Question 1

Which of the following is NOT a method of calculating goodwill?

Accepted Answer

A)  excess-earnings approach 
B)  total earnings approach 
C)  discounted free cash flow method 
D)  undiscounted free cash flow method 
A)  excess-earnings approach 
B)  total earnings approach 
C)  discounted free cash flow method 
D)  undiscounted free cash flow method

Question 2

Under ASPE, to determine if there is an impairment loss, compare the

Accepted Answer

A)  fair value of the identifiable assets to the book value of the assets. 
B)  fair value of the reporting unit to the carrying value of the reporting unit. 
C)  imputed current fair value of the assets with the carrying value of the assets. 
D)  imputed carrying value of the assets with the fair value of the assets. 
A)  fair value of the identifiable assets to the book value of the assets. 
B)  fair value of the reporting unit to the carrying value of the reporting unit. 
C)  imputed current fair value of the assets with the carrying value of the assets. 
D)  imputed carrying value of the assets with the fair value of the assets.

Question 3

Which of the following is NOT true of the earnings normalization process?

Accepted Answer

A)  Accounting policies applied should be consistent with those of the purchaser. 
B)  Future earnings should be based on the net assets' current fair values. 
C)  Amounts that are not expected to recur should be adjusted out of our calculations. 
D)  All of these statements are true of the earnings normalization process. 
A)  Accounting policies applied should be consistent with those of the purchaser. 
B)  Future earnings should be based on the net assets' current fair values. 
C)  Amounts that are not expected to recur should be adjusted out of our calculations. 
D)  All of these statements are true of the earnings normalization process.

Question 4

Development costs may be capitalized if

Accepted Answer

A)  the resulting product or service is technically feasible. 
B)  the entity has sufficient resources to complete the project. 
C)  all of these (all of these criteria, in addition to others, must be met in order for development costs to be capitalized). 
D)  the entity intends to use or sell the resulting product or service. 
A)  the resulting product or service is technically feasible. 
B)  the entity has sufficient resources to complete the project. 
C)  all of these (all of these criteria, in addition to others, must be met in order for development costs to be capitalized). 
D)  the entity intends to use or sell the resulting product or service.

Question 5

Under ASPE, which of the following statements best describes when goodwill should be tested for impairment?

Accepted Answer

A)  Goodwill should be tested for impairment when events or changes in circumstances indicate that impairment may have occurred. 
B)  Goodwill should be tested annually for impairment regardless of the circumstances. 
C)  Goodwill should be tested for impairment annually and whenever events or changes in circumstance indicate that impairment may have occurred. 
D)  Goodwill should only be tested for impairment when the company follows a policy to amortize its goodwill. 
A)  Goodwill should be tested for impairment when events or changes in circumstances indicate that impairment may have occurred. 
B)  Goodwill should be tested annually for impairment regardless of the circumstances. 
C)  Goodwill should be tested for impairment annually and whenever events or changes in circumstance indicate that impairment may have occurred. 
D)  Goodwill should only be tested for impairment when the company follows a policy to amortize its goodwill.

Question 6

Calculation of and journal entries for impairment of goodwill
Gandaph Corporation purchased a division five years ago for $ 3 million. The division has been identified as a reporting unit that is cash-generating under IFRS. Management is reviewing the division for impairment of goodwill and has estimated the fair value of the reporting unit to be $ 3.2 million and the unit's value in use to be $ 3.3 million. In addition, there would be $ 75,000 in direct costs should the company decide to sell. The carrying amounts of the division's net assets, including the associated goodwill of $ 1,350,000, are listed below.
$\bold{\text{Carrying Amount of Net Assets Including Goodwill}}$
 $$\begin{array} { l r } 
\text { Cash } & \$ 300,000 \
\text { Receivables } & 450,000 \
\text { Inventory } & 1,050,000 \
\text { Property, plant, and equipment (net) } & 1,200,000 \
\text { Goodwill } & 1,350,000 \
\text { Less: Accounts and notes payable } & ( 750,000 ) \
\text { Net assets, at carrying amounts } & \$ 3,600,000
\end{array}$$ 
Instructions
Determine if goodwill is impaired and provide the related journal entries, if any, under both ASPE and IFRS.

Accepted Answer

Under ASPE, a loss on impairme

Question 7

During 2020, Spokane Ltd. purchased the net assets of Tacoma Corp. for $ 635,000. On the date of the transaction, Tacoma reported $ 200,000 in liabilities. As well, the fair value of Tacoma's assets was: Current assets.........................................$360,000
Noncurrent assets....................................$\frac { 840,000 } {\$1,200,000 }$ How should the difference between the fair value of the net assets acquired and the cost be accounted for by Spokane?

