CH 12 IA1

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

$0.

The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge$800,000Search for application of new research findings400,000Salaries of research staff designing new laser bone scanner1,200,000Material, labor and overhead costs of prototype laser scanner850,000Costs of testing prototype and design modifications450,000Engineering costs incurred to advance the laser scanner to full production stage(technological feasibility reached)700,000 Identify which of these are research phase items and will be immediately expensed under U.S. GAAP and IFRS. U.S. GAAPIFRS $4,400,000 $3,700,000 $1,200,000 $1,200,000 $4,400,000 $4,400,000 $2,400,000 $1,400,000

$1,200,000 $1,200,000

The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge$800,000Search for application of new research findings400,000Salaries of research staff designing new laser bone scanner1,200,000Material, labor and overhead costs of prototype laser scanner850,000Costs of testing prototype and design modifications450,000Engineering costs incurred to advance the laser scanner to full production stage(technological feasibility reached)700,000 Identify which of these are development phase items and will be immediately expensed under U.S. GAAP and IFRS. U.S. GAAPIFRS $3,400,000$3,400,000 $2,400,000$1,400,000 $2,400,000$3,400,000 $1,200,000$1,200,000

$3,400,000$3,400,000

Lumberyard Inc. incurred the following costs during the year ended December 31, 2014: Laboratory research aimed at discovery of new knowledge$ 4,925,000Costs of testing prototype and design modifications712,500Quality control during commercial production, including routine testing of products485,000On January 1, 2014, purchase of research facilities having an estimated useful life of 20 years with alternative future use in other research & development projects7,360,000 Lumberyard Inc. uses the straight-line method of depreciation.The total amount to be classified and expensed as research and development in 2014 is $6,005,500. $6,490,500. $12,997,500. $13,482,500.

$6,005,500.

Research and development costs are: (a) expensed under GAAP. (b) expensed under IFRS. (c) expensed under both GAAP and IFRS. (d) None of the above.

(a) expensed under GAAP.

A loss on impairment of an intangible asset under IFRS is the asset's: (a) carrying amount less the expected future net cash flows. (b) carrying amount less its recoverable amount. (c) recoverable amount less the expected future net cash flows. (d) book value less its fair value.

(b) carrying amount less its recoverable amount

All of the following are key similarities between GAAP and IFRS with respect to accounting for intangible assets except: (a) for accounting purposes, costs associated with research and development activities are segregated into the two components. (b) the accounting for intangibles acquired in a business combination. (c) recovery of impairments on intangibles other than goodwill. (d) the accounting for impairments of assets held for disposal.

(c) recovery of impairments on intangibles other than goodwill.

Which of the following statements is correct? (a) Both IFRS and GAAP permit revaluation of property, plant, and equipment, and intangible assets (except for goodwill). (b) GAAP permits capitalization of development costs. (c) IFRS requires capitalization of research and development costs once economic viability is met. (d) IFRS requires capitalization of development costs once economic viability is met.

(d) IFRS requires capitalization of development costs once economic viability is met.

Recovery of impairment is recognized for all the following except: (a) patent held for sale. (b) patent held for use. (c) trademark. (d) goodwill.

(d) goodwill.

Which of the following costs are similar to R & D costs? All of these answer choices are correct. Computer software costs. Start-up costs for a new operation. Advertising costs.

All of these answer choices are correct.

The primary IFRS related to intangible assets and impairments is found in IAS 38 and IAS 10. IAS 16 and IAS 36. IAS 1 and IAS 34. IAS 38 and IAS 36.

IAS 38 and IAS 36.

Which of the following is not a characteristic of intangible assets? They are not financial instruments. They lack physical existence. All answer choices are characteristics of intangible assets. They are classified as long-term assets.

All answer choices are characteristics of intangible assets.

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

All of these answer choices are correct.

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

Cost of marketing research for a new product.

The cost of a purchased intangible asset includes incidental expenses. all of these answer choices are correct. legal fees. purchase price.

all of these answer choices are correct.

A purchased indefinite-life intangible asset is not amortized and is impairment tested annually using the recoverability test followed by the fair value test. True False

False

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

Fern must expense all $2,000,000 start-up costs as incurred.

Which of the following is an example of a marketing-related intangible asset? Customer list. Broadcast rights. Goodwill. Noncompetition agreements.

Noncompetition agreements.

Which of the following costs incurred by Berber Corporation are considered R&D costs? Routine ongoing efforts to refine an existing product. Operation of pilot plants. All of these answer choices are correct. Periodic alterations to existing products.

Operation of pilot plants.

Which of the following research and development costs may be capitalized? Contract services. Personnel. Indirect costs. Research and development equipment to be used on current and future projects.

Research and development equipment to be used on current and future projects.

Which of the following methods of amortization is normally used for intangible assets? Double-declining-balance Units of production Sum-of-the-years'-digits Straight-line

Straight-line

When the purchaser in a business combination pays less than the fair value of the identifiable net assets, ________ is recorded by the purchaser. R&D expense. goodwill. a liability. a gain.

a gain.

In accounting for internally generated intangible assets, U.S. GAAP requires that only material costs be capitalized. all costs be expensed. all costs, no matter how immaterial, be capitalized. planned costs be capitalized, while costs in excess of plan be expensed.

all costs be expensed.

Costs incurred in the research phase are expensed under IFRS but may be capitalized under GAAP. always capitalized under both IFRS and GAAP. expensed under GAAP but may be capitalized under IFRS. always expensed under both IFRS and GAAP.

always expensed under both IFRS and GAAP.

IFRS and U.S. GAAP are similar in the accounting for impairments of assets held for disposal. are moving further apart in their accounting for impairments of assets held for disposal. are diametrically opposed in their accounting for impairments of assets held for disposal. are moving toward common ground in their accounting for impairments of assets held for disposal.

are similar in the accounting for impairments of assets held for disposal.

Under U.S. GAAP, impairment losses can be reversed but only if the reversal is greater than the amount of the original impairment. can be reversed but only if the reversal falls in a subsequent fiscal year of the company's operations. cannot be reversed for assets to be held and used. none of these answer choices are correct.

cannot be reversed for assets to be held and used.

Under IFRS, costs in the development phase are capitalized if they exceed development phase costs incurred for previously successful ventures. capitalized on an interim basis, but then expensed prior to the end of the company's fiscal year. capitalized once technological feasibility is achieved. never capitalized, but expensed as they are under U.S. GAAP.

capitalized once technological feasibility is achieved.

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

is; the recoverability test and then the fair value test.

IFRS allows reversal of impairment losses when the reversal falls in a subsequent fiscal year of the company's operations. there has been a change in economic conditions or in the expected use of the asset. reversal of impairment losses is never allowed. the reversal is greater than the amount of the original impairment.

there has been a change in economic conditions or in the expected use of the asset.

As in U.S. GAAP, under IFRS the costs associated with research and development are segregated into two components, the research phase and the production phase. two components, the research phase and the development phase. three components, the planning phase, the research phase and the production phase. three components, the analysis phase, the development phase and the production phase.

two components, the research phase and the development phase.