Deck 12: Intangibles

Question 1

Engineering follow-through in an early stage of commercial production can be included in R&D.

Answer 1

False

Question 2

Purchased intangible assets are generally expensed at their acquisition costs because the future economic benefits associate with them are difficult to measure.

Answer 2

False

Question 3

Technological feasibility of software products is established when the product is ready for general use.

Answer 3

False

Question 4

Start-up costs are an intangible asset with an indefinite life and should be amortized over the expected life of the business.

Question 5

Trademarks are considered to have an indefinite life and are therefore not subject to amortization.

Question 6

Unidentifiable intangible assets are intangible assets that can be separated from the company and sold, transferred, licensed, rented, or exchanged.

Question 7

Purchased identifiable intangible assets are accounted for in a similar manner to that of tangible assets..

Question 8

GAAP requires companies to disclose any costs of research and development acquired and written off as well as where the information can be found on the income statement.

Question 9

Legal work in connection with patent applications or litigation, and the sale or licensing of patents is excluded from
R & D.

Question 10

GAAP requires that a company expense all of its research and development costs as they are incurred.

Question 11

A patent is granted by the federal government giving the owner control of the manufacture or other use of an invention for 20 years.

Question 12

Identifiable intangible assets are intangible assets that can be separated from the company and sold, transferred, licensed, rented, or exchanged.

Question 13

An intangible asset with an indefinite life is not amortized but is periodically reviewed for impairment.

Question 14

Software development costs are treated as R&D expense until technological feasibility of the product is established.

Question 15

The costs associated with internally developed goodwill are capitalized.

Question 16

An identifiable intangible asset that has a finite life is not amortized but is periodically reviewed for impairment.

Question 17

For intangible assets that are amortized, the total cost, accumulated amortization, amortization expense, and estimated amortization expense for the next 5 years needs to be disclosed.

Question 18

Development is the planned search for new knowledge with the hope that such knowledge will be useful in developing a new product or process.

Question 19

Identifiable intangible assets are accounted for in a similar manner to that of tangible assets.

Question 20

A copyright is granted by the federal government giving the owner exclusive rights to sell, publish, and control the artistic product for the life of the creator.

Question 21

The costs associated with purchased goodwill are capitalized and amortized over a period not to exceed 20 years.

Question 22

Which of the following groups would be classified as intangible assets for financial accounting and reporting purposes?

A) long-term notes receivable, copyrights, goodwill, and trademarks
B) patents, software development costs, franchises, copyrights, and trademarks
C) computer software costs, development costs for internally developed patents, research, and goodwill
D) start-up costs, goodwill, costs of employee training programs, and trademarks

Question 23

_______occurs when the fair value of an asset is less than its carrying value.

A) Unidentification
B) Amortization
C) Goodwill
D) Impairment

Question 24

U.S. GAAP allows a company to capitalize more of the costs of internally generated assets than allowed under
IFRS.

Question 25

Which of the following is not required to be disclosed in an entity's financial statements or accompanying footnotes?

A) the total amount of research and development costs charged to expense during the current year
B) the method used to amortize the entity's intangible assets
C) a material amount of internally developed goodwill
D) accumulated amortization on the entity's intangibles as of its year-end

Question 26

Identifiable intangible assets would include all of the following except

A) patents.
B) trademarks.
C) goodwill.
D) franchises.

Question 27

Which of the following sets describes the appropriate accounting for intangible assets with a finite life?

A) Set I
B) Set II
C) Set III
D) Set IV

Question 28

All of the following characteristics are common to both tangible and intangible noncurrent assets with finite lives except

A) held for use and not for investment.
B) expensed in the periods in which the assets are used in operations.
C) have either a physical or financial nature.
D) derive value from the ability to generate economic benefits.

Question 29

Which of the following characteristics is not common to both tangible and intangible assets?

A) held for use and not for investment
B) Have an expected life of more than one year
C) derive value from the ability to generate revenue
D) may have value only to a particular company

Question 30

Which of the following methods is commonly used to amortize intangible assets over their useful lives?

A) declining balance
B) straight line
C) annual review for impairment
D) none of these since intangible assets are not amortized

Question 31

________ cannot be separated from the entity and sold, transferred, licensed, rented, or exchanged.

A) Internally developed identifiable intangible asset
B) Tangible asset
C) Purchased identifiable intangible asset
D) Unidentifiable intangible asset

Question 32

Purchased goodwill is the difference between the acquisition price of an acquired company and the fair value of its identifiable net assets.

