ACCT 3021 Chapter 12

Jacky Inc. purchased Manzanita Marine on June 1, 2018 for $25,000,000 and recorded goodwill of $3,100,000 in connection with the purchase. At December 31, 2021, 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 2021? $500,000. $2,600,000. $0. $600,000.

$0. The fair value of Manzanita is greater than its carrying amount so no impairment has occurred.

Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2018. It has a remaining legal life of 18 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, 2020 balance sheet for the patent (if necessary, round your answer to the nearest dollar)? $1,593,056. $1,583,678. $1,485,606. $1,850,000.

$1,593,056. $1,850,000/ 180 X 25=$256,944. $1,850,000- $256,944= $1,593,056.

The impairment rule for goodwill involves how many steps? 3 2 4 1

1

On January 3, 2006, Hamm Enterprises was granted a patent on a product. On January 8, 2021, to protect its patent, Hamm purchased a patent on a competing product that originally was issued on January 15, 2010. Because of its unique plant, Hamm does not feel that the competing patent can be used in producing a product. The cost of acquiring the competing patent should be A : amortized over a maximum period of 12 years. B : amortized over a maximum period of 8 years. C : expensed in 2019. D : amortized over a maximum period of 20 years.

A : amortized over a maximum period of 12 years.

A company plans to amortize an intangible asset. When they journalize the amortization amount, they should debit an expense account and credit A : either the intangible asset account or an associated accumulated amortization account. B : the intangible asset account but not the accumulated amortization account. C : both the intangible asset account and an associated accumulated amortization account. D : the accumulated amortization account but not the intangible asset account.

A : either the intangible asset account or an associated accumulated amortization account.

Costs associated with developing a trademark or trade name should be capitalized if they result from: I. Consulting fees. II. Design costs. III. Attorney fees. IV. Research and development fees. A : I, II, and IV. B : I, II, and III. C : I, III, and IV. D : II, III, and IV.

B : I, II, and III.

Which of the following characteristics are considered when determining the useful life of an intangible asset? I. Expected actions of competitors. II. Salvage value, except when it is of value to another company. III. Provisions for renewal or extension. IV. Legal life. A : I, II, and IV. B : I, III, and IV. C : II, III, and IV. D : I, II, and III.

B : I, III, and IV.

Burris Enterprises is testing their limited-life intangible assets for impairment. The impairment test(s) they should use include(s) A : the recoverability test but not the fair value test. B : both the recoverability test and the fair value test. C : neither the recoverability test nor the fair value test. D : the fair value test but not the recoverability test.

B : both the recoverability test and the fair value test.

Financial reporting of intangible assets is most similar to reporting for A : investments. B : equipment. C : inventory. D : accounts receivable.

B : equipment.

Which of the following is true about goodwill? A : Goodwill is easily computed by assigning a value to the individual attributes that comprise its existence. B : Goodwill generated internally should not be capitalized unless it is measured by an individual independent of the enterprise involved. C : Goodwill represents a unique asset in that its value can be identified only with the business as a whole. D : Goodwill exists in any company that has earnings that differ from those of a competitor.

C : Goodwill represents a unique asset in that its value can be identified only with the business as a whole.

For companies using GAAP, they should characterize their intangible assets as either A : amortizable or unamortizable. B : specifically identifiable or goodwill-type. C : limited-life or indefinite-life. D : legally restricted or goodwill-type.

C : limited-life or indefinite-life.

Dickinson Outerwear is calculating impairment of their indefinite-life intangibles other than goodwill. The impairment test(s) they should use include(s) A : neither the recoverability test nor the fair value test. B : both the recoverability test and the fair value test. C : the fair value test but not the recoverability test. D : the recoverability test but not the fair value test.

C : the fair value test but not the recoverability test.

Which of the following is not an example of a contract-related intangible asset? Broadcast rights. Franchise. Copyright. Construction permits.

Copyright.

Which of the following represents a federally granted right? Copyrights. Internet domain names. Franchise. Goodwill.

Copyrights.

Production backlogs fall under which category of intangible assets? Artistic-related. Customer-related. Marketing-related. Technology-related.

Customer-related.

