Spice+4e+Ch10+Qex+Sol - Question 10-1 The term operational...

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Unformatted text preview: Question 10-1 The term operational asset is used to describe the broad category of long-lived assets that are used in the production of goods and services. The difference between tangible and intangible assets is that intangible assets lack physical substance and they primarily refer to the ownership of rights. Question 10-2 The cost of an operational asset 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 companys clientele and reputation, its trained employees and management team, its unique business location, and any other unique features of the company that cant be associated with a specific asset. Because goodwill cant 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 when it was paid for in connection with the acquisition of another company. The capitalized cost of goodwill Chapter 10 Operational Assets: Acquisition and Disposition QUESTIONS FOR REVIEW OF KEY TOPICS equals the purchase price of the acquired company less the market value of the net assets acquired. The market value of the net assets equals the market value of all identifiable tangible and intangible assets less the market value of any liabilities of the selling company assumed by the buyer. Answers to Questions (continued) Question 10-6 A lump-sum purchase price generally is allocated based on the relative market values of the individual assets. The relative market value percentages are multiplied by the lump-sum purchase price to arrive at the initial valuation of each of the separate assets....
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Spice+4e+Ch10+Qex+Sol - Question 10-1 The term operational...

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