CHAPTER 10

Question 1

Intangible assets

Answer 1

• patents
• building
• machinery

Question 2

INITIAL COST =

Answer 2

PURCHASE PRICE + ALL EXPENDITURES NECESSARY TO BRING THE ASSET TO IT’S DESIRED CONDITION/LOCATION FOR USE

Question 3

Cost of equipment

Answer 3

• purchase price
• sales tax
• transportation costs
• legal fees
• installation/testing

Question 4

Cost of land

Answer 4

• purchase price
• attorney fees
• real estate fees
• title fees
• recording fees
• back taxes
• cleaning, filling, draining, etc.

Question 5

Cost of building

Answer 5

• purchase price
• relator fees
• reconditioning cost

Question 6

Cost of natural resources if purchased

Answer 6

• purchase price
• costs to meet conditions and location

Question 7

Cost of natural resources if developed

Answer 7

• acquistion costs
• exploration costs
• development costs
  -restoration costs

Question 8

asset retirement obligations

Answer 8

Measured at fair value and recognized as a liability and corresponding increase in asset valuation.

Question 9

COST =

Answer 9

PURCHASE PRICE + ALL COSTS NECESSARY TO BRING ASSET TO CONDITION AND LOCATION FOR USE

Question 10

Patents

Answer 10

The right to manufacture a product or use a product

Question 11

Copyrights

Answer 11

The right of protection given to a creator of a published work.

Question 12

Trademarks

Answer 12

The right to display a word, slogan, symbol, or emblem.

Question 13

Goodwill

Answer 13

Represents the unique value of a company as a whole over and above its identifiable tangible and intangible assets.

Question 14

COST OF GOODWILL =

Answer 14

ACQUISITION PRICE - FAIR VALUE OF THE NET ASSETS REQUIRED

Question 15

Lump sum purchases

Answer 15

The acquistion of a group of assets for a single sum.

Question 16

Now cash acquisitions

Answer 16

• issuing debt or equity securities
• receiving donated assets
• exchange other assets

Question 17

Deferred payments

Answer 17

Obligation to make a payment in the future.

Question 18

Issuance of equity securities

Answer 18

When small company owner(s) contribute assets to the new corporation in exchange for ownership securities.

Question 19

Donated assets

Answer 19

Donations are usually an enticement to do something that benefits the donor.

Question 20

Capital budgeting

Answer 20

• requires management to forecast all future net cash flows generated by the assets
• includes decisions about the acquisition of PPE and intangible assets

Question 21

FIXED ASSET TURNOVER RATIO =

Answer 21

NET SALES / AVG. FIXED ASSETS

Question 22

Exchanges

Answer 22

The acquisition of an asset in exchange for an asset other than cash.

Question 23

Commercial substance

Answer 23

When future cash flows change as a result of the exchange.

Question 24

Self-constructed assets

Answer 24

Constructing assets for its own use rather than buying an existing one.