CHAPTER 12 INTANGIBLE INTANGIBLE ASSETS CHAPTER LEARNING OBJECTIVES 1.
Descri Describe be the the charac character terist istics ics of intang intangibl ible e asset assets. s.
2.
Identi Identify fy the cost costs s to includ include e in the initia initiall valuati valuation on of intang intangibl ible e assets. assets.
3.
Explai Explain n the the proce procedure dure for amorti amortizin zing g intan intangib gible le asse assets. ts.
4.
Desc Descri ribe be the the typ types es of of inta intang ngib ible le ass asset ets. s.
.
Explai Explain n the the accou accounti nting ng issu issues es for for reco recordi rding ng good! good!ill ill..
".
Explai Explain n the accoun accountin ting g issues issues relate related d to intang intangibl ible e asset asset impairm impairment ents. s.
#.
Identi Identify fy the conc concept eptual ual issue issues s related related to resea research rch and and develop developmen mentt costs. costs.
$.
Descri Describe be the accou accounti nting ng for resea research rch and and develop developmen mentt and simila similarr costs. costs.
%.
Indica Indicate te the the presen presentat tation ion of of intang intangibl ible e assets assets and and relate related d items. items.
12 & 2
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
TR%E&$ALSE'Cone(t!a) 1.
Intangible Intangible assets assets derive derive their their value from the right right &claim &claim'' to receive receive cash cash in the future future..
2.
(ll resea research rch phase phase and and develo developme pment nt phase phase cost costs s are expen expensed sed as incu incurre rred. d.
3.
)ese )esear arch ch phas phase e cost costs s are are capi capita talilize zed d as an inta intang ngib ible le asse assett once once the the pro* pro*ec ectt has has economic viability. viability.
4.
+omp +ompan anie ies s are are re,u re,uir ired ed to asses assess s the the esti estima mate ted d usef useful ul life life and and salv salvag age e valu value e of intangible assets at least annually.
.
Impair Impairmen mentt testing testing is conduc conducted ted annuall annually y for both both limitedlimited-lif life e and indefin indefinite iteli life fe intangib intangible le assets.
".
(mortization of limitedlife intangible assets assets should not be impacted impacted by expected residual values.
#.
/ome /ome intang intangibl ible e assets assets are are not re,uire re,uired d to be amort amortize ized d every every year year..
$.
0imite 0imitedl dlife ife intang intangibl ibles es are amortiz amortized ed by systema systematic tic charge charges s to expense expense over their their useful useful life.
%.
he cost cost of ac,ui ac,uirin ring g a customer customer list list from from another another compa company ny is recor recorded ded as an intan intangib gible le asset.
1.
he cost cost of purcha purchased sed paten patents ts should should be amorti amortized zed over over the remai remainin ning g legal life life of the patent.
11. 11.
If a ne! patent patent is ac,uir ac,uired ed through through modifi modificat cation ion of an existi existing ng patent patent the the remainin remaining g boo value of the original patent may be amortized over the life of the ne! patent.
12.
In a busine business ss combinat combination ion a company company assigns assigns the the cost cost !here !here possible possible to the the identifi identifiable able tangible and intangible assets !ith the remainder recorded as good!ill.
13. 13.
5ood! 5ood!ililll is consi conside dere red d a mast master er valua valuati tion on accoun accountt beca becaus use e it measur measures es the value value of specifically identifiable intangible assets.
14.
Intern Internall ally y generat generated ed good! good!ill ill should should not not be capita capitaliz lized ed in the accou accounts nts..
1.
Intern Internall ally y generat generated ed good! good!ill ill associ associate ated d !ith a busine business ss may be recor recorded ded as an asset asset !hen a firm offer to purchase that business unit has been received.
1". 1".
(ll (ll inta intang ngib ible les s are are sub* sub*ec ectt to peri period odic ic cons consid ider erat atio ion n of impa impair irme ment nt !ith !ith corr corres espo pond ndin ing g potential !ritedo!ns.
1#.
If the the recovera recoverable ble amount amount of an indefinite indefinitelife life intangible intangible other than good!ill good!ill is less than its its carrying value an impairment loss must be recognized.
Intangible (ssets
12 & ,
1$.
( cash cashgen genera eratin ting g unit is the the smalles smallestt identif identifiab iable le group group of assets assets in a busines business s that can can generate cash flo! independently of the cash flo!s from the business6s other assets.
1%.
he impai impairme rment nt test test for good!i good!illll is conduct conducted ed based based on the cashg cashgene enerat rating ing unit unit to !hich !hich the good!ill has been assigned.
2.
)ecove )ecoverie ries s of impair impairmen ments ts for intang intangibl ible e longlive longlived d assets assets are reported reported in 7other 7other income income and expense7 on the income statement.
21.
( recove recovery ry of impair impairmen mentt for an intangi intangible ble longli longlived ved asset asset is limit limited ed to the carryi carrying ng value value that !ould have been reported had the impairment not occurred.
22.
(fter (fter an impairm impairment ent loss loss is recorded recorded for for a limite limitedl dlife ife intang intangibl ible e asset asset the recove recoverab rable le amount becomes the basis for the impaired asset and is used to calculate amortization in future periods.
23.
(fter (fter an impair impairmen mentt loss is recor recorded ded for for good!ill good!ill the recover recoverabl able e amount amount become becomes s the basis for the impaired asset and is used to calculate amortization in future periods.
24.
(ccounting (ccounting for for impairme impairments nts for for limitedl limitedlife ife intangi intangible ble assets assets follo! follo!s s the same same rules rules used used to account for impairments of plant and e,uipment.
2.
I8)/ I8)/ permits permits reversa reversals ls of impairme impairment nt losses losses for all limited limited and indefi indefinit niteli elife fe intangi intangible ble assets.
2".
9eriod 9eriodic ic altera alteratio tions ns to existi existing ng product products s are an example example of resear research ch and develo developme pment nt costs.
2#.
)esearch )esearch and and development development costs costs that that result result in patents patents may be capitali capitalized zed to the extent extent of of the fair value of the patent.
2$.
I8)/ I8)/ re,uires re,uires that that start startup up costs costs and initi initial al operati operating ng losses losses during during the early early years years be capitalized.
2%.
)esear )esearch ch and devel developm opment ent costs costs are are recorde recorded d as an intangi intangible ble asset asset ifif it is felt felt they !ill !ill provide economic benefits in future years.
3. 3.
+ont +ontra ra acco accoun unts ts must must be repo report rted ed for for inta intang ngib ible le asse assets ts in a mann manner er simi simila larr to the reporting of property plant and e,uipment.
Tr!e Tr!e $a)se Ans*ers' Cone(t!a) Item Ans+
1. 2. 3. 4. .
8 8 8 8
Item
Ans+
Item
Ans+
Item
". #. $. %. 1.
8 8
11. 12. 13. 14. 1.
8 8
1". 1#. 1$. 1%. 2.
Ans+
Item
21. 22. 23. 24. 2.
Ans+
8 8
Item
2". 2#. 2$. 2%. 3.
Ans+
8 8 8 8 8
12 & .
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
-%LTIPLE CHOICE'Cone(t!a) 31.
:hich :hich of of the the follo! follo!ing ing does does not descri describe be intan intangib gible le asset assets; s; a. hey hey lac lac physic physical al exi existe stence nce.. b. hey hey are are mon monet etar ary y asse assets ts.. c. hey hey prov provide ide longt longterm erm benefi benefits. ts. d. hey hey are clas classif sified ied as long longte term rm asset assets. s.
32.
:hich :hich of the the follo!i follo!ing ng charact characteri eristi stics cs do intan intangib gible le assets assets poss possess ess; ; a. 9hys 9hysic ical al exis existe tenc nce. e. b. +laim +laim to a speci specific fic amou amount nt of cash cash in in the futur future. e. c. 0ongli lived. d.
33. 33.
:hic :hich h char charac acte teri rist stic ic is not possessed possessed by intangible assets; a. 9hys 9hysic ical al exis existe tenc nce. e. b. Ident dentif ifiiable able.. c. )esu )esult lt in in futu future re ben benef efit its. s. d. Expen Expensed sed over over curren currentt and=or and=or future future years years..
34.
+osts +osts incurr incurred ed inte interna rnally lly to create create intang intangibl ibles es are are a. capit apital aliz ized ed.. b. capita capitaliz lized ed if they they have an inde indefin finite ite life. life. c. expe expens nsed ed as incu incurr rred ed.. d. expen expensed sed only only if they they have have a limit limited ed life. life.
3.
:hich :hich of the follo! follo!ing ing costs costs incurre incurred d internal internally ly to create create an intangi intangible ble asset asset is general generally ly expensed; a. )ese )esearc arch h phas phase e cos costs ts.. b. 8ilin iling g cos costs ts.. c. 0egal co costs. d. (ll of thes these e choic choices es are are corr correct ect..
3".
he ma*o ma*orr problem problem of of accoun accountin ting g for inta intangi ngible bles s is deter determin mining ing a. fair va value. b. sepa separa rabi bilility ty.. c. salv alvage age val value ue.. d. usef useful ul life life..
3#. 3#.
+opy +opyrig right hts s sho shoul uld d be be amo amort rtiz ized ed over over a. thei theirr leg legal al life life.. b. the life life of of the creat creator or plus plus fifty fifty years years.. c. t!en t!enty ty years ears.. d. their useful useful life or legal legal life life !hichev !hichever er is shorter shorter..
3$. 3$.
( pate patent nt shou should ld be amor amorti tize zed d ove over r a. t!en t!enty ty years ears.. b. its its use usefu full lif life. e. c. its useful life or t!enty t!enty years years !hichev !hichever er is longer. longer. d. its useful useful life or or t!enty t!enty years years !hichev !hichever er is shorter shorter..
