Chapter 12 Power Point & God's Gift

Two Characteristics of an Intangible Asset

1. Lack Physical Existence. 2. Not financial instruments

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

Companies amortize ____ intangible assets, but DO NOT AMORTIZE _____ assets.

Companies AMORTIZE LIMITED-LIFE intangibles, but DO NOT AMORTIZE indefinite-life intangibles.

Amortization should be ___ less ___.

Cost less residual value

Goodwill is measured as the excess of ___ over _____

Cost of the purchase over FAIR VALUE of the identifiable NET ASSETS (assets less liabilities)

Intangibles have either a ____ life or ____ life

Limited (finite) useful life or an indefinite useful life.

Intangible assets as normally classified as a __

Long-term asset.

Good keywords in determining if something is considered R&D costs __. (these may not always be the case so be careful)

New Significant Alternatives Design prototypes construction Operation of pilot plants

Which of the following intangible assets should be shown as a separate item on the balance sheet? a. Goodwill b. Franchise c. Patent d. Trademark

a. Goodwill

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 the above.

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

The intangible asset goodwill may be a. capitalized only when purchased. b. capitalized either when purchased or created internally. c. capitalized only when created internally. d. written off directly to retained earnings.

a. capitalized only when purchased.

When a patent is amortized, the credit is usually made to a. the Patent account. b. an Accumulated Amortization account. c. a Deferred Credit account. d. an expense account.

a. the Patent account.

The allocation of the cost of intangible assets in a systematic way is called ____

amortization

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 (though it typically creates patents and copyrights that may provide future value)

Which of the following methods of amortization is normally used for intangible assets? a. Sum-of-the-years'-digits b. Straight-line c. Units of production d. Double-declining-balance

b. Straight-line

The reason goodwill is sometimes referred to as a master valuation account is because a. it represents the purchase price of a business that is about to be sold. b. it is the difference between the fair market value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business. c. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. d. it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value.

b. it is the DIFFERENCE between the FAIR MARKET VALUE of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business.

Under current accounting practice, intangible assets are classified as a. amortizable or unamortizable. b. limited-life or indefinite-life. c. specifically identifiable or goodwill-type. d. legally restricted or goodwill-type.

b. limited-life or indefinite-life.

R&D COSTS a. are intangible assets. b. may result in the development of a patent. c. are easily identified with specific projects. d. all of the above.

b. may result in the development of a patent.

Goodwill may be recorded when: a. it is identified within a company. b. one company acquires another in a business combination. c. the fair market value of a company's assets exceeds their cost. d. a company has exceptional customer relations.

b. one company acquires another in a business combination.

Jeff Corporation purchased a LIMITED-life intangible asset for $120,000 on May 1, 2008. 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, 2010? a. $ -0- b. $24,000 c. $32,000 d. $36,000

c. $32,000

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 intangible assets could not be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. c. Goodwill. d. Brand Name.

c. Goodwill.

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

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: a. other assets. b. indirect costs. c. goodwill. d. direct costs.

c. goodwill.

Companies should test indefinite life intangible assets at least annually for: a. recoverability. b. amortization. c. impairment. d. estimated useful life.

c. impairment.

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 the above.

d. All of the above.

Which of the following is considered R&D 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. Neither a nor b. d. Both a and b.

d. Both a and b.

Which of the following would be considered research and development? a. Routine efforts to refine an existing product. b. Periodic alterations to existing production lines. c. Marketing research to promote a new product. d. Construction of prototypes.

d. Construction of prototypes.

Which of the following principles best describes the current method of accounting for R&D 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

Which of the following is considered R&D 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. all of the above.

d. all of the above.

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 are included.

d. all of these fees are included

Purchased goodwill should a. be written off as soon as possible against retained earnings. b. be written off as soon as possible as an extraordinary item. c. be written off by systematic charges as a regular operating expense over the period benefited. d. not be amortized.

d. not be amortized.

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 Disney paid $2,000,000 to purchase Marvel's IDENTIFIABLE NET ASSETS with a FAIR VALUE of $1,500,000, then Disney would

record goodwill of $500,000

R&D activities DO NOT include ___.

• ROUTINE, MINOR, or PERIODIC alterations, improvements, refinements, etc to EXISTING products, production lines, etc. (SIGNIFICANT improvements ARE included however) • usually Anything to do with MARKETING

Which intangible assets are amortized? 1. Limited-Life 2.Indefinite-Life a. Both 1 & 2 b. 1 c. 2 d. Neither 1 or 2

B. Limited Life is amortized only

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

Some common types of intangibles:

Patents Copyrights Franchises/licenses Trademarks/trade names Goodwill

On January 1, 2014, Alatorre incurred organization costs of $276,800. What amount of organization expense should be reported in 2014?

These costs should be expensed as incurred. Therefore $276,800 of organization expense is reported in income for 2014.

INTERNALLY generated goodwill should NOT be CAPITALIZED in the accounts. T/F

True

In a business combination, a company assigns the COST, where possible, to the INDETIFIABLE tangible and intangible ASSETS, with the remainder recorded as goodwill. T/F

True

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.

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

a. Physical existence.

The cost of PURCHASING PATENT rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be a. charged off in the current period. b. amortized over the legal life of the purchased patent. c. added to factory overhead and allocated to production of the purchaser's product. d. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

d. AMORTIZED over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

How should research and development costs be accounted for, according to FASB? a. Must be capitalized when incurred and then amortized over their estimated useful lives. b. Must be expensed in the period incurred. c. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. 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. 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.