ch 12 MC

Which of the following represents a federally granted right?

* Copyrights.* Goodwill. Franchise. Internet domain names.

The cost of a purchased intangible asset includes

*all of these answer choices are correct.* purchase price. legal fees. incidental expenses.

The impairment rule for goodwill involves how many steps?

1 * 2* 3 4

Intangible assets are normally classified as current assets.

False

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

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

There are two steps to impairment testing for goodwill: First the recoverability test is performed, then the fair value test is performed.

False. First the fair value of the reporting unit is compared to its carrying amount, including goodwill. If the fair value of the reporting unit is less than the carrying amount, the 2nd step is performed to determine possible impairment.

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

Neither goodwill purchased or developed internally is amortized.

Which intangible asset should be disclosed separately on the balance sheet?

Patents. *Goodwill.* Customer lists. Copyrights.

Construction permits are

marketing-related intangible assets. * contract-related intangible assets.* not considered to be intangible assets. customer-related intangible assets.

IFRS:

permits capitalization of all internally generated intangible assets. permits revaluation for goodwill. permits reversal of impairment losses when there has been a change in economic conditions. requires expensing of all R&D costs.

On the income statement, a company reports impairment losses related to intangible assets as an extraordinary item due to their infrequent occurrence, and amortization expense as part of continuing operations.

False

Which of the following research and development costs may be capitalized?

Personnel. Contract services. Indirect costs. *Research and development equipment to be used on current and future projects.*

Coral Corporation began operating as a business in 2014. During January 2014, the company paid $300,000 in design costs to develop its trademark and $250,000 in legal and registration fees to secure the trademark. During October 2014, the company successfully defended its trademark, paying an additional $150,000 in legal fees during the process. At what amount should Coral Corporation report its trademark on its December 31, 2014 balance sheet?

$150,000 $550,000 * $700,000* $400,000 $300,000 + 250,000 + 150,000 = $700,000.

Which of the following statements concerning intangible assets is correct?

Intangible assets are normally classified as current assets. Intangible assets include the right to receive cash or cash equivalents at a future date. *Intangible assets derive their value from the rights and privileges granted to the company using them.* All of these answer choices are correct.

The residual value of an intangible asset should be assumed to be zero unless its useful life is less than its economic life.

True

Which of the following is considered a research activity?

All of these answer choices are correct. *Critical investigation aimed at discovery of new knowledge.* Construction of a prototype. Operation of a pilot plant.

Which of the following would not be amortized?

Customer List. Copyright. * Trade name.* Patent.

Fern Company is a U.S.-based company that designs and builds compressors for large HVAC units. Fern decides to build a new plant in China, its first attempt at doing business internationally. During its start-up phase, Fern incurs $2,000,000 of start-up costs including $1,000,000 in legal fees, $700,000 to introduce its product, and another $300,000 in state fees to the Chinese government to organize the new business entity. Fern Company's CEO fully expects the company to become profitable during its 3rd year of operations. How should Fern Company account for these costs

Fern can capitalize $1,000,000 in legal fees, but the other costs must be expensed as incurred. *Fern must expense all $2,000,000 start-up costs as incurred.* Fern can capitalize $1,300,000 related to legal and state fees, but the other costs must be expensed as incurred. Fern can capitalize $700,000 related to introducing its product, but the other costs must be expensed as incurred.

IFRS permits revaluation of

Indefinite-life intangible assets. *Limited-life intangible assets.* All of these answer choices are correct. Goodwill.

Which of the following is a characteristic of intangible assets?

They have physical existence. They are financial instruments. * They are long-term in nature.* They are all subject to amortization.

A company capitalizes only the direct costs incurred in developing an intangible, such as legal costs.

True

If the life of a limited-life intangible asset changes, the remaining carrying amount is amortized over the revised remaining useful life.

True

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

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

Indicate whether the following items are capitalized or expensed in the current year. a) Purchase cost of a patent from a competitor. (b) Research and development costs. (c) Organizational costs. (d) Costs incurred internally to create goodwill.

a) capitalize b) expense c)expense d) expense

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

artistic-related patents and customer-related patents. marketing-related patents and contract-related patents. *process patents and product patents.* limited-life patents and indefinite-life patents.

Costs incurred in the research phase are

expensed under GAAP but may be capitalized under IFRS. *always expensed under both IFRS and GAAP.* always capitalized under both IFRS and GAAP. expensed under IFRS but may be capitalized under GAAP.

On December 31, 2012, Appalachian Corporation paid $5,550,000 to acquire Grandview Company and recorded $1,630,000 of goodwill as a result of the purchase. On December 31, 2014, Appalachian determines that the fair value of the CityGrandview division is $6,500,000 and the carrying amount of placeCityGrandview's net assets on that date is $6,200,000 (the carrying value and the fair value of identifiable net assets are the same). What amount of loss on impairment of goodwill should Appalachian record at December 31, 2014?

$1,330,000. $300,000. $1,630,000. *$0.*

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.