Intangible (ssets
/
12 & 0
3%.
0imite 0imitedl dlife ife intang intangibl ibles es are report reported ed at their their a. repl replac acem emen entt cost cost.. b. carryi carrying ng amoun amountt unles unless s impai impaired red.. c. ac,u ac,uis isit itio ion n cos cost. t. d. li,u li,uid idat atio ion n value value..
4.
:hich of the the follo!i follo!ing ng methods methods of of amortizat amortization ion is normally normally used used for for intangible intangible assets; assets; a. /umof /umofth they eyears ears>d >digi igits ts b. /tra /traiight ghtli line ne c. ?nit ?nits s of pro produ duct ctio ion n d. Doub Double led dec eclilinin ningb gbal alan ance ce
41.
he cost cost of an an intang intangibl ible e asset asset incl include udes s all of the the foll follo!i o!ing ng e/e(t a. purc purcha hase se pric price. e. b. legal fe fees. c. othe otherr incid inciden enta tall expen expense ses. s. d. all all of thes these e are are inc inclu lude ded. d.
42. 42.
8act 8actor ors s cons consid idere ered d in determ determin inin ing g an inta intang ngib ible le asset6 asset6s s usef useful ul life inclu include de all all of the follo!ing e/e(t a. the expect expected ed use use of the the asset. asset. b. any legal legal or contractu contractual al provision provisions s that may may limit limit the useful useful life. life. c. any provisio provisions ns for rene!a rene!all or extension extension of of the asset6 asset6s s legal life. life. d. the amorti amortizat zation ion method method used. used.
43.
?nder ?nder curren currentt accoun accountin ting g practice practice intang intangibl ible e assets assets are clas classif sified ied as a. amorti amortizab zable le or unamor unamortiz tizabl able. e. b. limite limitedli dlife fe or indefi indefinit nitel elife ife.. c. specif specifica ically lly identif identifiab iable le or good!ill good!illty type. pe. d. legall legally y restri restricte cted d or good!i good!illt lltyp ype. e.
44.
+ompanies +ompanies should should evaluate evaluate indefinite indefinite life intangible intangible assets assets at at least least annually annually for@ for@ a. reco recove vera rabi bilility ty.. b. amor amorttizat izatio ion. n. c. impairment. d. esti estima mate ted d usef useful ul lif life. e.
4.
Ane factor factor that is not not consider considered ed in determining determining the useful useful life life of an intangi intangible ble asset asset is is a. salvage value. b. provisions for rene!al or extension. c. legal life. d. expected actions of competitors.
4". 4".
:hic :hich h int intan angi gibl ble e asse assets ts are are amor amorti tize zed; d; 0imited0ife Indefinite0ife a. Bes Bes b. Bes Co c. Co Bes d. Co Co
12 &
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
4#.
he cost cost of purcha purchasin sing g patent patent rights rights for a produc productt that might might other! other!ise ise have have seriou seriously sly competed !ith one of the purchaser>s pur chaser>s patented products should be a. charge charged d off off in the curren currentt perio period. d. b. amortized amortized over the the legal legal life life of the purchas purchased ed patent. patent. c. added to factory factory overhe overhead ad and allocated allocated to product production ion of the purchas purchaser>s er>s product. product. d. amortized amortized over over the remaining remaining estimated estimated life life of the original original patent patent covering covering the product product !hose maret !ould have been impaired by competition from the ne!ly patented product.
4$.
road! road!ay ay +orpora +orporatio tion n !as granted granted a patent patent on a product product on anua anuary ry 1 24. 24. o o prote protect ct its patent the corporation purchased on anuary 1 21 a patent on a competing product !hich !as originally issued on anuary 1 211. ecause of its uni,ue plant road!ay +orporation does not feel the competing patent can be used in producing a product. he cost of the competing patent should be a. amorti amortized zed over over a maxi maximum mum perio period d of 2 year years. s. b. amorti amortized zed over over a maxi maximum mum perio period d of 1" year years. s. c. amorti amortized zed over over a max maximu imum m period period of of % years years.. d. expe expens nsed ed in 21 21..
4%.
:rigle :riglee e Inc. Inc. !ent to court court this this year and succes successfu sfully lly defen defended ded its paten patentt from infrin infringe ge ment by a competitor. he cost of this defense should be charged to a. patents patents and amortized amortized over over the legal life of of the patent. patent. b. legal legal fees fees and amort amortize ized d over years years or or less. less. c. expe expens nses es of the the peri period od.. d. patents patents and amortiz amortized ed over the the remaining remaining useful useful life life of the the patent. patent.
. .
:hic :hich h of the the foll follo! o!in ing g is is not an intangible asset; a. rade name b. )esearc )esearch h and and devel developm opment ent costs costs c. 8ranchise d. +opyr pyrights
1.
:hich :hich of the follo! follo!ing ing intang intangibl ible e asse assets ts should should not be amortized; a. +opyr pyrights b. +ust +ustom omer er list lists s c. 9erp 9erpet etua uall fran franch chis ises es d. (ll of of these these intangi intangible ble assets assets should should be amorti amortized. zed.
2.
:hen :hen a pate patent nt is is amort amortize ized d the the cred credit it is is usual usually ly made made to a. the the 9at 9aten ents ts acco accoun unt. t. b. an (ccum (ccumula ulated ted (mor (mortiz tizati ation on account account.. c. an (ccu (ccumul mulate ated d Depreci Depreciati ation on accoun account. t. d. an exp expen ense se acc accou ount nt..
3.
:hen :hen a company company develo develops ps a tradema trademar r the cost costs s direct directly ly relate related d to securin securing g it should should generally be capitalized. :hich of the follo!ing costs associated !ith a trademar !ould not be allo!ed to be capitalized; a. (tto (ttorn rney ey fees fees.. b. +ons +onsul ulti ting ng fee fees. s. c. )esearc )esearch h and and develo developme pment nt fees. fees. d. Desig esign n cos costts.
Intangible (ssets
12 &
4.
In a busine business ss combin combinati ation on the the excess excess of the the cost cost of the purch purchase ase over over the fair fair value value of the identifiable net assets purchased is a. othe otherr ass asset ets s. b. indi indire rect ct cost costs. s. c. good!ill. d. a barg bargai ain n purc purcha hase se..
. .
5ood 5ood! !ill ill may may be reco record rded ed !hen hen a. it is is ident identifi ified ed !ith !ithin in a comp company any.. b. one company company ac,uires ac,uires another another in a business business combina combination. tion. c. the fair fair value value of a company6s company6s assets assets exceeds exceeds their their cost. cost. d. a company company has exceptional exceptional customer customer relations. relations.
".
:hen :hen a ne! company company is ac,ui ac,uired red !hich !hich of these these intangi intangible ble asset assets s unrec unrecord orded ed on the ac,uired company6s boos might be recorded in addition to good!ill; a. ( trad trade e nam name. e. b. ( patent. c. ( cust custom omer er list list.. d. (ll (ll of of the the abov above. e.
#.
:hich :hich of the the follo! follo!ing ing intang intangibl ible e assets assets could could not be sold sold by a busines business s to raise raise needed needed cash for a capital pro*ect; a. 9atent. b. +opyri pyrig ght. c. 5ood!ill. d. rade na name.
$.
he reason reason good!ill good!ill is sometimes sometimes referred referred to as a master master valuati valuation on account account is is because because a. it represents represents the purchase purchase price price of a busines business s that is is about to to be sold. sold. b. it is the differen difference ce bet!een bet!een the fair value value of the net identif identifiab iable le assets assets as compar compared ed !ith the purchase price of the ac,uired business. c. the the valu value e of a busi busine ness ss is comp comput uted ed !ith !ithou outt cons consid ider erat atio ion n of good good!i !illll and and then then good!ill is added to arrive at a master valuation. d. it is the the only only accoun accountt in the fina financ ncia iall stat statem emen ents ts that that is based based on valu value e all othe other r accounts are recorded at an amount other than their value.
%. %.
9urc 9urcha hase sed d goo good! d!ililll sho shoul uld d a. be !ritten !ritten off off as soon as as possible possible against against retain retained ed earnings. earnings. b. be !ritten !ritten off off as soon as as possible possible as an other other expense expense item. item. c. be !ritten !ritten off by system systemati atic c charge charges s as a regular regular operatin operating g expense expense over the period period benefited. d. not not be be amo amort rtiz ized ed..
". ".
he he int intan angi gible ble asse assett goo good! d!ililll may may be a. capita capitaliz lized ed only only !hen !hen purc purchas hased. ed. b. capitalize capitalized d either either !hen purchased purchased or created created internall internally. y. c. capita capitaliz lized ed only only !hen !hen created created inter internal nally ly.. d. !ritt !ritten en off off directl directly y to retain retained ed earning earnings. s.
12 & 3
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
"1.
( loss on impairm impairment ent of an intangib intangible le asset asset is the diffe difference rence bet!een bet!een the asset6s asset6s a. carrying carrying amount amount and the expecte expected d future future net cash cash flo!s flo!s.. b. carryi carrying ng amount amount and and its recov recovera erable ble amoun amount. t. c. recoverable recoverable amount and the the expected expected future future net cash cash flo!s. flo!s. d. boo boo valu value e and and its its fair fair valu value. e.
"2.
)ecove )ecovery ry of impair impairmen mentt is reco recogni gnized zed for all the the foll follo!i o!ing ng e/e(t a. 9ate 9atent nt held held for for sal sale. e. b. 9ate 9atent nt hel held d for for use. use. c. rademar. d. 5ood!il d!illl.
"3.
