ch12 Test Bank intermediate accounting

CHAPTER 12 INTANGIBLE INTANGIBLE ASSETS CHAPTER LEARNING OBJECTIVES 1.

Descri Describe be the the charac character terist istics ics of intang intangibl ible e asset assets. s.

2.

Identi Identify fy the cost costs s to includ include e in the initia initiall valuati valuation on of intang intangibl ible e assets. assets.

3.

Explai Explain n the the proce procedure dure for amorti amortizin zing g intan intangib gible le asse assets. ts.

4.

Desc Descri ribe be the the typ types es of of inta intang ngib ible le ass asset ets. s.

.

Explai Explain n the the accou accounti nting ng issu issues es for for reco recordi rding ng good! good!ill ill..

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Explai Explain n the accoun accountin ting g issues issues relate related d to intang intangibl ible e asset asset impairm impairment ents. s.

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Identi Identify fy the conc concept eptual ual issue issues s related related to resea research rch and and develop developmen mentt costs. costs.

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Descri Describe be the accou accounti nting ng for resea research rch and and develop developmen mentt and simila similarr costs. costs.

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Indica Indicate te the the presen presentat tation ion of of intang intangibl ible e assets assets and and relate related d items. items.

12 & 2

Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e

TR%E&$ALSE'Cone(t!a) 1.

Intangible Intangible assets assets derive derive their their value from the right right &claim &claim'' to receive receive cash cash in the future future..

2.

(ll resea research rch phase phase and and develo developme pment nt phase phase cost costs s are expen expensed sed as incu incurre rred. d.

3.

)ese )esear arch ch phas phase e cost costs s are are capi capita talilize zed d as an inta intang ngib ible le asse assett once once the the pro* pro*ec ectt has has economic viability. viability.

4.

+omp +ompan anie ies s are are re,u re,uir ired ed to asses assess s the the esti estima mate ted d usef useful ul life life and and salv salvag age e valu value e of  intangible assets at least annually.

.

Impair Impairmen mentt testing testing is conduc conducted ted annuall annually y for both both limitedlimited-lif life e and indefin indefinite iteli life fe intangib intangible le assets.

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(mortization of limitedlife intangible assets assets should not be impacted impacted by expected residual values.

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/ome /ome intang intangibl ible e assets assets are are not re,uire re,uired d to be amort amortize ized d every every year year..

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0imite 0imitedl dlife ife intang intangibl ibles es are amortiz amortized ed by systema systematic tic charge charges s to expense expense over their their useful useful life.

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he cost cost of ac,ui ac,uirin ring g a customer customer list list from from another another compa company ny is recor recorded ded as an intan intangib gible le asset.

1.

he cost cost of purcha purchased sed paten patents ts should should be amorti amortized zed over over the remai remainin ning g legal life life of the patent.

11. 11.

If a ne! patent patent is ac,uir ac,uired ed through through modifi modificat cation ion of an existi existing ng patent patent the the remainin remaining g boo value of the original patent may be amortized over the life of the ne! patent.

12.

In a busine business ss combinat combination ion a company company assigns assigns the the cost cost !here !here possible possible to the the identifi identifiable able tangible and intangible assets !ith the remainder recorded as good!ill.

13. 13.

5ood! 5ood!ililll is consi conside dere red d a mast master er valua valuati tion on accoun accountt beca becaus use e it measur measures es the value value of  specifically identifiable intangible assets.

14.

Intern Internall ally y generat generated ed good! good!ill ill should should not not be capita capitaliz lized ed in the accou accounts nts..

1.

Intern Internall ally y generat generated ed good! good!ill ill associ associate ated d !ith a busine business ss may be recor recorded ded as an asset asset !hen a firm offer to purchase that business unit has been received.

1". 1".

(ll (ll inta intang ngib ible les s are are sub* sub*ec ectt to peri period odic ic cons consid ider erat atio ion n of impa impair irme ment nt !ith !ith corr corres espo pond ndin ing g potential !ritedo!ns.

1#.

If the the recovera recoverable ble amount amount of an indefinite indefinitelife life intangible intangible other than good!ill good!ill is less than its its carrying value an impairment loss must be recognized.

