Exam 9: Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Which statement is not correct?

Assume that a company has spent $1 million during the year and is deciding whether these costs should be expensed as research costs or capitalized as development costs. Explain the impact of undercapitalization of development costs on the financial statements.

Listed below are several transactions that occurred during the year. In each case, all the amounts were debited to an account called "R and D costs." At the end of the year the company wants this account closed out and the amounts either expensed or capitalized to an asset account called "Development costs." a. During the year $5,500,000 was paid to staff to investigate whether a drug combination was effective for reducing a specific type of cancer in mice. Evidence showed it materially reduced the effects of this cancer in the mice. b. During the year $12,000,000 was paid to staff to investigate whether a drug combination was effective for reducing a specific type of cancer for terminally ill cancer patients. The trials were successful in a limited number of cases but the results were mixed. c. During the year $44,000,000 was paid to staff to investigate whether a drug combination was effective in reducing a specific type of cancer. The drug was very successful in most cases. Market research shows a huge market for this drug. The Board has committed further resources to complete the development of this project and to market the drug. d. During the year $41,000,000 was paid to staff to investigate whether a drug combination was effective in reducing a specific type of cancer. The drug combination was very successful in most cases. Market research shows huge a market for this drug combination. The company is too small and does not have adequate funds to complete the balance of the drug testing, so it is looking for a large pharmaceutical firm to take it over and complete the process. Required: Prepare the journal entry required for each case. Explain your proposed treatment.

Explain how goodwill arises in a business. Give an example in your response.

What factor will not affect the estimated useful life of a finite lived intangible asset?

What are the unique features that lead to the differing accounting treatment between research and development costs?

Which of the following is not a characteristic of intangible assets?

Which statement is correct?

In 2012, Waverly Corp. set up a new manufacturing facility in Nova Scotia. To encourage Waverly to set up its factory, the province provided equipment with a fair value of $250,000 and an estimated useful life of 15 years using straight-line depreciation. What journal entry would be required to record the equipment contribution in fiscal 2012, using the gross method?

Explain the accounting requirements for externally purchased intangibles and internally developed intangibles.

What factor will not affect the estimated useful life of a finite lived intangible asset?

Which of the following is not a parameter of amortization?

In 2012, Waverley Corp. set up a new manufacturing facility in Nova Scotia. To encourage Waverly to set up its factory, the province provided equipment with a fair value of $250,000 and an estimated useful life of 10 years using straight-line depreciation. What journal entry would be required in fiscal 2013, using the gross method?

Which statement is not correct?

Which criteria under IAS 38 would be met if the "project has a dedicated group of qualified staff"?

Which of the following is correct with respect to the accounting for re-payment of government grants?

What is economic profit as it would be defined in finance or economics? Why is accounting net income not the same as an economist's determination of earnings, as measured from a shareholder's perspective?

Which statement does not describe the "successful efforts" method?

Which of the following is correct with respect to the accounting for re-payment of government grants?

Wind Town is a builder of wind turbines that are used in electricity generation. To encourage the installation of wind turbines and the development of wind power technology, the provincial government has several programs in place that support the industry. In 2012, Wind Town incurred the following costs that were potentially eligible for government subsidies: i. The company spent $10 million on research and development (R&D); these costs are eligible for a 25% tax credit. The $10 million had been previously expensed. ii. For each megawatt of wind power generating capacity installed, the government provides a subsidy of $100,000 to the customer. In 2012, Wind Town installed 17 megawatts for its customers (utility companies). iii. Wind Town is eligible for a full tax rebate on sales tax normally levied on materials used in the construction of its turbine factory. This sales tax amounted to 5% of the materials cost of $35 million. Required: a. Record the journal entries for the above transactions using the gross method for government grants. b. Record the journal entries for the above transactions using the net method for government grants.