(ll of the follo! follo!ing ing are true regarding regarding recovery recovery of impairm impairments ents for intangi intangible ble assets assets e/e(t a. (fter (fter a recove recovery ry of impair impairmen mentt has been recogn recognize ized d the carrying carrying value value of the asset reported on the statement of financial position !ill be the higher of the fair value less cost to sell or the valueinuse. b. Co recovery recovery of impairm impairment ent is is allo!ed allo!ed for for 5ood!il 5ood!ill. l. c. ( recovery recovery of impairment impairment !ill !ill be reported reported in the 7Ather 7Ather income income and expense7 expense7 section section of the income statement. d. he amount amount of the recover recovery y is limited limited to the carrying carrying value value of the asset that that !ould !ould have been reported had no impairment occurred.
"4.
:hic :hich h of of the the follo ollo! !ing ing is is not a criteria !hich must be met before development costs can be capitalized; a. he company company has suffi sufficient cient financi financial al resources resources to complete complete the the pro*ect. pro*ect. b. he compan company y intends intends to complete complete the pro*ec pro*ectt and either use or sell the intang intangibl ible e asset. c. he compan company y can reliably reliably identify identify the researc research h costs incurr incurred ed to bring bring the pro*ect pro*ect to economic feasibility. feasibility. d. he pro*ect pro*ect has achieved achieved techni technical cal feasibilit feasibility. y.
".
:hich :hich of the follo! follo!ing ing researc research h and develop developmen mentt related related costs costs should should be capita capitaliz lized ed and depreciated over current and future periods; a. )esearch )esearch and developme development nt general general laboratory laboratory building building !hich !hich can be put to alternati alternative ve uses in the future b. Inventory Inventory used for a specifi specific c researc research h pro*ect pro*ect c. (dministra (dministrative tive salari salaries es allocate allocated d to research research and and developm development ent d. )ese )esearc arch h find findin ings gs purc purcha hase sed d from from anot anothe herr comp company any to aid aid a part partic icul ular ar rese resear arch ch pro*ect currently in process
"". "".
:hic :hich h of the foll follo! o!ing ing princi principl ples es best best descr describ ibes es the curr curren entt meth method od of accou account ntin ing g for for research and development costs; a. (ssoci (ssociati ating ng caus cause e and and effect effect b. /yste /ystemat matic ic and and ration rational al alloc allocati ation on c. Inco Income me tax tax min minim imiz izat atio ion n d. Immedi Immediate ate reco recogni gnitio tion n as an exp expens ense e
Intangible (ssets
12 & 4
"#. "#.
"$.
:hich :hich of the the follo! follo!ing ing !oul !ould d be consid considere ered d researc research h and devel developm opment ent; ; a. )outine )outine efforts efforts to refine refine an existi existing ng product. product. b. 9eriodic 9eriodic alterat alterations ions to existi existing ng producti production on lines. lines. c. Faret Fareting ing resea research rch to to promot promote e a ne! produ product. ct. d. +onstr +onstruct uction ion of protot prototyp ypes. es.
"%. "%.
)ese )esear arch ch and and dev devel elop opme ment nt cos costs ts a. are are int intan angi gibl ble e asse assets ts.. b. may resu result lt in the the develo developme pment nt of a paten patent. t. c. are easily easily ident identifi ified ed !ith !ith specific specific pro*e pro*ects cts.. d. all all of of the the abo above ve..
#.
:hich :hich of the the follo! follo!ing ing is cons conside idered red resea research rch and and develo developme pment nt costs; costs; a. 0aboratory 0aboratory researc research h aimed aimed at discov discovery ery of ne! no!led no!ledge. ge. b. (ppl (pplic icat ation ion of rese researc arch h find findin ings gs or othe otherr no! no!le ledg dge e to a plan plan or desi design gn for a ne! ne! product or process. c. +onceptual +onceptual formulat formulation ion and design design of possible possible product product or process process alternati alternatives. ves. d. all all of of the the abo above ve..
#1.
:hich :hich of the the follo! follo!ing ing is cons conside idered red resea research rch and and develo developme pment nt costs; costs; a. 9lan 9lanne ned d inve invest stig igat atio ion n unde undert rta aen en !ith !ith the the pros prospe pect ct of gain gainin ing g ne! ne! scie scient ntif ific ic or technical no!ledge and understanding. b. (ppl (pplic icat ation ion of rese researc arch h find findin ings gs or othe otherr no! no!le ledg dge e to a plan plan or desi design gn for a ne! ne! product or process. c. Ceit either her a nor nor b. b. d. oth a and b. b.
#2.
:hich :hich of the the follo! follo!ing ing cost costs s should should be capi capital talize ized d in the year year incur incurred red; ; a. )esearc )esearch h and develo developme pment nt cost costs. s. b. +osts +osts to inte interna rnally lly gene generat rate e good!i good!ill. ll. c. Arga Argani niza zati tion onal al cost costs. s. d. +osts +osts to succ success essful fully ly defen defend d a patent. patent.
#3.
:hich :hich of the follo! follo!ing ing costs costs !ould !ould be capita capitaliz lized; ed; a. (c,uisiti (c,uisition on cost of e,uipmen e,uipmentt to be used on current current researc research h pro*ect pro*ect only. only. b. Engineering Engineering costs costs incurred incurred to advance advance the product product to to the full full production production stage. stage. c. +ost of of research research to determi determine ne !hether !hether a maret maret for for the product product exists. exists. d. /alari /alaries es of resear research ch staff staff..
12 & 15
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
#4.
:hich :hich of of the the foll follo!i o!ing ng cost costs s !ould !ould not be capi capital talize ized; d; a. (c,uisiti (c,uisition on cost of e,uipmen e,uipmentt to be used on current current and future future research research pro*ect pro*ects. s. b. Engineering Engineering costs costs incurred incurred to advance advance the pro*ec pro*ectt to the full product production ion stage. stage. c. +ost +ost incur incurred red to file file for patent patent.. d. +ost of testin testing g prototype prototype before before economic economic feasibil feasibility ity has been been demonstratio demonstration. n.
#.
:hi :hich of the follo!in o!ing g costs should be e/)!ded from from resear research ch and develo developme pment nt expense; a. Fodifi Fodificat cation ion of of the desi design gn of a prod product uct b. (c,uisiti (c,uisition on of ) G D e,uipmen e,uipmentt for use use on a current current pro*ect pro*ect only only c. +ost +ost of maret mareting ing resea research rch for for a ne! prod product uct d. Engineering Engineering activit activity y re,uired re,uired to advance advance the design design of a product to the the manufactur manufacturing ing stage
#".
If a company company const construc ructs ts a laborat laboratory ory build building ing to be used used as a research research and and develop developmen mentt facility facility the cost of the laboratory building is matched against earnings as a. research research and develop development ment expense expense in the the period&s' period&s' of of construct construction. ion. b. depreciatio depreciation n deducted deducted as part part of research research and and development development costs costs.. c. depreciatio depreciation n or immediate immediate !riteo !riteoff ff depending depending on on company company policy policy.. d. an expense expense at such such time as producti productive ve research research and developm development ent has been obtain obtained ed from the facility.
##.
Aperat Aperating ing losse losses s incurre incurred d during during the start startup up year years s of a ne! busine business ss should should be a. accounted accounted for and and reported reported lie the the operating operating losses losses of any other other business. business. b. !ritten !ritten off off directly directly against against retained retained earning earnings. s. c. capitalize capitalized d as a deferr deferred ed charge charge and amortized amortized over over five five years. years. d. capitalize capitalized d as an intangible intangible asset asset and amortize amortized d over a period period not to exceed exceed 2 years. years.
#$. #$. /tar /tart tup up cost costs s incl includ ude e orga organi niza zati tion onal al cost costs s such as lega legall and and stat state e fees fees incu incurr rred ed to organize a ne! business entity. hese costs should be a. capita capitaliz lized ed and and never never amorti amortized zed.. b. capita capitaliz lized ed and amor amortiz tized ed over over 4 years years.. c. capita capitaliz lized ed and amorti amortized zed over over years years.. d. expe expens nsed ed as incu incurr rred ed.. #%. :hich of the the follo!ing follo!ing !ould !ould not be considere considered d an ) G D activity activity; ; a. (daptation (daptation of an existi existing ng capability capability to a particul particular ar re,uirement re,uirement or custom customer>s er>s need. need. b. (pplic (pplicati ation on of research research findin findings gs or other no! no!ledg ledge e to a plan for a ne! product product or process. c. 0aboratory 0aboratory research research aimed aimed at at discovery discovery of ne! ne! no!ledg no!ledge. e. d. +onceptual +onceptual formulat formulation ion and design design of possible possible product product or process process alternati alternatives. ves. $. $. :hic :hich h of the follo! follo!in ing g inta intang ngib ible le asse assets ts should should be sho! sho!n n as a sepa separa rate te item on the the statement of financial position; a. 5ood!ill b. 8ranchise c. 9atent d. rademar
Intangible (ssets
12 & 11
$1. :hich :hich of the follo! follo!ing ing should should not be reporte reported d under the HAthe HAtherr income income and expense expense section of the income statement; a. 5ood! 5ood!ill ill impair impairmen mentt losses losses.. b. rade rade name name amort amortiza izatio tion n expen expense. se. c. )ecove )ecovery ry of impair impairmen mentt losses losses d. (ll of thes these e choic choices es are are corr correct ect.. $2. he total total amount of patent patent cost amortized amortized to date date is usually usually a. sho!n sho!n in a separate (ccum (ccumulated ulated 9atent 9atent (morti (mortizatio zation n account !hich !hich is sho!n sho!n contra to the 9atent account. b. sho!n sho!n in in the curr current ent inco income me state statemen ment. t. c. reflec reflected ted as as credit credits s in the 9ate 9atent nt accou account. nt. d. reflected reflected as as a contra contra property property plant plant and and e,uipment e,uipment item. item. $3. Intangible Intangible assets assets are reported reported on the statement statement of of financial financial position position a. !ith !ith an accumul accumulate ated d deprecia depreciatio tion n account. account. b. in the the property property plant plant and e,uipme e,uipment nt section section.. c. as a sep separ arat ate e ite item. m. d. Cone Cone of thes these e choic choices es are are corre correct. ct.
