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CHAPTER 12 INTANGIBLE ASSETS, Exams of Financial Accounting

K D StudioFinancial Accounting

Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some "negative goodwill." Proper accounting treatment by Easton is to report the amount as

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CHAPTER 12
INTANGIBLE ASSETS
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
Answer No. Description
F 1. Characteristics of intangible assets.
F 2. Internally created intangibles.
F 3. Recording internally generated intangibles.
F 4. Amortization of limited-life intangible assets.
T 5. Amortization of intangible assets.
T 6. Amortizing limited-life intangibles.
T 7. Accounting for a customer list.
F 8. Amortization of patents.
T 9. Modification of an existing patent.
T 10. Basic concept of goodwill.
T 11. Internally generated goodwill.
F 12. Recording internally generated goodwill.
T 13. Impairment of intangibles.
T 14. Recognition of impairment loss.
F 15. Recovery of impairment loss.
F 16. Impairment of intangibles.
F 17. Example of research and development costs.
F 18. Capitalizing research and development costs.
F 19. Recording research and development costs.
F 20. Reporting intangible assets.
MULTIPLE CHOICE—Conceptual
Answer No. Description
b 21 Characteristics of intangible assets.
c 22 Characteristics of intangible assets.
a 23 Characteristics of intangible assets.
c 24. Accounting for internally-created intangibles.
a 25. Research and development costs.
b 26. Amortization methods for intangible assets.
d 27. Cost of intangible asset.
d 28. Factors in determining useful life.
bS29. Classifying intangible assets.
c 30. Impairment of intangibles.
a 31. Determining intangible asset useful life.
b 32. Amortization of intangibles.
d 33. Patent amortization.
c 34. Patent amortization.
d 35. Legal fees associated with patent infringement.
b 36. Identification of intangible assets.
c 37. Amortization of intangible assets.
a 38. Entry to record patent amortization.
cS39. Trademark costs capitalized.
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Download CHAPTER 12 INTANGIBLE ASSETS and more Exams Financial Accounting in PDF only on Docsity!

CHAPTER 12

INTANGIBLE ASSETS

IFRS questions are available at the end of this chapter.

TRUE-FALSE—Conceptual

Answer No. Description

F 1. Characteristics of intangible assets. F 2. Internally created intangibles. F 3. Recording internally generated intangibles. F 4. Amortization of limited-life intangible assets. T 5. Amortization of intangible assets. T 6. Amortizing limited-life intangibles. T 7. Accounting for a customer list. F 8. Amortization of patents. T 9. Modification of an existing patent. T 10. Basic concept of goodwill. T 11. Internally generated goodwill. F 12. Recording internally generated goodwill. T 13. Impairment of intangibles. T 14. Recognition of impairment loss. F 15. Recovery of impairment loss. F 16. Impairment of intangibles. F 17. Example of research and development costs. F 18. Capitalizing research and development costs. F 19. Recording research and development costs. F 20. Reporting intangible assets.

MULTIPLE CHOICE—Conceptual

Answer No. Description

b 21 Characteristics of intangible assets. c 22 Characteristics of intangible assets. a 23 Characteristics of intangible assets. c 24. Accounting for internally-created intangibles. a 25. Research and development costs. b 26. Amortization methods for intangible assets. d 27. Cost of intangible asset. d 28. Factors in determining useful life. b S 29. Classifying intangible assets. c 30. Impairment of intangibles. a 31. Determining intangible asset useful life. b 32. Amortization of intangibles. d 33. Patent amortization. c 34. Patent amortization. d 35. Legal fees associated with patent infringement. b 36. Identification of intangible assets. c 37. Amortization of intangible assets. a 38. Entry to record patent amortization. c S 39. Trademark costs capitalized.

Test Bank for Intermediate Accounting, Thirteenth Edition MULTIPLE CHOICE—Conceptual (cont.)