Intangible (ssets

12 & ,

1$.

( cash cashgen genera eratin ting g unit is the the smalles smallestt identif identifiab iable le group group of assets assets in a busines business s that can can generate cash flo! independently of the cash flo!s from the business6s other assets.

1%.

he impai impairme rment nt test test for good!i good!illll is conduct conducted ed based based on the cashg cashgene enerat rating ing unit unit to !hich !hich the good!ill has been assigned.

2.

)ecove )ecoverie ries s of impair impairmen ments ts for intang intangibl ible e longlive longlived d assets assets are reported reported in 7other 7other income income and expense7 on the income statement.

21.

( recove recovery ry of impair impairmen mentt for an intangi intangible ble longli longlived ved asset asset is limit limited ed to the carryi carrying ng value value that !ould have been reported had the impairment not occurred.

22.

(fter (fter an impairm impairment ent loss loss is recorded recorded for for a limite limitedl dlife ife intang intangibl ible e asset asset the recove recoverab rable le amount becomes the basis for the impaired asset and is used to calculate amortization in future periods.

23.

(fter (fter an impair impairmen mentt loss is recor recorded ded for for good!ill good!ill the recover recoverabl able e amount amount become becomes s the basis for the impaired asset and is used to calculate amortization in future periods.

24.

(ccounting (ccounting for for impairme impairments nts for for limitedl limitedlife ife intangi intangible ble assets assets follo! follo!s s the same same rules rules used used to account for impairments of plant and e,uipment.

2.

I8)/ I8)/ permits permits reversa reversals ls of impairme impairment nt losses losses for all limited limited and indefi indefinit niteli elife fe intangi intangible ble assets.

2".

9eriod 9eriodic ic altera alteratio tions ns to existi existing ng product products s are an example example of resear research ch and develo developme pment nt costs.

2#.

)esearch )esearch and and development development costs costs that that result result in patents patents may be capitali capitalized zed to the extent extent of  of  the fair value of the patent.

2$.

I8)/ I8)/ re,uires re,uires that that start startup up costs costs and initi initial al operati operating ng losses losses during during the early early years years be capitalized.

2%.

)esear )esearch ch and devel developm opment ent costs costs are are recorde recorded d as an intangi intangible ble asset asset ifif it is felt felt they !ill !ill provide economic benefits in future years.

3. 3.

+ont +ontra ra acco accoun unts ts must must be repo report rted ed for for inta intang ngib ible le asse assets ts in a mann manner er simi simila larr to the reporting of property plant and e,uipment.

Tr!e Tr!e $a)se Ans*ers' Cone(t!a) Item Ans+

1. 2. 3. 4. .

8 8 8  8

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8    8

11. 12. 13. 14. 1.

  8  8

1". 1#. 1$. 1%. 2.

Ans+

    

Item

21. 22. 23. 24. 2.

Ans+

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Item

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Ans+

8 8 8 8 8

12 & .

Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e

-%LTIPLE CHOICE'Cone(t!a) 31.

:hich :hich of of the the follo! follo!ing ing does does not descri describe be intan intangib gible le asset assets; s; a. hey hey lac lac physic physical al exi existe stence nce.. b. hey hey are are mon monet etar ary y asse assets ts.. c. hey hey prov provide ide longt longterm erm benefi benefits. ts. d. hey hey are clas classif sified ied as long longte term rm asset assets. s.

32.

:hich :hich of the the follo!i follo!ing ng charact characteri eristi stics cs do intan intangib gible le assets assets poss possess ess; ; a. 9hys 9hysic ical al exis existe tenc nce. e. b. +laim +laim to a speci specific fic amou amount nt of cash cash in in the futur future. e. c. 0ongli lived. d. s pur chaser>s patented products should be a. charge charged d off off in the curren currentt perio period. d. b. amortized amortized over the the legal legal life life of the purchas purchased ed patent. patent. c. added to factory factory overhe overhead ad and allocated allocated to product production ion of the purchas purchaser>s er>s product. product. d. amortized amortized over over the remaining remaining estimated estimated life life of the original original patent patent covering covering the product product !hose maret !ould have been impaired by competition from the ne!ly patented product.

