Deck 12: Intangible Assets

Question 1

Amortization of limited-life intangible assets should not be impacted by expected residual values.

Answer 1

False

Question 2

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

Answer 2

False

Question 3

If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.

Answer 3

True

Question 4

All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

Question 5

Internally generated intangible assets are initially recorded at fair value.

Question 6

In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible assets, with the remainder recorded as goodwill.

Question 7

The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.

Question 8

The cost of purchased patents should be amortized over the remaining legal life of the patent.

Question 9

If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent.

Question 10

If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.

Question 11

Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.

Question 12

Contra accounts must be reported for intangible assets in a manner similar to accumu-lated depreciation and property, plant, and equipment.

Question 13

Limited-life intangibles are amortized by systematic charges to expense over their useful life.

Question 14

Periodic alterations to existing products are an example of research and development costs.

Question 15

Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years.

Question 16

Internally created intangibles are recorded at cost.

Question 17

Some intangible assets are not required to be amortized every year.

Question 18

Intangible assets derive their value from the right (claim) to receive cash in the future.

Question 19

The cost of acquiring a customer list from another company is recorded as an intangible asset.

Question 20

Internally generated goodwill should not be capitalized in the accounts.

Question 21

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

A)it represents the purchase price of a business that is about to be sold.
B)it is the difference between the fair market value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business.
C)the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation.
D)it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value.

Question 22

Which of the following is not an intangible asset?

A)Trade name
B)Research and development costs
C)Franchise
D)Copyrights

Question 23

Which of the following methods of amortization is normally used for intangible assets?

A)Sum-of-the-years'-digits
B)Straight-line
C)Units of production
D)Double-declining-balance

Question 24

The intangible asset goodwill may be

A)capitalized only when purchased.
B)capitalized either when purchased or created internally.
C)capitalized only when created internally.
D)written off directly to retained earnings.

Question 25

Wriglee, Inc.went to court this year and successfully defended its patent from infringe-ment by a competitor.The cost of this defense should be charged to

A)patents and amortized over the legal life of the patent.
B)legal fees and amortized over 5 years or less.
C)expenses of the period.
D)patents and amortized over the remaining useful life of the patent.

Question 26

Purchased goodwill should

A)be written off as soon as possible against retained earnings.
B)be written off as soon as possible as an extraordinary item.
C)be written off by systematic charges as a regular operating expense over the period benefited.
D)not be amortized.

Question 27

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

A)amortized over a maximum period of 20 years.
B)amortized over a maximum period of 16 years.
C)amortized over a maximum period of 11 years.
D)expensed in 2007.

Question 28

Weaver Boxing Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet.The impairment test(s) to be used is (are)

Question 29

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 30

Costs incurred internally to create intangibles are

A)capitalized.
B)capitalized if they have an indefinite life.
C)expensed as incurred.
D)expensed only if they have a limited life.

Question 31

Which of the following intangible assets should not be amortized?

A)Copyrights
B)Customer lists
C)Perpetual franchises
D)All of these intangible assets should be amortized.

Question 32

Under current accounting practice, intangible assets are classified as

A)amortizable or unamortizable.
B)limited-life or indefinite-life.
C)specifically identifiable or goodwill-type.
D)legally restricted or goodwill-type.

Question 33

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

A)an extraordinary gain.
B)part of current income in the year of combination.
C)a deferred credit and amortize it.
D)paid-in capital.

Question 34

When a patent is amortized, the credit is usually made to

A)the Patent account.
B)an Accumulated Amortization account.
C)a Deferred Credit account.
D)an expense account.

Question 35

The cost of an intangible asset includes all of the following except

A)purchase price.
B)legal fees.
C)other incidental expenses.
D)all of these are included.

Question 36

Which of the following research and development related costs should be capitalized and amortized over current and future periods?

A)Research and development general laboratory building which can be put to alternative uses in the future
B)Inventory used for a specific research project
C)Administrative salaries allocated to research and development
D)Research findings purchased from another company to aid a particular research project currently in process

Question 37

The carrying amount of an intangible is

A)the fair market value of the asset at a balance sheet date.
B)the asset's acquisition cost less the total related amortization recorded to date.
C)equal to the balance of the related accumulated amortization account.
D)the assessed value of the asset for intangible tax purposes.