Question 33

Which of the following sets represents a false relationship regarding the accounting for the cost of intangibles according to GAAP?

A) Set I
B) Set II
C) Set III
D) Set IV

Question 34

Which of the following relationships between category of intangibles and amortization is false?

A) Set I
B) Set II
C) Set III
D) Set IV

Question 35

Negative goodwill is recognized as the difference between the fair value of the net assets of an acquired company and the lower bargain purchase price.

Question 36

Which of the following costs should always be expensed as incurred?

A) the costs of externally acquired identifiable intangible assets
B) the costs incurred directly associated with establishing and successfully defending the rights associated with internally developed identifiable intangible assets
C) the costs of internally developed unidentifiable intangible assets
D) the costs of externally acquired unidentifiable intangible assets

Question 37

Which amortization method should be used for intangibles that are amortized?

A) a method based on the expected pattern of benefits to be produced by the asset
B) a method based on an annual review for impairment
C) the straight-line method; all others are inappropriate
D) any method is appropriate

Question 38

Goodwill is tested for impairment only within the context of its reporting unit.

Question 39

Intangible assets are initially recorded at

A) cost.
B) expected future value.
C) present value.
D) fair value.

Question 40

The cost of an internally developed unidentifiable intangible is expensed as incurred. Accordingly, which one of the following costs would be expensed in the year it was incurred?

A) legal cost of obtaining a patent
B) cost of improvements with a three-year life made to an asset that is being leased by the company for a five- year period
C) costs of developing new software products with proven technological feasibility
D) Costs of developing knowledge and skill levels for new management-level employees

Question 41

Which of the following research and development costs should always be capitalized?

A) costs of intangibles purchased from others
B) costs of materials, equipment, and intangibles with alternative future uses purchased from others
C) costs of equipment with an expected life greater than three years
D) costs of contract services purchased from others

Question 42

Related to in-process R&D, an acquiring company may not

A) capitalize in-process R&D.
B) treat in-process R&D as an intangible asset.
C) increase the amount of goodwill for in-process R&D.
D) establish a patent for in-process R&D.

Question 43

Costs for which of the following activities would not be included as part of research and development R&D) costs?

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 part of a continuing commercial activity.
C) searching for applications of new research findings or of other knowledge.
D) design, construction, and testing or preproduction prototypes and models.

Question 44

GAAP requires that research and development costs must be

A) capitalized.
B) expensed as incurred.
C) accumulated until the existence of future benefits is determined.
D) expensed in part and capitalized in part.

Question 45

______are capitalized and amortized over their useful life.

A) Purchased identifiable intangible assets with finite life
B) Research and development costs
C) Purchased identifiable intangible assets with indefinite life
D) Unidentifiable intangible assets

Question 46

Which of the following expenditures cannot be included in R&D costs?

A) indirect costs
B) intangibles purchased from others
C) personnel costs
D) contract services performed for others

Question 47

The Chambers Corporation was formed in early 2017. At the time of formation, Chamber spent the following amounts: accounting fees, $4,000; legal fees, $8,000; stock certificate costs, $3,000; initial franchise fee, $10,000; initial lease payment, $5,000; promotional fees, $3,000. Chamber intends to capitalize and amortize intangibles over the maximum allowable period in accordance with generally accepted accounting principles. Based on this strategy, what is Chambers's expense associated with organization costs in 2017?

A) $ 6,000
B) $18,000
C) $28,000
D) $33,000

Question 48

_____are expensed as incurred.

A) Purchased identifiable intangible assets with finite life
B) Research and development costs
C) Purchased identifiable intangible assets with indefinite life
D) Unidentifiable intangible assets

Question 49

If a research and development cost has alternative future uses, then the company

A) expenses the cost in the period incurred.
B) follows normal accrual procedures.
C) adds the cost to inventory.
D) adds the cost to property, plant, and equipment.

Question 50

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have no alternative future uses in research and development or other activities should be

A) capitalized.
B) charged directly to retained earnings.
C) included in R&D expense immediately.
D) charged as a loss from continuing operations.

Question 51

Burger Prince incurred the following costs during 2017 in the development and production of a new product:


How much should be included in R&D expense for 2017?

