Question 1

Research and development costs incurred in developing a patent internally are not recorded as an intangible asset in the balance sheet,but rather are expensed directly in the income statement.

Accepted Answer

Research and development costs are expensed as incurred and do not meet the criteria for recognition as intangible assets under accounting standards.

Question 2

We allocate natural resources to expense through a process known as "depletion."

Accepted Answer

Depletion is the process of allocating the cost of natural resources to expense over the period in which they are extracted and used.

Question 3

A basket purchase is the purchase of more than one asset at the same time for one purchase price.

Accepted Answer

A basket purchase is the purchase of multiple assets together for one price.

Question 4

When a firm develops a trademark internally through advertising,it does not record the advertising costs as an intangible asset,but rather expenses them in the income statement.

Accepted Answer

When a firm develops a trademark internally through advertising, the advertising costs are not considered as an intangible asset but are expensed in the income statement. Therefore, the statement is true.

Question 5

We use the term capitalize to describe recording an expenditure as an expense.We use the term capitalize to describe recording an expenditure as an asset.

Accepted Answer

Capitalizing an expenditure refers to recording it as an asset, not an expense. Expenses are recorded immediately in the income statement, while capitalized expenditures are added to the balance sheet as assets and expensed over time through depreciation or amortization.

Question 6

The CEO,as head of the company,is ultimately responsible for the firm's accounting.

Accepted Answer

As the chief executive officer, the CEO is accountable for the overall performance and success of the organization, including financial management and accounting. They are responsible for ensuring that the company's financial reports are accurate, timely, and in compliance with applicable laws and regulations.

Question 7

Many intangible assets are not recorded on the balance sheet at their estimated market values.

Accepted Answer

Intangible assets, such as trademarks, patents, and goodwill, are often difficult to value accurately and therefore are not recorded on the balance sheet at their market values. Instead, they are usually recorded at historical cost or amortized over time.

Question 8

The franchisee's initial fee is recorded as an expense on the income statement.The franchisee's initial fee is recorded as an intangible asset and then expensed over the life of the franchise agreement.

Accepted Answer

The franchisee's initial fee is recorded as an intangible asset and then amortized (not expensed) over the life of the franchise agreement.

Question 9

Land improvements are recorded separately from the land itself because,unlike land,these assets are subject to depreciation.

Accepted Answer

Land improvements, such as buildings, fences, and landscaping, are subject to depreciation over time due to wear and tear, obsolescence, or other factors. Therefore, they are recorded as separate assets and their value is adjusted annually to reflect their depreciation expense. Land, on the other hand, is not subject to depreciation and its value typically appreciates over time, so it is not recorded separately.

Question 10

Cash received from the sale of salvaged materials increases the total cost of land.Cash received from the sale of salvaged materials decreases the total cost of land.

Accepted Answer

When land is purchased, the cost includes not only the physical land, but also any buildings or materials on the land. If materials are salvaged and sold, the revenue from the sale should be deducted from the total cost of the land, reducing the overall cost. Therefore, cash received from the sale of salvaged materials decreases the total cost of land.

Question 11

Most of the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet.We expense most of the costs for internally developed intangible assets to the income statement as we incur them.

Accepted Answer

Most of the costs associated with internally developed intangible assets are expensed to the income statement as they are incurred, not recorded as intangible assets on the balance sheet. Only certain costs, such as legal fees and registration costs, may be capitalized as part of the intangible asset's cost.

Question 12

We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.We record a long-term asset at its cost plus all expenditures necessary to get the asset ready for use.

Accepted Answer

Long-term assets are recorded at their cost plus all expenditures necessary to get the asset ready for use, not less.

Question 13

A trademark is a word,slogan,or symbol that distinctively identifies a company,product,or service.

Accepted Answer

A trademark is a unique identifier for a company, product, or service that is legally registered and protected. It can be a word, slogan, symbol, or combination of these elements that sets it apart from competitors and helps to build brand recognition and loyalty.

Question 14

A copyright is an exclusive right of protection given to the creator of a published work such as a song,film,painting,photograph,book,or computer software.

Accepted Answer

This is a correct definition of a copyright.

Question 15

We record goodwill as an intangible asset in the balance sheet only when we purchase it as part of the acquisition of another company.

Accepted Answer

Goodwill is recorded as an intangible asset in the balance sheet only when it is purchased as part of the acquisition of another company. It cannot be generated internally or purchased separately.

Question 16

Advertising costs that increase the value of trademarks are recorded to the asset account entitled Trademarks.Advertising costs are recorded as expenses in the income statement.

Accepted Answer

Advertising costs are typically recorded as expenses in the income statement when incurred, not capitalized as part of the trademark asset.

Question 17

We record purchased intangible assets at their original cost plus all other costs necessary to get the asset ready for use.

Accepted Answer

This is the correct accounting treatment for purchased intangible assets according to the Generally Accepted Accounting Principles (GAAP).

Question 18

We expense internally generated intangible assets,such as research and development and advertising costs,as we incur them.

Accepted Answer

Internally generated intangible assets, such as research and development and advertising costs, are expensed as they are incurred under generally accepted accounting principles.

Question 19

International accounting standards allow firms to record development costs that benefit future periods as an intangible asset.

Accepted Answer

International accounting standards (IAS 38) allow firms to record development costs as an intangible asset if certain criteria are met, including the ability to demonstrate technical feasibility, future economic benefits, and the ability to reliably measure the costs. These costs are then amortized over their useful life.

Question 20

A patent is an exclusive right to a published work such as a song,film,or painting.A patent is an exclusive right to manufacture a product or to use a process.A copyright is an exclusive right of protection given to the creator of a published work such as a song,film,painting,photograph,book,or computer software.

Accepted Answer

The definition given for patent in the first sentence is incorrect. A patent is an exclusive right to manufacture, use and sell an invention for a certain number of years. The correct definition for a published work such as a song, film, or painting is actually a copyright.

Quiz 7: Long-Term Assets