Question 38

The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be

A)charged off in the current period.
B)amortized over the legal life of the purchased patent.
C)added to factory overhead and allocated to production of the purchaser's product.
D)amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

Question 39

Goodwill

A)generated internally should not be capitalized unless it is measured by an individual independent of the enterprise involved.
B)is easily computed by assigning a value to the individual attributes that comprise its existence.
C)represents a unique asset in that its value can be identified only with the business as a whole.
D)exists in any company that has earnings that differ from those of a competitor.

Question 40

Factors considered in determining an intangible asset's useful life include all of the following except

A)the expected use of the asset.
B)any legal or contractual provisions that may limit the useful life.
C)any provisions for renewal or extension of the asset's legal life
D)the amortization method used.

Question 41

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

A)research and development expense in the period(s) of construction.
B)depreciation deducted as part of research and development costs.
C)depreciation or immediate write-off depending on company policy.
D)an expense at such time as productive research and development has been obtained from the facility.

Question 42

LRF Corporation purchased a patent for $450,000 on September 1, 2006.It had a useful life of 10 years.On January 1, 2008, LRF spent $110,000 to successfully defend the patent in a lawsuit.LRF feels that as of that date, the remaining useful life is 5 years.What amount should be reported for patent amortization expense for 2008?

A)$103,000.
B)$100,000.
C)$94,000.
D)$78,000.

Question 43

Jeff Corporation purchased a limited-life intangible asset for $120,000 on May 1, 2006.It has a useful life of 10 years.What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?

A)$ -0-
B)$24,000
C)$32,000
D)$36,000

Question 44

The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters.These costs are said to benefit the corporation for the entity's entire life.These costs should be

A)capitalized and never amortized.
B)capitalized and amortized over 40 years.
C)capitalized and amortized over 5 years.
D)expensed as incurred.

Question 45

Which of the following would not be considered an R & D activity?

A)Adaptation of an existing capability to a particular requirement or customer's need.
B)Searching for applications of new research findings.
C)Laboratory research aimed at discovery of new knowledge.
D)Conceptual formulation and design of possible product or process alternatives.

Question 46

Maris Corporation acquired a patent on May 1, 2008.Maris paid cash of $25,000 to the seller.Legal fees of $1,000 were paid related to the acquisition.What amount should be debited to the patent account?

A)$1,000
B)$24,000
C)$25,000
D)$26,000

Question 47

A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2005 for $1,200,000.The company uses straight-line amortization for patents.On January 2, 2007, a new patent is received for a timed-release version of the same drug.The new patent has a legal and useful life of twenty years.The least amount of amortization that could be recorded in 2007 is

A)$200,000.
B)$40,000.
C)$54,545.
D)$60,000.

Question 48

The general ledger of Vance Corporation as of December 31, 2007, includes the following accounts: $$\begin{array} { l r } \text { Copyrights } & \$ 20,000 \\\text { Deposits with advertising agency (will be used to promote goodwill) } & 27,000 \\\text { Discount on bonds payable } & 67,500 \\\text { Excess of cost over fair value of identifiable net assets of } & \\\quad \text { Acquired subsidiary } & 390,000 \\\text { Trademarks } & 90,000\end{array}$$ In the preparation of Vance's balance sheet as of December 31, 2007, what should be reported as total intangible assets?

A)$594,500.
B)$527,000.
C)$500,000.
D)$460,000.

Question 49

Wildcat Baseball Company had a player contract with Carter that was recorded in its accounting records at $5,800,000.Aggie Baseball Company had a player contract with Jeter that was recorded in its accounting records at $5,600,000.Wildcat traded Carter to Aggie for Jeter by exchanging each player's contract.The fair value of each contract was $6,000,000.What amount should be shown in the accounting records after the exchange of player contracts?

Question 50

In January, 2002, Findley Corporation purchased a patent for a new consumer product for $720,000.At the time of purchase, the patent was valid for fifteen years.Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years.During 2007 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product.What amount should Findley charge to expense during 2007, assuming amortization is recorded at the end of each year?

