Chapter 12 Orion

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

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

How does an intangible asset add value to a company without having a specific financial value? A : It distinguishes that company from other companies based on a unique product formulation, brand recognition, or a quality service. B : It helps the company face fewer obstacles and resistance from environmental groups and agencies. C : It gives the company easier access to investors and debt instruments compared to companies without intangible assets. D : It provides innovative ideas for new products based on market research and customer feedback.

A : It distinguishes that company from other companies based on a unique product formulation, brand recognition, or a quality service.

Saunders Publishing has been the most recognized name in publishing science fiction novels over the past 50 years. However, recently a new publisher that only publishes books digitally has greatly cut into the company's profit, and the Saunders Publishing brand is declining in recognition. What would you recommend that Saunders do to revalue the intangible asset? A : Run a fair value test only. B : Run a recoverability test and then a fair value test. C : Run a recoverability test only. D : Run a fair value test and then a recoverability test.

A : Run a fair value test only.

Cedarmont Energy is creating its integrated financial and sustainability report. The company wants to include the fact that all of the energy they produce is from solar and wind power sources rather than coal or oil. Why? A : The company's green energy philosophy is an intangible asset that adds value even though it does not have a specific financial value. B : The company's green energy philosophy is a financial instrument that is used to gain support from investors such as environmental groups and agencies. C : The company's green energy philosophy allows it to charge higher prices to customers, thus increasing revenue. D : The company's green energy philosophy is a tangible asset that adds a specific financial value to the company.

A : The company's green energy philosophy is an intangible asset that adds value even though it does not have a specific financial value.

A company has just determined that the future net cash flows expected from a patent are less than the carrying amount of that patent. Given this information, the company should A : proceed to a fair value test. B : assume there is no impairment on the patent. C : write off the full carrying amount of the patent. D : proceed to a recoverability test.

A : proceed to a fair value test.

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 cost. A : I, III, and IV. B : I, II, and III. C : II, III, and IV. D : I, II, and IV.

B : I, II, and III.

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

B : It is not recorded as goodwill is deemed to have an indefinite life.

To record the amortization of a patent, most companies would credit which of the following accounts? A : Accumulated Amortization B : Patents C : An expense account D : Deferred Credit

B : Patents

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.

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

B : limited-life or indefinite-life.

Cortland Beauty Products purchased a license to exclusively provide body soap for use in NFL locker rooms for the next five years. Cortland paid $500,000 for the license. Cortland expects to provide 40% of the product in the first year and then 15% of the product each year after that. What is the cumulative total of the amortization after the third year? A : $275,000 B : $225,000 C : $350,000 D : $150,000

C : $350,000

Hubbard Resources purchased a patent on January 1, 2016 for $750,000. The patent had a remaining useful life of 10 years at that date. In January of 2017, Hubbard successfully defended the patent at a cost of $195,000, extending the patent's life to 12/31/28. What amount of amortization expense would Hubbard record in 2017? A : $78,750 B : $79,090 C : $72,500 D : $66,250

C : $72,500

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 : II, III, and IV. B : I, II, and IV. C : I, III, and IV. D : I, II, and III.

C : I, III, and IV.

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

C : 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 : 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. B : Goodwill has a useful life like all assets and should be charged as an expense at a normal rate. C : To write-off goodwill immediately would lead to the incorrect conclusion that goodwill has no future service potential. D : Because the amortization of goodwill is tax deductible, an immediate write-off serves no useful purpose.

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

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

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

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

C : equipment.

A bargain purchase is said to occur whenever A : the purchaser in a business combination pays less than the fair value of a company's unidentifiable net assets. B : the purchaser in a business combination pays more than the fair value of a company's unidentifiable net assets. C : the purchaser in a business combination pays less than the fair value of a company's identifiable net assets. D : the purchaser in a business combination pays more than the fair value of a company's identifiable net assets.

C : the purchaser in a business combination pays less than the fair value of a company's identifiable net assets.

On January 3, 2006, Hamm Enterprises was granted a patent on a product. On January 8, 2018, 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 8 years. B : expensed in 2016. C : amortized over a maximum period of 20 years. D : amortized over a maximum period of 12 years.

D : amortized over a maximum period of 12 years.

Research and development costs that have no future alternative use A : may be either capitalized or expensed when incurred. B : 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. C : must be capitalized when incurred and then amortized over their estimated useful lives. D : must be expensed in the period incurred unless contractually reimbursable.

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

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

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

A firm paid $2 million to purchase a company whose balance sheet showed total net assets of $1.8 million. Because the purchasing firm recorded $100,000 in goodwill related to the sale, then we can conclude that the book value of the purchased firm's net assets must have been than the fair value.

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