Which of the following are research and development activities? I. Adaptation of an existing capability to a particular requirement or customer's need. II. Searching for applications of new research findings. III. Laboratory research aimed at discovery of new knowledge. IV. Conceptual formulation and design of possible product or process alternatives. A : I, II, and III. B : I, II, and IV. C : I, III, and IV. D : II, III, and IV.

D : II, III, and IV.

If a company buys several intangible assets in a "basket purchase," the company should allocate the cost on the basis of the book values of the purchased intangible assets. True False

False

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

False

Intangible assets are normally classified as current assets. True False

False

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. True False

False

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

False

Which of the following is not one of the major categories of intangibles? Financing-related. Contract-related. Artistic-related. Marketing-related.

Financing-related.

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

Immediate recognition as an expense

Which of the following research and development costs may be capitalized? Contract services. Research and development equipment with alternative future uses in other research & development projects or otherwise. Personnel. Indirect costs.

Research and development equipment with alternative future uses in other research & development projects or otherwise.

Which of the following would not be amortized? Trade name. Customer List. Patent. Copyright.

Trade name.

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

True

The residual value of an intangible asset should be assumed to be zero unless, at the end of its useful life, the intangible asset has value to another company. True False

True

All of the following statements regarding IFRS accounting treatments for intangibles are true except: IFRS permits some capitalization of internally generated intangible assets. Under IFRS, costs in the development phase of Research & Development costs are expensed once technological feasibility is achieved. IFRS allows reversal of impairment losses when there has been a change in economic conditions. IFRS permits revaluation on limited-life intangible assets.

Under IFRS, costs in the development phase of Research & Development costs are expensed once technological feasibility is achieved.

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

a gain.

Marketing-related intangibles would include a copyright. a franchise. a trade name. a customer list.

a trade name.

The excess cost of the purchase over the fair market value of a company's identifiable net assets is sometimes referred to as all of these answer choices are correct. goodwill. a master valuation account. a gap filler.

all of these answer choices are correct.

The presentation of intangible assets in the financial statements all of these answer choices are correct. involves crediting amortization directly to the intangible asset account. includes the disclosure of the amortization expense for the next 5 years. includes reporting Research & Development costs as an expense in the income statement.

all of these answer choices are correct.

Construction permits are not considered to be intangible assets. contract-related intangible assets. customer-related intangible assets. marketing-related intangible assets.

contract-related intangible assets.

Capitalizing goodwill only when it is purchased in an arm's-length transaction, and not capitalizing any goodwill generated internally, is an example of financial accounting winning out over managerial accounting. GAAP winning out over IFRS. faithful representation winning out over relevance. accrual accounting winning out over cash-basis accounting.

faithful representation winning out over relevance.

A purchased limited-life intangible asset ______ amortized and is impairment tested using _______________. is; the fair value test only is not; the fair value test only is; the recoverability test and then the fair value test is not; the recoverability test and then the fair value test

is; the recoverability test and then the fair value test

The two principal types of patents 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.

process patents and product patents.

The controversy surrounding the policy to expense all research and development costs associated with internally created intangible assets results in understating assets and understating expenses. overstating assets and overstating expenses. understating assets and overstating expenses. overstating assets and understating expenses.

understating assets and overstating expenses.

On January 1, 2020, 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, 2020, how much amortization expense should it report? $112,500 $67,500 $80,000 $133,333

$112,500 ($400,000 - 62,500)/ 3 years = $112,500

On July 1, 2020, 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 2020 income statement, what amount should be reported as amortization expense? $80,000. $160,000. $137,500. $275,000.

$137,500. $2,750,000/10 X 6/12 (July 1 - December 31, 2020)= $137,500.

Truffle Inc. acquired a patent on January 1, 2018 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, 2021, 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 2021 income statement? $2,560,000. $4,680,000. $2,120,000. $1,340,000.

$2,560,000.

Truffle Inc. acquired a patent on January 1, 2018 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, 2021, 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 2021 income statement? $2,560,000. $4,680,000. $2,120,000. $1,340,000.

$2,560,000. $7,800,000/10 X 4= $3,120,000 $7,800,000 - $3,120,000= $4,680,000 $4,680,000 - $2,120,000= $2,560,000.