A)$480,000.
B)$360,000.
C)$72,000.
D)$48,000.

Question 51

Which of the following principles best describes the current method of accounting for research and development costs?

A)Associating cause and effect
B)Systematic and rational allocation
C)Income tax minimization
D)Immediate recognition as an expense

Question 52

Kerr Company purchased a patent on January 1, 2006 for $180,000.The patent had a remaining useful life of 10 years at that date.In January of 2007, Kerr successfully defends the patent at a cost of $81,000, extending the patent's life to 12/31/18.What amount of amortization expense would Kerr record in 2007?

A)$18,000
B)$20,250
C)$21,750
D)$27,000

Question 53

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

A)Must be capitalized when incurred and then amortized over their estimated useful lives.
B)Must be expensed in the period incurred.
C)May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved.
D)Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.

Question 54

Lynne Corporation acquired a patent on May 1, 2008.Lynne paid cash of $20,000 to the seller.Legal fees of $800 were paid related to the acquisition.What amount should be debited to the patent account?

A)$800
B)$19,200
C)$20,000
D)$20,800

Question 55

ELO Corporation purchased a patent for $180,000 on September 1, 2006.It had a useful life of 10 years.On January 1, 2008, ELO spent $44,000 to successfully defend the patent in a lawsuit.ELO feels that as of that date, the remaining useful life is 5 years.What amount should be reported for patent amortization expense for 2008?

A)$41,200.
B)$40,000.
C)$37,600.
D)$31,200.

Question 56

Which of the following costs should be excluded from research and development expense?

A)Modification of the design of a product
B)Acquisition of R & D equipment for use on a current project only
C)Cost of marketing research for a new product
D)Engineering activity required to advance the design of a product to the manufacturing stage

Question 57

Operating losses incurred during the start-up years of a new business should be

A)accounted for and reported like the operating losses of any other business.
B)written off directly against retained earnings.
C)capitalized as a deferred charge and amortized over five years.
D)capitalized as an intangible asset and amortized over a period not to exceed 20 years.

Question 58

On January 2, 2007, Klein Co.bought a trademark from Royce, Inc.for $500,000.An independent research company estimated that the remaining useful life of the trademark was 10 years.Its unamortized cost on Royce's books was $400,000.In Klein's 2007 income statement, what amount should be reported as amortization expense?

A)$50,000.
B)$40,000.
C)$25,000.
D)$20,000.

Question 59

Rich Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006.It has a useful life of 10 years.What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?

A)$ -0-.
B)$36,000
C)$48,000
D)$54,000

Question 60

The total amount of patent cost amortized to date is usually

A)shown in a separate Accumulated Patent Amortization account which is shown contra to the Patent account.
B)shown in the current income statement.
C)reflected as credits in the Patent account.
D)reflected as a contra property, plant and equipment item.

Question 61

On May 5, 2007, Flynn Corp.exchanged 2,000 shares of its $25 par value treasury common stock for a patent owned by Denson Co.The treasury shares were acquired in 2006 for $45,000.At May 5, 2007, Flynn's common stock was quoted at $32 per share, and the patent had a carrying value of $55,000 on Denson's books.Flynn should record the patent at

A)$45,000.
B)$50,000.
C)$55,000.
D)$64,000.

Question 62

January 2, 2004, 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, 2007, 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 2007, assuming amortization is recorded at the end of each year?

A)$18,000
B)$108,000
C)$126,000
D)$144,000

Question 63

Fleming Corporation acquired Out-of-Sight Products on January 1, 2008 for $4,000,000, and recorded goodwill of $750,000 as a result of that purchase.At December 31, 2008, the Out-of-Sight Products Division had a fair value of $3,400,000.The net identifiable assets of the Division (excluding goodwill) had a fair value of $2,900,000 at that time.What amount of loss on impairment of goodwill should Fleming record in 2008?

A)$ -0-
B)$250,000
C)$350,000
D)$600,000

Question 64

Lopez Corp.incurred $420,000 of research and development costs to develop a product for which a patent was granted on January 2, 2002.Legal fees and other costs associated with registration of the patent totaled $80,000.On March 31, 2007, Lopez paid $120,000 for legal fees in a successful defense of the patent.The total amount capitalized for the patent through March 31, 2007 should be

A)$200,000.
B)$500,000.
C)$540,000.
D)$620,000.

