ACC311 Chapter 12

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. No Yes b. Yes No c. No No d. Yes Yes

a. No Yes

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.

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.

Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets. a. True b. False

b. False

If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs. a. True b. False

b. False

If fair value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period. a. True b. False

b. 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. a. True b. False

b. False

Internally generated intangible assets are initially recorded at fair value. a. True b. False

b. False

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.

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.

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.

Companies should test indefinite life intangible assets at least annually for a. recoverability. b. amortization. c. impairment. d. estimated useful life.

c. impairment.

After an impairment loss is recorded for a limited-life intangible asset, the fair value becomes the basis for the impaired asset and is used to calculate amortization in future periods. a. True b. False

a. True

All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs. a. True b. False

a. True

If 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. a. True b. False

a. True

In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder recorded as goodwill. a. True b. False

a. True

Internally generated goodwill should not be capitalized in the accounts. a. True b. False

a. True

Limited-life intangibles are amortized by systematic charges to expense over their useful lives. a. True b. False

a. True

Some intangible assets are not required to be amortized. a. True b. False

a. True

The cost of acquiring a customer list from another company is recorded as an intangible asset. a. True b. False

a. True

Which intangible assets are amortized? Limited-Life Indefinite-Life a. Yes No b. No Yes c. Yes Yes d. No No

a. Yes No

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.

Research and development costs are recorded as intangible assets if they will provide economic benefits in future years. a. True b. False

b. False

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent. a. True b. False

b. False

The cost of a purchased patent should be amortized over the remaining legal life of the patent. a. True b. False

b. False

The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment. a. True b. False

b. False

The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles. a. True b. False

b. False

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.

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.

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.

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 value 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.

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.

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

c. salvage value.

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.

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

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 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.

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.

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.

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. the amortization method used.