Chapter 12

Which of the following would be amortized? Goodwill. Trademark. Trade name. Customer List.

Customer List. Customer lists are considered limited life intangibles and subject to amortization.

A company charges legal fees and other costs incurred in successfully defending a trademark to Legal Expense. False True

False Successful defense of a patent is capitalized to the Trademark account because the suit establishes the owner's legal right to the trademark.

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

Financing-related. There is no category of financing-related intangibles.

Which of the following statements is correct concerning intangible assets? Has physical characteristics, are not financial instruments, and are only created internally. Has physical characteristics, is reported on financial reports, and are only created internally. Has no physical characteristics, is reported on financial reports, and can be created internally or externally. Has physical characteristics, are financial instruments, and can be created internally or externally.

Has no physical characteristics, is reported on financial reports, and can be created internally or externally. Intangible assets have no physical characteristics, are reported on financial reports, and can be created internally or purchased.

Which of the following is an example of a limited life intangible asset? Trade name. Patent. Goodwill. Trademark.

Patent. Patents, which have a legal life of 20 years, are considered limited life intangibles.

Marketing-related intangibles would include a franchise. a customer list. a brand name. copyright.

a brand name. Marketing-related intangibles would be a brand name.

All of the following represent federally granted rights except: trademarks. copyrights. goodwill. patents.

goodwill. Goodwill represents the difference between the cost of acquiring another company's net assets and their fair market value.

Halter Inc. purchased Bay View Marine on June 1, 2012 for $12,500,000 and recorded goodwill of $1,550,000 in connection with the purchase. At December 31, 2015, the Bay View Marine Division had a fair value of $12,700,000. The net identifiable assets of Bay View (excluding goodwill) had a fair value of $11,450,000 at that time. What amount of loss on impairment of goodwill should Halter record in 2015? $300,000. $1,250,000. $0. $200,000.

0. The fair value of Bay View is greater than its carrying amount so no impairment has occurred.

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

All of the above are correct. All of the options are characteristics of intangibles.

For indefinite-life intangibles other than goodwill, an impairment test should be conducted at least: annually. monthly. once during its useful life. quarterly.

annually. The impairment test should be performed annually.

St. Sebastian Company and A. Jamison Company were combined in a purchase transaction. St. Sebastian was able to acquire Jamison at a bargain price. The fair market value of Jamison's net assets exceeded the price paid by St. Sebastian to acquire the company. Proper accounting treatment by St. Sebastian is to report the "negative goodwill" as an extraordinary gain. other revenues and gains. a deferred credit and amortized. paid-in capital.

other revenues and gains. Proper accounting treatment by St. Sebastian is to report the amount as other revenues and gains.

All of the following statements regarding IFRS accounting treatments for intangibles are true except under IFRS, costs in the development phase of R & D costs are expensed once technological feasibility is achieved. IFRS permits some capitalization of internally generated intangible assets. under IFRS the costs associated with research and development are segregated into two components. IFRS allows reversal of impairment losses when there has been a change in economic conditions.

under IFRS, costs in the development phase of R & D costs are expensed once technological feasibility is achieved. Under IFRS, costs in the development phase are CAPITALIZED (NOT EXPENSED) once technological feasibility is achieved.

On December 31, 2012, Appalachian Corporation paid $5,550,000 to acquire Grandview Company. Grandview's December 31, 2012 balance sheet reports assets of $6,020,000 and liabilities of $2,100,000. The book values of Grandview's assets approximate their fair values, except for plant assets, which have a fair value $460,000 greater than their book value and a bond payable with a market value $20,000 greater than its book value. What amount of goodwill should Appalachian record? $1,190,000. $1,630,000. $1,170,000. $470,000.

$1,190,000. The fair value of the net assets is $4,360,000 ($6,020,000 + $460,000 - $2,100,000 -$20,000). Goodwill is $1,190,000 ($5,550,000 - $4,360,000).

Dyer Corporation acquired a patent on October 31, 2012. The patent had an appraised value of $1,225,000. Dyer paid cash of $1,205,000 to the seller to acquire the patent as well as legal fees of $3,500 related to the acquisition. What amount should be capitalized for the patent? $3,500 $1,228,500 $1,205,000 $1,208,500

$1,208,500 The cost of acquisition, $3,500, should be added to the cost of the asset itself, $1,205,000 for total capitalized cost of $1,208,500.

Belvedere Inc. acquired a patent on January 1, 2009 for $3,900,000. It was expected to have a 10 year life and no residual value. Belvedere uses straight-line amortization for its patents. On December 31, 2012, the expected future cash flows from the patent are $259,000 per year for the next six years. The present value of these cash flows, discounted at Belvedere's market interest rate, is $1,060,000. What amount, if any, of impairment loss will be reported on Belvedere's 2012 income statement? $2,340,000. $670,000. $1,060,000. $1,280,000.

