ACC 308 2-3 Quiz Chapter 10

1)

Property, plant, and equipment and intangible assets are:

Created by the normal operation of the business and include accounts receivable.

All assets except cash and cash equivalents.

Current and long-term assets used in the production of either goods or services.

Long-term revenue-producing assets.

2)

Goodwill is:

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Amortized over the greater of its estimated life or 40 years.

Only recorded by the seller of a business.

The excess of the acquisition price of a business over the fair value of all net identifiable assets.

None of the above.

3)

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

Patent.

Copyright.

Trademark.

Franchise.

4)

The exclusive right to display a symbol of product identification is a:

Patent.

Copyright.

Trademark.

Franchise.

5)

Assets acquired in a lump-sum purchase are valued based on:

Their assessed valuation.

Their relative fair values.

The present value of their future cash flows.

Their cost plus the difference between their cost and fair values.

6)

Assets acquired by the issuance of equity securities are valued based on:

 

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Their fair values.

The fair value of the equity securities.

Their fair values or the fair value of the equity securities, whichever is more reasonably determinable.

Their fair values or the fair value of the equity securities, whichever is smaller.

7)

The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at:

Fair value of the asset(s) given up.

The book value of the asset given plus any cash or other monetary consideration received.

Fair value or book value, whichever is smaller.

Book value of the asset given.

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?

$30,000.

$40,000.

$90,000.

$140,000.

  Total interest cost incurred ($30,000 + 60,000) $90,000    

  Interest capitalized (50,000)   

  Interest expense $40,000    

9)

Research and development (R&D) costs:

Generally pertain to activities that occur prior to the start of production.

May be expensed or capitalized, at the option of the reporting entity.

Must be capitalized and amortized.

None of the above is correct.

10)

In accounting for oil and gas exploration costs, companies:

May not use the full-cost method.

May use the successful efforts method.

May use the slippery slope method.

All of the above are correct.

11)

Semtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:

 

 

 

 

  Title insurance $ 31,000  

  Legal fees for drawing the contract 7,500  

  Pro-rated property taxes for the period after acquisition 51,000  

  State transfer fees 5,500  

________________________________________

 

 

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.5 and $1.5 million, respectively. Shortly after acquisition, Semtech spent $97,000 to construct a parking lot and $55,000 for landscaping.

 

 

Required:

1. Determine the initial valuation of each asset Semtech acquired in these transactions. (Enter your answers in whole dollars.)

    

 

2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were $400,000 and the salvaged materials were sold for $8,500. In addition, Semtech spent $94,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in whole dollars.)

 

12)

The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas. Tinsley carried the land at its original cost of $38,000. According to an independent appraisal, the land currently is worth $88,000. Tinsley gave $30,000 in cash to complete the transaction.

 

Required:

1. What is the fair value of the new parcel of land received by Tinsley?

    

 

2. Prepare the journal entry to record the exchange assuming the exchange has commercial substance. (If no entry is required for an event, select "No journal entry required" in the first account field.)

 

3. Prepare the journal entry to record the exchange assuming the exchange lacks commercial substance. (If no entry is required for an event, select "No journal entry required" in the first account field.)

    

 

 

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