Answer No. Description

c 40. Composition of goodwill. b 41. When to record goodwill. d 42. Intangibles during acquisition of company. c 43. Seperability of goodwill. b S 44. Goodwill as master valuation account. a 45. Reporting of "negative goodwill." d 46. Accounting for goodwill. a 47. Recording goodwill. b 48. Impairment of intangible asset. d 49. Recoverability test. c S 50. Impairment test for indefinite-life intangibles. b P 51. Accounting for organization costs. a 52. Capitalization of certain R & D costs. d 53. Accounting principle for R & D expenditures. d 54. Accounting for R & D costs. d 55. Classification of R & D expense. d 56. Costs to defend a patent. b 57. Purpose of R & D costs. d 58. Classification of R & D costs. d 59. Classification of R & D costs. c 60. Costs excluded from R & D expense. b 61. Depreciation of laboratory building used in R & D. a 62. Operating losses during start-up period. d P 63. Accounting for organization costs. a S 64. Classification of R & D expense. a 65. Reporting goodwill. b 66. Intangible asset disclosure. d 67. Expense classification. c P 68. Reporting patent amortization. c 69. Reporting intangibles. d 70. Reporting expenses and losses. d 71. Reporting expenses and losses. b 72. Cost of computer software. d 73. Cost of computer software. c 74. Amortization of computer software costs. d 75. Amortization of computer software costs. P (^) These questions also appear in the Problem-Solving Survival Guide. S (^) These questions also appear in the Study Guide.

  • This topic is dealt with in an Appendix to the chapter.

Test Bank for Intermediate Accounting, Thirteenth Edition EXERCISES

Item Description

E12-121 Essay – characteristics of intangible assets. E12-122 Essay – cost of intangibles. E12-123 Essay – types of intangibles. E12-124 Essay – definition of and accounting for intangibles. E12-125 Essay – stock issued for intangible. E12-126 Essay – costs associated with patents. E12-127 Intangible assets multiple choice. E12-128 Essay – intangible asset amortization. E12-129 Essay – useful life of intangibles. E12-130 Entries for amortization and impairment. E12-131 Essay - Intangible assets theory. E12-132 Identify intangibles. E12-133 Essay – Goodwill and negative goodwill. E12-134 Carrying value of patent. E12-135 Accounting for patent. E12-136 Essay – goodwill. E12-137 Essay – impairment. E12-138 Goodwill impairment. E12-139 Impairment of copyrights. E12-140 Essay – R & D costs. E12-141 Essay – start-up costs. E12-142 Acquisition of tangible and intangible assets. E12-143 Computer software amortization. PROBLEMS

Item Description

P12-144 Intangible assets. P12-145 Goodwill, impairment. CHAPTER LEARNING OBJECTIVES

  1. Describe the characteristics of intangible assets.
  2. Identify the costs to include in the initial valuation of intangible assets.
  3. Explain the procedure for amortizing intangible assets.
  4. Describe the types of intangible assets.
  5. Explain the conceptual issues related to goodwill.
  6. Describe the accounting procedures for recording goodwill.
  7. Explain the accounting issues related to intangible-asset impairments.
  8. Identify the conceptual issues related to research and development costs.
  9. Describe the accounting procedures for research and development costs and for other similar costs.
  10. Indicate the presentation of intangible assets and related items. *11. Understand the accounting for computer software costs.

Intangible Assets SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item Type Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 1