-!)ti()e C6oie Ans*ers' Cone(t!a) Item
31. 32. 33. 34. 3. 3". 3#. 3$.
Ans+
b c a c a d d d
Item
3%. 4. 41. 42. 43. 44. 4. 4".
Ans+
b b d d b c a b
Item
4#. 4$. 4%. . 1. 2. 3. 4.
Ans+
d c d b c a c c
Item
. ". #. $. %. ". "1. "2.
Ans+
b d c b d a b d
Item
"3. "4. ". "". "#. "$. "%. #.
Ans+
a c a d d d b d
Item
#1. #2. #3. #4. #. #". ##. #$.
Ans+
d d b d c b a d
Item
#%. $. $1. $2. $3.
Ans+
a a b c c
-%LTIPLE CHOICE'Com(!tationa) $4. 0ynne 0ynne +orporati +orporation on ac,uired ac,uired a patent patent on Fay 1 21. 21. 0ynne 0ynne paid cash cash of J4 J4 to to the seller. 0egal fees of J1 !ere paid related to the ac,uisition. :hat amount should be debited to the patent account; a. J1 b. J3% c. J4 d. J41 $. +ontreras +ontreras +orporat +orporation ion ac,uired ac,uired a patent patent on Fay 1 1 21. +ontrera +ontreras s paid cash cash of J3 J3 to the seller. 0egal fees of J% !ere paid related to the ac,uisition. :hat amount should be debited to the patent account; a. J% b. J341 c. J3 d. J3%
12 & 12
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
$". Fini +orp. +orp. ac,uires ac,uires a patent patent from Faxi +o. +o. in exchange exchange for 2 2 shares shares of Fini Fini +orp.6s +orp.6s J par value ordinary shares and J$ cash. :hen the patent !as initially issued to Faxi +o. Fini +orp.6s shares !ere selling at J#. per share. :hen Fini +orp. ac,uired the patent its shares !ere selling for J% a share. Fini +orp. should record the patent at !hat amount; a. J %# b. J13# c. J1# d. J $ $#. (lonzo (lonzo +o. ac,uires ac,uires 3 patents patents from from /ha, +orp. +orp. for a total of J3 J3. . he patent patents s !ere carried on /ha,6s boos as follo!s@ 9atent ((@ JK 9atent @ J2K and 9atent ++@ J3. :hen (lonzo ac,uired the patents their fair values !ere@ 9atent ((@ J2K 9atent @ J24K and 9atent ++@ J". (t !hat amount should (lonzo record 9atent ; a. J1 b. J24 c. J2 d. J22 $$. eff +orpora +orporation tion purchased purchased a limited limitedlife life intangib intangible le asset for for J1 J1 on Fay 1 213. 213. It has a useful life of 1 years. :hat total amount of amortization expense should have been recorded on the intangible asset by December 31 21; a. J b. J3 c. J4 d. J4 $%. )ich +orporat +orporation ion purchased purchased a limited limitedlife life intangi intangible ble asset asset for J2# J2# on Fay Fay 1 213. 213. It has a useful life of 1 years. :hat total amount of amortization expense should have been recorded on the intangible asset by December 31 21; a. J . b. J4 c. J#2 d. J$1 %. homps hompson on +ompany +ompany incurre incurred d resear research ch and developm development ent costs costs of J1 J1 and legal fees of J to ac,uire a patent. he patent has a legal life of 2 years and a useful life of 1 years. :hat amount should hompson record as 9atent (mortization Expense in the first year; a. J. b. J . c. J # #. d. J1.
Intangible (ssets
12 & 1,
%1. E0A +orporati +orporation on purchased purchased a patent patent for J13 J13 on on /eptember /eptember 1 213. ItIt had a useful useful life of 1 years. An anuary 1 21 E0A spent J33 to successfully defend the patent in a la!suit. E0A feels that as of that date the remaining useful life is years. :hat amount should be reported for patent amortization expense for 21; a. J3%. b. J3. c. J2$2. d. J234. %2. %2.
Dan Dans s +orp +orpor orat atio ion n purc purcha hase sed d a patent patent for J4 J4 on /epte /eptemb mber er 1 213. 213. It had a useful life of 1 years. An anuary 1 21 Dans spent J132 to successfully defend the patent in a la!suit. Dans feels that as of that date the remaining useful life is years. :hat amount should be reported for patent amortization expense for 21; a. J1344. b. J12. c. J123". d. J %3".
%3.
he general general ledger ledger of of Lanc Lance e +orporati +orporation on as of of December December 31 31 21 21 includes includes the the follo!i follo!ing ng accounts@ +opyrights Depos eposit its s !it !ith h adv adver erti tisi sing ng agen agency cy &!il &!illl be be used used to prom promo ote good good! !ill' ill' ond sining fund Excess of cost over fair value of identifiable net assets of (c,uired subsidiary rademars
J 3 2# 2# # 3% 12
In the preparation of Lance>s statement of financial position as of December 31 21 !hat should be reported as total intangible assets; a. J1. b. J3#. c. J4. d. J3#. %4.
In anuary anuary 21 21 8indley 8indley +orporat +orporation ion purchase purchased d a patent patent for for a ne! ne! consumer consumer product product for J$4. (t the time of purchase the patent !as valid for fifteen years. Due to the competitive nature of the product ho!ever the patent !as estimated to have a useful life of only ten years. During 21 the product !as permanently removed from the maret under governmental order because of a potential health hazard present in the product. :hat amount should 8indley charge to expense during 21 assuming amortization is recorded at the end of each year; a. J". b. J42. c. J $4 $4. d. J ".
12 & 1.
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
%. %.
Day Day +ompa +ompany ny purch purchas ased ed a pate patent nt on anua anuary ry 1 214 214 for J4$ J4$ . . he pate patent nt had a remaining useful life of 1 years at that date. In anuary of 21 Day successfully defends the patent at a cost of J21" extending the patent6s life to 12=31=2". :hat amount of amortization expense !ould Merr record in 21; a. J4$ b. J4 c. J$ d. J#2
%".
An anuar anuary y 2 21 21 Mlein Mlein +o. bought bought a tradema trademar r from from )oyce )oyce Inc. Inc. for for J12 J12 .. (n independent research company estimated that the remaining useful life of the trademar !as 1 years. Its unamortized cost on )oyce6s boos !as J%. In Mlein6s 21 income statement !hat amount should be reported as amortization expense; a. J12. b. J %. c. J " ". d. J 4.
%#. ( company company ac,uires ac,uires a patent patent for a drug drug !ith !ith a remaining remaining legal legal and useful useful life of of six years years on anuary 1 213 for J21. he company uses straightline amortization for patents. An anuary 2 21 a ne! patent is received for a timedrelease version of the same drug. he ne! patent has a legal and useful life of t!enty years. he least amount of amortization that could be recorded in 21 is a. J3. b. J #. c. J % %44. d. J $. %$. lue /y +ompany +ompany6s 6s 12=31=1 12=31=1 statement statement of financi financial al position position reports assets assets of J J and liabilities liabilities of J2. J2. (ll of lue /y6s /y6s assets6 assets6 boo values values approximate approximate their fair value except for land !hich has a fair value that is J3 greater than its boo value. An 12=31= 12=31=1 1
Intangible (ssets
12 & 10
1. 8loyd 8loyd +ompany purchases purchases
s assets !hen ac,uired !ere as follo!s@ +urrent assets Concurrent assets
J 4 12" J1$
s 5rande>s December December 31 21 analysis indicated that the fair value of Enfant>s tangible assets exceeded the boo value by N$" and the fair value of identifiable intangible assets exceeded boo value by N14.
12 & 1
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e %se t6e fo))o*in" information for 7!estions 15, and 15.+
An anuary 1 214 ingham ingham Inc. purchased a patent !ith a cost N232 N232 a useful useful life of years. years. he compan company y uses uses straig straight htlin line e deprec depreciat iation ion.. (t Decemb December er 31 21 21 the compan company y determines that impairment indicators are present. he fair value less costs to sell the patent is estimated to be N1$. he patent>s valueinuse is estimated to be N113. he asset>s remaining useful life is estimated to be 2 years. 13. ingham>s ingham>s 21 income income stateme statement nt !ill !ill report 0oss 0oss on Impairment Impairment of a. N. b. N2"2. c. N312. d. N1 N11% 1% . . 14. he company>s company>s 21" income income statement statement !ill report report amortization amortization expense expense for the patent of a. J3##. b. J4"4. c. J". d. J1 J11% 1% . . 1. An (ugust (ugust 1 214 214 0i Inc. purchased purchased a license license !ith !ith a cost of s value inuse is estimated to be s 21" income statement !ill report 0oss on Impairment of a.
An anuary 2 214 0utz Inc. purchased purchased a patent !ith a cost +<81$$ +<81$$ a useful life of 4 year years. s. (t Dece Decemb mber er 31 31 214 214 and and Dece Decemb mber er 31 31 21 21 the the comp compan any y dete determ rmin ines es that that impairment indicators are present. he follo!ing information is available for impairment testing at each year end@ 8air value less costs to sell Lalueinuse
12=31=214 +<8143 +<81
12=31=21 +<8$4 +<8$%
Co changes !ere made in the asset>s estimated useful life. 1". he company company>s >s 214 214 income income statemen statementt !ill !ill report report a. (morti (mortizat zation ion Expe Expense nse of of +<84# +<84# b. (mortizati (mortization on Expense Expense of +<84# +<84# and 0oss on Impairme Impairment nt of +<82 +<82.. c. (mortizati (mortization on Expense Expense of +<84# +<84# and a )ecovery )ecovery of Impairmen Impairmentt of +<8% +<8%. . d. 0oss 0oss on impair impairmen mentt of 3$ 3$. .
