Deck 10: Long-Term Assets Ii : Investments and Intangibles

Question 1

Which characteristic is not possessed by intangible assets?

A) Physical existence
B) Long-lived
C) Result in future benefits.
D) Expensed over current and/or future years.

Answer 1

A

Question 2

Under current GAAP, intangible assets are classified as

A) Amortizable or unamortizable.
B) Limited-life or indefinite-life
C) Specifically, identifiable or unidentifiable
D) Legally restricted or unrestricted

Answer 2

B

Question 3

A requirement for a security to be classified as held-to-maturity is

A) Positive intent
B) The security must be a debt security
C) Ability to hold the security to maturity
D) All of these are required.

Answer 3

D

Question 4

Cash dividends declared out of current earnings are distributed to an investor. How will the investor's investment account be affected by those dividends under each of the following accounting methods? Fair Value Method Equity Method

A) Decrease No effect
B) Decrease Decrease
C) No effect Decrease
D) No effect No effect

Question 5

The right granted to authors and other creative artists for their expressive works is termed a

A) Copyright
B) Trademark
C) Patent
D) Franchise

Question 6

Refer to the facts in the previous question. If Pacer Company uses the lower of cost or market method of accounting for its investment in Queen Company, and the value of its investment hasn't changed, its Investment in Queen Company account on December 31, 2020, should be

A) $100, 000
B) $88,000
C) $80,000
D) $73,600

Question 7

Pence Corporation, which accounts for its investments in the common stock of Walsh Company by the equity method, should ordinarily record a dividend received from Walsh as

A) An addition to the carrying value of the investment
B) Dividend revenue
C) A reduction of the carrying value of the investment
D) Revenue from affiliate

Question 8

When an investment in a held-to-maturity security is transferred to an available-for-sale debt security, the carrying value assigned to the available-for-sale debt security should be

A) Its original cost
B) Its fair value at the date of the transfer
C) The higher of its original cost or its fair value at the date of the transfer.
D) The lower of its original cost or its fair value at the date of the transfer.

Question 9

Which types of intangible assets are amortized? Limited-Life Indefinite-Life

A) Yes Yes
B) No No
C) Yes No
D) No Yes

Question 10

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

A) Earnings are reported by the investee in its financial statements
B) Investee pays a dividend.
C) Investor sells the investment
D) Investee declares a dividend

Question 11

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as Fair Value Method Equity Method

A) Income Income
B) A reduction of the investment A reduction of the investment
C) Income A reduction of the investment
D) A reduction of the investment Income

Question 12

Lomax Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method

A) No Effect No Effect
B) Decrease No Effect
C) No Effect Decrease
D) Increase Decrease

Question 13

Pacer Company purchased 300 of the 1,000 outstanding shares of Queen Company's common stock for $80,000 on January 2, 2019. During 2020, Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000. If Pacer Company uses the equity method of accounting for its investment in Queen Company, its Investment in Queen Company account at December 31, 2020 should be

A) $100, 000
B) $88,000
C) $83,600
D) $80,000

Question 14

Goodwill should be written off

A) As soon as possible against retrained earnings
B) When there is evidence that its carrying value has been impaired
C) By systematic charges against retained earnings over the period benefited, but not more than 40 years
D) By systematic charges to expense over the period benefited, but not more than 40 years

Question 15

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

A) The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee
B) The investor should always use the equity method to account for its investment
C) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee
D) The investor should always use the fair value method to account for its investment

Question 16

"Gains trading" involves

A) Reporting investment securities at fair value but liabilities at amortized cost
B) Selling securities whose value has increased since acquisition (winners) while holding those whose value has decreased since acquisition (losers)
C) Moving securities whose value has decreased since acquisition from available-for-sale to held-to-maturity in order to avoid reporting losses
D) All of the above are considered methods of "gains trading"

Question 17

A large, publicly held company developed and registered a trademark during the current year. The cost of developing and registering the trademark should be accounted for by

A) Charging it to an asset account that should not be amortized
B) Expensing it as incurred
C) Amortizing it over 25 years if in accordance with management's evaluation
D) Amortizing it over its useful life or 17 years, whichever is shorter

Question 18

On January 15, 2018, a corporation was granted a patent on a product. On January 2, 2020, to protect its patent, the corporation purchased a patent on a competing product that originally was issued on January 10, 2016. Because of its unique plant, the corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be

A) Amortized over a maximum period of 17 years
B) Amortized over a maximum period of 13 years
C) Amortized over a maximum period of 9 years
D) Expensed in 2020

Question 19

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

A) Investor sells the investment
B) Investee declares a dividend
C) Investee pays a dividend
D) Earnings are reported by the investee in its financial statements

Question 20

Mayberrry Company owns 40% of Xnau Corporation's outstanding common stock. During the calendar year 2018, Xnau had net earnings of $500,000 and paid dividends of $60,000. Mayberry mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on Mayberry's investment account, net income, and retained earnings, respectively?

A) Overstate, understate, understate
B) Understate, understate, understate
C) Understate, overstate, overstate
D) Overstate, overstate, overstate

Question 21

The economic concept of income would require that an investment in the common stock of another entity be

A) Reported in the balance sheet at historical cost and that only realized gains and losses be reported in earnings.
B) Reported in the balance sheet at historical cost and that unrealized gains and losses be reported in earnings.
C) Reported in the balance sheet at fair value and that unrealized gains and losses be reported in earnings.
D) Reported in the balance sheet at fair value and that unrealized gains and losses be reported in other comprehensive income.

