Question Details

CHAPTER 10 PART 4 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS

41. Research and development costs which result in a successful product which is patentable
are charged to the Patent account.
42. The cost of a patent must be amortized over a 20-year period.
43. The cost of a patent should be amortized over its legal life or useful life, whichever is
shorter.
44. The balances of the major classes of plant assets and accumulated depreciation by major
classes should be disclosed in the balance sheet or notes.
45. The asset turnover ratio is calculated as total sales divided by ending total assets.
46. Research and development costs can be classified as a property, plant, and equipment
item or as an intangible asset.
a47. An exchange of plant assets has commercial substance if the future cash flows change as
a result of the exchange.
a48. Companies record a gain or loss on the exchange of plant assets because most
exchanges have commercial substance.
a49. When plant assets are exchanged, the cost of the new asset is the book value of the old
asset plus any cash paid.
Additional True-False Questions
50. When constructing a building, a company is permitted to include the acquisition cost and
certain interest costs incurred in financing the project.
51. Recognition of depreciation permits the accumulation of cash for the replacement of the
asset.
52. When an asset is purchased during the year, it is not necessary to record depreciation
expense in the first year under the declining-balance depreciation method.
53. Depletion expense is reported in the income statement as an operating expense.
54. Goodwill is not recognized in accounting unless it is acquired from another business
enterprise.
10 - 8 Test Bank for Accounting Principles, Eighth Edition
55. Research and development costs should be charged to expense when incurred.
a56. A loss on the exchange of plant assets occurs when the fair market value of the old asset
is less than its book value.