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)?

$1,485,606. $1,583,678. * $1,499,621.* $1,850,000. $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.

Bend Company's December 31, 2014 balance sheet reports assets of $13,210,000 and liabilities of $4,275,000. The book values of CityBend's assets approximate their fair values, except for land, which has a fair value $600,000 greater than its book value. On December 31, 2014, Blue Corporation paid $11,775,000 to acquire Bend. What amount of goodwill should Blue record as a result of this purchase?

$1,640,000 $2,840,000 *$2,240,000* $0

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?

$133,333 *$112,500* $80,000 $67,500 ($400,000 - 62,500)/ 3 years = $112,500 annual amortization expense.

On July 2, 2014, Adele Company bought a trademark from Robert, Inc. for $2,750,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Robert's books was $1,600,000. In Adele's 2014 income statement, what amount should be reported as amortization expense?

$160,000. $275,000. $80,000. * $137,500.* $2,750,000 / 10 years X 6/12 results in an amortization expense of $137,500.

Jacky Inc. purchased Manzanita Marine on June 1, 2012 for $25,000,000 and recorded goodwill of $3,100,000 in connection with the purchase. At December 31, 2015, the Manzanita Marine Division had a fair value of $25,400,000. The net assets of Manzanita (including goodwill) had a fair value of $24,900,000 at that time. What amount of loss on impairment of goodwill should Jacky record in 2015?

$2,600,000. * $0.* $600,000. $500,000. The fair value of Manzanita is greater than its carrying amount so no impairment has occurred.

Bryson Corporation purchased a limited-life intangible asset for $1,162,500 on May 1, 2012. It has a remaining useful life of 15 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2014 (if necessary, round your answer to the nearest dollar)?

*$206,667* $129,167 $155,000 $66,667 $1,162,500 / 180 months multiplied by 32 months is $206,667.

Lumberyard Inc. incurred the following costs during the year ended December 31, 2014: Laboratory research aimed at discovery of new knowledge $ 4,925,000 Costs of testing prototype and design modifications 712,500 Quality control during commercial production, including routine testing of products 485,000 Purchase of research facilities having an estimated useful life of 20 years but no alternative future use 7,360,000 The total amount to be classified and expensed as research and development in 2014 is

*$6,005,500.* $6,490,500. $13,482,500. $12,997,500. ` $4,925,000 plus $712,500 plus $368,000 totals $6,005,500.

Which of the following statements is correct?

*IFRS requires capitalization of development costs once economic viability is met.* Both IFRS and GAAP permit revaluation of property, plant, and equipment, and intangible assets (except for goodwill). GAAP permits capitalization of development costs. IFRS requires capitalization of research and development costs once economic viability is met.

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

*Immediate recognition as an expense* Associating cause and effect Systematic and rational allocation Income tax minimization

Which of the following is not a characteristic of intangible assets?

*They are all subject to amortization.* They are long-term in nature. They lack physical existence. They are not financial instruments.

All of the following statements regarding IFRS accounting treatments for intangibles are true except:

*Under IFRS, costs in the development phase of R & D costs are expensed once technological feasibility is achieved.* IFRS permits some capitalization of internally generated intangible assets. IFRS permits revaluation on limited-life intangible assets. IFRS allows reversal of impairment losses when there has been a change in economic conditions

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 overstating expenses. Overstating assets and understating expenses.

1. Investment in a subsidiary company. 2. Timberland. 3. Cost of engineering activity required to advance the design of a product to the manufacturing stage. 4.Lease prepayment (6 months' rent paid in advance). Entry field with correct answer 5. Cost of equipment obtained. 6. Cost of searching for applications of new research findings. 7. Costs incurred in the formation of a corporation. 8. Operating losses incurred in the start-up of a business. 9. Training costs incurred in start-up of new operation. 10. Purchase cost of a franchise. 11. Goodwill generated internally. 12. Cost of testing in search for product alternatives. 13. Goodwill acquired in the purchase of a business. 14. Cost of developing a patent. 15. Cost of purchasing a patent from an inventor. 16. Legal costs incurred in securing a patent. 17. Unrecovered costs of a successful legal suit to protect the patent. 18. Cost of conceptual formulation of possible product alternatives. 19. Cost of purchasing a copyright. 20. Research and development costs. 21. Long-term receivables. 22. Cost of developing a trademark. 23. Cost of purchasing a trademark.

1. Not 2. Not 3. Not 4. Not 5. Not 6. Not 7. Not 8. Not 9. Not 10. Intangible asset 11. Not 12. Not 13. Intangible asset 14. Not 15. Intangible asset 16. Intangible asset 17. Intangible asset 18. Not 19. Intangible Asset 20. Not 21. Not 22. Not 23. Intangible Asset.

A purchased limited-life intangible asset ______ amortized and is impairment tested using _______________.

is; the fair value test only. *is; the recoverability test and then the fair value test.* is not; the fair value test only. is not; the recoverability test and then the fair value test.