  1. TF 21. MC 22. MC 23. MC 121. E 123. E Learning Objective 2
  2. TF 24. MC 76. MC 78. MC 122. E 126. E
  3. TF 25. MC 77. MC 79. MC 125. E Learning Objective 3
  4. TF 26. MC s29. MC 80. MC 128. E 131. E
  5. TF 27. MC 30. MC 81. MC 129. E
  6. TF 28. MC 32. MC 82. MC 130. E Learning Objective 4
  7. TF 35. MC 83. MC 88. MC 114. MC 132. E 144. P
  8. TF 36. MC 84. MC 89. MC 115. MC 133. E
  9. TF 37. MC 85. MC 111. MC 116. MC 134. E
  10. MC 38. MC 86. MC 112. MC 117. MC 135. E
  11. MC 39. MC 87. MC 113. MC 127. E 139. E Learning Objective 5
  12. TF 41. MC 43. MC 124. E
  13. MC 42. MC 118. MC 145. P Learning Objective 6
  14. TF s44. MC 46. MC 90. MC 92. MC 94. MC 142. E
  15. TF 45. MC 47. MC 91. MC 93. MC 136. E Learning Objective 7
  16. TF 15. TF 48. MC s50. MC 96. MC 98. MC 137. E
  17. TF 16. TF 49. MC 95. MC 97. MC 99. MC 138. E Learning Objective 8

TF

TF

p51.

MC

MC

MC

MC

MC

MC

MC

MC

145. P

Learning Objective 9

  1. TF 61. MC s64. MC 102. MC 119. MC 141. E
  2. MC 62. MC 100. MC 103. MC 120. MC 144. P
  3. MC p63. MC 101. MC 104. MC 140. E Learning Objective 10
  4. TF 65. MC 67. MC 69. MC 71. MC
  5. MC 66. MC p68. MC 70. MC 105. MC **Learning Objective ***
  6. MC 74. MC * 106 .

MC * 108

MC *110. MC

73. MC 75. MC *107. MC * 109

MC 143. E

Note: TF = True-False E = Exercise

Intangible Assets TRUE-FALSE—Conceptual

  1. Intangible assets derive their value from the right (claim) to receive cash in the future.
  2. Internally created intangibles are recorded at cost.
  3. Internally generated intangible assets are initially recorded at fair value.
  4. Amortization of limited-life intangible assets should not be impacted by expected residual values.
  5. Some intangible assets are not required to be amortized every year.
  6. Limited-life intangibles are amortized by systematic charges to expense over their useful life.
  7. The cost of acquiring a customer list from another company is recorded as an intangible asset.
  8. The cost of purchased patents should be amortized over the remaining legal life of the patent.
  9. If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent.
  10. In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible assets, with the remainder recorded as goodwill.
  11. Internally generated goodwill should not be capitalized in the accounts.
  12. Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.
  13. All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

Test Bank for Intermediate Accounting, Thirteenth Edition

  1. If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.
  2. If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.
  3. The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.
  4. Periodic alterations to existing products are an example of research and development costs.
  5. Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.
  6. Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years.
  7. Contra accounts must be reported for intangible assets in a manner similar to accumu- lated depreciation and property, plant, and equipment.

True False Answers—Conceptual

Item Ans. Item Ans. Item Ans. Item Ans.

  1. F 6. T 11. T 16. F
  2. F 7. T 12. F 17. F
  3. F 8. F 13. T 18. F
  4. F 9. T 14. T 19. F
  5. T 10. T 15. F 20. F MULTIPLE CHOICE—Conceptual
  6. Which of the following does not describe intangible assets? a. They lack physical existence. b. They are financial instruments. c. They provide long-term benefits. d. They are classified as long-term assets.
  7. Which of the following characteristics do intangible assets possess? a. Physical existence. b. Claim to a specific amount of cash in the future. c. Long-lived. d. Held for resale.

Test Bank for Intermediate Accounting, Thirteenth Edition

  1. Companies should test indefinite life intangible assets at least annually for: a. recoverability. b. amortization. c. impairment. d. estimated useful life. S 31. One factor that is not considered in determining the useful life of an intangible asset is a. salvage value. b. provisions for renewal or extension. c. legal life. d. expected actions of competitors.