Question 65

Ely Co.bought a patent from Baden Corp.on January 1, 2007, for $300,000.An independent consultant retained by Ely estimated that the remaining useful life is 30 years.Its unamortized cost on Baden 's accounting records was $150,000; the patent had been amortized for 5 years by Baden.How much should be amortized for the year ended December 31, 2007?

A)$0.
B)$5,000.
C)$10,000.
D)$20,000.

Question 66

Mining Company acquired a patent on an oil extraction technique on January 1, 2006 for $5,000,000.It was expected to have a 10 year life and no residual value.Mining uses straight-line amortization for patents.On December 31, 2007, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years.The present value of these cash flows, discounted at Mining's market interest rate, is $2,800,000.At what amount should the patent be carried on the December 31, 2007 balance sheet?

A)$5,000,000
B)$4,800,000
C)$4,000,000
D)$2,800,000

Question 67

Blue Sky Company's 12/31/08 balance sheet reports assets of $5,000,000 and liabilities of $2,000,000.All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $300,000 greater than its book value.On 12/31/08, Horace Wimp Corporation paid $5,100,000 to acquire Blue Sky.What amount of goodwill should Horace Wimp record as a result of this purchase?

A)$ -0-
B)$100,000
C)$1,800,000
D)$2,100,000

Question 68

The following information is available for Barkley Company's patents: $$\begin{array} { l r } \text { Cost } & \$ 1,720,000 \\\text { Carrying amount } & 860,000 \\\text { Expected future net cash flows } & 800,000 \\\text { Fair value } & 640,000\end{array}$$ Barkley would record a loss on impairment of

A)$1,080,000.
B)$220,000.
C)$160,000.
D)$60,000.

Question 69

In 2006, Edwards Corporation incurred research and development costs as follows: $$\begin{array} { l r } \text { Materials and equipment } & \$ 80,000 \\\text { Personnel } & 120,000 \\\text { Indirect costs } & \underline { 150,000 } \\& \underline { \$ 350,000 }\end{array}$$ These costs relate to a product that will be marketed in 2007.It is estimated that these costs will be recouped by December 31, 2009.The equipment has no alternative future use.What is the amount of research and development costs that should be expensed in 2006?

A)$0.
B)$200,000.
C)$270,000.
D)$350,000.

Question 70

Turner Company's 12/31/08 balance sheet reports assets of $6,000,000 and liabilities of $2,500,000.All of Turner's assets' book values approximate their fair value, except for land, which has a fair value that is $400,000 greater than its book value.On 12/31/08, Benedict Corporation paid $6,100,000 to acquire Turner.What amount of goodwill should Benedict record as a result of this purchase?

A)$ -0-
B)$ 100,000
C)$2,200,000
D)$2,600,000

Question 71

During 2007, Bond Company purchased the net assets of May Corporation for $950,000.On the date of the transaction, May had $300,000 of liabilities.The fair value of May's assets when acquired were as follows: $\begin{array}{ll}\text { Current assets } & \$ 540,000 \\\text { Noncurrent assets } & {1,260,000}\\&{\$ 1800,000}\end{array}$ How should the $550,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($950,000) be accounted for by Bond?

A)The $550,000 difference should be credited to retained earnings.
B)The $550,000 difference should be recognized as an extraordinary gain.
C)The current assets should be recorded at $375,000 and the noncurrent assets should be recorded at $875,000.
D)A deferred credit of $550,000 should be set up and then amortized to income over a period not to exceed forty years.

Question 72

General Products Company bought Special Products Division in 2006 and appropriately booked $250,000 of goodwill related to the purchase.On December 31, 2007, 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, 2007.What goodwill impairment should be recognized by General Products in 2007?

A)$0.
B)$200,000.
C)$50,000.
D)$300,000.

