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

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Question 51

True/False

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Costs incurred after discovery of a natural resource but before production begins are reported as expenses of the period in which the expenditures are made.

A) True
B) False

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Question 52

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Under current GAAP, fair value is used to measure the components of all nonmonetary exchanges.

A) True
B) False

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Question 53

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During 2013, the Longhorn Oil Company incurred $5,000,000 in exploration costs for each of 20 oil wells drilled in 2013 in west Texas. Of the 20 wells drilled, 14 were dry holes. Longhorn uses the successful efforts method of accounting. Assuming that none of the oil found is depleted in 2013, what oil exploration expense would Longhorn charge for this activity in its 2013 income statement?

Ford Inc. exchanged land and $7,500 cash for material handling equipment. The land had a book value of $75,000 and a fair value of $105,000. Assume the exchange has commercial substance. Required: Prepare the journal entry to record the exchange.

Explain the appropriate accounting method used to account for lump-sum purchases of a group of long-term assets.

The FASB's required accounting treatment for research and development costs often understates both net income and assets.

On July 1, 2013, Larkin Co. purchased a $400,000 tract of land that is intended to be the site of a new office complex. Larkin incurred additional costs and realized salvage proceeds during 2013 as follows: What would be the balance in the land account as of December 31, 2013?

Dreamworld's average accumulated expenditures for 2013 was:

The exclusive right to display a symbol of product identification is a:

Amortization of capitalized computer software costs is:

The asset retirement obligation (rounded) that should be reported on MMC's balance sheet one year after the extraction activities begin is:

Research and development expense for a given period includes:

Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and development costs totaled $8.2 million. Extraction activities began on July 1, 2013. After the copper is extracted in approximately six years, Schefter is obligated to restore the land to its original condition, including constructing a park. The company's controller has provided the following three cash flow possibilities for the restoration costs: The company's credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends on December 31. Required: 1. What is the initial cost of the copper mine? (Round computations to nearest whole dollar.) 2. How much accretion expense will Schefter report in its 2013 income statement? 3. What is the carrying value (book value) of the asset retirement obligation that Schefter will report in its 2013 balance sheet? 4. Assume that actual restoration costs incurred in 2019 totaled $860,000. What amount of gain or loss will Schefter recognize on retirement of the liability?

Montgomery Industries spent $600,000 in 2012 on a construction project to build a library. Montgomery also capitalized $30,000 of interest on the project in 2012. Montgomery financed 100% of the construction with a 10% construction loan. The project was completed on September 30, 2013. Additional expenditures in 2013 were as follows: Required: Determine the completed cost of the library. Show supporting computations.

Liddy Corp. began constructing a new warehouse for its operations during the current year. In the year Liddy incurred interest of $30,000 on a working capital loan, and interest on a construction loan for the warehouse of $60,000. Interest computed on the average accumulated expenditures for the warehouse construction was $50,000. What amount of interest should Liddy expense for the year?

If a company incurs disposition obligations as a result of acquiring an asset:

The acquisition costs of property, plant, and equipment do not include:

Juliana Corporation purchased all of the outstanding stock of Caldwell Inc., paying $2,700,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were: Juliana would record goodwill of:

Assets acquired under multi-year deferred payment contracts are:

During the current year, Peterson Data Corporation purchased all of the outstanding common stock of Junior Jackson Inc. (JJI), paying $36 million in cash. Peterson recorded the assets acquired as follows: The book value of JJI's assets and owners' equity before the acquisition were $22 million and $18 million, respectively. Required: Compute the fair value of JJI's liabilities that Peterson assumed in the acquisition.