Question

Which of the following statements is true about asset retirement obligations related to natural resources that have been developed:

a) GAAP requires that an existing legal obligation associated with the retirement of a tangible, long-lived asset be recognized as a liability and measured at fair value.

b) Asset retirement obligations may arise from legal obligations associated with the retirement of any intangible asset.

c) A retirement obligation may only arise at the inception of an asset's life, but never during its operating life.

d) GAAP requires the company to recognize the fair value of an asset retirement obligation when it is incurred.

Which of the following statements is incorrect?

a) The acquisition of assets through donation is credited to revenue.

b) When a company loses a patent infringement suit and pays the plaintiff $9,000, the payment of $9,000 should be expensed as incurred.

c) If an exchange of nonmonetary assets lack commercial substance, a gain can never be recorded even when cash is received through this exchange.

d) The initial valuation of an asset acquired with a $40,000 noninterest-bearing note that is payable in two years is less than $40,000.

Answer 1

Question - Which of the following statements is true about asset retirement obligations related to natural resources that have been developed:

Answer :-

(a) GAAP requires that an existing legal obligation associated with the retirement of a tangible, long-lived asset be recognized as a liability and measured at fair value.- False

Financial Accounting Standards Board (FASB), outlined in Rule No. 143: Accounting for Asset Retirement not the GAAP.

(b) Asset retirement obligations may arise from legal obligations associated with the retirement of any intangible asset. - False , Asset retirement obligations may arise from legal obligations associated with the retirement of any tangible, long-lived asset.

c) A retirement obligation may only arise at the inception of an asset's life, but never during its operating life. - False

Any revision during assets life should also be consider.

d) GAAP requires the company to recognize the fair value of an asset retirement obligation when it is incurred. - True

Generally Accepted Accounting Principles (GAAP) requires that an organization  recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of the fair value can be made.

Question - Which of the following statements is incorrect?

Answer -

a) The acquisition of assets through donation is credited to revenue. - Correct

When receiving the donation of an asset, the company should record the donation as a debit to "Fixed Asset" and a credit to "Contribution Revenue."

b) When a company loses a patent infringement suit and pays the plaintiff $9,000, the payment of $9,000 should be expensed as incurred. - Correct

c) If an exchange of nonmonetary assets lack commercial substance, a gain can never be recorded even when cash is received through this exchange. - Incorrect

d) The initial valuation of an asset acquired with a $40,000 noninterest-bearing note that is payable in two years is less than $40,000. - Correct