  2. Which intangible assets are amortized? Limited-Life Indefinite-Life a. Yes Yes b. Yes No c. No Yes d. No No

  3. The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be a. charged off in the current period. b. amortized over the legal life of the purchased patent. c. added to factory overhead and allocated to production of the purchaser's product. d. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

  4. Broadway Corporation was granted a patent on a product on January 1, 1998. To protect its patent, the corporation purchased on January 1, 2009 a patent on a competing product which was originally issued on January 10, 2005. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be a. amortized over a maximum period of 20 years. b. amortized over a maximum period of 16 years. c. amortized over a maximum period of 9 years. d. expensed in 2009.

  5. Wriglee, Inc. went to court this year and successfully defended its patent from infringe- ment 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. expenses of the period. d. patents and amortized over the remaining useful life of the patent.

Intangible Assets

  1. Which of the following is not an intangible asset? a. Trade name b. Research and development costs c. Franchise d. Copyrights
  2. Which of the following intangible assets should not be amortized? a. Copyrights b. Customer lists c. Perpetual franchises d. All of these intangible assets should be amortized.
  3. When a patent is amortized, the credit is usually made to a. the Patent account. b. an Accumulated Amortization account. c. a Deferred Credit account. d. an expense account.
  4. When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be allowed to be capitalized? a. Attorney fees. b. Consulting fees. c. Research and development fees. d. Design costs.
  5. In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as: a. other assets. b. indirect costs. c. goodwill. d. direct costs.
  6. Goodwill may be recorded when: a. it is identified within a company. b. one company acquires another in a business combination. c. the fair market value of a company’s assets exceeds their cost. d. a company has exceptional customer relations.

Intangible Assets

  1. The intangible asset goodwill may be a. capitalized only when purchased. b. capitalized either when purchased or created internally. c. capitalized only when created internally. d. written off directly to retained earnings.
  2. A loss on impairment of an intangible asset is the difference between the asset’s a. carrying amount and the expected future net cash flows. b. carrying amount and its fair value. c. fair value and the expected future net cash flows. d. book value and its fair value.
  3. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets? a. Indefinite life intangibles other than goodwill. b. Indefinite life intangibles. c. Goodwill. d. Limited life intangibles.
  4. Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are) Recoverability Test Fair Value Test a. Yes Yes b. Yes No c No Yes d. No No
  5. The carrying amount of an intangible is a. the fair market value of the asset at a balance sheet date. b. the asset's acquisition cost less the total related amortization recorded to date. c. equal to the balance of the related accumulated amortization account. d. the assessed value of the asset for intangible tax purposes.
  6. 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

Test Bank for Intermediate Accounting, Thirteenth Edition

  1. 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. Income tax minimization d. Immediate recognition as an expense
  2. How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement? a. Must be capitalized when incurred and then amortized over their estimated useful lives. b. Must be expensed in the period incurred. c. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. 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.
  3. Which of the following would be considered research and development? a. Routine efforts to refine an existing product. b. Periodic alterations to existing production lines. c. Marketing research to promote a new product. d. Construction of prototypes.
  4. Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs. d. Costs to successfully defend a patent.
  5. Research and development costs a. are intangible assets. b. may result in the development of a patent. c. are easily identified with specific projects. d. all of the above.
  6. Which of the following is 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. all of the above.

Test Bank for Intermediate Accounting, Thirteenth Edition

  1. Which of the following would not be considered an R & D activity? a. Adaptation of an existing capability to a particular requirement or customer's need. b. Searching for applications of new research findings. c. Laboratory research aimed at discovery of new knowledge. d. Conceptual formulation and design of possible product or process alternatives.
  2. Which of the following intangible assets should be shown as a separate item on the balance sheet? a. Goodwill b. Franchise c. Patent d. Trademark
  3. The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years? a. 6 b. 5 c. 4 d. 3
  4. Which of the following should be reported under the “Other Expenses and Losses” section of the income statement? a. Goodwill impairment losses. b. Trade name amortization expense. c. Patent impairment losses d. None of the above.
  5. The total amount of patent cost amortized to date is usually a. shown in a separate Accumulated Patent Amortization account which is shown contra to the Patent account. b. shown in the current income statement. c. reflected as credits in the Patent account. d. reflected as a contra property, plant and equipment item.
  6. Intangible assets are reported on the balance sheet a. with an accumulated depreciation account. b. in the property, plant, and equipment section. c. separately from other assets. d. none of the above.

