intermediateaccountingspiceland5th6th7theditionsolutionChap010.doc

Chapter 10 Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition Questions for Review of Key Topics Question 10-1 The difference between tangible and intangible long-lived, revenue-producing assets is that intangible assets lack physical substance and they primarily refer to the ownership of rights. Question 10-2 The cost of property, plant, and equipment and intangible assets includes the purchase price (less any discounts received from the seller), transportation costs paid by the buyer to transport the asset to the location in which it will be used, expenditures for installation, testing, legal fees to establish title, and any other costs of bringing the asset to its condition and location for use. Question 10-3 The cost of a developed natural resource includes the acquisition costs for the use of land, the exploration and development costs incurred before production begins, and the restoration costs incurred during or at the end of extraction. Question 10-4 Purchased intangibles are valued at their original cost to include the purchase price and all other necessary costs to bring the asset to condition and location for use. Research and development costs incurred to internally develop an intangible asset are expensed in the period incurred. Filing and legal costs for both purchased and developed intangibles are capitalized. Question 10-5 Goodwill represents the unique value of the company as a whole over and above all identifiable tangible and intangible assets. This value results from a company’s clientele and reputation, its trained employees and management team, its unique business location, and any other unique features of the company that can’t be associated with a specific asset. Because goodwill can’t be separated from a company, it is not possible for a buyer to acquire it without also acquiring the whole company or a substantial portion of it. Goodwill will appear as an asset in a balance sheet only whe