chapter 12 intermediate
all
The cost of a purchased intangible asset includes Entry field with correct answer legal fees. all of these answer choices are correct. purchase price. incidental expenses.
limited life intangibles
rules the apply to impairments of ppe also apply to
bargain purchase
the purchaser in a business combination pays less than the fair value of the identifiable net assets the excess amount is recorded as a gain by the purchaser
intangible assets
two main characteristics: they lack physical existence they are not financial instruments
long term assets
what are intagible assets classified as
goodwill write off
- goodwill considered to have an indefinite life - should not be amortized - only adjust carrying value when goodwill is impaired
franchise
A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, or to perform certain functions, usually within a designated geographic area.
master valuation approach
A procedure for valuing goodwill. It assumes that goodwill is the difference between the purchase price for a company and the amount that cannot be specifically identified with any identifiable tangible or intangible assets, less liabilities assumed in the purchase.
trademark or trade name
A word, phrase, or symbol that distinguishes or identifies a particular compnay or product. Registration with the U.S. Patent Office provides legal protection for an indefinite number of renewals for periods of 10 years each.
goodwill
Recovery of impairment is recognized under IFRS for all the following except: Entry field with correct answer goodwill. patent held for sale. patent held for use. trademark.
Technology-Related Intangible Assets
Relate to innovations or technological advances. Ex: patented technology and trade secrets granted by the U.S. Patent and Trademark Office.
routine ongoing efforts to improve the qualities of an existing product
Research and development costs do not include: Entry field with correct answer searching for applications of new research findings. routine ongoing efforts to improve the qualities of an existing product. construction of prototypes. critical investigation aimed at discovering new knowledge.
700000
Coral Corporation began operating as a business in 2017. During January 2017, 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 2017, 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, 2017 balance sheet? Entry field with correct answer $550,000 $150,000 $700,000 $400,000
must expense as incurred
any research and development costs related to the development of the product process or idea that it subsequently patents
excess of cost over the fair value of net assets acquired
companies often identify goodwill on the balance sheet as
amortize
companies should _____________ the cost of a patent over its legal life or its useful life, whichever is shorter
on the income statements
companies should present amortization expense and impairment losses for intangible assets other than goodwill separately and as part of continuing operations
franchise (license)
company should amortize the cost of ___________ with a limited life as an operating expense over the life of the ____________
expense all of 2000000
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? Entry field with correct answer Fern can capitalize $700,000 related to introducing its product, but the other costs must be expensed as incurred. Fern can capitalize $1,000,000 in legal fees, 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.
limited life intangible assets
IFRS permits revaluation of Entry field with correct answer all of these answer choices are correct. limited-life intangible assets. indefinite-life intangible assets. goodwill.
false
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. Entry field with correct answer True False
internally created intangibles
generally expensed only capitalize direct costs incurred in developing the intangible such as legal costs and expense the rest
patent
gives the holder exclusive right to use, manufacture, and sell a product of process for a period of 20 years without interference or infringment by others
process patents
govern the process of making products
expense when incurred
how to reacord r and d costs
company name
idenfity qualities and characterisitcs that a compnay work hard and spend much to develop
two difficulties in accounting for R&D costs
identifying the costs associated with particular activites, projects, or achievments determining the magnitute of the futrue benefits and length of time over which such benefits may be ralized
basket purchase
if company buys several intangibles or a conbination of intangibles compnay allocates the cost on the basis of fair values
indirect costs
include a reasonable allocation of indirects costs in R&D costs, except for general and administrative cost, which must be clearly related in order to be included in R&D
initial operating losses
incurred in start up of a buisiness during the early years should not be capitalized accounting and reporting standards should be no different for an enterprise trying to establish a new business than they are for other enterprises
types of goodwill
internally created goodwill purchased goodwill
Artistic-Related Intangible Assets
involve ownership rights to plays, literary works, musical works, pictures, photographs, and video and audiovisual material
lifes of intanbiles
limited (finite) useful life indefinite useful life
to record loss on impairment for patenet
loss on impairment - patents
costs associated with research and development activities
materials equipment and facilities personnel purchased intangibles contract services indirect costs
goodwill
measure as the excess of the cost of the purchase over the fiar value of the indentifiable net assets (assets less liabilities) purchased
fair value test
measures the impairment loss by comparing the asset's fair value with its carrying amount the impairment loss is the carrying amount of the asset less the fair value of the impaired asset the loss is reported as part of income from continuing operations generally appears in the other expenses and losses section
research and development costs
not in themselves intangible assets these activities frequently result in the development of patents or copyrights that may provide future value
contra accounts
not normally shown for intangibles on the balance sheet
false
ntangible assets are normally classified as current assets. Entry field with correct answer True False
impairment test for indefinite life asset
other than good will, use a fair value test dont use recoverability test
record legal fees related to patent
patents -- cash
research activities
planned search or critical investigation aimed at discovery of new knowledge ex. labratory research aimed at discovery of new knowledge, searching for applications of new research findings
goodwill is referred to as
plug gap filler master valuation account
two kinds of patents
product process
purchased intangibles
recorded at cost includes all acquisition costs plus expiditures to make the asset ready for its indented use (purchase price, legal fees, other incidental fees) cost is the fair value of the consideration given or the fair value of the intangible received, whichever is more clearly evident
purchased goodwill
recorded only when an entire business is purchased to record it a compnay compares the fair value of the net tangible an identifiable intangible assets with the purchase price of the acquired busienss the difference is the goodwill it is residual - the exess of cost over the fair value of the identifiable net assets acquired
Contract-Related Intangible Assets
represent the value of rights that arise from contractual arrangements. Examples are franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts.