Intangible Assets

  1. Which of the following is often reported as an extraordinary item? a. Amortization expense. b. Impairment losses for intangible assets other than goodwill. c. Impairment losses on goodwill. d. None of the above.
  2. Which of the following is often reported as an extraordinary item? a. Amortization expense. b. Impairment losses for intangible assets. c. Research and development costs. d. None of the above. *72. Which of the following costs incurred with developing computer software for internal use should be capitalized? a. Evaluation of alternatives. b. Coding. c. Training. d. Maintenance. *73. When developing computer software to be sold, which of the following costs should be capitalized? a. Designing. b. Coding. c. Testing. d. None of the above. *74. Capitalized costs incurred to develop internal use computer software should be amortized using the: a. percent-of-revenue approach. b. percent-of-completion approach. c. straight-line approach. d. accelerated amortization approach. *75. Capitalized costs incurred while developing computer software to be sold should be amortized using the: a. lower of the straight-line method or the percent-of-revenue method. b. higher of the percent-of-revenue method or the percent-of-completion method. c. lower of the percent-of-revenue method or the percent-of-completion method. d. higher of the straight-line method or the percent-of-revenue method.

Intangible Assets

  1. Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $360,000. The patents were carried on Shaq’s books as follows: Patent AA: $5,000; Patent BB: $2,000; and Patent CC: $3,000. When Alonzo acquired the patents their fair market values were: Patent AA: $20,000; Patent BB: $240,000; and Patent CC: $60,000. At what amount should Alonzo record Patent BB? a. $120, b. $240, c. $2, d. $270,
  2. Jeff Corporation purchased a limited-life intangible asset for $120,000 on May 1, 2008. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2010? a. $ -0- b. $24, c. $32, d. $36,
  3. Rich Corporation purchased a limited-life intangible asset for $210,000 on May 1, 2008. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2010? a. $ -0-. b. $42, c. $56, d. $63,
  4. Thompson Company incurred research and development costs of $100,000 and legal fees of $40,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year? a. $0. b. $ 4,000. c. $ 7,000. d. $14,000.
  5. ELO Corporation purchased a patent for $90,000 on September 1, 2008. It had a useful life of 10 years. On January 1, 2010, ELO spent $22,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2010? a. $20,600. b. $20,000. c. $18,800. d. $15,600.

Test Bank for Intermediate Accounting, Thirteenth Edition

  1. Danks Corporation purchased a patent for $450,000 on September 1, 2008. It had a useful life of 10 years. On January 1, 2010, Danks spent $110,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2010? a. $103,000. b. $100,000. c. $94,000. d. $78,000.
  2. The general ledger of Vance Corporation as of December 31, 2011, includes the following accounts: Copyrights $ 30, Deposits with advertising agency (will be used to promote goodwill) 27, Discount on bonds payable 70, Excess of cost over fair value of identifiable net assets of Acquired subsidiary 390, Trademarks 90, In the preparation of Vance's balance sheet as of December 31, 2011, what should be reported as total intangible assets? a. $480,000. b. $507,000. c. $510,000. d. $537,000.
  3. In January, 2006, Findley Corporation purchased a patent for a new consumer product for $720,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2011 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2011, assuming amortization is recorded at the end of each year? a. $480,000. b. $360,000. c. $72,000. d. $48,000.
  4. Day Company purchased a patent on January 1, 2010 for $360,000. The patent had a remaining useful life of 10 years at that date. In January of 2011, Day successfully defends the patent at a cost of $162,000, extending the patent’s life to 12/31/22. What amount of amortization expense would Kerr record in 2011? a. $36, b. $40, c. $43, d. $54,