ACG3131 Ch 12

Which of the following costs of goodwill should be amortized over their estimated useful lives? Costs of goodwill from a business combination accounted for as a purchase: Costs of developing goodwill internally 1. NO: NO 2. NO: YES 3. YES: YES 4. YES: NO

1

A company reported $6 million of goodwill in last year's statement of financial position. How should the company account for the reported goodwill in the current year? A. Perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. B. Determine whether the fair value of the reporting unit is greater than the carrying amount and report a gain on goodwill in the income statement. C. Determine whether the fair value of the reporting unit is greater than the carrying amount and report the recovery of any previous impairment in the income statement. D. Determine the current year's amortizable amount and report the current-year's amortization expense.

A

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

A

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

A

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

A

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

A

Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs? A. Litigation costs would be expensed regardless of the outcome of the litigation. B. Litigation costs would be capitalized if the patent right is successfully defended. C. Litigation costs would be capitalized regardless of the outcome of the litigation. D. Litigation costs would be capitalized only if the patent was purchased rather than internally developed.

B

On July 1, 2017, 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 2017 income statement, what amount should be reported as amortization expense? A. $80,000. B. $137,500. C. $160,000. D. $275,000.

B

After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct? A. It is required when the reversal is considered permanent. B. It must be disclosed in the notes to the financial statements. C. It is prohibited. D. It is encouraged, but not required.

C

Goodwill should be tested for value impairment at which of the following levels? A. Each identifiable long-term asset B. The entire business as a whole C. Each reporting unit D. Each acquisition unit

C

In 2017, Ball Labs incurred the following costs: Direct costs of doing contract research and development work for the government to be reimbursed by governmental unit $400,000 Research and development costs not included above were: Depreciation $300,000 Salaries 700,000 Indirect costs appropriately allocated 200,000 Materials 180,000 What was Ball's total research and development expense in 2017? A. $1,080,000 B. $1,580,000 C. $1,380,000 D. $1,780,000

C

Johan Co. has an intangible asset, which it estimates will have a useful life of 10 years, while Abco Co. has goodwill, which has an indefinite life. Which company should report amortization in its financial statements? Johan Abco A. No No B. Yes Yes C. Yes No D. No Yes

C

Lumberyard Inc. incurred the following costs during the year ended December 31, 2017: Laboratory research aimed at discovery of new knowledge $ 4,295,000 Costs of testing prototype and design modifications 712,500 Quality control during commercial production, including routine testing of products 485,000 On December 31, 2017, purchase of research facilities having an estimated useful life of 20 years with alternative future use in other research & development projects 7,360,000 The total amount to be classified and expensed as research and development in 2017 is A. $5,492,500. B. $12,367,500. C. $5,007,500. D. $4,780,000.

C

On January 1, 2017, 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, 2017, how much amortization expense should it report? A. $133,333 B. $80,000 C. $112,500 D. $67,500

C

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? A. $3,875,000 B. $5,100,000 C. $3,050,000 D. $4,250,000

C

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

C

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

C

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

D

Alta Co. spent $400,000 during the current year developing a new idea for a product that was patented during the year. The legal cost of applying for a patent license was $40,000. Also, $50,000 was spent to successfully defend the rights of the patent against a competitor. The patent has a life of 20 years. Under U.S. GAAP, what amount should Alta capitalize related to the patent? A. $490,000 B. $40,000 C. $50,000 D. $90,000

D

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

D

During 2005, Kent Co. incurred $204,000 of research and development costs in its laboratory to develop a patent that was granted on July 1, 2005. Legal fees and other costs associated with registration of the patent totaled $41,000. The estimated economic life of the patent is 10 years. What amount should Kent capitalize for the patent on July 1, 2005? A. $0 B. $245,000 C. $204,000 D. $41,000

D

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

D

Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year? A. $40,000 B. $15,000 C. $120,000 D. $0

D

The impairment rule for goodwill involves how many steps? A. 4 B. 1 C. 3 D. 2

D

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

D

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

D

Wizard Co. purchased two machines for $250,000 each on January 2, 2017. The machines were put into use immediately. Machine A has a useful life of 5 years and can only be used in one research project. Machine B will be used for 2 years on a research and development project and then used by the production division for an additional 8 years. Wizard uses the straight-line method of depreciation. What amount should Wizard include in 2017 research and development expense? A. $500,000 B. $375,000 C. $75,000 D. $275,000

D

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. T or F

F

Impairment testing is performed in the same way for indefinite-life intangibles and limited-life intangibles. T or F

F

Intangible assets are normally classified as current assets. T or F

F

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. T or F

T