Chapter 12 Practice

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

A purchased limited-life intangible asset is amortized and is impairment tested using the recoverability test and then the fair value test.

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

All of the options are characteristics except not all intangibles are subject to amortization.

Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2012. It has a remaining legal life of 11 years. Tiburon estimates that the remaining useful life of the patent is useful life of 15 years. What balance will be reported on the December 31, 2014 balance sheet for the patent (if necessary, round your answer to the nearest dollar)? $1,850,000. $1,485,606. $1,583,678. $1,499,621.

Total amortization expense charged between November 30, 2012 and December 31, 2014: $1,850,000/ 132 months X 25 months = $350,379. The balance in the Patent account would be: $1,850,000-$350,379 = $1,499,621

The presentation of intangible assets in the financial statements Involves crediting amortization directly to the intangible asset account. Includes reporting R & D costs as an expense in the income statement. Includes the disclosure of the amortization expense for the next 5 years. All of these answer choices are correct.

All of these answer choices are correct.

Truffle Inc. acquired a patent on January 1, 2011 for $7,800,000. It was expected to have a 10 year life and no residual value. Truffle uses straight-line amortization for its patents. On December 31, 2014, the expected future cash flows from the patent are $518,000 per year for the next six years. The present value of these cash flows, discounted at Truffle's market interest rate, is $2,120,000. What amount, if any, of impairment loss will be reported on Truffle's 2014 income statement? $1,340,000. $2,120,000. $2,560,000. $4,680,000.

Amortization charged to date is $7,800,000/ 10 years X 4 years = $3,120,000 so the carrying value of the patent at December 31, 2014 is $4,680,000 ($7,800,000- $3,120,000). The impairment loss is the difference between the carrying value and the discounted expected future net cash flows: $4,680,000 - $2,120,000 = $2,560,000.

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

Construction permits are a type of contract-related intangible asset.

On January 1, 2014, Bumper Corp. acquires a customer list for $400,000. Bumper estimates that this customer list will generate value for at least 5 years. At the end of 3 years, Bumper plans to sell the customer list to another company for $62,500. On Bumper's income statement for the year ended December 31, 2014, how much amortization expense should it report? $112,500 $67,500 $80,000 $133,333

Customer lists should be amortized over their useful life: ($400,000 - 62,500)/ 3 years = $112,500 annual amortization expense.

Expensing all R&D costs associated with internally created intangible assets results in Understating assets and overstating expenses. Understating assets and understating expenses. Overstating assets and understating expenses. Overstating assets and overstating expenses.

Expensing all R&D costs associated with internally created intangible assets results in understating assets and overstating expenses.

Intangible assets are normally classified as current assets. T or F?

False,. In most cases, intangible assets provide services over a period of years and are therefore classified as long-term assets.

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

For indefinite-life intangibles, a company performs only the fair value test; there is no recoverability test related to indefinite-life intangibles.

The difference between the price paid to acquire another company and the fair market value of that company's net assets can be referred to as a master valuation account. goodwill. a gap filler. all of these answer choices are correct.

Goodwill is the difference between the purchase price and the fair market value of the company's net assets. Since it is measured as a residual amount, it is sometimes called a master valuation account or a gap filler.

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

Marketing-related intangibles include a brand name.

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 paid-in capital. a gain. a loss. a liability.

Proper accounting treatment by St. Sebastian is to report the amount as a gain.

The two principal types of patents issued by the U.S. Patent and Trademark Office are limited-life patents and indefinite-life patents. artistic-related patents and customer-related patents. marketing-related patents and contract-related patents. process patents and product patents.

The two principal types of patents issued by the U.S. Patent and Trademark Office are process patents and product patents.

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

There is no category of financing-related intangibles.

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

While this statement is correct, there is a better answer because all of the options are factors affecting useful life.