Customer-related intangible assets
result form interactions with outside parties. ex. customers lists, order or production of backlogs, and both contractual and nocontractual customer relationships.
3050000
Oscar Company acquired a patent on a manufacturing process on January 1, 2015 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, 2016, 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, 2016 balance sheet? Entry field with correct answer $3,050,000 $3,875,000 $5,100,000 $4,250,000
organizational costs
Part of start-up costs, such as the legal and state fees incurred to organize a new business entity. Companies expense these costs as incurred.
product patents
cover actual physical products
record purchase of customer list
customer list xxx - cash xxx
notes to financial statements
should include information about acquired intangible assets including the aggregate amortization expense for each of the succeeding five years if separate accumulated amortization should be disclosed int he notes should include information about changes in the carrying amount of goodwill during the period
personnel
expense as incurred salaries, wages, and other related costs of personnel engaged in R&D
contract services
expense the cost of services performed by others in connection with the R&D as incurred
materials, equpiment, and facilities
expense the entire costs, unless the items have alternative future uses
internally created goodwill
should not be capitalized in the accounts bc the components of measure ____________ is simply too complex and associating any costs with future benefits is too difficult
recoverability test
the company estimates the future cash flows expected from use of the asset and its eventual disposal if the sum of the exprected future net cash flows (undiscounted) is less than the carrying amount of the asset, the company would measure and recognize an impairment loss
development activities
translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use ex. conceptual formulation and design of possible product or process alternatives, construciton of protoytpes and operation of pilot platforms
impairment of goodwill
two step process step 1: compare the fair value of the reporting unit to its carrying amount, including goodwill. if the fair value of teh reporting unit exceeds the carrying amount, good will is not impaired step 2: if the qualitative assessment indicates that the fair value of the reporting unit is more likely than not to be grater than the carrying value the company need not continue with the two step impairment test
licenses or permits
type of franchise granted by a governmental body, permits the business to use public property in performing its services
marketing related intangible assets
used in the marketing or promotion of products or services ex. trademarks or trade names, newspaper mastheads, internet domain names, noncompetition agreements
impairment
when the carrying amount of a long lived asset is not recoverable a company needs to record a write off known as
neither
which of the following costs of goodwill should be amortized over their estimated useful life cost of goodwill from a business combination accounting for as a purchase or costs fo developing goodwill internally
cant
you _________ recognize restoration of the previosuly recognized impairment for limited life intangibles
purchased intangibles
Recognize and measure at fair value
recovery of impairments on intanbiles of than goodwill
All of the following are key similarities between GAAP and IFRS with respect to accounting for intangible assets except: Entry field with correct answer recovery of impairments on intangibles other than goodwill. the accounting for impairments of assets held for disposal. for accounting purposes, costs associated with research and development activities are segregated into the two components. the accounting for intangibles acquired in a business combination.
