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Case 10–4 (concluded)
Requirement 5
The three steps used to determine the amount of interest capitalized during a
period are:
Research Case 10–5
(Note: This case requires the student to reference a journal article.]
Requirement 2
Goodwill does meet the criteria in Concepts Statement No. 5 for initial
Requirement 3
10–76 Intermediate Accounting, 8/e
Real World Case 10–6
($ in thousands)
Book value of property and equipment,
beginning of the year $608,120
Judgment Case 10–7
Requirement 1
Goodwill represents the unique value of a company as a whole over and above all
identifiable tangible and intangible assets. This value results from a company’s
Requirement 2
The controller would be correct in her valuation of goodwill only if the total fair
10–78 Intermediate Accounting, 8/e
Judgment Case 10–8
Requirement 1
A company undertakes an R&D project because it believes the project will
eventually provide benefits that exceed the current expenditures. Unfortunately,
Requirement 2
Possible reasons include:
1. The larger a firm is, the more likely it is to prefer income-reducing accounting
methods (e.g., expense R&D). This is particularly true in politically sensitive
Judgment Case 10–9
Requirement 1
The costs of research equipment used exclusively for Trouver would be reported
as research and development expenses in the period incurred.
Requirement 2
a. Matching refers to the process of expense recognition by associating costs
with revenues on a cause and effect basis.
Requirement 3
Corporate headquarters’ costs allocated to research and development would be
Requirement 4
10–80 Intermediate Accounting, 8/e
Communication Case 10–10
Both views, expense and capitalize, can and often are convincingly defended.
The process of developing and synthesizing the arguments will likely be more
Communication Case 10–11
Suggested Grading Concepts and Grading Scheme:
Content (70%)
_____ 20 Defines research and development according to FASB ASC 730.
_____ 30 Explains the conceptual reasons for the conclusion
reached by the FASB on accounting for R&D.
____ High degree of uncertainty regarding the amount and
timing of future benefits.
____ Lack of direct relationship between R&D costs and future
revenues.
_____ 20 Describes the treatment of equipment costs.
____ $200,000 should be expensed as R&D.
____ $300,000 should be capitalized and depreciated.
____
_____ 70 points
Writing (30%)
_____ 6 Terminology and tone appropriate to the audience of a
company president.
_____ 12 Organization permits ease of understanding.
____ Introduction that states purpose.
____ Paragraphs that separate main points.
_____ 12 English
____ Sentences grammatically clear and well organized,
concise.
____ Word selection.
____ Spelling.
____ Grammar and punctuation.
____
_____ 30 points
10–82 Intermediate Accounting, 8/e
Ethics Case 10–12
Requirement 1
If the equipment is to be used only in the single R&D project (as is likely) the
Requirement 2
Ethical Dilemma:
Who is affected?
IFRS Case 10–13
Requirement 2
The following was taken from the company’s 2013 annual report. Your results
could differ if the company changes any of its policies in years after 2013.
The company expenses all research costs as incurred. Development costs are
capitalized if:
10–84 Intermediate Accounting, 8/e
Analysis Case 10–14
Requirement 1
The fixed-asset turnover ratio is computed by dividing net sales by average fixed
Requirement 2
($ in thousands)
Book value of PP&E, beginning of 2014 $150,615
Judgment Case 10–15
Requirement 1
Elegant was not correct in its treatment of the software development costs.
Requirement 2
The amortization of capitalized computer software development costs begins
Real World Case 10–16
Requirement 3
The following is based on Home Depot’s 2014 (year ended February 2, 2014)
financial statements. Answers will vary depending on the financial statement dates
chosen.
a. The company lists land, buildings, furniture, fixtures and equipment,
leasehold improvements, construction in progress, and capital leases under
10–86 Intermediate Accounting, 8/e
Analysis Case 10–17
Requirement 1
In its balance sheet, PetSmart lists property and equipment and goodwill as its
long-lived, revenue-producing assets. In its disclosure Note 5, PetSmart lists
Requirement 2
The statement of cash flows reports that $146,822 thousand was spent in the year
Requirement 3
The fixed-asset turnover ratio is computed by dividing net sales (revenues) by
average fixed assets. Using 2014 data, the ratio for PetSmart is
Air France–KLM Case
Requirement 1
In Note 4.12, AF amortizes computer software development costs using the
straight-line method. The percentage used to amortize computer software
Requirement 2
Except for software development costs incurred after technological feasibility has
Requirement 3
Both U.S. GAAP and IFRS require that donated assets be valued at their fair