Intangible (ssets
12 & 1
1#. he company company>s >s 21 21 income income statemen statementt !ill !ill report report a. (morti (mortizat zation ion Expe Expense nse of +<8 +<84# 4# . . b. (mortizati (mortization on Expense Expense of +<8 +<8 and 0oss on Impairme Impairment nt of +<811 +<811. . c. (mortizati (mortization on Expense Expense of +<84# +<84# and a 0oss on Impair Impairment ment of +<8. +<8. d. 0oss 0oss on impa impairm irment ent of of +<814 +<814 . . 1$. An une 2 21 21 0indt 0indt Inc. purchase purchased d a trademar trademar !ith !ith a cost N%44. N%44. he he trademar trademar is classified as an indefinitelife intangible asset. (t December 31 21 and December 31 21" the follo!ing information is available for impairment testing@ 12 12=31=21 12=31=21" 8air value less costs to sell N%11 N% Lalueinuse N%3# N% he 21" income statement !ill report a. b. c. d.
no Impairm Impairment ent 0oss or )ecove )ecovery ry of Impairment Impairment.. Impair Impairmen mentt 0oss 0oss of N# N#. . )ecove )ecovery ry of of Impa Impairm irment ent of N# N# .. )ecove )ecovery ry of Impa Impairm irment ent of of N1$ N1$. .
1%. 1%. Indi India a Ente Enterp rpri rise ses s has has four four divi divisi sion ons. s. It ac,u ac,uir ired ed one one of them them omb ombay ay 9rod 9roduc ucts ts on anuary 1 21 for )s4 and recorded good!ill of )s# as a result of that purchase. (t December 31 21 ombay 9roducts had a recoverable amount of )s3#. he carrying value of the company6s net assets at December 31 21 !as )s3 &including good!ill'. :hat amount of loss on impairment of good!ill should India record in 21; a. )s b. )s2 2 c. )s2 2 d. )s4 4 11. +ho! +ho! +omp +ompan any y purc purcha hase sed d the the +hee +hee Divi Divisi sion on in 21 21 and and appr approp opri riat atel ely y reco recorde rded d
12 & 13
111.
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
An une 2 21 21 Alse Alsen n Inc. Inc. purch purchas ased ed a trad tradem emar ar !ith !ith a cost cost N23" N23" . . he trademar trademar is classified classified as an indefinite indefinitelife life intangible intangible asset. asset. (t December December 31 21 and December 31 21" the follo!ing is available for impairment testing@ 8air value less costs to sell Lalueinuse
12=31=21 N22$ N234
12=31=21" N22" N23%
he 21" income statement !ill report a. no Impair Impairmen mentt 0oss or or )ecover )ecovery y of Impair Impairmen ment. t. b. Impair Impairmen mentt 0oss 0oss of N2 N2. . c. )ecove )ecovery ry of of Impai Impairme rment nt of of N2 N2. . d. )ecove )ecovery ry of of Impai Impairme rment nt of N N. . 112. 112.
oyo oyo Enterpris Enterprises es has four divis divisions. ions. It ac,uired ac,uired on of them them 5reen 5reen 9roducts 9roducts on anuary anuary 1 21 for O"4 and recorded good!ill of O$12 as a result of that purchase. (t December 31 21 5reen 9roducts had a recoverable amount of O%2. he carrying value of the +ompany6 ny6s net assets at December 31 21 !as O"$&including good!ill'. :hat amount of loss on impairment of good!ill should oyo record in 21; a. O b. O24 O24 c. O4$ d. O#2 O#2 %se t6e fo))o*in" information for 7!estions 11, and 11.+
An anuary 1 214 Dillman Inc. purchased a patent !ith a cost N232 a useful life of years. he company uses straightline depreciation. (t December 31 21 the company determines that impairment indicators are present. he fair value less costs to sell the patent is estimated to be N1$. he patent>s valueinuse is estimated to be N113. he asset>s remaining useful life is estimated to be 2 years. 113. 113. ingham>s ingham>s 21 income income statement statement !ill !ill report 0oss 0oss on Impairment Impairment of a. N. b. N2"2. c. N312 d. N113 114. 114. he company>s company>s 21" income statement !ill !ill report amortization amortization expense for the patent patent of a. N3#. b. N4"4. c. N". d. N1 N113 13 . .
Intangible (ssets
12 & 14
11. 11. An (ugust (ugust 1 214 :ei Inc. Inc. purchased purchased a licens license e !ith !ith a cost cost of s valueinuse is estima estimated ted to be s :ei>s 21" 21" income income statem statement ent !ill !ill report report 0oss 0oss on Impairment of a.
An anuary 2 21 (ce Inc. purchased a patent !ith a cost +<82$2 and a useful life of 4 years. (t December 31 21 and December 31 21" the company determines that impairment indicators are present. he follo!ing information is available for impairment testing at each year end@ 8air value less cost to sell Lalueinuse
12=31=21 +<8214 +<822
12=31=21" +<812" +<8133
Co changes !ere made in the asset>s estimated useful life. 11". 11". he company> company>s s 21" income income statemen statementt !ill report report a. (morti (mortizat zation ion Expe Expense nse of +<8 +<8# # . . b. (mortizati (mortization on Expense Expense of +<8# +<8# and 0oss on Impairme Impairment nt of +<83 +<83.. c. (mortizati (mortization on Expense Expense of +<8# +<8# and a )ecovery )ecovery of Impairmen Impairmentt of +<813 +<813. . d. 0oss 0oss on impa impairm irment ent of of +<8# +<8# . . 11#. 11#. he company> company>s s 21" income income statemen statementt !ill report report a. (morti (mortizat zation ion Expe Expense nse of +<8 +<8# # . . b. (mortizati (mortization on Expense Expense of +<8# +<8# and 0oss on Impairme Impairment nt of +<81" +<81". . c. (mortizati (mortization on Expense Expense of +<8# +<8# and a 0oss of Impairment Impairment of of +<8# +<8#.. d. 0oss 0oss on impair impairmen mentt of 21 21. . 11$. 11$.
he follo!ing follo!ing inform information ation is available available for arley arley +ompan +ompany6s y6s patents@ patents@ +ost +arrying amount )ecoverable amount
J22$ 12% %#
arley !ould record a loss on impairment of a. b. J31. c. J%%. d. J13 J13 ..
12 & 25
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
11%. 11%.
J1 12 1 J3#
hese costs relate to a product that !ill be mareted in 21. It is estimated that these costs !ill be recouped by December 31 21# but its process has not achieved economic viability. he e,uipment has no alternative future use. :hat is the amount of research and development costs that should be expensed in 214; a. J. b. J22. c. J2#. d. J3#. 122. s 21 income statement should be a. J1 J1% % . . b. J2 J22 2 . . c. J242. d. J4 J4% % . .
Intangible (ssets
12 & 21
123. 0oazia 0oazia Inc. incurred incurred the follo! follo!ing ing costs during during the year year ended Decembe Decemberr 31 21@ 0aboratory research aimed at discovery of ne! no!ledge +osts of testing prototype and design modifications &economic viability not achieved' Puality control during commercial production including routine testing of products +onstruction of research facilities having an estimated useful life of " years but no alternative future use
J2 4 2# 3"
he total amount to be classified and expensed as research and development in 21 is a. J1. b. J$#. c. J". d. J31. 124. Faelle Faelle +orporatio +orporation n incurred incurred the follo! follo!ing ing costs costs in 21@ 21@ (c,uisition of )GD e,uipment !ith !ith a useful life of 4 years in )GD pro*ects J /tartup costs incurred !hen opening a ne! plant 14 (dvertising expense to introduce a ne! product # Engineering costs incurred to advance a product to full production stage &economic viability not achieved' 4 :hat amount should Faelle record as research G development expense in 21; a. J 2 b. J "4 c. J % % d. J14 12. 0eeper +orporat +orporation ion incurred incurred the the follo!ing follo!ing costs costs in 21@ (c,uisition of )GD e,uipment !ith !ith a useful life of 4 years in )GD pro*ects J% +ost of maing minor modifications to an existing pr product 14 (dvertising expense to introduce a ne! product # Engineering costs incurred to advance a product to full production stage &economic viability not achieved' " :hat amount should 0eeper record as research G development expense in 21; a. J $2 b. J14 c. J13# d. J1#4 12". 9lattevill 9latteville e +orporation +orporation has the follo!ing follo!ing account account balances balances at 12=31=1@ 12=31=1@ (mortization expense J 1 5ood!ill 14 9atents net of J3 amortization % :hat amount should 9latteville report for intangible assets on the 12=31=1 statement of financial position; a. J % b. J12 c. J23 d. J24
12 & 22
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
-!)ti()e C6oie Ans*ers' Com(!tationa) Item
$4. $. $". $#. $$. $%. %. %1.
Ans+
d d c d c c b b
Item
%2. %3. %4. %. %". %#. %$. %%.
Ans+
Item
Ans+
Item
Ans+
Item
Ans+
b c b b a b c c
1. 11. 12. 13. 14. 1. 1". 1#.
d b b b c b a c
1$. 1%. 11. 111. 112. 113. 114. 11.
c a a c a b c b
11". 11#. 11$. 11%. 12. 121. 122. 123.
a c b c d d c c
Item
124. 12. 12".
Ans+
a a c
-%LTIPLE CHOICE'CPA Ada(t Ada(ted ed 12#. 12#.
