ch 12

T/F: Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.

false

T/F: Internally generated intangible assets are initially recorded at fair value.

false

T/F: Periodic alterations to existing products are an example of research and development costs.

false

T/F: Research and development costs are reported as intangible assets if they will provide economic benefits in future years.

false

T/F: Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

false

T/F: The cost of a purchased patent should be amortized over the remaining legal life of the patent.

false

T/F: The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment.

false

T/F: The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.

false

T/F: If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent.

true

T/F: If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.

true

T/F: In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder recorded as goodwill.

true

T/F: Internally generated goodwill should not be capitalized in the accounts.

true

T/F: Limited-life intangibles are amortized by systematic charges to expense over their useful lives.

true

T/F: Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.

true

T/F: Some intangible assets are not required to be amortized.

true

T/F: The cost of acquiring a customer list from another company is recorded as an intangible asset.

true

Are limited-life intangible assets amortized?

yes

Thompson Company incurred research and development costs of $100,000 and legal fees of $40,000 to develop a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year?

$ 4,000.

General Products Company bought Special Products Division in 2020 and appropriately recorded $750,000 of goodwill related to the purchase. On December 31, 2021, the fair value of Special Products Division is $6,000,000 and it is carried on General Product's books for a total of $5,100,000, including the goodwill. What goodwill impairment should be recognized by General Products in 2021?

$0

Jeff Corporation purchased a limited-life intangible asset for $375,000 on May 1, 2019. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2021?

$100,000

Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.'s $5 par value common stock and $90,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.'s stock was selling at $7.50 per share. When Mini Corp. acquired the patent, its stock was selling for $9 a share. Mini Corp. should record the patent at what amount?

$112,500

Rich Corporation purchased a limited-life intangible asset for $450,000 on May 1, 2019. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2021?

$120,000

Blue Sky Company's 12/31/21 balance sheet reports assets of $7,000,000 and liabilities of $2,800,000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $420,000 greater than its book value. On 12/31/21, Horace Wimp Corporation paid $7,140,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?

$2,520,000

Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $280,000. The patents were carried on Shaq's books as follows: Patent AA: $5,000; Patent BB: $2,000; and Patent CC: $3,000. When Alonzo acquired the patents their fair values were: Patent AA: $20,000; Patent BB: $240,000; and Patent CC: $60,000. At what amount should Alonzo record Patent BB?

$210,000

Floyd Company purchases Haeger Company for $2,400,000 cash on January 1, 2021. The book value of Haeger Company's net assets, as reflected on its December 31, 2020 balance sheet is $1,860,000. An analysis by Floyd on December 31, 2020 indicates that the fair value of Haeger's tangible assets exceeded the book value by $180,000, and the fair value of identifiable intangible assets exceeded book value by $135,000. How much goodwill should be recognized by Floyd Company when recording the purchase of Haeger Company?

$225,000

ELO Corporation purchased a patent for $135,000 on September 1, 2019. It had a useful life of 10 years. On January 1, 2021, ELO spent $33,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2021?

$30,000.

Dennis Company purchases Miles Company for $4,200,000 cash on January 1, 2021. The book value of Miles Company's net assets reported on its December 31, 2020 financial statement was $3,600,000. An analysis indicated that the fair value of Miles's tangible assets exceeded the book value by $600,000, and the fair value of identifiable intangible assets exceeded book value by $320,000. What amount of gain or goodwill is recognized by Dennis?

$320,000 gain.

Contreras Corporation acquired a patent on May 1, 2020. Contreras paid cash of $35,000 to the seller. Legal fees of $1,500 were paid

$36,500

Day Company purchased a patent on January 1, 2020 for $640,000. The patent had a remaining useful life of 10 years at that date. In January of 2021, Day successfully defends the patent at a cost of $288,000, extending the patent's life to 12/31/32. What amount of amortization expense would Day record in 2021?

$72,000

Danks Corporation purchased a patent for $405,000 on September 1, 2019. It had a useful life of 10 years. On January 1, 2021, Danks spent $99,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2021?

$90,000.

Lynne Corporation acquired a patent on May 1, 2020. Lynne paid cash of $90,000 to the seller. Legal fees of $2,000 were paid related to the acquisition. What amount should be debited to the patent account?

