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

Question 1

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

Answer 1

B

Question 2

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

Answer 2

C

Question 3

Current accounting for an available-for-sale AFS)security is consistent with

A)The financial capital maintenance concept of income because AFS security unrealized gains and losses are reported in earnings.
B)The financial capital maintenance concept of income because AFS security unrealized gains and losses are reports in other comprehensive income.
C)The physical capital maintenance concept of income because AFS security unrealized gains and losses are reported in earnings.
D)The physical capital maintenance concept of income because AFS security unrealized gains and losses are reported in other comprehensive income.

Answer 3

D

Question 4

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 5

A trading security is measured at fair value on the balance sheet date and reported as

A)A current asset,and changes in fair value are reported in earnings as unrealized gains and losses.
B)A current asset,and changes in fair value are reported in earnings as realized gains and losses.
C)Either a current or noncurrent asset depending on whether they meet the definition of a current asset.
D)A current asset,and changes in fair value are reported in accumulated other comprehensive income as unrealized gains and losses.

Question 6

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 7

A net unrealized loss on a company's long-term portfolio of available for sale securities should be reflected in the current financial statements as

A)An extraordinary item shown as a direct reduction from retained earnings
B)A current loss resulting from holding marketable equity securities
C)A footnote or parenthetical disclosure only
D)A component of other comprehensive income

Question 8

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 9

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 10

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 11

Changes in the fair value of a long-term available for sale equity securities portfolio should be reported as a component of

A)Other comprehensive income
B)Noncurrent assets
C)Noncurrent liabilities
D)Net income

Question 12

Refer to the facts in problem 4).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 31,2013,should be

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

Question 13

Pacer Company purchased 300 of the 1,000 outstanding shares of Queen Company's common stock for $80,000 on January 2,2012.During 2013,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 31,2013 should be

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

Question 14

On January 15,2005,a corporation was granted a patent on a product.On January 2,2013,to protect its patent,the corporation purchased a patent on a competing product the originally was issued on January 10,2011.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 2013

Question 15

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 16

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 17

A large,publicly held company developed and registered a trademark during 2013.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

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 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

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 21

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

Question 22

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

Question 23

Discuss accounting for investments in debt securities.

Question 24

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

Question 25

How does IAS No 39 define fair value?

Question 26

Discuss accounting for equity securities under the cost method.

Question 27

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 28

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 29

Discuss accounting for equity securities under the SFAS No.115 now contained at FASB ASC 320.

Question 30

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

Question 31

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