Chapter 12 - T/F & Multiple Choice

Amortization of limited life intangible assets should not be affected by expected residual values - t/f

False

Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciated and property, plant and equipment - t/f

False

Periodic alternations to existing products are an example of research and development costs - t/f

False

The cost of a purchased patent should be amortized over the remaining legal life of the patent - t/f

False

In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder as goodwill - t/f

True

In a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent - t/f

True

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

a. Physical existence.

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.

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) a. recoverability test - yes fair value test - yes b. recoverability test - yes fair value test - no c. recoverability test - no fair value test - yes d. recoverability test - no fair value test - no

c. recoverability test - no fair value test - yes

Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs. d. Costs to successfully defend a patent.

d. Costs to successfully defend a patent.

Which of the following is not reported as part of continuing operations? a. Amortization expense. b. Impairment losses for intangible assets. c. Research and development costs. d. Goodwill.

d. Goodwill.

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets? a. Indefinite life intangibles other than goodwill. b. Indefinite life intangibles. c. Goodwill. d. Limited life intangibles.

d. Limited life intangibles.

The same recoverability rest that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles -t/f

False

internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received - t/f

False

Which of the following intangible assets cannot be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. c. Goodwill. d. Brand Name.

c. Goodwill.

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.? a. contract-related intangible assets b. artistic-related intangible assets c. marketing-related intangible assets d. customer-related intangible assets

a. 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 a. copyright b. trademark c. patent d. franchise

a. copyright

One factor that is not considered in determining the useful life of an intangible asset is a. salvage value. b. provisions for renewal or extension. c. legal life. d. expected actions of competitors.

a. salvage value.

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

a. the Patents account.

Material, labor and overhead costs incurred in development a new product are to be expensed as these are development costs - t/f

True

Some intangible assets are not required to be amortized - t/f

True

GAAP requires start-up costs and initial operating losses during the early years to be capitalized - t/f

False

Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets - t/f

False

If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs - t/f

False

If fair value of an impaired asset recovers after an impairment as been recognized, the impairment may be revered in a subsequent period - t/f

False

Intangible assets desire their value from the right (claim) to receive cash in the future - t/f

False

Internally generated intangible assets are initially recorded at fair value - t/f

False

Research and development costs are recorded as intangible assets of they will provided economic benefits in future years - t/f

False

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent - t/f

False

The rules to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment - t/f

False

After an impairment loss is recorded for a limited-life intangible asset, the carrying amount becomes the basis for the impaired asset and is used to calculate amortization in future periods. - t/f

True

All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs - t/f

True

If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recorded - t/f

True

Internally generated goodwill should not be capitalized in the accounts - t/f

True

Limited-life intangibles are amortized by systematic charges to expense over their useful lives - t/f

True

The cost of acquiring a customer list form another company is recorded as an intangible asset - 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 of the following is considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Research costs incurred under contract with another company. c. Commissions to sales staff marketing a new product. d. Cost of marketing research to promote a new product.

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

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 these answer choices are correct.

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

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

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. a gain. b. part of current income in the year of combination. c. a deferred credit and amortize it. d. paid-in capital.

a. a gain.

Operating losses incurred during the start-up years of a new business should be a. accounted for and reported like the operating losses of any other business. b. written off directly against retained earnings. c. capitalized as a deferred charge and amortized over five years. d. capitalized as an intangible asset and amortized over a period not to exceed 20 years.

a. accounted for and reported like the operating losses of any other business.

The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years? a. 6 b. 5 c. 4 d. 3

b. 5

Which of the following types of intangible assets result from interactions and relationships with outside parties? a. Marketing-related intangible assets b. Customer-related intangible assets c. Contract-related intangible assets d. Artistic-related intangible assets

b. Customer-related intangible assets

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

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.

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: a. goodwill purchase. b. bargain purchase. c. residual purchase. d. blanket purchase.

b. bargain purchase.

A loss on impairment of an intangible asset is the difference between the asset's a. carrying amount and the expected future net cash flows. b. carrying amount and its fair value. c. fair value and the expected future net cash flows. d. book value and its fair value.

b. carrying amount and its fair value.

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 a. research and development expense in the period(s) of construction. b. depreciation deducted as part of research and development costs. c. depreciation or immediate write-off depending on company policy. d. an expense at such time as productive research and development has been obtained from the facility.

b. depreciation deducted as part of research and development costs.

