Exam 11: Intangible Assets

In 2008, Edwards Corporation incurred research and development costs as follows: These costs relate to a product that will be marketed in 2009. It is estimated that these costs will be recouped by December 31, 2011. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2008?

Smith Co. bought a window franchise from Paine, Inc., on January 2, 2008, for $100,000. A highly regarded independent research company estimated that the remaining useful life of the franchise was 50 years. Its unamortized cost on Paine's books at January 1, 2008, was $15,000. Smith has decided to write off the franchise over the longest possible period. How much should be amortized by Smith Co. for the year ended December 31, 2008?

Legal fees and other costs incurred in successfully defending a patent suit are expensed as incurred.

A copyright is granted for the life of the creator or 50 years, whichever is longer.

The reason goodwill is sometimes referred to as a master valuation account is because

Start-up costs are usually charged to an account called Start-Up Costs and may be carried as an asset on the balance sheet.

When determining the impairment, if any, of goodwill, the fair value of the reporting unit should be compared to its carrying amount including goodwill.

Badwill arises when the fair market value of the asset acquired is higher than the purchase price of the asset.

General Products Company bought Special Products Division in 2007 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2008, the fair value of Special Products Division is $2,000,000 and it is carried on General Product's books for a total of $1,700,000, including the goodwill. An analysis of Special Products Division's assets indicates that goodwill of $200,000 exists on December 31, 2008. What goodwill impairment should be recognized by General Products in 2008?

Riley Co. incurred the following costs during 2008: In its income statement for the year ended December 31, 2008, Riley should report research and development expense of

Costs incurred internally to create intangibles are generally the basis for recording intangible assets, which are then amortized over the estimated life of the intangible asset.

For indefinite-life intangibles, a recoverability test is used to determine whether an impairment has occurred.

During 2008, Leon Co. incurred the following costs: In Leon's 2008 income statement, research and development expense should be

The accounting profession does not allow the immediate write-off of goodwill. The best reason for this requirement seems to be that

On January 2, 2005, Koll, Inc. purchased a patent for a new consumer product for $180,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2008, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2008, assuming amortization is recorded at the end of each year?

How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?

In 2005, Hume, Inc. purchased Rousseau Metals for $3 million. At December 31, 2008, the Rousseau division reported net assets of $3,300,000 (including $1,700,000 of goodwill). Hume reviewed the Rousseau division and determined that expected net future cash flows equal $2,500,000 and the fair value is estimated to be only $1,800,000. What entry should Hume record concerning the Rousseau division on December 31, 2008?

Jo Jo Chong, Inc. needs to determine if its property, plant, and equipment has 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

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

Riser Corporation was granted a patent on a product on January 1, 1998. To protect its patent, the corporation purchased on January 1, 2007 a patent on a competing product which was originally issued on January 10, 2003. Because of its unique plant, Riser Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be