PK Accounting Test CH12
22. 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
43. Which of the following intangible assets could not be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. c. Goodwill. d. Brand Name.
c
119. During 2011, Leon Co. incurred the following costs: Testing in search for process alternatives $ 350,000 Costs of marketing research for new product 250,000 Modification of the formulation of a process 510,000 Research and development services performed by Beck Corp. for Leon 425,000 In Leon's 2011 income statement, research and development expense should be a. $510,000. b. $935,000. c. $1,285,000. d. $1,535,000.
119. c $350,000 + $510,000 + $425,000 = $1,285,000.
21. 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
26. 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
29. 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
32. Which intangible assets are amortized? Limited-Life Indefinite-Life a. Yes Yes b. Yes No c. No Yes d. No No
b
36. Which of the following is not an intangible asset? a. Trade name b. Research and development costs c. Franchise d. Copyrights
b
41. Goodwill may be recorded when: a. it is identified within a company. b. one company acquires another in a business combination. c. the fair market value of a company's assets exceeds their cost. d. a company has exceptional customer relations.
b
44. The reason goodwill is sometimes referred to as a master valuation account is because a. it represents the purchase price of a business that is about to be sold. b. it is the difference between the fair market value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business. c. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. d. it 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
48. 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
51. The carrying amount of an intangible is a. the fair market 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
40. 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
50. 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) Recoverability Test Fair Value Test a. Yes Yes b. Yes No c No Yes d. No No
c
27. 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 are included.
d
28. 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.
d
*109. Tripiani Inc. incurred $600,000 of capitalizable costs to develop computer software during 2011. The software will earn total revenues over its 5-year life as follows: 2011 - $500,000; 2012 - $600,000; 2013 - $600,000; 2014 - $200,000; and 2015 - $100,000. What amount of the computer software costs should be expensed in 2011? a. $150,000 b. $120,000 c. $135,000 d. $200,000
*109. a $600,000 X $500,000 / $2,000,000 = $150,000 (greater than $120,000).
*110. Tripiani Inc. incurred $600,000 of capitalizable costs to develop computer software during 2011. The software will be used internally over its 5-year life. What amount of the computer software costs should be expensed in 2011? a. $600,000 b. $120,000 c. $135,000 d. $200,000
*110. b $600,000 X 1/5 = $120,000.
111. Lopez Corp. incurred $420,000 of research and development costs to develop a product for which a patent was granted on January 2, 2006. Legal fees and other costs associated with registration of the patent totaled $80,000. On March 31, 2011, Lopez paid $150,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2011 should be a. $230,000. b. $500,000. c. $570,000. d. $650,000.
111. a $80,000 + $150,000 = $230,000.
112. On June 30, 2011, Cey, Inc. exchanged 2,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2011 at a cost of $55,000. At the exchange date, Seely common stock had a fair value of $46 per share, and the patent had a net carrying value of $110,000 on Gore's books. Cey should record the patent at a. $55,000. b. $60,000. c. $92,000. d. $110,000.
112. c $2,000 × $46 = $92,000.
113. On May 5, 2011, MacDougal Corp. exchanged 2,000 shares of its $25 par value treasury common stock for a patent owned by Masset Co. The treasury shares were acquired in 2010 for $45,000. At May 5, 2011, MacDougal's common stock was quoted at $34 per share, and the patent had a carrying value of $55,000 on Masset's books. MacDougal should record the patent at a. $45,000. b. $50,000. c. $55,000. d. $68,000.
113. d $2,000 × $34 = $68,000.
114. Ely Co. bought a patent from Baden Corp. on January 1, 2011, for $300,000. An independent consultant retained by Ely estimated that the remaining useful life at January 1, 2011 is 15 years. Its unamortized cost on Baden's accounting records was $150,000; the patent had been amortized for 5 years by Baden. How much should be amortized for the year ended December 31, 2011 by Ely Co.? a. $0. b. $15,000. c. $20,000. d. $30,000.
114. c $300,000 ÷ 15 = $20,000.
115. January 2, 2008, Koll, Inc. purchased a patent for a new consumer product for $270,000. 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, 2011, the product was permanently withdrawn from the market under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2011, assuming amortization is recorded at the end of each year? a. $ 27,000 b. $162,000 c. $189,000 d. $216,000
115. c $270,000 - [($270,000 ÷ 10) × 3] = $189,000.
116. On January 1, 2007, Russell Company purchased a copyright for $1,000,000, having an estimated useful life of 16 years. In January 2011, Russell paid $150,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2011, should be a. $0. b. $62,500. c. $71,875. d. $75,000.
116. d ($1,000,000 - [($1,000,000 ÷ 16) × 4] = $750,000 ($750,000 + $150,000) ÷ 12 = $75,000.
117. Which of the following legal fees should be capitalized? Legal fees to Legal fees to successfully obtain a copyright defend a trademark a. No No b. No Yes c. Yes Yes d. Yes No
117. c Conceptual.
118. Which of the following costs of goodwill should be amortized over their estimated useful lives? Costs of goodwill from a Costs of developing business combination goodwill internally a. No No b. No Yes c. Yes Yes d. Yes No
118. a Conceptual.
120. Riley Co. incurred the following costs during 2011: Significant modification to the formulation of a chemical product $160,000 Trouble-shooting in connection with breakdowns during commercial production 150,000 Cost of exploration of new formulas 200,000 Seasonal or other periodic design changes to existing products 185,000 Laboratory research aimed at discovery of new technology 225,000 In its income statement for the year ended December 31, 2011, Riley should report research and development expense of a. $585,000. b. $735,000. c. $770,000. d. $920,000.
120. a $160,000 + $200,000 + $225,000 = $585,000.
23. Which characteristic is not possessed by intangible assets? a. Physical existence. b. Short-lived. c. Result in future benefits. d. Expensed over current and/or future years.
a
25. 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 the above.
a
38. When a patent is amortized, the credit is usually made to a. the Patent account. b. an Accumulated Amortization account. c. a Deferred Credit account. d. an expense account.
a
45. 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 market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some "negative goodwill." Proper accounting treatment by Easton is to report the 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
47. 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
S31. 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
24. 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
30. Companies should test indefinite life intangible assets at least annually for: a. recoverability. b. amortization. c. impairment. d. estimated useful life.
c
34. Broadway Corporation was granted a patent on a product on January 1, 1998. To protect its patent, the corporation purchased on January 1, 2009 a patent on a competing product which was originally issued on January 10, 2005. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing a 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 2009.
c
37. 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
39. 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 allowed to be capitalized? a. Attorney fees. b. Consulting fees. c. Research and development fees. d. Design costs.
c
33. The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products 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 purchaser's product. d. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.
d
35. Wriglee, Inc. went to court this year and successfully defended its patent from infringe-ment 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
42. 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 the above.
d
46. 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
49. 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
53. 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
54. How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement? a. Must be capitalized when incurred and then amortized over their estimated useful lives. b. Must be expensed in the period incurred. c. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. 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
55. Which of the following would be considered research and development? 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