Goodwill a. represents the purchase price of a business that is about to be sold. b. is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business. c. generated internally should be capitalized in the year it occurs. d. 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. is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.

Which intangible assets are amortized? a. limited life - yes indefinite life - yes b. limited life - yes indefinite life - no c. limited life - no indefinite life - yes d. limited life - no indefinite life - no

b. limited life - yes indefinite life - no

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.

Research and development costs a. are intangible assets. b. may result in the development of a patent. c. are easily identified with specific projects. d. All of these answer choices are correct.

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 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.

The carrying amount of an intangible is a. the fair value of the asset at a balance sheet date. b. the asset's acquisition cost less the total related amortization recorded to date. c. equal to the balance of the related accumulated amortization account. d. the assessed value of the asset for intangible tax purposes.

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

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 is a contract-related intangible assets? a. Trademark b. Copyright c. Franchise d. Patent

c. Franchise

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.

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

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? a. Attorney fees. b. Consulting fees. c. Research and development costs. d. Design costs.

c. Research and development costs.

Broadway Corporation was granted a patent on a product on January 1, 2007. To protect its patent, the corporation purchased on January 1, 2018 a patent on a competing product which was originally issued on January 10, 2014. 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 a. amortized over a maximum period of 20 years. b. amortized over a maximum period of 16 years. c. amortized over a maximum period of 9 years. d. expensed in 2018.

c. amortized over a maximum period of 9 years.

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.

c. any provisions for renewal or extension of the asset's legal life.

Costs incurred internally to create intangibles are a. capitalized. b. capitalized if they have an indefinite life. c. expensed as incurred. d. expensed only if they have a limited life.

c. 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 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.

Trademarks, newspaper mastheads, and internet domain names are all examples of a. contract-related intangible assets b. artistic-related intangible assets c. marketing-related intangible assets d. customer-related intangible assets

c. marketing-related intangible assets

Intangible assets are reported on the balance sheet a. with an accumulated depreciation account. b. in the property, plant, and equipment section. c. separately from other assets. d. None of these answer choices are correct.

c. separately from other assets.

The total amount of patent cost amortized to date is usually a. shown in a separate Accumulated Patent Amortization account which is shown contra to the Patents account. b. shown in the current income statement. c. shown as credits in the Patents account. d. reported as a contra property, plant and equipment item.

c. shown as credits in the Patents account.

Which of the following research and development expenditures should be capitalized and depreciated? a. Engineering costs incurred to advance the new product to a production stage b. Cost of marketing research to promote a new product c. Material, labor, and overhead costs incurred in developing a new product d. Acquisition of machinery that can also be used for future R&D projects

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

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 these answer choices are correct.

d. All of these answer choices are correct.

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 choices are included.

d. All of these choices are included.

Which of the following is often reported as part of operating expenses? a. Loss on sale of patent. b. Impairment losses for intangible assets other than goodwill. c. Impairment losses on goodwill. d. Amortization expense.

d. Amortization expense.

Which of the following would be considered research and development costs? 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 is not considered research and development 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. Cost of marketing research to promote a new product.

d. Cost of marketing research to promote a new product.

Which of the following principles best describes the current method of accounting for research and development 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 a type of technology-related intangible asset? a. Copyright b. Franchise c. License d. Patent

d. Patent

According to a Financial Accounting Standards Board Statement, how are research and development costs accounted for? a. They must be capitalized when incurred and then amortized over their estimated useful lives. b. They must be expensed in the period incurred. c. They may be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. 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.

d. 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.

Which of the following is not reported under the "Other Expenses and Losses" section of the income statement? a. Goodwill impairment losses. b. Loss on sale of patent. c. Patent impairment losses. d. Trade name amortization expense.

d. Trade name amortization expense.

The cost of successfully defending a patent suit 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 product. d. amortized over the remaining estimated useful life of the patent.

d. amortized over the remaining estimated useful life of the patent.

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 a. capitalized and never amortized. b. capitalized and amortized over 40 years. c. capitalized and amortized over 5 years. d. expensed as incurred.

d. expensed as incurred.

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.

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 a. patents and amortized over the legal life of the patent. b. legal fees and amortized over 5 years or less. c. expenses of the period. d. patents and amortized over the remaining useful life of the patent.

d. patents and amortized over the remaining useful life of the patent.