Question 1

Productive assets that are physically consumed in operations are:

Accepted Answer

Natural resources are productive assets that are physically consumed in operations, such as oil, minerals, and water. Equipment, land, and land improvements are not physically consumed in operations, but are used to facilitate operations.

Question 2

A distinguishing characteristic of intangible assets is that the extent and timing of their future benefits typically are highly uncertain.

Accepted Answer

This statement is true. Unlike tangible assets, intangible assets are not physical in nature, and their future benefits cannot be accurately predicted or quantified.

Question 3

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

Accepted Answer

Sales tax paid on equipment acquired for use in the business is capitalized as part of the cost of the equipment.

Question 4

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

Accepted Answer

Both property, plant, and equipment and intangible assets are long-term assets that are expected to generate revenue over a period greater than one year. Property, plant, and equipment are tangible assets such as buildings, machinery, and equipment, while intangible assets refer to non-physical assets such as patents, trademarks, and goodwill. Both types of assets are used in business operations to generate revenue over extended periods of time.

Question 5

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

Accepted Answer

A patent grants the exclusive right to manufacture or use a specific product or process for a certain period of time, usually 20 years. It is granted by the government to inventors or creators as a way of incentivizing innovation and protecting intellectual property. Copyrights protect original works of authorship, trademarks protect symbols or words associated with a brand, and franchises are agreements between a franchisor and franchisee to allow the use of a brand and business model.

Question 6

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

Accepted Answer

The relative fair values of individual assets are typically used to allocate the purchase price of a lump-sum purchase among the assets acquired. This allocation is important for accounting and tax purposes.

Question 7

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

Accepted Answer

Under IFRS, government grants are not recognized as revenue. Instead, they are treated as either deferred income or deducted from the carrying amount of the asset to which they relate, depending on the nature of the grant.

Question 8

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

Accepted Answer

The fair value of the asset, debt, or equity securities given in a noncash acquisition should determine the value of the consideration received. This is in accordance with accounting standards such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).

Question 9

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

Accepted Answer

The FASB requires that most research and development costs be expensed as incurred, which can result in understated net income and assets on the balance sheet.

Question 10

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.

Accepted Answer

Costs incurred after the discovery of a natural resource but before production begins are capitalized as part of the cost of the natural resource. They are not expensed in the period in which the expenditures are made.

Question 11

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.

Accepted Answer

The successful efforts method only allows for the capitalization of costs directly associated with successful discovery of new oil or gas reserves. Costs related to unsuccessful exploration efforts are expensed immediately.

Question 12

Goodwill is:

Accepted Answer

Goodwill represents the excess of the fair value of a business over the fair value of all net identifiable assets. It is recorded when a company acquires another business, and it represents intangible assets such as customer relationships, brand recognition, and intellectual property. Goodwill is tested for impairment annually and is not amortized but tested for impairment. Option A is incorrect since goodwill is not amortized. Option B is incorrect as it is recorded by the buyer of a business too. Option D is incorrect as option C is the correct answer.

Question 13

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

Accepted Answer

Under current GAAP, fair value is used to measure the components of most nonmonetary exchanges, but there are some exceptions where fair value may not be appropriate or possible to measure.

Question 14

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.

Accepted Answer

This statement is true. 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. This means that interest costs incurred during the construction phase of the asset are capitalized and added to the cost of the asset until it is ready for use or interest costs are no longer being incurred.

Question 15

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

Accepted Answer

IFRS and U.S. GAAP have different requirements for accounting for capitalized software development costs. Under IFRS, these costs can only be capitalized in certain circumstances, and amortization must be calculated using the straight-line method or another appropriate method. Under U.S. GAAP, the costs can be capitalized more readily and amortization can be calculated using the straight-line method, the units-of-production method, or other appropriate methods.

Question 16

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

Accepted Answer

Under IFRS, research costs are expensed in the period incurred, but development costs can be capitalized if certain criteria are met. Therefore, not all research and development expenditures are expensed in the period incurred.

Question 17

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

Accepted Answer

Maintenance costs during the first 30 days of use are considered operating expenses and not part of the acquisition costs of property, plant, and equipment.

Question 18

Property, plant, and equipment and intangible assets are:

Accepted Answer

Property, plant, and equipment and intangible assets are classified as long-term assets because they are used over multiple accounting periods to generate revenue for a business. They are not created by normal operations like accounts receivable (eliminating A), they are not the only assets except cash and cash equivalents (eliminating B), and they are specifically long-term rather than current assets (eliminating C).

Question 19

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.

Accepted Answer

Demolition costs to remove an old building are considered part of the land preparation costs and are capitalized to the land account, not the new building cost.

Question 20

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.

Accepted Answer

This statement is true. The initial cost of property, plant, and equipment includes all identifiable expenditures such as purchase price, transportation costs, installation costs, and any other necessary expenses to bring the asset to its desired condition and location for use.

Quiz 10: Property, Plant, and Equipment and Intangible Assets: Acquisition