0opez 0opez +orp. +orp. incurre incurred d J42 J42 of resear research ch costs costs to develo develop p a produc productt for !hich !hich a patent patent !as granted on anuary 2 21. 0egal fees and other costs associated !ith registration of the patent totaled J$. An Farch 31 21 0opez paid J13 for legal fees in a successful defense of the patent. he total amount capitalized for the patent through Farch 31 21 should be a. J21. b. J. c. J. d. J".
12$. 12$.
An une une 3 21 21 +ey +ey Inc. Inc. excha exchang nged ed 2 2 shares shares of /eel /eely y +orp. +orp. J2 par value value ordinary shares for a patent o!ned by 5ore +o. he /eely stoc !as ac,uired in 21 at a cost of J. (t the exchange date /eely ordinary shares had a fair value of J4$ per share and the patent had a net carrying value of J11 on 5ore>s boos. +ey should record the patent at a. J. b. J. c. J%". d. J11.
12%. 12%.
An Fay 21 21 FacDou FacDougal gal +orp. +orp. excha exchange nged d 2 2 shares shares of its its J2 par value value ordin ordinary ary treasury shares for a patent o!ned by Fasset +o. he treasury shares !ere ac,uired in 214 for J4. (t Fay 21 FacDougal>s ordinary shares !as ,uoted at J3$ per share and the patent had a carrying value of J"$ on Fasset>s boos. FacDougal should record the patent at a. J4. b. J. c. J". d. J#".
Intangible (ssets
12 & 2,
13. 13.
Ely Ely +o. +o. boug bought ht a pate patent nt from from ade aden n +orp +orp.. on anua anuary ry 1 21 21 for for J3" J3" .. (n independent consultant retained by Ely estimated that the remaining useful life at anuary 1 21 is 1 years. Its unamortized cost on aden6s accounting records !as J1$K the patent had been amortized for years by aden.
131. 131.
anuar anuary y 2 212 212 Moll Moll Inc. purch purchase ased d a patent for for a ne! consum consumer er product product for for J4 J4. . (t the time of purchase the patent !as valid for 1 yearsK ho!ever ho!ever the patent6s useful life !as estimated to be only 1 years due to the competitive nature of the product. An Decemb December er 31 21 21 the produc productt !as !as perman permanent ently ly !ithd !ithdra! ra!n n from from the mare marett under under governmental order because of a potential health hazard in the product. :hat amount should Moll charge against income during 21 assuming amortization is recorded at the end of each year; a. J 4 b. J2# c. J31 d. J3"
132. 132.
An anuary anuary 1 211 211 )usse )ussellll +ompan +ompany y purchas purchased ed a copyrigh copyrightt for J12 J12 having having an estimated useful life of 1" years. In anuary 21 )ussell paid J1$ for legal fees in a successful defense of the copyright. +opyright amortization expense for the year ended December 31 21 should be a. J. b. J#. c. J$"2. d. J%.
133. 133.
:hich :hich of of the the follo! follo!ing ing lega legall fees fees shou should ld be capita capitaliz lized; ed; 0egal fees to obtain a copyright a. Co b. Co c. Bes d. Bes
134. 134.
0egal fees to successfully defend a trademar Co Bes Bes Co
:hich :hich of the follo! follo!ing ing costs costs of good!ill good!ill should should be amortiz amortized ed over their their estima estimated ted useful useful lives; +osts of good!ill from a +osts of developing business combination combina tion good!ill internally intern ally a. Co Co b. Co Bes c. Bes Bes d. Bes Co
12 & 2.
13. 13.
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
During During 21 21 0eon 0eon +o. incurr incurred ed the the foll follo! o!ing ing cost costs@ s@ esting in search for process alternatives J 3$ +osts of mareting research for ne! product 2 Fodification of the formulation of a process 1 )ese )esearc arch h and dev devel elop opme ment nt ser servi vice ces s perf perfor orme med d by ec ec +orp +orp.. for for 0eon 0eon 42 42 In 0eon>s 21 income statement research and development expense should be a. J1. b. J%3. c. J131. d. J1 J1" " . .
13". 13".
)iley )iley +o. +o. incu incurred rred the follo! follo!ing ing cost costs s durin during g 21@ 21@ /ignificant modification to the formulation of a chemical product roubleshooting in connection !ith breado!ns during commercial production +ost of exploration of ne! formulas /easonal or or ot other periodic de design ch changes to existing pr products 0aboratory research aimed at discovery of ne! technology
J1" 1 2 1$ 2#
In its income statement for the year ended December 31 21 )iley should report research and development expense of a. J"3. b. J#$. c. J$2. d. J%#.
-!)ti()e C6oie Ans*ers' CPA Ada(ted Item
Ans+
Item
Ans+
Item
Ans+
Item
Ans+
Item
Ans+
12#. 12$.
a c
12%. 13.
d c
131. 132.
c d
133. 134.
c a
13. 13".
c a
8ERIVATIONS ' Com(!tationa) No+ Ans*er $4. d
8eri9ation J4 Q J1 R J41.
$.
d
J3 Q J% R J3%.
$".
c
&2 x J%' Q J$ R J1#.
$#.
d
J3 x &J24 = J32' R J22.
$$.
c
&J1 S 1' T 2 2=3 R J4.
$%.
c
&J2# S 1' T 2 2=3 R J#2.
%.
b
J S 1 R J.
%1.
b
J13 - U&J13 S 1' T 1 1=3V R J11#. &J11# &J11# Q J33' S R J3.
Intangible (ssets
12 & 20
8ERIVATIONS ' Com(!tationa) :ont+; No+ Ans*er %2. b
8eri9ation J4 - U&J4 S 1' T 1 1=3V R J4"$. &J4"$ Q J132' S R J12.
%3.
c
J3 Q J3% Q J12 R J4.
%4.
b
&J$4 S 1' T R J42.
%.
b
U&J4$ - J4$' Q J21"V S 12 R J4.
%".
a
J12 S 1 R J12.
%#.
b
J21 - U&J21 S "' T 2V R J14. J14 S 2 R J#.
%$.
c
&J Q J3' - J2 R J33 J4 - J33 R J21.
%%.
c
&J" Q J4' - J2 R J3%. J" - J3% R J2".
1.
d
J"2 Q J" Q J4 R J#2. J$4 - J#2 R J11. J11.
11.
b
J1 - J13 R J2 gain.
12.
b
N144$ - &N12"2 Q N$" Q N14' R $"
13.
b
N232= R N4"4 T 2 R N%2$K N232 - N%2$ R N13%2K N13%2 - N113 R N2"2
14.
c
N113= 2 R N"
1.
b
1".
a
+<81$$= 4 R +< +<84#K +< +<81$$ - +<84# R +<8141
1#.
c
+<8141 - +<84# R +<8%4K +< +<8%4 - +<8$% R +<8
1$.
c
N%44 - N%3# R N#
1%.
a
)ecoverable amount W +arrying value
11.
a
111.
c
N23" - N234 R N2
112.
a
)ecoverable amount W +arrying value
12 & 2
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
8ERIVATIONS ' Com(!tationa) :ont+; No+ Ans*er 113. b
8eri9ation N232= R N4"4 T 2 R N%2$K N232 - N%2$ R N13%2K N13%2 - N113 R N2"2
114.
c
N113= 2 R N"
11.
b
11".
a
+<82$2= 4 R +<8#K +< +<82$2 - +<8# R +<8211
11#.
c
+<8211 - +<8# R +<8141K +< +<8141 +<8133 R +<8#
11$.
b
J12% - J%# R J31.
11%.
c
J" - U&J" S 1' 2V R J4$.
12.
d
J4 - U&J4 S 1' T 2V R J32. /ince J32 W J2#2 patent is reported at J2#2.
121.
d
Expense total of J3#.
122.
c
J42 - J3 R J242.
123.
c
J2 Q J4 Q J3" R J".
124.
a
&J S 4' Q J4 R J2.
12.
a
&J% S 4' Q J" R J$2.
12".
c
J14 Q J% R J23.
8ERIVATIONS ' CPA C PA Ada(ted 12#.
a
J$ Q J13 R J21.
12$.
c
2 T J4$ R J%".
12%.
d
2 T J3$ R J#".
13.
c
J3" S 1 R J24.
131.
c
J4 - U&J4 S 1' T 3V R J31.
132.
d
&J12 - U&J12 S 1"' T 4V R J% &J% Q J1$' S 12 R J%.
Intangible (ssets
12 & 2
8ERIVATIONS ' CPA Ada(ted :ont+; No+ Ans*er 133. c
8eri9ation +onceptual.
134.
a
+onceptual.
13.
c
J3$ Q J1 Q J42 R J131.
13".
a
J1" Q J2 Q J2# R J"3.
E
Intangible assets have three main characteristics@ &1' they are identifiable &2' they lac physical existence and &3' they are not monetary assets. Instr!tions
&a' Explain !hy intangibles intangibles are classified as assets if they have no physical physical existence. &b' Explain Explain !hy intangibles intangibles are not considered monetary monetary assets. assets. So)!tion 12&1,
&a' Intang Intangibl ible e assets assets derive derive their their value from the rights rights and privileg privileges es grante granted d to the company using them. &b' Intangibles are not considered monetary assets because they do not derive their value from the right &claim' to receive cash or cash e,uivalents in the future. E/+ 12&1,3
Intangible assets may be internally generated or purchased from another party. In either case !hat costs should be included in the initial valuation of the asset is an issue. Instr!tions
&a' Identify the typical typical costs included in the cash purchase purchase of an intangible intangible asset. &b' Discus Discuss s ho! to determ determine ine the cost of an intangib intangible le asset ac,uire ac,uired d in a nonca noncash sh transaction. &c' Describe Describe ho! to determine determine the cost of several intangible intangible assets assets ac,uired ac,uired in a Hbaset Hbaset purchase. So)!tion 12&1,3
&a' he typical typical costs included included in the purchase of an intangible intangible asset are@ purchase purchase price legal fees and other incidental expenses. &b' In a nonca noncash sh ac,uisit ac,uisition ion of an intang intangibl ible e asset asset the initia initiall cost cost of the intangi intangible ble is either the fair value of the consideration given or the fair value of the intangible received !hichever is more clearly evident. &c' :hen several several intangible intangible assets assets are ac,uired in a Hbaset purchase purchase the cost of the individual assets is based on their relative fair values.