Accepted Answer

A)  The difference should be credited to retained earnings. 
B)  The difference should be recognized as a gain in net income. 
C)  The noncurrent assets should be reduced appropriately. 
D)  The difference should be prorated between the current and the noncurrent assets. 
A)  The difference should be credited to retained earnings. 
B)  The difference should be recognized as a gain in net income. 
C)  The noncurrent assets should be reduced appropriately. 
D)  The difference should be prorated between the current and the noncurrent assets.

Question 8

Identifying R&D stage activities
Provide some examples of activities in each of the research and development phases. If there is uncertainty about which phase a particular activity relates to when internally creating an intangible asset, which classification should it be assigned?

Accepted Answer

Research stage activities include:
-Obta

Question 9

On June 30, 2020, Blue Ltd. exchanged 2,000 Ivy Corp. common shares for a patent owned by Jazz Corp. The Ivy shares were acquired in 2018 for $ 125,000. At the exchange date, Ivy common shares have a fair value of $ 80 per share, and the patent had a carrying value of $ 280,000 on Jazz's books. Blue should record the patent at

Accepted Answer

A)  $ 280,000. 
B)  $ 160,000. 
C)  $ 155,000. 
D)  $ 125,000. 
A)  $ 280,000. 
B)  $ 160,000. 
C)  $ 155,000. 
D)  $ 125,000.

Question 10

Negative goodwill
What is negative goodwill and why does it occur?

Accepted Answer

Negative goodwill arises when the total

Question 11

An impairment of an identifiable intangible asset arises when its carrying amount exceeds the

Accepted Answer

A)  present value of the expected future net cash flows. 
B)  expected future economic benefits. 
C)  asset's cost. 
D)  asset's fair value. 
A)  present value of the expected future net cash flows. 
B)  expected future economic benefits. 
C)  asset's cost. 
D)  asset's fair value.

Question 12

Assuming the fair value of Frosty's net assets is $ 10.2 million, and Casper acquires a 75% share, goodwill can be calculated as

Accepted Answer

A)  $ 1,550,000. 
B)  $ 1,243,000. 
C)  $ 1,000,000. 
D)  $ 750,000. 
A)  $ 1,550,000. 
B)  $ 1,243,000. 
C)  $ 1,000,000. 
D)  $ 750,000.

Question 13

Under IFRS, which of the following statements best describes the accounting for intangible assets after acquisition?

Accepted Answer

A)  They may be accounted for under either the cost model or the revaluation model. 
B)  They should be accounted for under the cost model. 
C)  They should be accounted for under the revaluation model if an active market exists for the asset. 
D)  They should always be accounted for under the revaluation model. 
A)  They may be accounted for under either the cost model or the revaluation model. 
B)  They should be accounted for under the cost model. 
C)  They should be accounted for under the revaluation model if an active market exists for the asset. 
D)  They should always be accounted for under the revaluation model.

Question 14

When determining whether an internally developed intangible asset should be recognized, the process of generating the intangible is usually broken down into the

Accepted Answer

A)  research and financing elements. 
B)  acquisition and disposal stages. 
C)  exploitation and disposal stages. 
D)  research and development phases. 
A)  research and financing elements. 
B)  acquisition and disposal stages. 
C)  exploitation and disposal stages. 
D)  research and development phases.

Question 15

On September 2020, Princes Corporation acquired Royal Mile Incorporated for a cash payment of $ 864,300. At the time of the purchase, Royal Mile's statement of financial position showed assets of $ 890,600, liabilities of $ 469,700, and owners' equity of $ 420,900. The fair value of Royal Mile's assets is estimated to be $ 1,162,900. Assume that Princes Corporation is a public company and that the goodwill was allocated entirely to one cash-generating unit (GU). Two years later, the CGU's carrying amount is $ 3,530,300, the value in use is $ 3,458,200, and the fair value less costs to sell is $ 3,058,200. Goodwill is

Accepted Answer

A)  not impaired. 
B)  impaired by $ 72,100. 
C)  impaired by $ 472,100. 
D)  Not enough information is provided to assess impairment. 
A)  not impaired. 
B)  impaired by $ 72,100. 
C)  impaired by $ 472,100. 
D)  Not enough information is provided to assess impairment.

Question 16

This year, Level Ground Ltd. went to court and successfully defended its trademarked product, "Hot Gum," from infringement by a competitor. Legal costs of this defence should be charged to

Accepted Answer

A)  Trademarks and amortized over the legal life of the trademark. 
B)  Trademarks and amortized over the same period of time as the "Hot Gum" trademark. 
C)  Legal Expense and amortized over five years or less. 
D)  Legal Expense of the period. 
A)  Trademarks and amortized over the legal life of the trademark. 
B)  Trademarks and amortized over the same period of time as the "Hot Gum" trademark. 
C)  Legal Expense and amortized over five years or less. 
D)  Legal Expense of the period.

Question 17

Intangible assets theory
It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. Discuss the accounting arguments against this treatment.

