chp 7

Goodwill may only be recognized

in a business acquisition.

A(n) ______ is the exclusive right to manufacture a product or use a process granted for a period of ______ years.

patent 20

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's

relative fair value

For a patent developed internally, the research and development costs are

expensed as incurred.

Smith Company acquires a franchise from West Corp for $200,000. The franchise agreement covers a period of 10 years. Compute amortization expense for the second year.

$20,000

Lester purchased a new car for $30,000 and depreciated it straight-line over an estimated service life of five years with no residual value. After two years, Lester estimates that the remaining service life of the car is four years. Assuming that Lester continues to apply the straight-line method, depreciation recognized for each of the remaining years will be:

$4,500

The cost of a major improvement that extends the service life of an asset would be ________ ,whereas the cost of maintenance that does not increase the future benefits would be ______

Blank 1: capitalized Blank 2: expensed

The allocation of the cost of a tangible fixed asset is referred to as______ , whereas the allocation of the cost of an intangible asset is referred to as _________.

Blank 1: depreciation Blank 2: amortization

Which of the following items should be capitalized in the cost of equipment?

Freight to deliver the equipment to its location Installation and testing of equipment Insurance on equipment during shipping Purchase price

Which of the following items are initially recorded as an expense on the income statement?

Research and development costs Advertising costs

In a business combination, goodwill is recognized to the extent that the purchase price of the company is more , than the market value of the acquired company's identifiable net assets.

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