false
An indefinite-life intangible asset is amortized over the shorter of its useful life or its legal life. Entry field with correct answer True False
2240000
Bend Company's December 31, 2017 balance sheet reports assets of $13,210,000 and liabilities of $4,275,000. The book values of Bend's assets approximate their fair values, except for land, which has a fair value $600,000 greater than its book value. On December 31, 2017, Blue Corporation paid $11,775,000 to acquire Bend. What amount of goodwill should Blue record as a result of this purchase? Entry field with correct answer $0 $2,240,000 $2,840,000 $1,640,000
always expensed under both ifrs and gaap
Costs incurred in the research phase are Entry field with correct answer expensed under GAAP but may be capitalized under IFRS. always capitalized under both IFRS and GAAP. expensed under IFRS but may be capitalized under GAAP. always expensed under both IFRS and GAAP.
computer software costs
Expense everything until technological feasibility, then capitalize costs until product is released for sale should be reported as selling and administrative expenses
start up costs
Incurred for one-time activities required to start a new operation. Companies expense costs as incurred. ex. opening a new plant, introducing a new product or serivce, or conducting businesss in a new territory include organizational costs
types of intangible assets
Marketing Related, Customer Related, Artistic Related, Contract Related, Technology Related, Goodwill.
0
On December 31, 2015, 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, 2017, Appalachian determines that the fair value of the Grandview division is $6,500,000 and the carrying amount of Grandview'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, 2017? Entry field with correct answer $1,330,000. $300,000. $0. $1,630,000.
Costs similar to R&D costs
Start-up costs for a new operation. Initial operating losses. Advertising costs. Computer software costs.
relevance and faithful representation
The current accounting for research & development costs and internally generated intangible assets represents one of the many trade-offs made between Entry field with correct answer relevance and faithful representation. consistency and neutrality. neutrality and relevance. comparability and consistency.
2
The impairment rule for goodwill involves how many steps? Entry field with correct answer 4 1 3 2
all
The presentation of intangible assets in the financial statements Entry field with correct answer involves crediting amortization directly to the intangible asset account. includes the disclosure of the amortization expense for the next 5 years. all of these answer choices are correct. includes reporting Research & Development costs as an expense in the income statement.
process and product
The two principal types of patents are Entry field with correct answer artistic-related patents and customer-related patents. process patents and product patents. marketing-related patents and contract-related patents. limited-life patents and indefinite-life patents.
cost of marketing research for a new product
Which of the following costs should be excluded from research and development expense? Entry field with correct answer 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.
they are long term in nature
Which of the following is a characteristic of intangible assets? Entry field with correct answer They are financial instruments. They are long-term in nature. They are all subject to amortization. They have physical existence.
all
Which of the following is a factor to be considered in determining a limited-life intangible asset's useful life? Entry field with correct answer The effects of obsolescence. Any legal provisions that may limit the useful life. All of these answer choices are correct. The expected useful life of another asset or group of assets to which the useful life of the intangible asset may relate.
noncompetition agreements
Which of the following is an example of a marketing-related intangible asset? Entry field with correct answer Noncompetition agreements. Customer list. Broadcast rights. Goodwill.
copyright
Which of the following is not an example of a contract-related intangible asset? Entry field with correct answer Franchise. Construction permits. Copyright. Broadcast rights.
financing related
Which of the following is not one of the major categories of intangibles? Entry field with correct answer Marketing-related. Financing-related. Artistic-related. Contract-related.
ifrs requires capitalization of devlopment costs once economica viabilitity is met
Which of the following statements is correct? Entry field with correct answer Both IFRS and GAAP permit revaluation of property, plant, and equipment, and intangible assets (except for goodwill). IFRS requires capitalization of development costs once economic viability is met. GAAP permits capitalization of development costs. IFRS requires capitalization of research and development costs once economic viability is met.
trade name
Which of the following would not be amortized? Entry field with correct answer Patent. Copyright. Customer List. Trade name.
patents
a company charges all unrecovered legal fees and other costs incurred in successfully defending a patent suit to ___________
copyright
a federally granted right that all authors, painters, musicians, scuptors, and other artists have in their creations and expressions grantedfor the life of the creator plus 70 years not renewable gives the owner or heirs the exclusive right to reproduce and sell an artistic or published work
amortization
allocation of the cost of intangibles in a systematic way
record amortization of patent
amortization exp -- patent
record amortization expense of customer list
amortization expense customer list
indefinite life intangibles
capitalize if purchased, expense if internally created do not amortize only use the fair value test for impairment
limited life intangibles
capitalized if purchased, expense if internally created amortize over the useful life use the recoverability test and then the fair value test to check for impairment
advertising costs
expense as incurred or the firt time it takes place