$1,280,000. Correct! Amortization charged to date is $3,900,000/ 10 years X 4 years = $1,560,000 so the carrying value of the patent at December 31, 2012 is $2,340,000 ($3,900,000- $1,560,000). The impairment loss is the difference between the carrying value and the discounted expected future net cash flows: $2,340,000 - $1,060,000 = $1,280,000. COST 3,900,000/10 YEARS X 4 YEARS = 1,560,000 CARRYING VALUE @ 12-31-2012: 3,900,000 - 1,560,000 = 2,340,000 IMPAIRMENT LOSS = CARRYING VALUE - PRESENT VALUE OF NET CASH FLOWS (DISCOUNTED): 2,340,000 - 1,060,000 = 1,280,000

Berber Corporation acquired EOW Products on January 1, 2012 for $22,000,000, and recorded goodwill of $3,750,000 as a result of that purchase. At December 31, 2014, the EOW Products Division had a fair value of $19,700,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $17,450,000 at that time. What amount of loss on impairment of goodwill should Berber record in 2014? $ -0- $1,500,000 $2,250,000 $2,300,000

$1,500,000 The fair value of the Division ($19,700,000) is less than the carrying value of its net assets ($22,000,000), therefore the test for goodwill impairment is necessary. Implied goodwill is ($19,700,000 - $17,450,000) $2,250,000. The loss on impairment is ($3,750,000 - $2,250,000) $1,500,000.

Martin Inc. incurred the following costs during the year ended December 31, 2012: Laboratory research aimed at discovery of new knowledge $ 9,850,000 Costs of testing prototype and design modifications 1,425,000 Quality control during commercial production, including routine testing of products 970,000 Purchase of research facilities having an estimated useful life of 20 years but no alternative future use 14,720,000 The total amount to be classified and expensed as research and development in 2012 is $12,011,000. $12,981,000. $25,995,000. $26,965,000.

$12,011,000. $9,850,000 plus $1,425,000 plus $736,000 (14,720,000/20) totals $12,011,000.

Tangipahoa Corporation acquired a patent on January 1, 2012. Tangipahoa paid cash of $21,225,000 to the seller to acquire the patent. The remaining legal life of the patent is 15 years. Tangipahoa expects that the patent will be obsolete in 10 years. What amount of amortization expense will Tangipahoa record for 2012? $707,500 $1,061,250 $1,415,000 $2,122,500

$2,122,500 Patents should be amortized over the shorter of their legal life or useful life: $21,225,000/ 10 years = $2,122,500 annual amortization expense.

On July 2, 2012, Shelby Company bought a trademark from Randolph, Inc. for $5,500,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce's books was $3,200,000. In Shelby's 2012 income statement, what amount should be reported as amortization expense? $550,000. $320,000. $160,000. $275,000.

$275,000. Straight-line amortization, $5,500,000 / 10 years X 6/12 results in an amortization expense of $275,000.

Vermont Company's December 31, 2012 balance sheet reports assets of $26,420,000 and liabilities of $8,550,000. The book values of Vermont's assets approximate their fair values, except for land, which has a fair value $1,200,000 greater than its book value. On December 31, 2012, Goodrich Corporation paid $23,550,000 to acquire Vermont. What amount of goodwill should Goodrich record as a result of this purchase? $4,480,000 $5,680,000 $ -0- $3,280,000

$4,480,000 The fair value of the assets is $27,620,000, less the liabilities of $8,550,000 results in a net value of $19,070,000. Goodwill is ($23,550,000 - $19,070,000) $4,480,000.

Bryson Corporation purchased a limited-life intangible asset for $2,325,000 on May 1, 2010. It has a remaining useful life of 15 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2012? $310,000 $413,333 $133,333 $258,333

$413,333 $2,325,000 / 180 months multiplied by 32 months is $413,333.

Fletcher Company capitalized costs of $2,000,000 incurred in the development of computer software after technological feasibility was established in early 2012. The product will earn future revenues of $8,000,000 over its 5-year life, as follows: 2012 - $2,000,000; 2013 - $2,000,000; 2014 - $1,600,000; 2015 - $1,600,000; and 2016 - $800,000. What portion of the $2,000,000 computer software costs should be expensed in 2013? $500,000. $2,000,000. $400,000. $0.

$500,000.

Madhoff Company acquired a patent on a manufacturing process on January 1, 2010 for $10,200,000. It was expected to have a 12 year life and no residual value. Madhoff uses straight-line amortization for patents. On December 31, 2011, the expected future cash flows from the patent are $755,000 per year for the next ten years. The present value of these cash flows, discounted at Madhoff's market interest rate, is $6,100,000. At what amount should the patent be carried on the December 31, 2011 balance sheet? $7,550,000 $8,500,000 $6,100,000 $10,200,000

$6,100,000 The patent should be carried on the balance sheet at the present value of the $755,000 expected annual cash flows for the next 10 years, $6,100,000.

Tiburon Corporation purchased a patent for $925,000 on November 30, 2010. It has a remaining legal life of 11 years. Tiburon estimates that the remaining useful life of the patent is useful life of 15 years. What balance will be reported on the December 31, 2012 balance sheet for the patent? $791,389 $742,803 $925,000 $749,811

$749,811 Total amortization expense charged between November 30, 2010 and December 31, 2012: $925,000/ 132 months X 25 months = $175, 189. The balance in the Patent account would be: $925,000-$175,189 = $749,811.