Question 73

Hall Co.incurred research and development costs in 2007 as follows: $\begin{array} { l } \text {Materials used in research and development projects }&\$450,000\\ \text { Equipment acquired that will have alternate future uses in future research}&\\ \text { and development projects}&3,000,000\\ \text { Depreciation for 2007 on above equipment}&300,000\\ \text { Personnel costs of persons involved in research and development projects}&750,000\\ \text { Consulting fees paid to outsiders for research and development projects }&150,000\\ \text { Indirect costs reasonably allocable to research and development projects}&225,000\\&\$4,875,000\end{array}$
The amount of research and development costs charged to Hall's 2007 income statement should be

A)$1,500,000.
B)$1,650,000.
C)$1,875,000.
D)$4,050,000.

Question 74

MaBelle Corporation incurred the following costs in 2008: $\begin{array} { l } \text {Acquisition of R\&D equipment with a useful life of }&\\ \text { 4 years in \( R \& D \) projects}&\$600,000\\ \text {Start-up costs incurred when opening a new plant }&140,000\\ \text { Advertising expense to introduce a new product}&700,000\\ \text { Engineering costs incurred to advance a product to full}&\\ \text {production stage }&350,000\\\end{array}$
What amount should MaBelle record as research & development expense in 2008?

A)$500,000
B)$640,000
C)$950,000
D)$1,340,000

Question 75

Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2006 for $10,000,000.It was expected to have a 10 year life and no residual value.Malrom uses straight-line amortization for patents.On December 31, 2007, the expected future cash flows expected from the patent were expected to be $800,000 per year for the next eight years.The present value of these cash flows, discounted at Malrom's market interest rate, is $4,800,000.At what amount should the patent be carried on the December 31, 2007 balance sheet?

A)$10,000,000
B)$8,000,000
C)$6,400,000
D)$4,800,000

Question 76

Leeper Corporation incurred the following costs in 2008: $\begin{array}{lr} \text {Acquisition of } R \& D \text { equipment with a useful life of }\\\text { 4 years in R\&D projects } & \$ 800,000 \\\text { Start-up costs incurred when opening a new plant } & 140,000 \\\text { Advertising expense to introduce a new product } & 700,000 \\\text { Engineering costs incurred to advance a product to full } & \\\quad \text { production stage } & 500,000\end{array}$ What amount should Leeper record as research & development expense in 2008?

A)$700,000
B)$840,000
C)$1,300,000
D)$1,540,000

Question 77

Twilight Corporation acquired End-of-the-World Products on January 1, 2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that purchase.At December 31, 2008, the End-of-the-World Products Division had a fair value of $1,700,000.The net identifiable assets of the Division (excluding goodwill) had a fair value of $1,450,000 at that time.What amount of loss on impairment of goodwill should Twilight record in 2008?

A)$ -0-
B)$125,000
C)$175,000
D)$300,000

Question 78

On June 30, 2007, Cey, Inc.exchanged 2,000 shares of Seely Corp.$30 par value common stock for a patent owned by Gore Co.The Seely stock was acquired in 2007 at a cost of $55,000.At the exchange date, Seely common stock had a fair value of $45 per share, and the patent had a net carrying value of $110,000 on Gore's books.Cey should record the patent at

A)$55,000.
B)$60,000.
C)$90,000.
D)$110,000.

Question 79

Martin Inc.incurred the following costs during the year ended December 31, 2007: $\begin{array} { l } \text { Laboratory research aimed at discovery of new knowledge}&\$180,000\\\text { Costs of testing prototype and design modifications}&45,000\\\text { Quality control during commercial production, including routine testing }&\\\text { of products}&270,000\\\text { Construction of research facilities having an estimated useful life of}&\\\text { 6 years but no alternative future use}&360,000\\\end{array}$
The total amount to be classified and expensed as research and development in 2007 is

A)$555,000.
B)$855,000.
C)$585,000.
D)$285,000.

Question 80

Distributor Company purchases Supplier Company for $800,000 cash on January 1, 2007.The book value of Supplier Company's net assets, as reflected on its December 31, 2006 balance sheet is $620,000.An analysis by Distributor on December 31, 2006 indicates that the fair value of Supplier's tangible assets exceeded the book value by $60,000, and the fair value of identifiable intangible assets exceeded book value by $45,000.How much goodwill should be recognized by Distributor Company when recording the purchase of Supplier Company?

A)$ -0-
B)$180,000
C)$120,000
D)$75,000