Question 1

According to the most current FASB standards,intangible assets acquired in a basket purchase that does not represent the acquisition of an entire business should be

Accepted Answer

Intangible assets acquired in a basket purchase should be valued by allocating the total purchase price according to the relative fair values of all assets acquired, regardless of whether the assets are separately tradable or contract-based, according to FASB standards. This ensures that the purchase price is distributed among the acquired assets in a manner that reflects their fair values.

Question 2

Broadcast rights are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

Accepted Answer

Broadcast rights are contractual assets, thus they fall under the category of contract-based intangible assets.

Question 3

According to the most current FASB standards,intangible assets acquired in a basket purchase which represents the acquisition of an entire business should be

Accepted Answer

Under the most current FASB standards, intangible assets acquired in a basket purchase (acquisition of an entire business) should be valued by recording separately traded and contract based intangible assets at their individual fair values with any unallocated purchase price being recognized as goodwill. This is in accordance with ASC 805-20-30-4.

Question 4

Which of the following most accurately describes the position taken by current generally accepted accounting principles?

Accepted Answer

The current generally accepted accounting principles require the use of the acquisition method for business combinations, which values the consideration transferred at fair value and includes any contingent consideration, but excludes direct combination costs. The cost method is used for asset acquisitions, which values the acquired assets and liabilities at fair value and includes direct combination costs, but excludes contingent consideration. The pooling of interests method is no longer allowed under current GAAP. There are no specific criteria required by GAAP for a business acquisition to use the purchase method.

Question 5

Trade secrets are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

Accepted Answer

Trade secrets fall under the category of technology-based intangible assets, which include patents, copyrights, trademarks, and other proprietary technologies. Generally accepted accounting principles recommend recognizing and valuing such assets separately from other intangible assets on a company's balance sheet.

Question 6

Which of the following most accurately describes the position taken by generally accepted accounting principles regarding the accounting for the costs of drilling dry wells in the oil and gas industry?

Accepted Answer

Both the successful efforts and full-cost methods may be used to account for the costs of drilling dry wells in the oil and gas industry under generally accepted accounting principles. The successful efforts method capitalizes only the costs related to successful exploration, while the full-cost method capitalizes all exploration and development costs, including those related to dry wells. Companies must disclose which method they use in their financial statements.

Question 7

A copyright is an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

Accepted Answer

Copyrights fall under the category of artistic-related intangible assets according to generally accepted accounting principles (GAAP). This category includes assets like plays, literary works, musical works, pictures, photographs, and video and audiovisual material.

Question 8

During the year just ended,Salt Company made the following expenditures relating to its plant building:  How much should be charged to repair and maintenance expense during the year just ended?

Accepted Answer

The answer of During the year just ended,Salt Company made...

Question 9

Which of the following is true regarding the traditional approach to estimating the fair value of an intangible asset?

Accepted Answer

The traditional approach to estimating the fair value of an intangible asset requires the use of judgment in determining a risk-adjusted rate of interest. This is because intangible assets, unlike tangible assets, do not have a readily observable market value. Therefore, the fair value of an intangible asset must be estimated using various inputs and assumptions, including the risk-adjusted rate of interest.

Question 10

Order backlogs are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

Accepted Answer

Order backlogs represent a customer-related intangible asset, as they represent the value of future sales to existing customers. According to current generally accepted accounting principles, customer-related intangible assets should be recognized separately.

Question 11

Solara Company entered into a contract with Hammer Construction Company to construct a building.Construction began in 2014 and was completed in 2015.As of January 1,2015,Solara had made total progress payments to Hammer of $50,000.In addition,interest capitalized on the building during 2014 was $2,500.Solara made additional payments on June 30,2015,and December 31,2015.Solara had issued $80,000 of 9% bonds to finance part of the construction.The average interest on Solara's additional debt was 11% for 2015. How much interest should be capitalized by Solara for 2015?

Accepted Answer

Interest to be capitalized for 2015 is calculated based on the weighted average accumulated expenditures for the construction project. The interest rate used is the lower of the actual interest rate on the specific debt incurred to finance the project or the weighted average of interest rates on all outstanding debt if the project was not specifically financed by a particular debt issuance. In this case, the calculation involves the interest on the $80,000 of 9% bonds and the additional debt at an average interest rate of 11%. However, without the specific amounts of additional payments and the timing of expenditures, a precise calculation cannot be provided here. The correct answer, based on the information given, would typically involve calculating the interest based on the weighted average accumulated expenditures and applying the appropriate interest rates. Since the exact calculation steps and the necessary additional payment amounts are not provided, the correct choice is selected based on the assumption that the question expects familiarity with the concept of interest capitalization rather than the execution of a specific calculation.

Question 12

A trademark is an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

Accepted Answer

A trademark is classified as a marketing-related intangible asset, which is a general category of intangible assets that should be recognized separately according to current generally accepted accounting principles.

Question 13

In a "basket" or "lump-sum" purchase of assets,which of the following best describes the process by which the historical cost of the various assets acquired should be determined?

Accepted Answer

The correct process for determining the historical cost of various assets acquired in a basket purchase is to allocate the total cost to the individual assets based on their fair market value at the time of the purchase. This method ensures that the recorded cost reflects the current economic value exchanged.

Question 14

Which of the following is correct?

Accepted Answer

Internally generated intangible assets may be estimated for internal management purposes but are not recorded at fair value on the financial statements due to the difficulty in reliably measuring their fair value without an external transaction. Goodwill is only recognized in a business combination and cannot be internally generated or recognized based on stock price movements.

Question 15

During 2014,Robby,Inc.incurred the following costs:  In its income statement for the year ended December 31,2014,Robby should report research and development expense of

Accepted Answer

The answer of During 2014,Robby,Inc.incurred the following costs:  In...

Question 16

Which of the following ordinarily would be treated as a revenue expenditure rather than a capital expenditure?

Accepted Answer

Repair and maintenance on buildings are routine expenses needed for the upkeep and normal operation of the building, and are therefore considered revenue expenditures.

Question 17

On September 10,Gravelly Company incurred the following costs for one of its printing presses:  Neither the attachment nor the renovation increased the estimated useful life of the press.However,the renovation resulted in significantly increased productivity.What amount of the costs should be capitalized?

Accepted Answer

The answer of On September 10,Gravelly Company incurred the following...

Question 18

Tundra Co.incurred research and development costs in 2014 as follows:  The total research and development costs charged in Tundra's 2014 income statement should be

Accepted Answer

The answer of Tundra Co.incurred research and development costs in...

Question 19

On April 30,2014,Brother,Inc.purchased for $30 per share all 200,000 of Cousin Corp.'s outstanding common stock.On this date Cousin's balance sheet showed net assets of $5,000,000.Additionally,the fair value of Cousin's identifiable assets on this date was $400,000 in excess of their carrying amount.On Brother's April 30,2014,consolidated balance sheet,what amount should be reported as goodwill?

Accepted Answer

The answer of On April 30,2014,Brother,Inc.purchased for $30 per share...

Question 20

Acquired in-process research and development should be

Accepted Answer

Acquired in-process research and development should be expensed when acquired according to GAAP (Generally Accepted Accounting Principles). This is because in-process research and development is considered to have no alternative future use and its future benefits are uncertain, making it impossible to accurately estimate its useful life. Therefore, it should not be capitalized and amortized.

Quiz 10: Investments in Noncurrent Operating Assets-Acquisition