Which of the following is not a characteristic of intangible assets? They are all subject to amortization. They lack physical existence. They are long-term in nature. They are not financial instruments.

They are all subject to amortization. All of the options are characteristics except not all intangibles are subject to amortization.

The impairment rule for goodwill involves how many steps? 1 3 2 4

2 1.) compare the fair value of the company to its carrying value including goodwill 2.) compare the fair value of the goodwill to its carrying value.

Which of the following is not a factor to be considered in determining a limited-life intangible asset's useful life? All of the above are correct. Any legal provisions that may limit the useful life. The expected useful life of any related asset. The effects of obsolescence.

All of the above are correct. All of the options are factors affecting useful life.

All of the following are similar to R & D costs except: initial operating losses. advertising costs. All of the options are similar. start-up costs.

All of the options are similar. All of the options are similar in some respect to R & D costs.

Unrecovered legal fees and other costs incurred in successfully defending a copyright are debited to: a loss account. Copyright. Legal Expense. Accumulated Amortization - Copyright.

Copyright. Such costs are considered a part of a copyright's cost and debited to the Copyright.

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

Cost of marketing research for a new product The cost of marketing research for a new product should be excluded from research and development expenses.

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

Customer-related. Production backlogs are an example of customer-related intangible assets.

Which of the following is not an example of a limited-life intangible asset? Goodwill. Copyright. Franchise. Patent.

Goodwill. Goodwill is an unlimited-life intangible asset.

Which intangible asset should be disclosed separately on the balance sheet? Patents. Copyrights. Customer lists. Goodwill.

Goodwill. Goodwill should be disclosed separately on the balance sheet.

Which of the following principles best describes the current method of accounting for research and development costs? Associating cause and effect Systematic and rational allocation Immediate recognition as an expense Income tax minimization

Immediate recognition as an expense Research and development costs should be immediately recognized as an expense.

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

Research and development equipment to be used on current and future projects. R & D equipment to be used on current and future projects is to be capitalized and depreciated over its useful life.

Which of the following is not a characteristic of intangible assets? They are long-term in nature They are not financial instruments. They are all subject to amortization. They lack physical existence.

They are all subject to amortization. Not all intangibles are subject to amortization.

How should research and development costs be accounted for according to GAAP? May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable. Must be expensed in the period incurred. Must be capitalized when incurred and then amortized over their estimated useful lives.

Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable. Research and development costs must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.

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

NO NO Neither goodwill purchased or developed internally is amortized.

All of the following are key similarities between GAAP and IFRS with respect to accounting for intangible assets except: 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.

Recovery of impairments on intangibles other than goodwill.

Which of the following costs would not be included in the cost of a patent? Filing fees. Legal fees to file for patent protection. Research and development costs related to product development. Purchase price.

Research and development costs related to product development. R & D costs are expensed as incurred.

All of the following expenditures should be expensed as R & D except: acquisition of R & D equipment for use on current project only. salaries of research staff designing a new product. engineering costs incurred to advance a new product to full production stage. costs of marketing research to promote a new product.

costs of marketing research to promote a new product. All of the options should be expensed as R & D except marketing research costs which are a selling expense.

Costs incurred internally to create intangibles are capitalized if they have an indefinite life. expensed as incurred. expensed only if they have a limited life. capitalized.

expensed as incurred. Costs incurred internally to create intangibles are expensed as incurred.

Goodwill is the excess of cost over: book value of the tangible net assets acquired. fair value of the tangible net assets acquired. book value of the identifiable net assets acquired. fair value of the identifiable net assets acquired.

fair value of the identifiable net assets acquired. Goodwill is the difference between the purchase price and the fair value of the net tangible and identifiable intangible assets.

All intangible assets have limited legal lives except patents. copyrights. franchises. goodwill.

goodwill. Goodwill does not have a limited legal life.

The difference between the price paid to acquire another company and the fair market value of that company's net assets is called goodwill. net worth. net realizable value. windfall.

goodwill. Goodwill is the difference between the purchase price and the fair market value of the company's net assets.

Research and development costs: are intangible assets. usually are small in dollar amount. include periodic alternatives to existing products. should be charged to expense when incurred.

should be charged to expense when incurred. Research and development costs must be expensed as incurred.

The presentation of intangible assets in the financial statements should include disclosure of the amortization expense for the next 5 years. includes R & D costs. is the same as the presentation of property, plant, and equipment. involves the use of a contra-asset account.

should include disclosure of the amortization expense for the next 5 years. The financial statements should disclose the amortization expense for intangible assets for the next 5 years.

Factors considered in determining an intangible asset's useful life include all of the following except the amortization method used. the expected use of the asset. any legal or contractual provisions that may limit the useful life. any provisions for renewal or extension of the asset's legal life.

the amortization method used. The amortization method used has nothing to do with an intangible asset's useful life.