Question 1

Research and development expense for a given period includes:
A)The full cost of a newly acquired operational asset 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.

Accepted Answer

Depreciation on a research and development facility is included as a research and development expense because it is a cost associated with the use of the facility for R&D activities.

Question 2

During 2009, the Longhorn Oil Company incurred $5,000,000 in exploration costs for each of 20 oil wells drilled in 2009 in west Texas. Of the 20 wells drilled, 14 were dry holes. Longhorn uses the successful efforts method of accounting. Assuming that none of the oil found is depleted in 2009, what oil exploration expense would Longhorn charge for this activity in its 2009 income statement?
A)$ 0
B)$ 30 million
C)$ 70 million
D)$100 million Expense the dry holes $100 million (14/20) = $70 million

Accepted Answer

Under the successful efforts method of accounting, exploration costs for dry holes must be expensed in the period incurred. Longhorn incurred $5,000,000 in exploration costs for each of the 20 oil wells drilled, which is a total of $100 million. Since 14 of those wells were dry holes, the exploration costs for those wells, $70 million (14/20 x $100 million), must be charged as expenses in the income statement for 2009. Therefore, the correct answer is Choice C: $70 million.

Question 3

On July 1, 2009, Jekel & Hyde Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below:
Required:
Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.
 $$\begin{array} { l r } 
\text { Purchase price } & \$ 185,000 \
\text { Title insurance } & \$ 1,500 \
\text { Legal fees to purchase land } & \$ 1,000 \
\text { Cost of razing old building on lot } & 8,500 \
\text { Proceeds from sale of salvageable materials } & ( 1,200 ) \
\text { Property taxes, January 1, 2009 - June } 30,2009 & 3,000 \
\text { Cost of grading and filling building site } & 9,000 \
\text { Cost of building construction } & 620,000 \
\text { Interest on construction loan } & 12,000 \
\text { Cost of constructing driveway } & 8,000 \
\text { Cost of parking lot and fencing } & 12,000
\end{array}$$

Accepted Answer

The answer of On July 1, 2009, Jekel & Hyde...

Question 4

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 is correct.

Accepted Answer

R&D costs generally pertain to activities that occur before production begins, such as the development of new products or processes.

Question 5

Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2007.

Accepted Answer

The answer of Show the journal entry to record Boston...

Question 6

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.

Accepted Answer

According to the text, the final cost of Dreamworld's warehouse was $2,143,860. The other options are not mentioned in the text.

Question 7

Use a T- account to show the balances and changes during 2007 in Boston Beer's: Property, Plant, and Equipment account and its Accumulated depreciation-Property, Plant, & equipment account.
($ in thousands)

Accepted Answer

The answer of Use a T- account to show the...

Question 8

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.

Accepted Answer

Liddy should expense the interest on the construction loan for the warehouse of $60,000 and the interest computed on the average accumulated expenditures for the warehouse construction of $50,000, for a total of $110,000. The interest on the working capital loan is not eligible for capitalization and should be expensed immediately. Therefore, the correct answer is B) $40,000 ($60,000 + $50,000 - $30,000).

Question 9

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.

Accepted Answer

Research and development costs for projects other than software development should be expensed in the period incurred, as these costs cannot be reliably measured and do not meet the criteria for asset recognition.

Question 10

Dreamworld's average accumulated expenditures for 2009 was:
A)$300,000.
B)$450,000.
C)$525,000.
D)$600,000.

Accepted Answer

The answer of Dreamworld's average accumulated expenditures for 2009 was:
A)$300,000.
B)$450,000.
C)$525,000.
D)$600,000....

Question 11

During 2009, Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2009. Of the 15 wells drilled, 10 were dry holes. Prospect uses the successful efforts method of accounting. Assuming that Prospect depletes 30% of the oil discovered in 2009, what amount of these exploration costs would remain on its 12/31/09 balance sheet?
A)$ 6 million
B)$14 million
C)$20 million
D)$42 million Capitalize the wells that are not dry holes: 5 $4 million = $20 million.Of this, 30% is depleted in 2009 and the rest remains on the balance sheet.

Accepted Answer

The answer of During 2009, Prospect Oil Corporation incurred $4,000,000...

Question 12

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.

Accepted Answer

The answer of Amortization of capitalized computer software costs is:
A)Either...

Question 13

On August 15, 2009, Willis Inc. purchased all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below:
Required:
Prepare the journal entry to record the acquisition by Willis Inc.
 $\begin{array}{lrr}&\text { Book Value } &  \text { Fair Value } \
\text { Accounts receivable } & \$ 1,080,000 & \$ 975,000 \
\text { Inventories } & 1,620,000 & 2,400,000 \
\text { Property, plant, and equipment } & 5,400,000 & 6,975,000 \
\text { Accounts payable } & 1,800,000 & 1,800,000 \
\text { Bonds payable } & 2,700,000 & 2,475,000
\end{array}$

Accepted Answer

The answer of On August 15, 2009, Willis Inc. purchased...

Question 14

The average accumulated expenditures for 2010 by the end of the construction period was:
A)$1,950,000.
B)$1,554,000.
C)$1,254,000.
D)$ 975,000.

Accepted Answer

The average accumulated expenditures for 2010 by the end of the construction period can be calculated by adding up the total expenditures for each year from 2007 to 2010 and dividing by four. From the table, this gives us: (1,050,000+825,000+ 630,000+49,500,000)/4 = 1,554,000. Therefore, the best choice is B.

Question 15

Axcel Software began a new development project in 2008. The project reached technological feasibility on June 30, 2009 and was available for release to customers at the beginning of 2010. Development costs incurred prior to June 30, 2009 were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. 2010 revenues from the sale of the new software were $4,000,000 and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2010 amortization of the software development costs would be:
A)$ 0.
B)$ 350,000.
C)$1,840,000.
D)$ 560,000.Percentage of-revenue method: $4,000,000 ($4,000,000 + 6,000,000) = 40 % Straight-line method: ¼ or 25%
Amortization = $1,400,000 40% = $560,000

Accepted Answer

The most appropriate amortization method to use in this case is the percentage-of-revenue method. Based on this method, the amortization expense for 2010 is equal to the percentage of revenues earned in the current year times the total development costs incurred. Therefore, the amortization expense for 2010 is $1,400,000 x 40% = $560,000. The straight-line method is not appropriate in this case because it does not take into account the pattern of future revenues. Therefore, the best choice is option D, which represents the amortization expense using the percentage-of-revenue method.

Question 16

Dreamworld's capitalized interest in 2009 was:
A)$72,000.
B)$63,000.
C)$54,000.
D)$36,000.$450,000 (determined above) 12% = $54,000

Accepted Answer

Dreamworld's capitalized interest in 2009 was calculated by multiplying their total construction cost of $450,000 by the interest rate of 12%, which equals $54,000. Therefore, the best choice is C, with a capitalized interest of $54,000.

Question 17

During the current year, Brewer Company purchased all of the outstanding common stock of Miller Inc. paying $12,000,000 cash. The book values and fair values of Miller's assets and liabilities acquired are listed below:
Required:
Prepare the journal entry to record the acquisition by Brewer Company.
 $\begin{array}{lrr}&\text { Book Value } &  \text { Fair Value } \
\text { Accounts receivable } & \$ 1,800,000 & \$ 1,625,000 \
\text { Inventories } & 2,700,000 & 4,000,000 \
\text { Property, plant, and equipment } & 9,000,000 & 11,625,000 \
\text { Accounts payable } & 3,000,000 & 3,000,000 \
\text { Bonds payable } & 4,500,000 & 4,125,000
\end{array}$

Accepted Answer

The answer of During the current year, Brewer Company purchased...

Question 18

Software development costs are capitalized if they are incurred:
A)Prior to 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 is correct.

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), software development costs can be capitalized only after the technological feasibility of the project has been established. Once technological feasibility has been established, and development costs start to be incurred, only costs incurred up until the product availability date can be capitalized. Therefore, choice C is correct. Choices A and B are incorrect because they refer to periods before or after the window of time during which costs can be capitalized. Choice D is incorrect because choice C is correct.

Question 19

In accounting for oil and gas exploration costs, companies:
A)May not use the full-cost method.
B)May use the successful efforts method.
C)May use the slippery slope method.
D)All of these are correct.

Accepted Answer

Companies may use the successful efforts method in accounting for oil and gas exploration costs. The full-cost method is no longer permitted by the SEC, and the slippery slope method is not a recognized accounting method.

Question 20

Mad Hatter Enterprises purchased new equipment for $365,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows:
Required:
Determine the capitalized cost of the equipment.
 $\begin{array}{lr}
\text { State sales tax } & 29,200 \
\text { Freight costs } & 5,600 \
\text { Insurance while in transit } & 800 \
\text { Insurance after equipment placed in service } & 1,200 \
\text { Installation costs } & 2,000 \
\text { Insurance for the first year of operations } & 2,400 \
\text { Testing } & 700
\end{array}$

Accepted Answer

The answer of Mad Hatter Enterprises purchased new equipment for...

Quiz 10: Operational Assets: Acquisition and Disposition

Research and development expense for a given period includes:

Research and development (R&D) costs:

Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2007.

What was the final cost of Dreamworld's warehouse?

Use a T- account to show the balances and changes during 2007 in Boston Beer's: Property, Plant, and Equipment account and its Accumulated depreciation-Property, Plant, & equipment account. ($ in thousands)

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

Dreamworld's average accumulated expenditures for 2009 was:

Amortization of capitalized computer software costs is:

The average accumulated expenditures for 2010 by the end of the construction period was:

Dreamworld's capitalized interest in 2009 was:

Software development costs are capitalized if they are incurred:

In accounting for oil and gas exploration costs, companies: