Chapter 10: Property, Plant, and Equipment and Intangible Assets

These flashcards encompass essential vocabulary and concepts related to property, plant, and equipment, and intangible assets from Chapter 10.

Property, Plant, and Equipment

Long-lived, revenue-producing assets including land, buildings, machinery, and equipment.

Intangible Assets

Non-physical assets that provide rights and privileges, such as patents, copyrights, trademarks, and goodwill.

Capitalization

The process of recognizing a cost as an asset on the balance sheet instead of expensing it immediately.

Asset Retirement Obligation (ARO)

An existing legal obligation associated with the retirement or disposition of a tangible long-lived asset.

Goodwill

The unique value of a company exceeding its identifiable tangible and intangible assets, often linked to reputation and customer relationships.

Research and Development (R&D)

Activities aimed at discovering new knowledge and translating it into new products or processes.

Lump-Sum Purchases

The acquisition of a group of assets for a single total price, requiring allocation among the assets.

Cost of Natural Resources

Costs associated with acquiring natural resources like timber or mineral deposits, including purchase and development expenses.

Self-Constructed Assets

Assets constructed by a company for its own use, with unique cost identification issues.

Interest Capitalization

The process of adding interest costs incurred during the construction of an asset to the asset's costs.

Which of the following represents a finite-life intangible asset?

Patent

If an exchange results in a gain and has commercial substance, the gain is:

Recognized immediately

Under GAAP, which of the following statements is true about cloud computing costs?

They are expensed unless the company can take possession and run the software itself

Which cost would be capitalized for self-constructed assets?

Interest during construction

The fixed-asset turnover ratio is calculated as:

Net sales ÷ Average fixed assets

The initial cost of an asset includes:

All expenditures necessary to bring it to the desired condition and location for use

Which of the following should reduce the recorded cost of land?

Proceeds from selling salvaged materials

Which cost is not depreciated?

Land

The fair value of an Asset Retirement Obligation is recognized:

When the obligation is incurred and reasonably estimable

When a company develops an intangible asset internally, the related R&D costs are:

Expensed as incurred

Goodwill is recorded when:

A company purchases another business for more than the fair value of its net identifiable assets

The fair value of a donated asset is recorded with a corresponding credit to:

Contribution revenue

A lump-sum purchase of land, building, and equipment requires:

Allocating cost based on relative fair values

When nonmonetary assets are exchanged and fair value is not determinable:

The new asset is recorded at book value of the old asset plus any cash paid

Interest capitalization stops when:

The asset is substantially complete and ready for use

Which method links borrowing rates to specific construction projects?

Specific-interest method

Which of the following is not included in R&D costs?

Marketing studies

Purchased in-process R&D is initially recorded as:

Indefinite-life intangible asset

Purchased in-process R&D is initially recorded as:

Indefinite-life intangible asset

Start-up and organization costs are:

Expensed when incurred

Which of the following is not considered property, plant, and equipment?

Patents

The fixed-asset turnover ratio measures how efficiently a company uses fixed assets to generate sales.

True

Cloud computing costs are expensed unless the customer has the right to take possession of the software and run it independently.

True

Start-up and organization costs are capitalized as intangible assets under GAAP.

False

Purchased in-process R&D is capitalized as an indefinite-life intangible asset until completed.

True

• Development costs that do not yet have technological feasibility are expensed as R&D.

True

Research costs are capitalized because they lead to future benefits.

False

The weighted-average method of interest capitalization links specific borrowings directly to the project.

False

Interest capitalization begins when construction begins, expenditures are made, and interest costs are incurred.

True

Only incremental overhead is capitalized under the full-cost approach.

False

Self-constructed assets require allocating a portion of overhead costs to the construction.

True

If an exchange lacks commercial substance, no gain or loss is recognized.

True

Exchanges of nonmonetary assets are generally recorded at fair value, with gains or losses recognized.

True

Donated assets are recorded at fair value and increase equity through a credit to “Paid-in Capital – Donations.”

False

Noncash acquisitions such as donations are recorded at fair value, and revenue is recognized.

True

Lump-sum purchases require allocating the total price among assets based on their relative fair values.

True

Goodwill is recorded only when a company internally develops strong brand recognition.

False

Intangible assets with indefinite lives are amortized over 40 years or less.

False

An ARO liability is recorded at its fair value, increasing the cost basis of the related asset.

True

Asset retirement obligations are recognized only when there is a probable obligation, not necessarily a legal one.

False

Natural resources provide benefits through their physical consumption.

True

The cost of equipment includes the purchase price, installation, and testing.

True

Land improvements are depreciated over their useful lives.

True

The cost of land includes its purchase price, clearing, and any proceeds from salvaged materials added to its cost.

False

Intangible assets lack physical substance but still provide measurable future economic benefits.

True

Property, plant, and equipment are long-lived assets used in the operations of a business to generate revenue.

True