Accepted Answer

Intangible assets may have future revenu

Question 18

On January 2, 2020, Gold Corp. bought a trademark from River Inc. for $ 100,000. An independent research company estimated that the remaining useful life of the trademark was 25 years. At this time, the trademark's net book value in River's records was $ 160,000. Because the trademark had a demonstrated limited life beyond 20 years, Gold decided to amortize the trademark over the maximum period, straight-line with no residual. In Gold's (calendar) 2020 income statement, what amount should be reported as amortization expense for this trademark?

Accepted Answer

A)  $ 6,400 
B)  $ 6,000 
C)  $ 5,000 
D)  $ 4,000 
A)  $ 6,400 
B)  $ 6,000 
C)  $ 5,000 
D)  $ 4,000

Question 19

Journal entries for impairment of intangible assets
Patagonia Corp., a large, privately held company, is preparing its year-end entries. As senior accountant, you have been asked to prepare the entries related to the company's intangible assets.
Patagonia currently carries the following intangible assets* on its balance sheet:
 $$\begin{array} { l l l } 
\text { Trade name } & 5125,000 & \text { net of accumulated amortization of } 575,000 \
\text { Patent } & \$ 126,000 & \text { net of accumulated amortization of } \$ 54,000 \
\text { Other intangiblec } & \$ 340,000 & \text { no amortization recorded } \
\text { Tredemark } & \$ 120,000 & \text { net of accumulated amortization of } \$ 30,000 \
& \$ 711,000 &
\end{array}$$ *Current year amortization has already been recorded.
The following additional information is available:
After recent negative press releases relating to the technology that underlies the patent, the company has carried out a recoverability test that indicates that the patent's carrying value is higher than its undiscounted future net cash flows. The patent's fair value has now been estimated at $ 84,000.
The item classified as "Other intangibles" relates to research costs that the company incurred in the current year. According to a statement from the company's President, "The costs were incurred with the intention to gain new knowledge. At the moment we don't know exactly how to use this information, but we are confident that eventually we will be able to use it."
Instructions
Based on the information provided, prepare all journal entries that are required to adjust Patagonia's records as would be required under ASPE.

Accepted Answer

To record impairment loss on patent:
 @#IMG-DLM& T

Question 20

Which of the following is an example of a limited-life intangible asset?

Accepted Answer

A)  patent 
B)  trade name 
C)  goodwill 
D)  trademark 
A)  patent 
B)  trade name 
C)  goodwill 
D)  trademark

Which of the following is NOT a method of calculating goodwill?

Under ASPE, to determine if there is an impairment loss, compare the

Which of the following is NOT true of the earnings normalization process?

Development costs may be capitalized if

Under ASPE, which of the following statements best describes when goodwill should be tested for impairment?

Identifying R&D stage activities Provide some examples of activities in each of the research and development phases. If there is uncertainty about which phase a particular activity relates to when internally creating an intangible asset, which classification should it be assigned?

Negative goodwill What is negative goodwill and why does it occur?

An impairment of an identifiable intangible asset arises when its carrying amount exceeds the

Assuming the fair value of Frosty's net assets is $ 10.2 million, and Casper acquires a 75% share, goodwill can be calculated as

Under IFRS, which of the following statements best describes the accounting for intangible assets after acquisition?

When determining whether an internally developed intangible asset should be recognized, the process of generating the intangible is usually broken down into the

This year, Level Ground Ltd. went to court and successfully defended its trademarked product, "Hot Gum," from infringement by a competitor. Legal costs of this defence should be charged to

Intangible assets theory It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. Discuss the accounting arguments against this treatment.

Which of the following is an example of a limited-life intangible asset?

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters

Exam 12: Intangible Assets and Goodwill

Which of the following is NOT a method of calculating goodwill?

Under ASPE, to determine if there is an impairment loss, compare the

Which of the following is NOT true of the earnings normalization process?

Development costs may be capitalized if

Under ASPE, which of the following statements best describes when goodwill should be tested for impairment?

Identifying R&D stage activities Provide some examples of activities in each of the research and development phases. If there is uncertainty about which phase a particular activity relates to when internally creating an intangible asset, which classification should it be assigned?

Negative goodwill What is negative goodwill and why does it occur?

An impairment of an identifiable intangible asset arises when its carrying amount exceeds the

Assuming the fair value of Frosty's net assets is $ 10.2 million, and Casper acquires a 75% share, goodwill can be calculated as

Under IFRS, which of the following statements best describes the accounting for intangible assets after acquisition?

When determining whether an internally developed intangible asset should be recognized, the process of generating the intangible is usually broken down into the

This year, Level Ground Ltd. went to court and successfully defended its trademarked product, "Hot Gum," from infringement by a competitor. Legal costs of this defence should be charged to

Intangible assets theory It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. Discuss the accounting arguments against this treatment.

Which of the following is an example of a limited-life intangible asset?

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters