Exam 10: Long-Lived Assets

On June 30,2015 Howard Company acquired a 5-acre tract of land.On the tract was a warehouse that Howard intended to use as a distribution center.At the time of the purchase,the land had an assessed tax valuation of $2,250,000 and the building had an assessed tax value of $7,750,000.Howard paid $16,750,000 for the land and building.After the purchase the company paid $750,000 to have various modifications made to the building. Required: a.At what amount should Howard record the land and building? b.For financial reporting purposes,why might the managers of Howard prefer to assign a larger portion of the $16,750,000 to the land rather than the building?

Jade,Inc.develops and markets computer software.During 2013,one of Jade's engineers began developing a new and very innovative software product.On April 1,2014,a team of Jade's engineers determined that the software product was technologically feasible.Jade engineers continued to ready the software for general release and in January 2015 the first product sales were made.Total costs incurred were as follows: $2013\quad\quad \$ 4,750,000$ (evenly throughout the year) $2014 \quad\quad\$ 2,800,000$ (evenly throughout the year) Required: a.How should Jade account for the costs incurred during 2013 and what is the rationale for your answer? b.How should Jade account for the costs incurred during 2014? If your answer differs from your answer in requirement a,explain why.

The only long-lived asset measurement method that survives the dual filters of reliability and verifiability is the economic benefit approach.

Research indicates that investors generally ignore R&D expenditures.

Denver Co.acquired a large rotary forge to be used in its manufacturing process from a competitor that was going out of business.The following costs were incurred by Denver in connection with the acquisition: List price \ 375,000 Finder's fee 1,500 Transportation to Denver's plant 13,000 Cleaning and repainting the forge 1,800 Installation costs 21,000 Costs to repair a control panel damaged during installation 900 Required: How much should Denver Co.capitalize to the machinery account?

The Reid Co. acquired a piece of land for a new factory paying $100,000. Reid demolished the old building at a cost of $20,000, and sold scrapped material salvaged from the old building for $5,000. The architect's fees were $25,000, and the title insurance upon acquisition of the land was $1,000. The construction period interest was $8,000, and the contractor received $300,000 for the building. A pavement assessment made by the city cost Reid $2,000 at the purchase date. -The cost of the building recorded by Reid Co.is

Aging assets and inflation tend to complicate financial statement analysis by overstating return on assets.

IFRS allows more choice in valuation models for long-term assets than U.S.GAAP.

Which one of the following is an example of the expected benefit approach for valuing long-lived assets?

The FASB has been able to guard against management manipulation of earnings as a result of asset impairments by

"Accretion expense," classified as an operating item,reflects the current period's growth in an asset retirement obligation.

The method of measuring long-lived assets at their estimated value in an input market is the economic sacrifices approach.

Eagle Corporation acquired a new machine on January 2, 2013 at a cost of $126,000. The machine has an expected 4 year life and a salvage value of $6,000. -If Eagle uses the sum-of-years' digits depreciation method,the depreciation expense in 2015 is

That a causal relationship between current R&D and future revenue has not been demonstrated was among the FASB's justifications for expensing all R&D.

A primary concern of auditors and analysts is that numbers on the financial statements be verifiable,which means that the numbers should arise from readily observable facts subject to corroboration.

When the differences in useful lives of long-lived assets reflect real economic differences,the attempt on the part of financial analysts to undo these differences may

Firms are required to disclose separately total expensed R&D costs;thus,analysts can use these disclosures to reconstruct what asset and amortization amounts would be if GAAP allowed R&D to be capitalized.

For firms using the straight-line depreciation method,dividing average net property,plant,and equipment by depreciation expense provides a rough approximation of the estimated useful life of the average asset.

Because of interest capitalization,an increase in capital expenditures can temporarily decrease the amount of interest expense shown on the income statement.

When firms dispose of a long-lived asset before the end of its useful life,the difference between the net book value of the asset and the sale proceeds is a/an