Question 1

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

A) True 
 B)False

Question 2

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

A) True 
 B)False

Question 3

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

Accepted Answer

A)  Their assessed valuation. 
B)  Their relative fair values. 
C)  The present value of their future cash flows. 
D)  Their cost plus the difference between their cost and fair values.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2018 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2018 fiscal year. Sale of the product began in 2017. What amount of the above expenditures would Cromartie expense in its 2018 income statement?

Accepted Answer

A)  $2,001,000. 
B)  $756,000. 
C)  $1,245,000. 
D)  $0.

Question 6

On July 1, 2018, Jekel & Hyde Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below: $$\begin{array} { l r } 
\text { Purchase price } & \$ 185,000 \
\text { Title insurance } & \$ 1,500\
\text { Legal feesto purchase land } & \$ 1,00 0 \
\text { Cost of razing old building on lot } & 8,500\
\text { Proceeds from sale of salvageable materials } & ( 1,200 ) \
\text { Property taxes, January 1, 2018-June 30, 2018 } & 3,000 \
\text { Cost of grading and filling building site } & 9,000 \
\text { Cost of building construction } & 620,000 \
\text { Interest on construction loan } & 12,00 0 \
\text { Cost of constructing driveway } & 8,000 \
\text { Cost of parking lot and fencing } & 12,000
\end{array}$$ Required:
Indicate the accounts that would be affected by the above transactions and the resulting balance in each account. Apply the interest on the construction loan to the cost of the building only.

Accepted Answer

The answer of On July 1, 2018, Jekel & Hyde...

Question 7

On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:  Dreamworld had $5,000,000 in 12% bonds outstanding through both years.
- Dreamworld's average accumulated expenditures for 2018 was:

Accepted Answer

A)  $300,000. 
B)  $450,000. 
C)  $525,000. 
D)  $600,000.

Question 8

AstroTech Semiconductor incurred the following costs in 2018 related to a new product design:
$\begin{array}{lr}
\text { Research for new semiconductor design } & \$ 3,220,000 \
\text { Development of the new product } & 856,000 \
\text { Legal and filing fees for a patent for the new design } & 110,000\
\text { Total }&\$4,186,000
\end{array}$
The development costs were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed, and the new product was patented before the end of the 2018 fiscal year.

Required:
1. Calculate the amount of research and development expense AstroTech should report in its 2018 U.S. GAAP income statement related to this project.
2. Repeat Requirement 1 assuming that AstroTech prepares its financial statements according to International Financial Reporting Standards (IFRS).

Accepted Answer

The answer of AstroTech Semiconductor incurred the following costs in...

Question 9

Micropolois Technology began a new development project in 2017. The project reached technological feasibility on September 1, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to September 1, 2018, were $4,200,000 and costs incurred from June 30 to the product release date were $1,800,000. The 2019 revenues from the sale of the new software were $3,000,000, and the company anticipates additional revenues of $12,000,000. The economic life of the software is estimated at three years. Amortization of the software development costs for the year 2019 would be:

Accepted Answer

A)  $1,400,000. 
B)  $360,000. 
C)  $600,000. 
D)  $2,000,000.

Question 10

Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance. $$\begin{array} { l l l c } 
&  { \text { Old Equipment } }& & \text { Cash } \
 & \text { Book Value } & \text { Fair Value } & \text { Paid } \
\text { Case A }& \$ 50,000 & \$ 60,000 & \$ 15,000 \
\text { Case B } & \$ 40,000 & \$ 35,000 & \$ 8,000
\end{array}$$ 
-In Case B, Grand Forks would record a gain/(loss) of:

Accepted Answer

A)  $5,000. 
B)  $3,000. 
C)  ($5,000). 
D)  ($3,000).

Question 11

Savings Mart is a national retail chain. To entice the company to open a mega store in its jurisdiction, the city of Populationville donated a 20-acre tract of land to be used for construction. The land was originally purchased by the city for $250,000 three years ago. The appraisal value at the time of the donation was $300,000. For what amount should Savings Mart record the donated land?

Accepted Answer

A)  $250,000. 
B)  $275,000. 
C)  $300,000. 
D)  $0; Donated assets are not recorded.

Question 12

On August 15, 2018, Willis Inc. acquired all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below:  Required:
Prepare the journal entry to record the acquisition by Willis Inc.

Accepted Answer

The answer of On August 15, 2018, Willis Inc. acquired...

Question 13

Donated assets are recorded at:

Accepted Answer

A)  Zero (memo entry only). 
B)  The donor's book value. 
C)  The donee's stated value. 
D)  Fair value.

Question 14

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards (IFRS) in accounting for research and development expenditures other than software development costs.

Accepted Answer

The answer of Briefly explain the differences between U.S. GAAP...

Question 15

On January 1, 2018, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2019. Expenditures on the project were as follows:  Dreamworld had $5,000,000 in 12% bonds outstanding through both years.
- What was the final cost of Dreamworld's warehouse?

Accepted Answer

A)  $2,154,480. 
B)  $2,143,860. 
C)  $1,950,000. 
D)  $1,254,000.

Question 16

When one company acquires another company, any acquired "developed technology" is recorded as:

Accepted Answer

A)  Finite-life intangible asset. 
B)  Property, plant, and equipment. 
C)  Research and development expense. 
D)  Indefinite-life intangible asset.

Question 17

During 2018, Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2018. Of the 15 wells drilled, 10 were dry holes. Prospect uses the successful efforts method of accounting. Assuming that Prospect depletes 30% of the oil discovered in 2018, what amount of these exploration costs would remain in its 12/31/2018 balance sheet?

Accepted Answer

A)  $6 million. 
B)  $14 million. 
C)  $20 million. 
D)  $42 million.

Question 18

Champion Industries exchanged a dust-scrubbing piece of equipment for another version of the same type of equipment and received $12,000 cash. The old dust scrubber cost $76,200 and had a book value of $54,500. The new dust scrubber had a fair value of $58,500.
Required:
Prepare the journal entry to record the exchange. Assume the exchange has commercial substance.

Accepted Answer

The answer of Champion Industries exchanged a dust-scrubbing piece of...

Question 19

Cebrex Software began a new development project in 2017. The project reached technological feasibility on June 30, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to June 30, 2018, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The economic life of the software is estimated at four years. For what amount will software be capitalized in 2018?

Accepted Answer

A)  $0. 
B)  $5,600,000. 
C)  $1,400,000. 
D)  $3,200,000.

Question 20

Axcel Software began a new development project in 2017. The project reached technological feasibility on June 30, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to June 30, 2018, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The 2019 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. Amortization of the software development costs for the year 2019 would be:

Accepted Answer

A)  $0. 
B)  $350,000. 
C)  $1,840,000. 
D)  $560,000.

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

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.

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.

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

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

On August 15, 2018, Willis Inc. acquired all of the outstanding common stock of Bork Inc. paying $7,400,000 cash. The book values and fair values of Willis' assets and liabilities are listed below: Required: Prepare the journal entry to record the acquisition by Willis Inc.

Donated assets are recorded at:

Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards (IFRS) in accounting for research and development expenditures other than software development costs.

When one company acquires another company, any acquired "developed technology" is recorded as: