Chapter 12

The controversy surrounding the policy to expense all research and development costs associated with internally created intangible assets results in understating assets and understating expenses. understating assets and overstating expenses. overstating assets and understating expenses. overstating assets and overstating expenses.

understating assets and overstating expenses.

The impairment rule for goodwill involves how many steps? 4 1 3 2

2

Which of the following is a factor to be considered in determining a limited-life intangible asset's useful life? The expected useful life of another asset or group of assets to which the useful life of the intangible asset may relate. The effects of obsolescence. Any legal provisions that may limit the useful life. All of these answer choices are correct.

All of these answer choices are correct.

Which of the following is not an example of a contract-related intangible asset? Broadcast rights. Construction permits. Franchise. Copyright.

Copyright.

Which of the following represents a federally granted right? Copyrights. Franchise. Goodwill. Internet domain names.

Copyrights.

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

Cost of marketing research for a new product.

Which of the following is considered a research activity? Construction of a prototype. All of these answer choices are correct. Critical investigation aimed at discovery of new knowledge. Operation of a pilot plant.

Critical investigation aimed at discovery of new knowledge.

Production backlogs fall under which category of intangible assets? Artistic-related. Marketing-related. Customer-related. Technology-related.

Customer-related.

True or False: If a company buys several intangible assets in a "basket purchase," the company should allocate the cost on the basis of the book values of the purchased intangible assets.

False

True or False: Impairment testing is performed in the same way for indefinite-life intangibles and limited-life intangibles.

False

True or False: Intangible assets are normally classified as current assets.

False

True or False: There are two steps to impairment testing for goodwill: First the recoverability test is performed, then the fair value test is performed.

False

True or False:On the income statement, a company reports impairment losses related to intangible assets as an extraordinary item due to their infrequent occurrence, and amortization expense as part of continuing operations.

False

Which of the following is not one of the major categories of intangibles? Contract-related. Artistic-related. Marketing-related. Financing-related.

Financing-related.

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

Immediate recognition as an expense

Which of the following statements concerning intangible assets is correct? Intangible assets are normally classified as current assets. Intangible assets derive their value from the rights and privileges granted to the company using them. All of these answer choices are correct. Intangible assets include the right to receive cash or cash equivalents at a future date.

Intangible assets derive their value from the rights and privileges granted to the company using them.

True or False:If the life of a limited-life intangible asset changes, the remaining carrying amount is amortized over the revised remaining useful life.

True

Which of the following research and development costs may be capitalized? Indirect costs. Personnel. Contract services. Research and development equipment with alternative future uses in other research & development projects or otherwise.

Research and development equipment with alternative future uses in other research & development projects or otherwise.

Which of the following is not a characteristic of intangible assets? They are not financial instruments. They are all subject to amortization. They lack physical existence. They are long-term in nature.

They are all subject to amortization.

Which of the following would not be amortized? Patent. Customer List. Copyright. Trade name.

Trade name.

True or False: The residual value of an intangible asset should be assumed to be zero unless, at the end of its useful life, the intangible asset has value to another company.

True

All of the following statements regarding IFRS accounting treatments for intangibles are true except: Under IFRS, costs in the development phase of Research & Development costs are expensed once technological feasibility is achieved. IFRS allows reversal of impairment losses when there has been a change in economic conditions. IFRS permits revaluation on limited-life intangible assets. IFRS permits some capitalization of internally generated intangible assets.

Under IFRS, costs in the development phase of Research & Development costs are expensed once technological feasibility is achieved.

St. Sebastian Company and A. Jamison Company were combined in a purchase transaction. St. Sebastian was able to acquire Jamison at a bargain price. The fair market value of Jamison's net assets exceeded the price paid by St. Sebastian to acquire the company. Proper accounting treatment by St. Sebastian is to report the excess fair value over purchase price as a loss. paid-in capital. a gain. a liability.

a gain.

Marketing-related intangibles would include a copyright. a customer list. a trade name. a franchise.

a trade name.

The excess cost of the purchase over the fair market value of a company's identifiable net assets is sometimes referred to as all of these answer choices are correct. a master valuation account. goodwill. a gap filler.

all of these answer choices are correct.

The presentation of intangible assets in the financial statements involves crediting amortization directly to the intangible asset account. includes the disclosure of the amortization expense for the next 5 years. all of these answer choices are correct. includes reporting Research & Development costs as an expense in the income statement.

all of these answer choices are correct.

Construction permits are marketing-related intangible assets. customer-related intangible assets. not considered to be intangible assets. contract-related intangible assets.

contract-related intangible assets.

Capitalizing goodwill only when it is purchased in an arm's-length transaction, and not capitalizing any goodwill generated internally, is an example of accrual accounting winning out over cash-basis accounting. faithful representation winning out over relevance. GAAP winning out over IFRS. financial accounting winning out over managerial accounting.

faithful representation winning out over relevance.

A purchased limited-life intangible asset ______ amortized and is impairment tested using _______________. is; the recoverability test and then the fair value test is not; the recoverability test and then the fair value test is; the fair value test only is not; the fair value test only

is; the recoverability test and then the fair value test

IFRS permits revaluation of indefinite-life intangible assets. all of these answer choices are correct. goodwill. limited-life intangible assets.

limited-life intangible assets.

The two principal types of patents are limited-life patents and indefinite-life patents. marketing-related patents and contract-related patents. process patents and product patents. artistic-related patents and customer-related patents.

process patents and product patents.