Intermediate 3B
Which of the following is not a characteristic of intangible assets? A) They lack physical existence. B) They are all subject to amortization. C) They are long-term in nature. D) They are not financial instruments.
B) They are all subject to amortization.
What is the steps in calculating Implied Goodwill?
1. CV > FV 2. FV - (CV-GW) = Implied GW 3. GW - Implied GW 4. Impairment is difference
What is not included in R&D?
1. Legal work 2. Routine Improvements 3. Periodic retooling 4. Research related to selling 5. Administrative activities
Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2015. It has a remaining legal life of 18 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, 2017 balance sheet for the patent (if necessary, round your answer to the nearest dollar)? A) $1,593,056. B) $1,583,678. C) $1,485,606. D) $1,850,000.
A) $1,593,056.
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) $112,500 B) $67,500 C) $133,333 D) $80,000
A) $112,500
Which of the following is considered a research activity? A) Critical investigation aimed at discovery of new knowledge. B) All of these answer choices are correct. C) Construction of a prototype. D) Operation of a pilot plant.
A) Critical investigation aimed at discovery of new knowledge.
Which of the following research and development related costs should be capitalized and depreciated over current and future periods? A) Research and development general laboratory building which can be put to alternative uses in the future B) Inventory used for a specific research project C) Administrative salaries allocated to research and development D) Research findings purchased from another company to aid a particular research project currently in process
A) Research and development general laboratory building which can be put to alternative uses in the future
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 excess fair value over purchase price as A) a gain. B) a loss. C) a liability. D) paid-in capital.
A) a gain.
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; the fair value test only C) is not; the fair value test only D) is not; the recoverability test and then the fair value test
A) is; the recoverability test and then the fair value test
Sheridan Corporation purchased a patent for $394500 on September 1, 2016. It had a useful life of 10 years. On January 1, 2018, Sheridan spent $96900 to successfully defend the patent in a lawsuit. Sheridan feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2018? A) $68380. B) $87760. C) $82500. D) $90390
B) $87760.
Truffle Inc. acquired a patent on January 1, 2015 for $7,800,000. It was expected to have a 10 year life and no residual value. Truffle uses straight-line amortization for its patents. On December 31, 2018, the expected future cash flows from the patent are $518,000 per year for the next six years. The present value of these cash flows, discounted at Truffle's market interest rate, is $2,120,000. What amount, if any, of impairment loss will be reported on Truffle's 2018 income statement? A) $2,120,000. B) $2,560,000. C) $1,340,000. D) $4,680,000
B) $2,560,000.
In January, 2013, Wildhorse Corporation purchased a patent for a new consumer product for $951000. At the time of purchase, the patent was valid for 15 years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only 10 years. During 2018 the product was determined to be absolete due to a competitors new product. What amount should Wildhorse charge to expense during 2018, assuming amortization is recorded at the end of each year? A) $634000. B) $475500. C) $63400. D) $95100.
B) $475500.
Cullumber Company acquired a patent on an oil extraction technique on January 1, 2017 for $8100000. It was expected to have a 10 year life and no residual value. Cullumber uses straight-line amortization for patents. On December 31, 2018, the future cash flows expected from the patent were $1080000 per year for the next 8 years. The present value of these cash flows, discounted at Cullumber's market interest rate, is $4500000. At what amount should the patent be carried on the December 31, 2018 balance sheet? A) $8640000. B) $6480000. C) $4500000. D) $8100000.
B) $6480000.
Carla Vista Co. incurred the following costs during 2018: Significant modification to the formulation of a chemical product $155000 Trouble-shooting in connection with breakdowns during commercial production $145000 Cost of exploration of new formulas $195000 Seasonal or other periodic design changes to existing products $180000 Laboratory research aimed at discovery of new technology $350000 In its income statement for the year ended December 31, 2018, Carla Vista should report research and development expense of A) $845000. B) $700000. C) $880000. D) $1025000.
B) $700000.
The reason goodwill is sometimes referred to as a master valuation account is because A) it represents the purchase price of a business that is about to be sold. B) it is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business. C) the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. D) it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value.
B) it is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.
Jacky Inc. purchased Manzanita Marine on June 1, 2015 for $25,000,000 and recorded goodwill of $3,100,000 in connection with the purchase. At December 31, 2018, the Manzanita Marine Division had a fair value of $25,400,000. The net assets of Manzanita (including goodwill) had a fair value of $24,900,000 at that time. What amount of loss on impairment of goodwill should Jacky record in 2018? A) $500,000. B) $2,600,000. C) $0. D) $600,000.