12 & 23
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
E/+ 12&1,4
:hy does the accounting profession mae a distinction bet!een internally created intangible assets and purchased intangible assets; So)!tion 12&1,4
:hen intangible assets are created internally it is often difficult to determine the validity of any future service potential. o permit deferral of these types of costs !ould lead to a great deal of sub*ectivity because management could argue that almost any expense could be capitalized on the basis that it !ill increase future benefits. he cost of purchased intangible assets ho!ever is capitalized capitalized because its cost can be ob*ectively verified and reflects its fair value at the date of ac,uisition.
E/+ 12&1.5 X/hort essay ,uestions.
1. 2.
:hat :hat are are intang intangibl ible e asset assets; s;
So)!tion 12&1.5
1. Intangible Intangible assets assets are assets assets that derive derive their value value from the rights rights and privileges privileges granted granted to the company using them. hey provide services over a period of years and are normally classi classifie fied d as longt longterm erm assets assets.. Exampl Examples es are patent patents s copyrig copyrights hts franch franchise ises s good!i good!ill ll trademars and trade names. 2. 0imitedlif 0imitedlife e intangibles intangibles are amortized amortized by systemati systematic c charges to expense expense over their useful useful life. In additi addition on they they are revie! revie!ed ed for impair impairmen mentt each each year. year. Impairme Impairment nt occurs occurs !hen !hen the recoverable recoverable amount is less than the carrying amount of the intangible intangible asset. asset. he intangible intangible asset is reduced for the amount by !hich its carrying value exceeds the recoverable amount at year end. E/+ 12&1.1
If intangible assets are ac,uired for shares ho! is the cost of the intangible determined; So)!tion 12&1.1
If intangible assets are ac,uired for shares the cost of the intangible is the fair value of the consideration given or the fair value of the consideration received !hichever is more clearly evident. E/+ 12&1.2
)edsto )edstone ne +ompan +ompany y spent spent J1$ J1$ develo developing ping a ne! process process &econo &economic mic viabil viability ity not achieved' J in legal fees to obtain a patent and J%1 to maret the process that !as patented.
Intangible (ssets
12 & 24
So)!tion 12&1.2
he J1$ should be expensed !hen incurred as research and development expense. he J%1 is expensed expensed as selling selling and promotion promotion expense !hen incurred. he J of costs to legally obtain the patent should be capitalized and amortized over the useful or legal life of the patent !hichever is shorter. E/+ 12&1.,
Intangible assets have either a limited useful life or an indefinite useful life.
0imitedlife intangible assets should be amortized by systematic charges to expense over the shorter of their useful life or legal life. (n intangible asset !ith an indefinite life is not amortized. E/+ 12&1..
:hat are factors to be considered in estimating the useful life of an intangible asset; So)!tion 12&1..
8actors to be considered in determining useful life are@ a. he expec expected ted use use of the asset asset by the the compan company y. b. he effects effects of obsolesc obsolescence ence demand demand competitio competition n and other economic economic factors factors.. c. (ny legal legal regulatory regulatory or contrac contractual tual provision provisions s that enable enable rene!al rene!al or extension extension of the asset6s legal or contractual life !ithout substantial cost. d. he level level of maintenance maintenance expendit expenditure ure re,uired re,uired to obtain obtain the expected expected future future cash cash flo!s flo!s from the asset. e. (ny legal legal regulatory regulatory or contractua contractuall provisions provisions that may may limit the useful useful life. life. f. he expecte expected d useful life of another another asset or or a group of of assets assets to !hich !hich the useful useful life of of the intangible asset may relate. E/+ 12&1.0
arley +orp. obtained a trade name in anuary 214 incurring legal costs of J2. he company amortizes the trade name over $ years. arley successfully defended its trade name in anuary 21 incurring J4% in legal fees. (t the beginning of 21" based on ne! mareting research arley determines that the recoverable amount of the trade name is J1". Instr!tions
9repare the necessary *ournal entries for the years ending December 31 214 21 and 21". /ho! all computations.
12 & ,5
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
So)!tion 12&1.0
214 Dec. ec. 31 31
21 Dec. ec. 31 31
21" Dec. 31
(mor (morti tiz zatio ation n Ex Expens pense e rade Came ame rade Came &J2 S $ years'
2 2 2
(mor (morti tiz zatio ation n Ex Expens pense e - r rade ade Cam Came e 32 32 rade Came U&J2 J2 Q J4%' S # yearsV 0oss on Impairment rade Came
32
2# 2#
+arrying value R J2 J2 Q J4% J32 R J1%2 +arrying value R J1%2 )ecoverable amount R &1"' 0oss 0oss on impa impair irme ment nt R J 2# 2# 21" Dec. ec. 31 31
(mor (morti tiz zatio ation n Ex Expens pense e - r rade ade Cam Came e 2# 2# rade Came &J1" S " years'
2#
E/+ 12&1.
0isted belo! is a selection of accounts found in the general ledger of Farshall +orporation as of December 31 21@ (ccounts receivable 5ood!ill Arganization costs 9repaid insurance )adio broadcasting rights Cotes receivable rade name
)esearch G development costs Internet domain name Initial operating loss Concompetition agreement +ustomer list Lideo copyrights
Instr!tions
0ist those accounts that should be classified as intangible assets. So)!tion 12&1.
5ood!ill )adio broadcasting rights rade name Internet domain name
Concompetition agreement +ustomer list Lideo copyrights
Intangible (ssets
12 & ,1
E/+ 12&1.
Define the follo!ing terms. &a' 5ood!ill &b' argain purchase So)!tion 12&1.
&a' Larying Larying approache approaches s are used to to define good!il good!ill. l. hey are@ are@ 5ood!ill is measured as the excess of the cost of the purchase over the fair value identifiable of the net assets ac,uired. 5ood!ill is sometimes referred to as a plug a gap filler or a master valuation account. 5ood!ill 5ood!ill represents the future future economic economic benefits arising from the other assets ac,u ac,uir ired ed in a busi busine ness ss comb combin inat atio ion n that that are are not not indi indivi vidu dual ally ly iden identi tifi fied ed and and separately recognized. &b' ( bargain bargain purchase purchase occurs occurs !hen the fair fair value of the identifia identifiable ble net assets assets purchased purchased is higher than the cost. his situation results from a maret imperfection. In this case the seller !ould have been better off to sell the assets individually than in total.
•
•
E/+ 12&1.3 X+arrying value of patent.
/isco /isco +o. purchased purchased a patent patent from hornton hornton +o. for J22 J22 on uly 1 212. Expenditures Expenditures of J"$ for successful litigation in defense of the patent !ere paid on uly 1 21. /isco estimates that the useful life of the patent !ill be 2 years from the date of ac,uisition. Instr!tions
9repare a computation of the carrying value of the patent at December 31 21. So)!tion 12&1.3
+ost of patent (mortization #=1=12 to #=1=1 U&J22 S 2' T 3V +arrying value at #=1=1 +ost of successful defense +arrying value (mortization #=1=1 to 12=31=1 UJ2 T 1=&2 - 3' T 1=2V +arrying value at 12=31=1
J22 &33' 1$# "$ 2 &#' J24#
E/+ 12&1.4 X(ccounting for patent.
In early anuary 214 0erner +orporation applied for a patent incurring legal costs of J". In anuary 21 0erner incurred J% of legal fees in a successful defense of its patent. Instr!tions
&a' +omput +ompute e 214 214 amorti amortizat zation ion 12=31= 12=31=14 14 carryi carrying ng value value 21 amorti amortizat zation ion and 12=31=1 12=31=1 carrying value if the company amortizes the patent over 1 years. &b' &b' +omp +omput ute e the the 21" 21" amor amorti tiza zati tion on and and the the 12=3 12=31= 1=1" 1" carry carryin ing g valu value e assu assumi ming ng that that at the the beginning beginning of 21" based on ne! maret research research 0erner determines determines that the recoverabl recoverable e amount of the patent is J4$.
12 & ,2
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
So)!tion 12&1.4
&a' 214 214 amorti amortizat zation ion@@ J" J" S 1 yrs. yrs. R J" J" 12=31=14 carrying value@ J" - J" R J4 21 amortization@ &J4 Q J%' S % yrs. R J# 12=31=1 carrying value@ &J4 Q J%' - J# R J" &b' 0oss on impairme impairment@ nt@ J" J" carrying carrying value value - J4$ J4$ recoverable recoverable amount amount R J$ J$ 21" amortization@ J4$ S $ yrs. R J" 12=31=1" carrying value@ J4$ - J" R J42 E/+ 12&105
?nder !hat circumstances is it appropriate to record good!ill in the accounts;
5ood!ill is recorded only !hen it is ac,uired through a business combination. 5ood!ill ac,uired in a business combination is considered to have an indefinite life and therefore should not be amortized but should be tested for impairment on at least an annual basis. E/+ 12&101
8red6s +ompany is considering the !riteoff of a limited life intangible asset because of its lac of profitability. Explain Explain to the management of 8red6s ho! to determine !hether a !riteoff is permitted. So)!tion 12&101
(ccounting standards re,uire that if events or changes in circumstances circumstances indicate that the carrying amount of such assets may not be recoverable then the carrying amount of the asset should be assessed. If the recoverable amount is less than the carrying amount the asset has been impaired. he impairment loss is measured as the amount by !hich the carrying amount exceeds the recoverable amount of the asset. he recoverable amount of assets is the higher of fair value less costs to sell or valueinuse. Lalueinuse is the present value of cash flo!s expected from the future use and eventual sale of the asset at the end of its useful life. E/+ 12&102
0eon +orp. purchased /pins +o. 4 years ago and at that time recorded good!ill of J3. he /ins Division6s net assets including good!ill have a carrying amount of J#2. he recoverable amount of the division is estimated to be J#. Instr!tions
&a' Explain !hether or not 0eon +orp. must prepare an entry to record impairment of the good!ill. Include the entry if necessary. &b' )epeat instruction &a' assuming that the recoverable amount of the division is estimated to be J".