Bryson Corporation purchased a limited-life intangible asset for $1,162,500 on May 1, 2018. 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, 2020 (if necessary, round your answer to the nearest dollar)? $155,000 $129,167 $206,667 $66,667

$206,667 $1,162,500/180 X 32= $206,667

Oscar Company acquired a patent on a manufacturing process on January 1, 2018 for $5,100,000. It was expected to have a 12 year life and no residual value. Oscar uses straight-line amortization for patents. On December 31, 2019, the expected future cash flows from the patent are $387,500 per year for the next ten years. The present value of these cash flows, discounted at Oscar's market interest rate, is $3,050,000. At what amount should the patent be carried on the December 31, 2019 balance sheet? $3,875,000 $3,050,000 $5,100,000 $4,250,000

$3,050,000

Coral Corporation began operating as a business in 2020. During January 2020, 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 2020, 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, 2020 balance sheet? $400,000 $700,000 $550,000 $150,000

$700,000 $300,000 + 250,000 + 150,000 = $700,000.

Which of the following is a factor to be considered in determining a limited-life intangible asset's useful life? All of these answer choices are correct. The effects of obsolescence. The expected useful life of another asset or group of assets to which the useful life of the intangible asset may relate. Any legal provisions that may limit the useful life.

All of these answer choices are correct.

What is the difference in accounting between a research cost and a development cost? A : Research costs are capitalized and amortized until the product goes to market, whereas development costs are capitalized and amortized from the time the product hits the market until the product is withdrawn from the market. B : Research costs are capitalized and amortized over the life of the project, whereas development costs are expensed as incurred. C : Research costs are expensed as incurred, whereas development costs are capitalized and amortized over the life of the new product. D : There are no differences in accounting between research costs and development costs.

D : There are no differences in accounting between research costs and development costs.

Which of the following is the correct reason for why the accounting profession does not allow the immediate write-off of goodwill? A : Because the amortization of goodwill is tax deductible, an immediate write-off serves no useful purpose. B : Goodwill has a useful life like all assets and should be charged as an expense at a normal rate. C : The immediate write-off would cause net income to be much lower than it had been for the company in recent years and comparability would be distorted. D : To write-off goodwill immediately would lead to the incorrect conclusion that goodwill has no future service potential.

D : To write-off goodwill immediately would lead to the incorrect conclusion that goodwill has no future service potential.

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

Intangible assets derive their value from the rights and privileges granted to the company using them.

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.

They are all subject to amortization.

IFRS permits revaluation of goodwill. indefinite-life intangible assets. limited-life intangible assets. all of these answer choices are correct.

limited-life intangible assets.

If a company develops and registers a trademark in-house, how should they handle the accounting for the fees associated with registering the trademark? A : Costs should be expensed as incurred. B : Costs should be capitalized and amortized over its useful life. C : Costs should be capitalized and amortized over 10 years regardless of its useful life. D : Costs should be charged to an asset account that should not be amortized.

B : Costs should be capitalized and amortized over its useful life.

Which of the following are intangible assets? I. Franchises. II. Accounts receivable. III. Patents. IV. Copyrights. A : II, III, and IV. B : I, II, and III. C : I, III, and IV. D : I, II, and IV.

C : I, III, and IV.

Which of the following statements is true about the amortization of goodwill? A : It should be computed using the straight-line method unless another method is deemed more appropriate. B : It is dependent upon the number of years a company expects to use the benefits it provides. C : It does not happen as it is deemed to have an indefinite life. D : It represents as acceptable an accounting practice as does the immediate write-off method.

C : It does not happen as it is deemed to have an indefinite life.

Research and development costs that have no future use A : must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will result in the discovery of a profitable product. B : may be either capitalized or expensed when incurred. C : must be expensed in the period incurred unless contractually reimbursable. D : must be capitalized when incurred and then amortized over their estimated useful lives.

C : must be expensed in the period incurred unless contractually reimbursable.

Which of the following costs should be excluded from research and development expense? Modification of the design of a product. Acquisition of R & D equipment for use on a current project only. Engineering activity required to advance the design of a product to the manufacturing stage. Cost of marketing research for a new product.

Cost of marketing research for a new product.

Which of the following is considered a research activity? All of these answer choices are correct. Construction of a prototype. Critical investigation aimed at discovery of new knowledge. Operation of a pilot plant.

Critical investigation aimed at discovery of new knowledge.