A) $300,000
B) $630,000
C) $680,000
D) $700,000

Question 52

The Wagner Company made the following expenditures for research and development early in 2014: $80,000 for materials, $100,000 for contract services, $80,000 for employee salaries, and $800,000 for a building with an expected life of 20 years to be used for current and future research projects. Wagner uses straight-line depreciation. The company allocated $20,000 in overhead to research and development. What is Wagners' research and development expense for 2014?

A) $200,000
B) $220,000
C) $320,000
D) $960,000

Question 53

The following items are excluded from research and development costs except

A) ongoing efforts to refine an existing product.
B) design of tools involving new technology.
C) introducing a new product.
D) quality control during commercial production.

Question 54

Research and development costs are

A) capitalized and depreciated over the period which they benefit.
B) expensed as incurred.
C) added to the cost of the invented product.
D) added to the cost of the invented product if a reliable date of actual production is known.

Question 55

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have alternative future uses in research and development should be

A) capitalized
B) charged directly to retained earnings
C) included in R&D expense immediately
D) charged as a loss from continuing operations

Question 56

When a company that is performing R&D activities is acquired by another company, the acquiring company must allocate a portion of the purchase price to the R&D activities that are purchased, creating an intangible asset called

A) intangible development.
B) in-process research and development.
C) goodwill.
D) start-up costs.

Question 57

Costs for which of the following activities should not be included in research and development R&D)?

A) modification of the formulation or design of a product or process
B) design of tools, jigs, molds, and dies involving new technology
C) design, construction, and testing of preproduction prototypes and models
D) trouble-shooting in connection with breakdowns during commercial production

Question 58

Which of the following accounting principles or conventions is contradictory to the GAAP requirement to expense R&D costs immediately?

A) historical cost principle
B) comparability
C) conservatism
D) matching principle

Question 59

The allocation of the cost of intangible assets in a systematic manner over the asset's useful life is called

A) depreciation.
B) systemization.
C) amortization.
D) impairment.

Question 60

For financial reporting purposes, GAAP requires organization costs to be

A) expensed in the period in which they are incurred.
B) capitalized and amortized over 20 years.
C) capitalized and amortized over the first five years of the company's existence.
D) capitalized and treated as an intangible asset with an indefinite life.

Question 61

Which of the following is not a required disclosure regarding goodwill for each period a company presents a balance sheet?

A) the amount of goodwill acquired
B) the amount of goodwill sold
C) the amount of any impairment loss recognized
D) the amount of any goodwill included in the disposal of a reporting unit

Question 62

In January 2014, Western Co. purchased a patent for $750,000 that had an estimated remaining economic life of ten years. On January 2, 2017, the company incurred $140,000 in legal fees to successfully defend the validity of the patent. In January 2019, the company incurred $88,000 in legal fees in a new infringement lawsuit. In this situation, the lawsuit was lost, and the patent was determined to be worthless as a result. What is the expense to be recognized in 2019 by Western with regard to the patent?

A) $750,000
B) $150,000
C) $475,000
D) $563,000

Question 63

During 2016, Debbie Company incurred $240,000 in legal fees in defending a patent with a carrying value of $4,500,000 against an infringement. Debbie's lawyers were not successful with the defense of the patent. The legal fees should be

A) expensed in 2016 and classified as ordinary expense.
B) classified as an extraordinary item on the income statement for 2016.
C) capitalized and amortized over the remaining legal life of the patent.
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter.

Question 64

All of the following items are expensed as start-up costs except

A) promotional costs for opening a new facility.
B) one-time costs for conducting business in a new territory.
C) licensing fees for starting a new franchise.
D) accounting fees for forming a new company.

Question 65

R Company registered a patent on January 1, 2015. P Company purchased the patent from R Company for $450,000 on January 1, 2020, and began to amortize the patent over its remaining legal life. In early 2021, P Company determined that the patent's economic benefits would last only until the end of 2025. What amount should P Company record for patent amortization in 2021?

A) $90,000
B) $84,000
C) $70,000
D) $30,000

Question 66

All of the following items are included in research and development costs except

A) legal work in connection with patent application.
B) design of prototype models.
C) evaluation of a potential new product.
D) research aimed at discovery of new knowledge.

Question 67

Trademarks or trade names

A) must be renewed every 35 years.
B) can be considered intangibles with indefinite lives.
C) are developed internally and thus should not have any related costs capitalized and amortized.
D) are synonymous with internally developed goodwill.

