Chapters 10-13 Test

Question 1

What is goodwill?

Answer 1

Excess of fair value of the consideration given over the fair value of the assets acquired. This represents the intangible value of a company.

Question 2

Remote, Known

Answer 2

Do nothing

Question 3

Remote, reasonably estimate

Answer 3

do nothing

Question 4

remote, not reasonably estimable

Answer 4

do nothing

Question 5

reasonably possible, known

Answer 5

disclosure only

Question 6

reasonably possible, reasonably estimable

Answer 6

disclosure only

Question 7

reasonably possible, not reasonably estimable

Answer 7

disclosure only

Question 8

probable, not reasonably estimable

Answer 8

disclosure only

Question 9

probable, reasonably estimable

Answer 9

disclosure and liability

Question 10

probable, known

Answer 10

disclosure and liability

Question 11

What is capitalization?

Answer 11

the cost of the funds used to finance the construction of a long-term asset that an entity constructs for itself

Question 12

What is an asset exchange?

Answer 12

Acquisition of a new asset by giving up an old asset

Question 13

What are the 2 parts of the 2 step test?

Answer 13

1. recoverability test (see if future cash flows>book value)

2. measurement (impairment, book value less fair value)

Question 14

What is impairment?

Answer 14

a decrease in the value of a long-term asset

Question 15

Name 3 causes for impairment.

Answer 15

1. significant decrease in market price.
2. significant change in an asset’s physical condition.
3. significant change in business climate

Question 16

What is interest expense?

Answer 16

“Rent” charged by a lender to a lendee for borrowing money for a period of time

Question 17

What is a non-interest bearing note payable?

Answer 17

a loan where interest is deducted from the face amount of the loan to determine the cash proceeds made available to the borrower at the outset.

Question 18

What is a loss contingency?

Answer 18

When there is uncertainty about whether an event will result in future loss, the uncertainty will be resolved only when some future event occurs.

Question 19

What is a warranty?

Answer 19

An obligation by a seller to make repairs or fix previously sold products.