefits at the time of initial recognition.
C)can exercise the entity's right to, or control of, the benefit.
D)can obtain the future service potential and control others' access to it.
E)all of the above

Accepted Answer

All of the options mentioned are criteria for treating expenditures as assets. The firm must have acquired rights to future use of a resource, be able to measure the cost of expected benefits, exercise control over the benefit, and obtain future service potential while restricting others' access to it. Therefore, all of the criteria mentioned in the options must be satisfied to treat expenditures as assets.

Question 13

The Perma Company spent $300,000 on research and development during Year 8 to generate new product lines.One of the three projects looks like it will ultimately be technologically feasible while the other two projects resulted in unsuccessful efforts.For the project which may become technologically feasible, a total of $125,000 was incurred during Year 8.Under U.S.GAAP, how much of the $300,000 should be recognized as an expense in Year 8?
A)$300,000
B)$225,000
C)$175,000
D)$50,000
E)$0

Accepted Answer

Under U.S. GAAP, research and development costs are expensed as incurred. This includes costs for projects that are successful, unsuccessful, or still pending determination of success. Therefore, the entire $300,000 spent on research and development during Year 8 should be recognized as an expense in Year 8.

Question 14

Firms recognize expenditures to acquire intangibles externally from third parties as _____ if the intangibles are either separable or arise from contractual or other legal rights.
A)assets
B)liabilities
C)retained earnings
D)revenue
E)expenses

Accepted Answer

Expenditures to acquire intangibles externally from third parties are recognized as assets if they are either separable or arise from contractual or other legal rights. This is in accordance with accounting standards such as IFRS and US GAAP.

Question 15

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is
A)the fair value of the asset received, only.
B)the fair value of the consideration given, only.
C)either the fair value of the consideration given or the fair value of the asset received, depending on which amount is lower.
D)either the fair value of the consideration given or the fair value of the asset received, depending on which the firms can more reliably measure.
E)either the fair value of the consideration given or the fair value of the asset received, depending on which amount is higher.

Accepted Answer

The acquisition cost of assets acquired by exchanging an asset other than cash or by issuing common stock is determined as the fair value of the consideration given or the fair value of the asset received, depending on which the firms can more reliably measure. This option is chosen because the objective of determining acquisition cost is to capture the economic substance of the exchange, regardless of whether it is a cash payment or non-cash payment. Therefore, the cost should be based on the most reliable measurement available, either the fair value of the asset received or the consideration given, depending on which can be more reliably determined.

Question 16

In a corporate acquisition the:
A)purchase price measures the fair value of the acquired enterprise.
B)goodwill reflects the fair value of assets that cannot be separately identify.
C)goodwill is an asset because it is part of the fair value of the acquired firm.
D)all of the above
E)none of the above

Accepted Answer

In a corporate acquisition, the purchase price paid for the acquired enterprise reflects the fair value of the assets and liabilities of the firm. Goodwill is then calculated as the difference between the purchase price and the fair value of net assets acquired. Goodwill is considered an asset on the acquiring company's balance sheet because it represents the premium paid for the acquired firm's earnings or strategic advantages that cannot be separately identified or valued. Therefore, D is the best choice as all three statements are true in a corporate acquisition.

Question 17

Why is analysis of intangible assets more challenging than the analysis of tangible long-lived assets?
A)Except for software development costs under U.S.GAAP and development costs under IFRS, firms generally do not recognize internally developed intangibles as assets on the balance sheet.
B)U.S.GAAP and IFRS require firms to measure the fair values of identifiable intangibles acquired in a business combination and assess whether they have finite lives or indefinite lives.
C)Differences between U.S.GAAP and IFRS in the treatment of development costs mean that comparisons of firms that apply U.S.GAAP with firms that apply IFRS require consideration of and adjustment for those differences.
D)all of the above
E)none of the above

Accepted Answer

All of the options stated are correct reasons why analyzing intangible assets is more challenging than analyzing tangible long-lived assets. Specifically, internally developed intangibles are not recognized as assets on the balance sheet except for specific cases under U.S.GAAP and IFRS, identifying and valuing acquired intangibles in business combinations can be complex, and there are differences in the treatment of development costs between U.S.GAAP and IFRS, requiring adjustments for meaningful comparisons.

Question 18

Tangible long-lived assets include
A)land.
B)buildings.
C)equipment.
D)factories.
E)all of the above

Accepted Answer

Tangible long-lived assets include land, buildings, equipment, and factories. Therefore, the best choice is E, which includes all of these options.

Question 19

Firms treat expenditures to develop intangibles internally as assets under U.S.GAAP when _____ the point of technological feasibility; and under IFRS when _____ the point of technological feasibility.
A)software development costs are incurred after; development costs are incurred generally after
B)software development costs are incurred after; development costs are incurred generally before
C)software development costs are incurred before; development costs are incurred generally before
D)software development costs are incurred before; development costs are incurred generally after
E)none of the above.

Accepted Answer

Under U.S. GAAP, firms capitalize software development costs after the point of technological feasibility. Under IFRS, firms can capitalize development costs (including those for intangibles) after demonstrating the project's technical feasibility and ability to generate future economic benefits, which generally aligns with costs incurred after the point of technological feasibility.

Question 20

Focus Company decided to construct its own manufacturing building.Focus Company should capitalize which of the following interest costs?
A)Building interest costs incurred prior to construction while occupying another building.
B)Building interest costs incurred during construction.
C)Building interest costs incurred after construction.
D)All interest costs incurred.
E)No interest costs incurred.

Accepted Answer

Only the building interest costs incurred during construction should be capitalized. Interest costs incurred prior to construction while occupying another building (option A) and interest costs incurred after construction (option C) should be expensed. All interest costs incurred (option D) would result in overcapitalization, and no interest costs (option E) would result in understatement of the building cost.

Quiz 10: Long-Lived Tangible and Intangible Assets

Firms that incur research and development costs to develop a patented product:

Firms generally treat expenditures to develop intangibles internally as

Tangible long-lived assets include all of the following except

Intangible long-lived assets include:

For many technology and pharmaceutical firms:

How are tangible long-lived assets' acquisition cost and accumulated depreciation disclosed?

An expenditure qualifies as an asset if it has which of the following characteristics?

Firms treat expenditures as assets when they:

Firms recognize expenditures to acquire intangibles externally from third parties as _____ if the intangibles are either separable or arise from contractual or other legal rights.

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is

In a corporate acquisition the:

Why is analysis of intangible assets more challenging than the analysis of tangible long-lived assets?

Tangible long-lived assets include

Firms treat expenditures to develop intangibles internally as assets under U.S.GAAP when _ the point of technological feasibility; and under IFRS when _ the point of technological feasibility.

Focus Company decided to construct its own manufacturing building.Focus Company should capitalize which of the following interest costs?