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Exam 10: Investments in Noncurrent Operating Assets-Acquisition

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Question 41

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Kramer Service Corporation bought a building lot to construct a new corporate office building. An older home on the building lot was razed immediately so that the office building could be constructed. The cost of purchasing the older home should be

A) recorded as part of the cost of the land.
B) written off as a loss in the year of purchase.
C) written off as an extraordinary item in the year of purchase.
D) recorded as part of the cost of the new building.

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Question 42

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

A) Both pooling of interests and the purchase method are still permitted under certain circumstances.
B) The valuation basis to be applied is the acquisition method under which the fair value of consideration transferred includes any contingent consideration, but excludes direct combination costs..
C) The valuation basis to be applied is the cost method under which the valuation basis is the fair value of the assets and liabilities acquired including direct combination costs, but excluding contingent consideration.
D) The purchase method requires a business acquisition transaction to be structured to meet twelve very specific criteria required by generally accepted accounting principles.

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Question 43

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Acquired in-process research and development should be

Lakepoint Company recently accepted a donation of land with a fair value of $200,000 from the city of Dale in return for a promise to build a plant in Dale. The entry that Lakepoint should use to record this land is:

Which of the following best describes the approach prescribed in IAS 38, "Intangible Assets"?

On February 1, 2010, Reardon Corporation purchased a parcel of land as a factory site for $320,000. An old building on the property was demolished and construction begun on a new warehouse that was completed April 15, 2011. Costs incurred on the construction project are listed below. Determine the cost of the land and new building.

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

An improvement made to a machine increased its fair market value and its production capacity by 25 percent without extending the machine's useful life. The cost of the improvement should be

Gooden Enterprises Inc. developed a new machine for manufacturing baseballs. Because the machine is considered very valuable, the company had it patented. The following expenditures were incurred in developing and patenting the machine. Gooden elected to amortize the patent over its legal life. At the beginning of the second year, Gooden Enterprises paid $24,000 to successfully defend the patent in an infringement suit. At the beginning of the fourth year Gooden determined that the remaining estimated useful life of the patent was five years. Record the above transactions in general journal form for Gooden Enterprises Inc. for the first five years of the life of the patent. Include any amortization or depreciation for each period.

You are the auditor of Don Corporation, a newly organized company that manufactures plastic cups using an extrusion process. One of the promoters of the company was formerly involved in an enterprise that used the extrusion process and has agreed to contribute an extrusion machine to the new company in return for shares of stock of Don Corporation. What concerns would you have as the auditor of Don Corporation regarding this transaction?

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

UR Company purchased a customer database and a formula for a new fuel substitute for diesel fuel for a total of $100,000. UR Company uses the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate interest rate is 5%. The potential future cash flows from the two intangibles, and their associated probabilities, are as follows: Customer Database: Formula: Prepare the journal entry necessary to record the purchase of the two intangibles.

Abacus Company purchased a customer database and in-process research and development for a total of $100,000. Abacus Company uses the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate interest rate is 5%. The potential future cash flows from the two intangibles, and their associated probabilities, are as follows: Customer Database: In-process Research and Development: Prepare the journal entry necessary to record the purchase of the two intangibles.

Marburg Manufacturing Company purchased a machine on January 2, 2011. The invoice price of the machine was $40,000, and the vendor offered a 2 percent discount for payment within ten days. The following additional costs were incurred in connection with the machine: If the invoice is paid within the discount period, Marburg should record the acquisition cost of the machine at

Target-Mart, Inc., is a large food-marketing company. Footnote information from the company's 2011 annual report appears below. Independent retailers use funds loaned by Target-Mart to finance the acquisition of property used in retail food operations. Target-Mart records these loans in its long-term notes receivable account. The net balance of the long-term notes receivable account at the end of 2011 is (in thousands of dollars) $36,731. The following information is available from the company's footnotes: Assume the following for purposes of this case: Required: Determine the market value of the assets financed by Target-Mart at the date of acquisition by the retailer (debtor).

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

The term "intangible assets" is used in accounting to denote

The cost of land to be used in the operations of a business should include all of the following except

Cascade Lumber shows the following balances in its financial records: Prepare a partial balance sheet and income statement using the information provided above.

Mozely Company borrowed $400,000 on a 10 percent note payable to finance a new warehouse Mozely is constructing for its own use. The only other debt on Mozely's books is a $600,000, 12 percent mortgage payable on an office building. At the end of the current year, average accumulated expenditures on the new warehouse totaled $475,000. Mozely should capitalize interest for the current year in the amount of