306 Chapter 12-13

Examples of contingent assets include all of the following except:

unrealized gain on the sale of investments.

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

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

copywrite

Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed:

by the financial reporting date

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 currently maturing portion of long-term debt should be classified as a current liability if

the portion so classified will be liquidated within one year using current assets

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

trade name amortization expense

As in GAAP, under IFRS the costs associated with research and development are segregated into

two components, the research phase and the development phase

Which of the following characteristics do intangible assets possess?

Long-lived

A contingent liability

is the result of a loss contingency

Which of the following legal fees should be capitalized?

legal fees to obtain a copyright- yes, Legal fees to successfully defend a trademark - Yes

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

limited life intangibles

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

Under IFRS, which of the following is used to measure a liability, if a range of estimates is predicted and no amount in the range is more likely than any other amount in the range?

mid-point of the range

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

modification of the design of a product

Purchased goodwill should

not be amortized

Liabilities are

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

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

probable

In a service-type warranty, warranty revenue is

recognized equally over the warranty period.

Accounting for product warranty costs under an assurance-type warranty

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

Which of the following is not an intangible asset?

research and development costs

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

Contingent assets need not be disclosed in the financial statements or in the notes if they are:

Possible but not probable to occur

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

To assist in understanding the entity's liquidity

For which of the following areas a provision may be recognized in the financial statement?

Warranties

Which of the following is an account used in accounting for an assurance-type warranty that is not a service-type warranty?

Warranty liability

Goodwill

is the difference between fair value of the net tangible and identifiable assets and the purchase price of the acquired businesses

Under GAAP, impairment losses

cannot be reversed for assets to be held and used

The ratio of current assets to current liabilities is called the

Current ratio

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

carrying amount and its fair value

In accounting for internally generated intangible assets, GAAP requires that

all costs be expensed

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

The intangible asset goodwill may be

capitalized only when purchased.

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

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 is an example of a contingent liability?

obligations related to product warranties

The carrying amount of an intangible is

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

IFRS allows reversal of impairment losses when

there has been a change in economic conditions or in the expected use of the asset.

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 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. Accounts payable are also called trade accounts payable

Which of the following may be a current liability?

All (withheld income taxes, deposits received from customers, and deferred revenue)

The effective interest on a 12-month, zero-interest-bearing note payable of $530000, discounted at the bank at 5% is

5.26%

Which of the following is a current liability?

A cash dividend payable to preferred stockholders

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

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

All (obligation relates to the rights that vest or accumulate, is attributable to employee services already performed, payment of the compensation is probable)

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

All (payment is probable, employee rights vest or accumulate, amount can be reasonably estimated)

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

All (probable losses, environmental liabilities, risk of damage)

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

All (trade notes payable, short-term zero-interest-bearing notes payable, and the discount on short-term notes payable)

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 (brand name, patent, customer list)

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

All of these choices are correct (purchase price, legal fees, other incidental expenses)

Which of the following is often reported as part of operating expenses?

Amortization expense

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 the event is probable

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 items is a current liability?

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

Which of the following costs of goodwill should be amortized over their estimated useful lives?

Costs of goodwill from a business combination - no, costs of developing goodwill internally - no

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

Costs 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

The primary IFRS related to intangible assets and impairments is found in

IAS 38 and IAS 36

The cost of successfully defending a patent suit should be

Capitalized and amortized over the remaining estimated useful life of the patent

Under IFRS, costs in the development phase are

Capitalized once technological feasibility is achieved

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

Immediate recognition as an expense

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

Costs incurred internally to create intangibles are

Expensed as incurred

Which of the following best describes the accounting for assurance-type warranty costs?

Expensed based on estimate in year of sale.

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 the following is not reported as part of income from continuing operations?

Goodwill

Which intangible assets are amortized?

Limited Life- Yes Indefinite Life- No

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 is a part of the definition of a liability?

Liquidation is reasonably expected to require use of existing resources classified as current assets or the creation of 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 does not allow a company to exclude a short term obligation from current liabilities?

Management indicated that they are going to refinance the obligation

An account which would be classified as a current liability is

None (dividends payable in the form of a company's stock, accounts payable-debit balances, losses expected to be incurred within the next twelve months)

Which of the following is a current liability?

None (long term- to be paid with cash in sinking fund, retired with proceeds from new debt issue, and converted to common stock)

Which of the following statements is correct?

None (short-term obligations excluded if...)

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

Obligation must be due within one year.

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.

Which of the following does not describe intangible assets?

They are financial instruments

Which of the following is generally associated with payables classified as accounts payable?

Periodic Payment of Interest - no, Secured by collateral - no

Which of the following intangible assets should not be amortized?

Perpetual franchises

Which characteristic is not possessed by intangible assets?

Physical existance

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

Present values are used to measure certain liabilities

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- no, fair value test - yes

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

Research and Development

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 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 not a correct statement about sales taxes?

Sales taxes are an expense of the seller

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

Salvage value

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

Selling magazine subscriptions

The total amount of patent cost amortized to date is usually

Shown as credits in the patents account

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

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

The amortization method used

What does the current ratio inform you about a company?

The company's liquidity.

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

The discount represents the cost of borrowing

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

Neer Co. has a probable loss that 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 loss accrual should be

The minimum of the range

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

The patents account

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.

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 of the following is the proper way to report some gain contingencies?

a disclosure only

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

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

adaptation of an existing capability to a particular requirement or customer's needs

Excluding a short-term obligation from current liabilities can be done when

all (contractually due, refinance, contractual right)

Accrued liabilities are disclosed in financial statements by

appropriately classifying them as regular liabilities in the balance sheet.

IFRS and GAAP

are similar in the accounting for impairment of assets held for disposal

Intangible assets are reported on the balance sheet

as a separate classification in the assets section

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

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

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

current liability

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

customer-related intangible assets

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

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

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

Goodwill may be recorded when

one company acquires another in a business combination.

What are compensated absences?

paid time off

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

patent

Which of the following is considered research and development costs?

planned search or critical investigation aimed at discovery of new knowledge

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

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

short-term obligations expected to be refinanced on a long-term basis.

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.

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.

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.