Question 68

Which of the following statements regarding intangible assets is true?

A) The expected useful life of an intangible asset is generally easier to estimate than the expected useful life of a tangible noncurrent asset.
B) The cost of an intangible asset is not permitted to be amortized for income tax purposes.
C) Intangible assets have a lower degree of uncertainty with regard to their expected future benefits than tangible noncurrent assets.
D) The accumulated amortization for intangible assets that are amortized must be disclosed.

Question 69

In January 2014, the Jennifer Corporation purchased a patent for $231,000 from Travis Company that had a remaining legal life of 14 years. Jennifer estimated that the remaining economic life would be seven years. In January 2018, the company incurred $30,000 in legal costs to defend the patent from an infringement. Jennifer's lawyers were successful, and the remaining years of benefit from the patent were estimated to be six years. What is the patent amortization expense for 2018?

A) $7,615
B) $9,923
C) $16,500
D) $21,500

Question 70

Which of the following is not a required disclosure regarding intangible assets in the period a company acquires intangible assets?

A) the cost of any intangible assets acquired, separated into assets subject to amortization, assets not subject to amortization, and goodwill
B) for assets subject to amortization, the residual value and the weighted-average amortization period
C) the rate of return used to estimate the value of goodwill purchased
D) the cost of any research and development acquired and written off, and where it is included in the income statement

Question 71

In 1975, Riveria Company had acquired copyrights for $750,000 on several literary works from some obscure 18th century authors. These copyrights were fully amortized by 2015. In early 2015, a new anthropological discovery made these copyrights worth $2,500,000. As a result, Riveria should report which of the following in its financial statements for 2015?

A) $2,500,000 as a holding gain
B) $750,000 as copyrights-based recovery of value limited to historical cost
C) $2,500,000 as an extraordinary item
D) cannot be recognized under U.S. GAAP in the financial statements

Question 72

The amortization period for a patent is

A) indefinite; patents should be reviewed for impairment annually.
B) 20 years.
C) 20 years or the expected useful life of the patent, whichever is longer.
D) 20 years or the expected useful life of the patent, whichever is shorter.

Question 73

_____are contractual agreements which grant the right to perform certain functions or sell certain products or services.

A) Noncompete agreements
B) Franchises
C) Trademarks
D) Customer acquisition lists

Question 74

Which of the following is an intangible asset that is not typically amortized?

A) patent
B) copyright
C) franchise
D) goodwill

Question 75

All of the following are considered marketing-related intangible assets except

A) copyright.
B) internet domain name.
C) noncompete agreement.
D) trademark.

Question 76

During 2016, Frank Company incurred $200,000 in legal fees in defending a patent with a carrying value of $3,500,000 against an infringement. Farver's lawyers were successful with the defense of the patent. The legal fees should be

A) expensed in 2016 and classified as ordinary expense.
B) classified as an extraordinary item on the income statement for 2016.
C) capitalized and amortized over the remaining legal life of the patent.
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter.

Question 77

The cost of a copyright should

A) be amortized over a period not to exceed the life of the author plus 50 years.
B) be amortized over a period not to exceed 20 years, unless the right is renewed.
C) not be amortized and the cost should be capitalized as an asset with indefinite life.
D) be amortized over a period not to exceed its economic life.

Question 78

Debbie acquired a franchise to operate a donut shop from Dollar Donuts, Inc., for $100,000. She incurred an additional $4,000 in legal costs to negotiate the terms with the franchiser. In five years, the franchise contract will be renegotiated. The current contract also states that there will be a $3,000 annual fee plus a two percent charge based on the store's annual revenue, which is expected to average 90,000 per year. What is the franchise cost that should be capitalized?

A) $88,000
B) $92,000
C) $100,000
D) $104,000

Question 79

A patent is amortized over its expected useful life or 20 years. The expected useful life can be impacted by all of the following except

A) a unsuccessful lawsuit against a competitor.
B) the federal government renewing the original patent.
C) technical innovations by a competitor.
D) product improvements by the patent holder.

Question 80

Which of the following is not a required disclosure regarding intangible assets that are amortized for each period a company presents a balance sheet?

A) the total cost
B) the accumulated amortization
C) the amortization expense
D) the estimated amortization expense for the next ten years