INTACC Practice Quiz 9

Under IFRS, how must an intangible asset be measured after its initial recognition?

According to the cost model or the revaluation model.

Aln Co. incurred the following expenses during the current period: Routine on-going efforts to improve an existing product- $ 50,000 Trouble-shooting in connection with breakdowns during commercial production- 75,000 Routine testing of products during commercial production for quality-control purposes- 100,000 What is the total amount of research and development expense incurred by Aln during the current period?

$0

Brill Co. made the following expenditures during Year 1: Costs to develop computer software for internal use in Brill's general management information system- $100,000 Costs of market research activities- 75,000 What amount of these expenditures should Brill report in its Year 1 income statement as research and development expenses?

$0

On January 1, Year 1, Chertco acquired a patent for $500,000 and, using the straight-line method, began amortizing it properly over its estimated useful life of 10 years. The asset has no residual value. At December 31, Year 4, a significant change in the business climate caused Chertco to assess the recoverability of the carrying amount of the patent. Chertco estimated that the undiscounted future net cash inflows from the patent would be $325,000 and that its fair value was $275,000. Accordingly, for the year ended December 31, Year 4, Chertco should recognize an impairment loss of

$0

Tech Co. bought a trademark 2 years ago on January 2. Tech accounted for the trademark as instructed under the provisions of the Accounting Standards Codification during the current year. The intangible was being amortized over 40 years. The carrying amount at the beginning of the year was $38,000. It was determined that the cash flow will be generated indefinitely at the current level for the trademark. What amount should Tech report as amortization expense for the current year?

$0

Ward Company incurred research and development costs in Year 1 as follows: Equipment acquired for use in various research and development projects- $975,000 Depreciation on the above equipment- 135,000 Materials used- 200,000 Compensation costs of personnel- 500,000 Outside consulting fees- 150,000 Indirect costs appropriately allocated- 250,000 The total research and development costs charged in Ward's Year 1 income statement should be

$1,235,000

Brand Co. incurred the following research and development project costs at the beginning of the current year: Equipment purchased for current and future projects- $100,000 Equipment purchased for current projects only- 200,000 Research and development salaries for current project- 400,000 Equipment has a 5-year life and is depreciated using the straight-line method. What amount should Brand record as depreciation for research and development projects at December 31?

$20,000

Cody Corp. incurred the following costs during Year 1: Design of tools, jigs, molds, and dies involving new technology- $125,000 Modification of the formulation of a process- 160,000 Trouble-shooting in connection with break-downs during commercial production- 100,000 Adaptation of an existing capability to a particular customer's need as part of a continuing commercial activity- 110,000 In its Year 1 income statement, Cody should report research and development expense of

$285,000

During the year just ended, Jase Co. incurred research and development costs of $136,000 in its laboratories relating to a patent that was granted on July 1. Costs of registering the patent equaled $34,000. The patent's legal life is 20 years, and its estimated economic life is 10 years. In its December 31 balance sheet, what amount should Jase report for the patent, net of accumulated amortization?

$32,300

Corbet Co. purchased a copyright near the beginning of the current year from an author for $20,000. The legal life of the copyright is equivalent to the life of the author plus 50 years. Corbet expects to sell the book for 5 years. What amount should Corbet report as amortization expense related to the copyright at the end of the current year?

$4,000

Heller Co. incurred the following costs in Year 1:Research and development servicesperformed by Kay Corp. for Heller- $150,000 Testing for evaluation of new products- 125,000 Laboratory research aimed at discovery of new knowledge- 185,000 What amount should Heller report as research and development costs in its income statement for the year ended December 31, Year 1?

$460,000

Neue Co. incurred the following costs during its first year of operations: Legal fees for incorporation and other related matters- $55,000 Underwriters' fees for initial stock offering- 40,000 Exploration costs and purchases of mineral rights- 60,000 Neue had no revenue during its first year of operation. What amount must Neue expense as organizational costs?

$55,000

On January 2, Year 1, Lava, Inc., purchased a patent for a new consumer product for $90,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, Year 4, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Lava charge against income during Year 4, assuming amortization is recorded at the end of each year but the pattern of consumption of the economic benefits of the patent is not reliably determinable?

$63,000

Hy Corp. bought Patent A for $40,000 and Patent B for $60,000. Hy also paid acquisition costs of $5,000 for Patent A and $7,000 for Patent B. Both patents were challenged in legal actions. Hy paid $20,000 in legal fees for a successful defense of Patent A and $30,000 in legal fees for an unsuccessful defense of Patent B. What amounts should Hy capitalize for patents?

$65,000

During the current year, Beta Motor Co. incurred the following costs related to a new solar-powered car: Salaries of laboratory employees researching how to build the new car- $250,000 Legal fees for the patent application for the new car- 20,000 Engineering follow-up during the early stages of commercial production (the follow-up occurred during the current year)- 50,000 Marketing research to promote the new car- 30,000 Design, testing, and construction of a prototype- 400,000 What amount should Beta Motor report as research and development expense in its income statement for the current year?

$650,000

Which of the following costs of goodwill should be capitalized and amortized? -Maintaining Goodwill -Developing Goodwill

-No -No

Legal fees incurred by a company in defending its patent rights should be capitalized when the outcome of litigation is -Successful -Unsuccessful

-Yes -No

Ala Company acquired Mish Company on January 1, Year 1. A goodwill of $480,000 was recognized on this acquisition. Ala is a private company, and it applies the accounting alternative to account for goodwill recognized in this business combination. The synergies expected from combining the operations of the two businesses are estimated to last over the next 20 years. However, due to Ala expecting to discontinue some of the activities of Mish in the future, Ala estimates that the useful life of goodwill is 14 years. Over how many years, if at all, should the goodwill recognized be amortized by Ala?

10

A company recently acquired a copyright that now has a remaining legal life of 30 years. The copyright initially had a 38-year useful life assigned to it. An analysis of market trends and consumer habits indicated that the copyrighted material will generate positive cash flows for approximately 25 years. What is the remaining useful life, if any, over which the company can amortize the copyright for accounting purposes?

25 years.

A purchased patent has a remaining legal life of 15 years. It should be

Amortized over its useful life if less than 15 years.

Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if

An active market exists for the intangible asset.

Which of the following is the proper treatment of the cost of equipment used in research and development activities that will have alternative future uses?

Capitalized and depreciated over its estimated useful life.

Goodwill arises from a business combination. For the purposes of impairment testing, IFRS provide for goodwill to be allocated to which components of the acquirer's entity?

Cash-generating units that benefit from the combination.

Which of the following methods should be used to account for research and development costs with no alternative future use?

Charging all costs to expense when incurred.

Goodwill should be tested for value impairment at which of the following levels?

Each reporting unit.

A company recognized an intangible asset. The intangible asset is amortized over its useful life

If that life is determined to be finite.

Which of the following is not classified as R&D?

Periodic design changes to existing products.

Which of the following should a company classify as a research and development expense?

Redesign of a product prerelease.

In accordance with generally accepted accounting principles, which of the following methods of amortization is required for amortizable intangible assets if the pattern of consumption of economic benefits is not reliably determinable?

Straight-line.

On January 1, Year 1, Jambon purchased equipment for use in developing a new product. Jambon uses the straight-line depreciation method. The equipment could provide benefits over a 10-year period. However, the new product development is expected to take 5 years, and the equipment can be used only for this project. Jambon's Year 1 expense equals

The total cost of the equipment.