C) $0.
On June 30, 2018, Oriole, Inc. exchanged 5100 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2018 at a cost of $156000. At the exchange date, Seely common stock had a fair value of $39 per share, and the patent had a net carrying value of $301000 on Gore's books. Oriole should record the patent at A) $153000. B) $301000. C) $198900. D) $156000.
C) $198900.
Bryson Corporation purchased a limited-life intangible asset for $1,162,500 on May 1, 2015. 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, 2017 (if necessary, round your answer to the nearest dollar)? A) $129,167 B) $155,000 C) $206,667 D) $66,667
C) $206,667
Wildhorse Company purchases Haeger Company for $2370000 cash on January 1, 2018. The book value of Haeger Company's net assets, as reflected on its December 31, 2017 balance sheet is $1833000. An analysis by Wildhorse on December 31, 2017 indicates that the fair value of Haeger's tangible assets exceeded the book value by $175500, and the fair value of identifiable intangible assets exceeded book value by $132000. How much goodwill should be recognized by Wildhorse Company when recording the purchase of Haeger Company? A) $537000 B) $361500 C) $229500 D) $0
C) $229500
Sandhill Company's 12/31/18 balance sheet reports assets of $6960000 and liabilities of $2760000. All of Sandhill's assets' book values approximate their fair value, except for land, which has a fair value that is $416000 greater than its book value. On 12/31/18, Horace Wimp Corporation paid $7096000 to acquire Sandhill. What amount of goodwill should Horace Wimp record as a result of this purchase? A) $0 B) $136000 C) $2480000 D) $2896000
C) $2480000
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) $4,250,000 C) $3,050,000 D) $5,100,000
C) $3,050,000
Wildhorse Inc. incurred the following costs during the year ended December 31, 2018: Laboratory research aimed at discovery of new knowledge $192000 Costs of testing prototype and design modifications $71000 Quality control during commercial production, including routine testing of products $300000 Construction of research facilities having an estimated useful life of 6 years but no alternative future use $354000 The total amount to be classified and expensed as research and development in 2018 is A) $322000. B) $622000. C) $617000. D) $917000
C) $617000.
Which of the following costs should be excluded from research and development expense? A) Modification of the design of a product B) Acquisition of R & D equipment for use on a current project only C) Cost of marketing research for a new product D) Engineering activity required to advance the design of a product to the manufacturing stage
C) Cost of marketing research for a new product
Which of the following costs should be excluded from research and development expense? A) Modification of the design of a product. B) Acquisition of R & D equipment for use on a current project only. C) Cost of marketing research for a new product. D) Engineering activity required to advance the design of a product to the manufacturing stage.
C) Cost of marketing research for a new product.
Which of the following principles best describes the current method of accounting for research and development costs? A) Associating cause and effect B) Systematic and rational allocation C) Immediate recognition as an expense D) Income tax minimization
C) Immediate recognition as an expense
Which of the following research and development costs may be capitalized? A) Personnel. B) Indirect costs. C) Research and development equipment with alternative future uses in other research & development projects or otherwise. D) Contract services.
C) Research and development equipment with alternative future uses in other research & development projects or otherwise.
The excess cost of the purchase over the fair market value of a company's identifiable net assets is sometimes referred to as A) goodwill. B) a gap filler. C) all of these answer choices are correct. D) a master valuation account.
C) all of these answer choices are correct.
Cullumber Co. incurred research and development costs in 2018 as follows: Materials used in research and development projects $1010000 Equipment acquired that will have alternate future uses in future research and development projects $3600000 Depreciation for 2018 on above equipment $560000 Personnel costs of persons involved in research and development projects $810000 Consulting fees paid to outsiders for research and development projects $360000 Indirect costs reasonably allocable to research and development projects $285000 The amount of research and development costs charged to Cullumber's 2018 income statement should be A) $2380000. B) $2180000. C) $5780000. D) $3025000
D) $3025000
Which of the following is not considered research and development costs? A) Planned search or critical investigation aimed at discovery of new knowledge. B) Translation of research findings or other knowledge into a plan or design for a new product or process. C) Translation of research findings or other knowledge into a significant improvement of an existing product. D) Cost of marketing research to promote a new product.
D) Cost of marketing research to promote a new product.
What Impairment test is used for an indefinite life intangible asset other than GW?
Fair Value Test
What impairment test is used for goodwill?
Fair value test on reporting unit Fair value test on implied good will
What Impairment test is used for a limited life intangible asset?
Recoverability test, then fair value test
