Chapter 12- Intangibles

Lynne Corp acquired a patent on May 1, 2017. Lynne paid cash of $90,000 to the seller. Legal fees of $2,000 were paid related to the acquisition. What amount should be debited to the patent account?

$92,000 Payment of Patent + legal fees

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

False

Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and PP&E.

False

Some intangible assets are not required to be amortized.

False

if the FV of an impaired assets recovers after an impairment has been recognized, the impairment may be reversed in an subsequent period.

False

Which of the following does NOT describe intangible assets?

They are financial instruments Intangible assets: -lack physical existence -not financial instruments -provide long-term benefits -classified as long-term assets

Internally generated goodwill should not be capitalized in the accounts.

True

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

True

if the FV of an unlimited life intangible, other than goodwill, is less than its book value, an impairment loss must be recognized.

True

Goodwill may be recorded when a. it is identified within a company b. one company acquires another in a business combination c. the FV of a company's assets exceeds their costs d. a company has exceptional customer relations

b. One company acquires another in a business combination

Which of the following intangible assets should NOT be amortized? a. Copyrights b. Customer lists c. Perpetual franchises d. All of these are intangible assets and should be amortized

c. Perpetual franchises

Which of the following is NOT reported as a part of continuing operations? a. Amortized expense b. Impairment losses for intangible assets c. RND d. Goodwill

c. RND

The cost of an intangible assets includes all of the following EXCEPT: a. Purchase price b. Legal fees c. Other incidental expenses d. All of the above

d. All of the above

Purchased goodwill should a. be written off ASAP against retained earnings b. be written off ASAP 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

RND costs are recorded as intangible assets if they will provide economic benefits in the future years.

False RND is never an intangible asset

In early January 2016, Wiley corp applied for a trade name, incurring legal costs of $16,000. Wiley intends to amortize the trade name over 10 years. What would be the amount of the amortization expense for 2018?

$1,600 $16,000 x 10%= $1,600 each year

GAAP requires start-up costs and initial operating losses during the early years to be capitalized.

False

Internally generated intangible assets are initially recorded at fair value on a company's balance sheet.

False

The right granted to all authors, painters musicians, sculptors, and other artists for their creations and expressions is termed as a a. Copyright b. Trademark c. Patent d. Franchise

a. Copyright Copyright- Artistic-related intangible assets involve ownership right to plays, literary work, musical works, pictures, photographs, and video and audiovisual material. Trademark- a word, phrase, or symbol that distinguishes or identifies a particular company or product. Patent- gives the holder exclusive right to use, manufacture, and sell a product or process for a period of 20 years without interference of infringement by others. Franchise- contract related intangible asset. It is an arrangement under which the franchiser grants the franchisee the right to sell certain products or services, to use certain trademarks or trade names, or to perform certain functions.

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. Expense 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 -Intangibles have either a *limited useful life* or an *indefinite useful life*. -Limited useful life: amortized over its expected useful life -Unlimited life: not amortized