Question 22

Discuss accounting for equity securities under the cost method.

Question 23

What is the definition of fair value?

Question 24

An activity that would be expensed currently as research and development costs is the

A) Testing in search for or evaluation of product or process alternatives
B) Adaptation of an existing capability to a particular requirement or customer's need as a part of continuing commercial activity
C) Legal work in connection with patent applications or litigation, and the sale or licensing of patents
D) Engineering follow-through in an early phase of commercial production

Question 25

Summarize the accounting requirements for investments in equity securities. That is, what methods are available and when is each method appropriate?

Question 26

A loss on impairment of an intangible asset is the difference between the asset's

A) Carrying amount and the expected future net cash flows
B) Carrying amount and its fair value
C) Fair value and the expected future net cash flows
D) Book value and its fair value

Question 27

What is the fair value option as defined in FASB ASC 825‐10‐10?

Question 28

Under the fair value option, an investment in the common stock of another entity will be

A) Reported as a current asset
B) Reported as a noncurrent asset
C) Reported as either a current or noncurrent asset depending on managerial intent.
D) Reported as a current asset only if it was not previously reported as an equity method investment.

Question 29

Goodwill is an intangible asset

A) That has a definite life and its cost should be amortized over its useful life.
B) That is recorded when the company has projected earnings in excess of earnings expected for an investment in a similar company in the same industry.
C) That is reviewed for impairment when circumstances indicate that impairment may have occurred.
D) That is reviewed annually to determine whether impairment has occurred.

Question 30

Should the following fees associated with the registration of an internally developed patent be capitalized? Registration
Legal fees fees

A) Yes Yes
B) Yes No
C) No Yes
D) No No

Question 31

An investor purchased a bond as a long-term investment on January 1. Annual interest was received on December 31. The investor's interest income for the year would be lowest if the bond was purchased at

A) A discount
B) A premium
C) Par
D) Face value

Question 32

The physical capital maintenance concept of income would require that an investment in the common stock of another entity be

A) Reported in the balance sheet at historical cost and that only realized gains and losses be reported in earnings.
B) Reported in the balance sheet at historical cost and that unrealized gains and losses be reported in earnings.
C) Reported in the balance sheet at fair value and that unrealized gains and losses be reported in earnings.
D) Reported in the balance sheet at fair value and that unrealized gains and losses be reported in other comprehensive income.

Question 33

When a patent is successfully defended in court, the cost of the lawsuit

A) Should be expensed as incurred because it is a period cost.
B) Should be added to the cost of the patent and depreciated over the remaining useful life of the patent.
C) Should be added to the cost of the patent which is then expensed as a period cost.
D) Has already been expensed so there is no further action to take.

Question 34

How are income and balance sheet values determined under the equity method?

Question 35

Zink Company owns 32% of Ace Company's outstanding voting stock. Zink Company normally should account for its investment in Ace Company using the

A) Fair value method.
B) Cost method.
C) Consolidation procedure.
D) Equity method.

Question 36

Which of the following assets acquired in the current year are amortizable? Goodwill Trademarks

A) No No
B) No Yes
C) Yes No
D) Yes No

Question 37

When a company reports goodwill in its balance sheet, we know that

A) It was internally generated because the company has earnings in excess of those of other companies in the industry.
B) The company purchased it.
C) The company will be reporting amortization expense for the goodwill.
D) The company will not be reporting an impairment loss for the goodwill.

Question 38

Which of the following amounts incurred in connection with a trademark should be capitalized? Cost of a Registration
Successful defense fees

A) Yes No
B) Yes Yes
C) No Yes
D) No No

Question 39

A purchased patent has a remaining life of 15 years. It should be

A) Expensed in the year of acquisition
B) Amortized over 15 years regardless of its useful life
C) Amortized over its useful life if less than 15 years
D) Amortized over 40 years

Question 40

The theoretical justification for expensing research and development (R&D) cost as it is incurred is based on which of the following arguments?

A) R&D costs provide no future benefits, thus it does not meet the definition of an asset
B) R&D costs are incurred to generate current period revenue; thus the matching concept requires that it be expensed as incurred.
C) Whether R&D costs that have been incurred will provide future benefit is uncertain, thus it does not meet the definition of an asset.
D) Since R&D costs have been incurred during the current period, they meet the definition of an expense.

Question 41

Define research and development. How are research and development costs recorded?

Question 42

Discuss accounting for investments in debt securities.

Question 43

ASU 2016-01 attempted to simplify the impairment model for equity securities for which an entity has elected the practicability exception by eliminating the requirement to assess whether an impairment of such an investment is other than temporary. What are the factors to be considered in making this assessment and how is an impairment recorded?
a. A significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee
b. A significant adverse change in the regulatory, economic, or technological environment of the investee
c. A significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates
d. A bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment
e. Factors that raise significant concerns about the investee's ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.
If it is determined that an equity security is impaired on the basis of the qualitative
assessment, the company will recognize an impairment loss equal to the amount by which the security's carrying amount exceeds its fair value.

Question 44

What are the general requirements for the initial and subsequent measurement of financial instruments under IFRS No. 9?

Question 45

What is goodwill? How is the recorded value of goodwill determined? How is goodwill written off under the provisions of SFAS No. 142 now FASB ASC 350?

Question 46

Discuss the use of the fair value option originally described in SFAS No. 159 now contained at FASB ASC 825-10.

Question 47

Discuss the accounting treatment for internally developed versus externally purchased intangible assets.

Question 48

What is an intangible asset? How is the cost of an intangible asset amortized?