11/12

The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years?

5

Which of the following research and development expenditures should be capitalized and depreciated?

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

Which of the following would not be considered an R & D activity?

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

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?

All of these answer choices are correct.

Which of the following gives rise to the requirement to accrue a liability for the cost of compensated absences?

All of these answers are correct.

Which of the following may be a current liability?

All of these answers are correct.

The cost of an intangible asset includes all of the following except

All of these choices are included.

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

Amount of loss is reasonably estimable and occurrence of event is probable.

Which of the following items is a current liability?

Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.

What condition(s) is/are necessary to recognize an asset retirement obligation?

Company has an existing legal obligation and can reasonably estimate the amount of the liability.

Which of the following would be considered research and development costs?

Construction of prototypes.

Which of the following costs should be excluded from research and development expense?

Cost of marketing research for a new product

Which of the following is not considered research and development costs?

Cost of marketing research to promote a new product.

Which of the following costs should be capitalized in the year incurred?

Costs to successfully defend a patent.

Where is debt callable by the creditor reported on the debtor's financial statements?

Current liability.

Which of the following intangible assets should not be amortized?

Customer lists

Which of the following types of intangible assets result from interactions and relationships with outside parties?

Customer-related intangible assets

A company has not declared a dividend on its cumulative preferred stock for the past three years. What is the required accounting treatment or disclosure in this situation?

Disclose the amount of the dividends in arrears.

Which of the following best describes the accrual method of accounting for warranty costs?

Expensed based on estimate in year of sale.

Which of the following best describes the cash-basis method of accounting for warranty costs?

Expensed when incurred.

Which of the following statements is false?

FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

Which of these is not included in an employer's payroll tax expense?

Federal income taxes

Which of the following is a contract-related intangible assets?

Franchise

Which of the following intangible assets should be shown as a separate item on the balance sheet?

Goodwill

Which of the following intangible assets cannot be sold by a business to raise needed cash for a capital project?

Goodwill.

Which of the following principles best describes the current method of accounting for research and development costs?

Immediate recognition as an expense

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?

Limited life intangibles.

Which of the following is not considered a part of the definition of a liability?

Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

What is the relationship between current liabilities and a company's operating cycle?

Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).

Which of the following characteristics do intangible assets possess?

Long-lived.

Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

Management indicated that they are going to refinance the obligation.

Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are) Recoverability Test Fair Value Test

No Yes

Which of the following is often reported as an extraordinary item?

None of these answer choices are correct.

Which of the following is reported as part of discontinued operations?

None of these answer choices are correct.

Which of the following is a current liability?

None of these answers are correct.

Which of the following is an example of a contingent liability?

Obligations related to product warranties.

Which characteristic is not possessed by intangible assets?

Physical existence.

Which of the following is considered research and development costs?

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

What is the relationship between present value and the concept of a liability?

Present values are used to measure certain liabilities.

Which of the following is not an intangible asset?

Research and development costs

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?

Research and development costs.

Which of the following is not a correct statement about sales taxes?

Sales taxes are an expense of the seller.

Under what conditions is an employer required to accrue a liability for sick pay?

Sick pay benefits vest.

Which of the following taxes does not represent a common employee payroll deduction?

State unemployment taxes.

Which of the following methods of amortization is normally used for intangible assets?

Straight-line

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

Subsequently refinance the obligation on a long-term basis.

Which of the following is not true about the discount on short-term notes payable?

The Discount on Notes Payable account should be reported as an asset on the balance sheet.

What does the current ratio inform you about a company?

The company's liquidity.

What is a discount as it relates to zero-interest-bearing notes payable?

The discount represents the cost of borrowing.

How do you determine the acid-test ratio?

The sum of cash, short-term investments and net receivables divided by current liabilities.

Which of the following is not a factor that is considered when evaluating whether or not to record a liability for pending litigation?

The type of litigation involved.

Which of the following does not describe intangible assets?

They are financial instruments.

Why is the liability section of the balance sheet of primary importance to bankers?

To assist in understanding the entity's liquidity.

Easton Company and Lofton Company were combined in 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.

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.

Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be

accrued.

The ability to consummate the refinancing of a short-term obligation may be demonstrated by

all of these answers are correct.

Broadway Corporation was granted a patent on a product on January 1, 2004. To protect its patent, the corporation purchased on January 1, 2015 a patent on a competing product which was originally issued on January 10, 2011. 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.

The cost of successfully defending a patent suit should be

amortized over the remaining estimated useful life of the patent.

Accrued liabilities are disclosed in financial statements by

appropriately classifying them as regular liabilities in the balance sheet.

Stock dividends distributable should be classified on the

balance sheet as an item of stockholders' equity.

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.

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

be accrued during the period when earned.

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.

The numerator of the acid-test ratio consists of

cash, marketable securities, and net receivables.

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

Among the short-term obligations of Larsen Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Dennison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Larsen Company as

current liabilities.

The ratio of current assets to current liabilities is called the

current ratio.

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 deducted as part of research and development costs.

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.

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.

To record an asset retirement obligation (ARO), the cost associated with the ARO is

included in the carrying amount of the related long-lived asset.

Each of the following are included in both the current ratio and the acid-test ratio except

inventory.

A contingent liability

is the result of a loss contingency.

The reason goodwill is sometimes referred to as a master valuation account is because

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

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.

An account which would be classified as a current liability is

none of these answers are correct.

Purchased goodwill should

not be amortized.

Liabilities are

obligations arising from past transactions and payable in assets or services in the future.

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.

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

portion of FICA taxes and any union dues.

Jeff Brown is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2014, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Brown had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Brown in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Brown appears inclined to accept the Railroad's offer. The Railroad's 2014 financial statements should include the following related to the incident:

recognition of a loss and creation of a liability for the value of the land.

The total amount of patent cost amortized to date is usually

reflected as credits in the Patents account.

Use of the accrual method in accounting for product warranty costs

represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

One factor that is not considered in determining the useful life of an intangible asset is

salvage value.

Intangible assets are reported on the balance sheet

separately from other assets.

Of the following items, the only one which should not be classified as a current liability is

short-term obligations expected to be refinanced.

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty

should be reported as part current and part long-term.

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

the Patents account.

Factors considered in determining an intangible asset's useful life include all of the following except

the amortization method used.

A loss contingency can be accrued when

the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred.

The carrying value of an intangible is

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

Darren Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and

the cause for action occurred during the accounting period covered by the financial statements.

Martinez Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be

the minimum of the range.

In accounting for compensated absences, the difference between vested rights and accumulated rights is that:

vested rights are not contingent upon an employee's future service.

Which of the following should not be included in the current liabilities section of the balance sheet?

All of these answers are correct.

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

All of these are conditions for the accrual.

Which of the following contingencies need not be disclosed in the financial statements or the related notes?

All of these must be disclosed.

What is a contingency?

An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

Which of the following is the proper way to report a gain contingency?

As a disclosure only.

Which of the following costs incurred internally to create an intangible asset is generally expensed?

Research and development costs.

Which of the following is true about accounts payable? 1. Accounts payable are also called trade accounts payable. 2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. 3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used.

1

Which of the following is a current liability?

A cash dividend payable to preferred stockholders

The amount of the liability for compensated absences should be based on 1. the current rates of pay in effect when employees earn the right to compensated absences. 2. the future rates of pay expected to be paid when employees use compensated time. 3. the present value of the amount expected to be paid in future periods.

Either 1 or 2 is acceptable.

Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?

Estimated liability under warranties.

Which of the following research and development related costs should be capitalized and depreciated over current and future periods?

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

Which of the following is a characteristic of a current liability but not a long-term liability?

Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

Which of the following statements is correct?

None of these answers are correct.

Which of the following is not an acceptable treatment for the presentation of current liabilities?

Offsetting current liabilities against assets that are to be applied to their liquidation

Overton Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2014. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Overton recall all cans of this paint sold in the last six months. The management of Overton estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation?

Operating expense of $800,000 and liability of $800,000

What are compensated absences?

Paid time off.

Which of the following is a type of technology-related intangible asset?

Patent

Which of the following should be reported under the "Other Expenses and Losses" section of the income statement?

Patent impairment losses

Which of the following terms is associated with recording a contingent liability?

Probable.

Which of the following situations may give rise to unearned revenue?

Selling magazine subscriptions.

An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon?

The difference between the cost of the video game and the cash received is recognized as premium expense.

According to a Financial Accounting Standards Board Statement, how are research and development costs accounted for?

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.

When is a contingent liability recorded?

When the future events are probable to occur and the amount can be reasonably estimated.

Which intangible assets are amortized? Limited-Life Indefinite-Life

Yes No

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except

the number of financing institutions that refused to refinance the debt, if any.

A company is legally obligated for the costs associated with the retirement of a long-lived asset

whether it hires another party to perform the retirement activities or performs the activities itself.