Exam 11: Long-Term Operating Assets: Acquisition, Cost Allocation

Goodwill is recognized only when the purchase price of a company is greater than the fair value of the assets less the liabilities of that company.

Average age of a company's long-term operating assets is computed as ________.

During its first year of operation, Dovery Company incurred $355,000 of research costs undertaken with the prospect of gaining new technical understanding about a new nanotechnology procedure. An additional $495,000 was incurred to develop a production process to use that new technology to produce a new lubricant product. Under U.S. GAAP, which of the following is the appropriate accounting for these costs?

If the intangible asset has a finite useful life, the company must include in their financial statement disclosures whether to use the useful life or the legal life. Assume U.S. GAAP is followed.

What criteria does a company use to decide whether to include an expenditure in the cost of property, plant, and equipment rather than expensing it? Provide an example of a type of expenditure included in the cost of property, plant, and equipment as a result of applying these criteria.

Firms recognize all gains and losses, computed as the difference between the carrying value and the fair value of the asset given up, on a nonmonetary exchange with commercial substance.

The period of time for which interest is to be capitalized ends when ________.

In a nonmonetary exchange with commercial substance, if the fair value of the assets given in exchange is not readily determinable, then the fair value of the assets received is used to measure the transaction.

Scrap value is also referred to as depreciable value.

During 2018, Dosekis Co. calculated weighted-average accumulated expenditures of $200,000 after construction of assets that qualified for capitalization of interest. The only debt outstanding during 2018 was a $300,000, 10%, 5-year note payable dated January 1, 2015. What is the amount of interest that should be capitalized by Dosekis during 2018?

IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.

What are IFRS disclosure requirements for intangible assets?

How does a firm determine the appropriate period of time over which an intangible asset should be amortized?

Capitol Company decided to sell one of its subsidiaries, Subsidiary ABC. BiRite Inc, is the purchaser of this subsidiary. BiRite paid $2,000,000 for Subsidiary ABC. BiRite performed a valuation analysis of Subsidiary ABC's assets acquired and liabilities. The following table presents book values from Subsidiary ABC's financial statements and fair values determined by BiRite: Description Book Value Fair Value Inventory 420,000 \ 450,000 Accounts Receivable 330,000 330,000 Prepaid Assets 70,000 60,000 Equipment 290,000 410,000 Right-of-Use Building 330,000 360,000 Patent 220,000 Trademark 150,000 Current Liabilities 125,000 125,000 Lease Obligation 170,000 170,000 Other Long-term Liabilities 135,000 135,000 a. Prepare the journal entry made by BiRite to record the acquisition of Subsidiary ABC. b. Describe how the journal entry would be different if the acquisition price was $1 million.

Natural resources are initially recorded at cost and then depreciated over their economic lives.

Which of the following is a finite-life intangible asset?

Use of the double-declining balance method ________.

Rinky-Dink Inc. incurred research and development costs of $210,000 and legal fees of $110,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should the company record as patent amortization expense in the first year?

For constructed assets, the amount of capitalized interest is calculated as total construction costs times the applicable interest rate.

Seeder Inc. made a lump-sum purchase of three pieces of machinery for $120,000 from an unaffiliated company. At the time of acquisition, Seeder paid $4,000 to determine the appraised value of the machinery. The appraisal disclosed the following values: Machine A $60,000 Machine B $36,000 Machine C $24,000 What cost should be assigned to Machines A, B, and C, respectively?