Intangible (ssets
12 & ,,
So)!tion 12&102
&a' he recoverable amount of the division &J#' exceeds the carrying carrying amount of its assets &J#2'. herefore good!ill is not impaired and no entry is necessary. &b' he recoverable amount of the division &J"' is less than than the carrying amount of its assets &J#2'. herefore good!ill is impaired. he amount of the impairment loss is J#. 0oss 0oss on Impa Impairm irment entYY YYYY YYYY YY # # 5ood!illYYYYYYYY.
#
E/+ 12&10,
9resented belo! is information related to copyrights o!ned by :amser +orporation at December 31 214. +ost J2# +arrying amount 23 )ecoverable amount 1 (ssume :amser !ill continue to use this asset in the future. (s of December 31 214 the copyrights have a remaining useful life of years. Instr!tions
&a' 9repar 9repare e the *ournal *ournal entry entry &if any' to record record the impairm impairment ent of the asset asset at December December 31 214. &b' 9repare 9repare the *ournal *ournal entry entry to record record amortiz amortization ation expens expense e for 21. 21. &c' he recoverab recoverable le amount amount of the copyrig copyright ht at December December 31 21 21 is J1" J1". . 9repare 9repare the *ournal entry &if any' necessary to record this increase in fair value. So)!tion 12&10,
&a'
December 31 214 0oss 0oss on Impa Impair irme ment nt.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. +opyrights......................................................................... +arrying amount )ecoverable amount 0oss on impairment
&b'
$
J23 1 J $
December 31 21 (mortization Expense.................................... Expense.......................................................... ............................. ....... +opyrights......................................................................... Ce! carrying amount ?seful life (mortization
$ $
3 3
J1 S years J 3
&c' +opyri +opyright ghts.. s..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ...... .. )ecovery of of Im Impairment 0o 0oss........................................... UJ1" - &J1 - J3'V
4 4 4
12 & ,.
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
E/+ 12&10.
)esearch and development activities may include &a' personnel costs &b' materials and e,uipment costs and &c' indirect costs. :hat is the recommended accounting treatment for these three types of )GD costs; So)!tion 12&10.
&a' 9ersonnel 9ersonnel type costs costs incurred incurred in ) G D activities activities should be expensed expensed as incurred. incurred. &b' Faterials Faterials and e,uipment e,uipment costs costs should be expensed expensed immediat immediately ely unless unless the items have have alternative future uses. If the items have alternative future uses the materials should be recorded as inventories and allocated as consumed and the e,uipment should be capitalized and depreciated as used. &c' Indirect Indirect costs costs of ) G D activities activities should be reasonably reasonably allocat allocated ed to ) G D &except for general and administrative costs !hich must be clearly related in order to be included' and expensed. E/+ 12&100
)ecently )ecently a group of university students decided to incorporate for the purposes of selling a process to recycle the !aste product from manufacturing cheese. /ome of the initial costs involved !ere legal fees and office expenses incurred in starting the business and stamp taxes. Ane student !ishes to charge these costs against r evenue in the current period. (nother !ishes to defer these costs costs and amortize them in in the future. :hich student is correct and !hy; So)!tion 12&100
hese costs are referred to as startup costs or more specifically organizational costs in this case. (ccounting for start up costs is straightfor!ardXexpense these costs as incurred. he profession recognizes that these costs are incurred !ith the expectation that future revenues !ill occur or increased efficiencies !ill result.
Las,u Las,uez ez Fanufa Fanufactu cturin ring g +ompany +ompany decide decided d to expand expand furthe furtherr by purcha purchasin sing g :asse :asserma rman n +ompany. he statement of financial position of :asserman +ompany as of December 31 21 !as as follo!s@ :asserman +ompany /tatement of 8inancial 9osition December 31 21 (ssets 9lant assets &net' Inventory )eceivables +ash otal assets
J12 2# 21 J2"
E,uity and 0iabilities /hare capitalordinary )etained earnings (ccounts payable
J $ $$ 3#
otal e,uity and liabilities
J2"
Intangible (ssets
12 & ,0
E/+ 12&10 &cont.'
(n appraisal agreed to by the parties indicated that the fair value of the inventory !as J3 and the fair value of the plant assets !as J112. he fair value of the receivables is e,ual to the amount reported on the statement of financial position. he agreed purchase price !as J2% and this amount !as paid in cash to the previous o!ners of :asserman +ompany. +ompany. Instr!tions
Determine the amount of good!ill &if any' implied in the purchase price of J2%. /ho! calculations. So)!tion 12&10
9urchase price 0ess tangible net assets ac,uired@ oo value &J2" - J3#' (ppraisal incrementXinventory (ppraisal incrementXplant assets otal fair value of tangible net assets ac,uired 5ood!ill
J2% J1"$ # 1 1$" J 23
PROBLE-S Pr+ 12&10 XIntangible assets.
he follo!ing transactions involving intangible assets of Finton +orporation occurred on or near December 31 214. +omplete the chart belo! by !riting the *ournal entry&ies' needed at that date to record the transaction and at December 31 21 to record any resultant amortization. If no entry is re,uired at a particular date !rite 7none needed.7 An Date of r ransaction 1. Fint Finton on paid paid 5rand 5rand +ompa +ompany ny J J for for the the exclus exclusive ive right right to maret maret a partic particula ularr produc product t using the 5rand name and logo in promotional mate materi rial al.. he he fran franch chis ise e runs runs for for as long long as Finton is in business. 2. Finton Finton spent spent J" J" devel developi oping ng a ne! manu manu fact factu uring ring proc proces ess s &econ econom omic ic viabi iabili lity ty not not achi achiev eved ed'. '. It has has appl applie ied d for for a pate patent nt and and it believes that its application !ill be successful. 3. In anu anuar ary y 21 21 Fint Finton on>s >s appl applic icat atio ion n for for a pate patent nt &Z2 &Z2 abov above' e' !as gran grante ted. d. 0ega 0egall and and registratio registration n costs incurred !ere J14. J14. he pate patent nt runs runs for for 2 year years. s. he he manu manufa fact ctur urin ing g process !ill be useful to Finton for 1 years. 4. Finton Finton incurre incurred d J1#2 J1#2 in success successful fully ly defend defend ing one of its patents in an infringement suit. he patent expires during December 21$.
An December 31 31 2 21
12 & ,
Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e
Pr+ 12&10 &cont.'
. Fint Finton on incu incurr rred ed J4$ J4$ in an unsu unsucc cces essf sful ul pate patent nt defe defens nse. e. (s a resu result lt of the the adve advers rse e verdict the patent !ith a remaining unamortized cost of J22 is deemed !orthless. ". Fint Finton on paid paid /nee /need d 0abo 0abora rato tori ries es J14 J14 for for resear research ch and develo developme pment nt !or !or perform performed ed by /need under contract for Finton. he benefits are expected to last six years. So)!tion 12&10
An Date of ransaction 1. 8ranchise............. +ash.............. 2. )esearch and Dev Devel. el. Expe Expens nse. e... .... +ash.............. 3. 9atents................. +ash.............. 4. 9atents................. +ash..............
1. HCone needed. 2. 7Cone needed.7
" " " 14 14 1#2 1#2
. 0egal 8ees Exp.. . . +ash..............
4$
9atent Ex Expense.. . 9atents...........
22
". )es )esearc earch h and and Dev Devel. el. Expe Expens nse. e... .... +ash..............
An December 31 21
3. 9atent (mortization Expense..................... 1 14 4 9atents.................
14
4. 9atent (mortization Expense..................... 4 43 3 9atents.................
43
. HCone needed. 4$ 22 ". 7Con 7Cone e need needed ed..7
14 14 14
Pr+ 12&103 X5ood!ill impairment.
An Fay 31 21 (rmstrong +ompany paid J34 to ac,uire all of the common stoc of
J2# %
otal assets
J3"
E,uity Concurrent liabilities +urrent liabilities otal e,uity and liabilities
J2 J " " J3"
Intangible (ssets
12 & ,
Pr+ 12&103 &cont.'
It !as determined at the date of the purchase that the fair value of the identifiable net assets of
J $ 24 24 &#' &' J2
It is determined that the recoverable amount value of the
&a' +ompute +ompute the amount amount of good! good!ill ill recognized recognized if any any on Fay Fay 31 21. 21. &b' Determine Determine the impairm impairment ent loss loss if any any to be recorded recorded on Decembe Decemberr 31 21. &c' &c' (ssu (ssume me that that the the reco recove vera rabl ble e amou amount nt of the the
&a' 5ood!ill 5ood!ill R 8air value value of the divisio division n less the fair fair value value of the identifia identifiable ble assets. assets. J34 - J2$ R J". &b' Co impairme impairment nt loss is record recorded ed because because the recovera recoverable ble amount amount of
J1$ 2 J &2' 2 2 2