$92,000

Which method of amortization is normally used for intangible assets?

Straight-line

Which of the following is not reported under the "Other Expenses and Losses" section of the income statement?

Trade name amortization expense.

Easton Company and Lofton Company were combined as result of a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of acquiring Easton. Easton will report the excess amount as

a gain

Which of the following would not be considered an R & D activity? a. Adaptation of an existing capability to a particular requirement or customer's need. b. Searching for applications of new research findings. c. Laboratory research aimed at discovery of new knowledge. d. Conceptual formulation and design of possible product or process alternatives.

a. Adaptation of an existing capability to a particular requirement or customer's need.

One factor that is not considered in determining the useful life of an intangible asset is a. salvage value. b. provisions for renewal or extension. c. legal life. d. expected actions of competitors.

a. salvage value.

Operating losses incurred during the start-up years of a new business should be

accounted for and reported like the operating losses of any other business.

Broadway Corporation was granted a patent on a product on January 1, 2007. To protect its patent, the corporation purchased on January 1, 2018 a patent on a competing product which was originally issued on January 10, 2014. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing the product. The cost of the competing patent should be

amortized over a maximum period of 9 years.

Intangible assets are reported on the balance sheet

as a separate classification in the assets section.

Which of the following types of intangible assets result from interactions and relationships with outside parties? a. Marketing-related intangible assets b. Customer-related intangible assets c. Contract-related intangible assets d. Artistic-related intangible assets

b. Customer-related intangible assets

Which of the following is not an intangible asset? a. Trade name b. Research and development costs c. Franchise d. Copyrights

b. Research and development costs

When the purchaser in a business combination pays less then the fair value of the identifiable net assets, such a situation is referred to as a:

bargain purchase.

Which of the following characteristics do intangible assets possess? a. Physical existence. b. Claim to a specific amount of cash in the future. c. Long-lived. d. Held for resale.

c. Long-lived.

Which of the following intangible assets should not be amortized? a. Copyrights b. Customer lists c. Perpetual franchises d. All of these intangible assets should be amortized.

c. Perpetual franchises

When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be capitalized? a. Attorney fees. b. Consulting fees. c. Research and development costs. d. Design costs.

c. Research and development costs.

The cost of successfully defending a patent suit should be

capitalized and amortized over the remaining estimated useful life of the patent.

John Thomas has recently entered into an agreement with Longman Inc. Under this agreement, John will sell its products using the trade name of Longman in a specified geographical location. What type of intangible asset is this agreement between John Thomas and Longman Inc.?

contract-related intangible assets

The right granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions is termed as a

copyright

Which of the following principles best describes the current method of accounting for research and development costs? a. Associating cause and effect b. Systematic and rational allocation c. Income tax minimization d. Immediate recognition as an expense

d. Immediate recognition as an expense

Factors considered in determining an intangible asset's useful life include all of the following except a. the expected use of the asset. b. any legal or contractual provisions that may limit the useful life. c. any provisions for renewal or extension of the asset's legal life. d. the amortization method used.

d. the amortization method used.

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

depreciation expensed as part of research and development costs.

Goodwill is the

difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.

Costs incurred internally to create intangibles are

expensed as incurred

The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be

expensed as incurred.

T/F: Amortization of limited-life intangible assets should not be affected by expected residual values.

false

T/F: Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property, plant, and equipment.

false

T/F: GAAP requires start-up costs and initial operating losses during the early years to be capitalized.

false

T/F: Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets.

false

In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as

goodwill

Companies should test indefinite life intangible assets at least annually for

impairment

Under current accounting practice, intangible assets are classified as

limited-life or indefinite-life.

Trademarks, newspaper mastheads, and internet domain names are all examples of

marketing-related intangible assets

Research and development costs

may result in the development of a patent.

Are indefinite-life intangibles amortized?

no

Purchased goodwill should

not be amortized.

Goodwill may be recorded when

one company acquires another in a business combination.

Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to

patents and amortized over the remaining useful life of the patent.

The total amount of patent cost amortized to date is usually

shown as credits in the Patents account.

When a patent is amortized, the credit is usually made to

the Patents account.

The carrying amount of an intangible is

the asset's acquisition cost less the total related amortization recorded to date.

T/F: After an impairment loss is recorded for a limited-life intangible asset, the carrying amount becomes the basis for the impaired asset and is used to calculate amortization in future periods.

true

T/F: All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

true

Which characteristic is not possessed by intangible assets? a. Physical existence. b. Long-lived. c. Result in future benefits. d. Expensed over current and/or future years.

a. Physical existence.

Which of the following is considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Research costs incurred under contract with another company. c. Commissions to sales staff marketing a new product. d. Cost of marketing research to promote a new product.

a. Planned search or critical investigation aimed at discovery of new knowledge.

Which of the following costs incurred internally to create an intangible asset is generally expensed? a. Research and development costs. b. Filing costs. c. Legal costs. d. All of these answer choices are correct.

a. Research and development costs.

Which of the following research and development related costs should be capitalized and depreciated over current and future periods? a. Research and development general laboratory building which can be put to alternative uses in the future b. Inventory used for a specific research project c. Administrative salaries allocated to research and development d. Research findings purchased from another company to aid a particular research project currently in process

a. Research and development general laboratory building which can be put to alternative uses in the future

T/F: If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs.

false

Which of the following does not describe intangible assets? a. They lack physical existence. b. They are financial instruments. c. They provide long-term benefits. d. They are classified as long-term assets.

b. They are financial instruments.

Which of the following costs should be excluded from research and development expense? a. Modification of the design of a product b. Acquisition of R & D equipment for use on a current project only c. Cost of marketing research for a new product d. Engineering activity required to advance the design of a product to the manufacturing stage

c. Cost of marketing research for a new product

Which of the following is a contract-related intangible assets? a. Trademark b. Copyright c. Franchise d. Patent

c. Franchise

Which of the following intangible assets cannot be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. c. Goodwill. d. Brand Name.

c. Goodwill.

The intangible asset goodwill may be

capitalized only when purchased.

A loss on impairment of an intangible asset is the difference between the asset's

carrying amount and its fair value.

T/F: If fair value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.

false

T/F: Intangible assets derive their value from the right (claim) to receive cash in the future.

false

Which of the following research and development expenditures should be capitalized and depreciated? a. Engineering costs incurred to advance the new product to a production stage b. Cost of marketing research to promote a new product c. Material, labor, and overhead costs incurred in developing a new product d. Acquisition of machinery that can also be used for future R&D projects

d. Acquisition of machinery that can also be used for future R&D projects

When a new company is acquired, which of these intangible assets, unrecorded on the acquired company's books, might be recorded in addition to goodwill? a. A brand name. b. A patent. c. A customer list. d. All of these answer choices are correct.

d. All of these answer choices are correct.

The cost of an intangible asset includes all of the following except a. purchase price. b. legal fees. c. other incidental expenses. d. All of these choices are included.

d. All of these choices are included.

Which of the following is often reported as part of operating expenses? a. Loss on sale of patent. b. Impairment losses for intangible assets other than goodwill. c. Impairment losses on goodwill. d. Amortization expense.

d. Amortization expense.

Which of the following is not considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Translation of research findings or other knowledge into a plan or design for a new product or process. c. Translation of research findings or other knowledge into a significant improvement of an existing product. d. Cost of marketing research to promote a new product.

d. Cost of marketing research to promote a new product.

Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs. d. Costs to successfully defend a patent.

d. Costs to successfully defend a patent.

Which of the following is not reported as part of income from continuing operations? a. Amortization expense. b. Impairment losses for intangible assets. c. Research and development costs. d. Goodwill.

d. Goodwill.

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets? a. Indefinite life intangibles other than goodwill. b. Indefinite life intangibles. c. Goodwill. d. Limited life intangibles.

d. Limited life intangibles.

Which of the following is a type of technology-related intangible asset? a. Copyright b. Franchise c. License d. Patent

d. Patent

According to a Financial Accounting Standards Board Statement, how are research and development costs accounted for? a. They must be capitalized when incurred and then amortized over their estimated useful lives. b. They must be expensed in the period incurred. c. They may be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. They must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.

d. They must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.