4$.

road! road!ay ay +orpora +orporatio tion n !as granted granted a patent patent on a product product on anua anuary ry 1 24. 24. o o prote protect ct its patent the corporation purchased on anuary 1 21 a patent on a competing product !hich !as originally issued on anuary 1 211. ecause of its uni,ue plant road!ay +orporation does not feel the competing patent can be used in producing a product. he cost of the competing patent should be a. amorti amortized zed over over a maxi maximum mum perio period d of 2 year years. s. b. amorti amortized zed over over a maxi maximum mum perio period d of 1" year years. s. c. amorti amortized zed over over a max maximu imum m period period of of % years years.. d. expe expens nsed ed in 21 21..

4%.

:rigle :riglee e Inc. Inc. !ent to court court this this year and succes successfu sfully lly defen defended ded its paten patentt from infrin infringe ge ment by a competitor. he cost of this defense should be charged to a. patents patents and amortized amortized over over the legal life of of the patent. patent. b. legal legal fees fees and amort amortize ized d over  years years or or less. less. c. expe expens nses es of the the peri period od.. d. patents patents and amortiz amortized ed over the the remaining remaining useful useful life life of the the patent. patent.

. .

:hic :hich h of the the foll follo! o!in ing g is is not an intangible asset; a. rade name b. )esearc )esearch h and and devel developm opment ent costs costs c. 8ranchise d. +opyr pyrights

1.

:hich :hich of the follo! follo!ing ing intang intangibl ible e asse assets ts should should not be amortized; a. +opyr pyrights b. +ust +ustom omer er list lists s c. 9erp 9erpet etua uall fran franch chis ises es d. (ll of of these these intangi intangible ble assets assets should should be amorti amortized. zed.

2.

:hen :hen a pate patent nt is is amort amortize ized d the the cred credit it is is usual usually ly made made to a. the the 9at 9aten ents ts acco accoun unt. t. b. an (ccum (ccumula ulated ted (mor (mortiz tizati ation on account account.. c. an (ccu (ccumul mulate ated d Depreci Depreciati ation on accoun account. t. d. an exp expen ense se acc accou ount nt..

3.

:hen :hen a company company develo develops ps a tradema trademar r the cost costs s direct directly ly relate related d to securin securing g it should should generally be capitalized. :hich of the follo!ing costs associated !ith a trademar !ould not be allo!ed to be capitalized; a. (tto (ttorn rney ey fees fees.. b. +ons +onsul ulti ting ng fee fees. s. c. )esearc )esearch h and and develo developme pment nt fees. fees. d. Desig esign n cos costts.

Intangible (ssets

12 & 

4.

In a busine business ss combin combinati ation on the the excess excess of the the cost cost of the purch purchase ase over over the fair fair value value of  the identifiable net assets purchased is a. othe otherr ass asset ets s. b. indi indire rect ct cost costs. s. c. good!ill. d. a barg bargai ain n purc purcha hase se..

. .

5ood 5ood! !ill ill may may be reco record rded ed !hen hen a. it is is ident identifi ified ed !ith !ithin in a comp company any.. b. one company company ac,uires ac,uires another another in a business business combina combination. tion. c. the fair fair value value of a company6s company6s assets assets exceeds exceeds their their cost. cost. d. a company company has exceptional exceptional customer customer relations. relations.

".

:hen :hen a ne! company company is ac,ui ac,uired red !hich !hich of these these intangi intangible ble asset assets s unrec unrecord orded ed on the ac,uired company6s boos might be recorded in addition to good!ill; a. ( trad trade e nam name. e. b. ( patent. c. ( cust custom omer er list list.. d. (ll (ll of of the the abov above. e.

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:hich :hich of the the follo! follo!ing ing intang intangibl ible e assets assets could could not be sold sold by a busines business s to raise raise needed needed cash for a capital pro*ect; a. 9atent. b. +opyri pyrig ght. c. 5ood!ill. d. rade na name.

$.

he reason reason good!ill good!ill is sometimes sometimes referred referred to as a master master valuati valuation on account account is is because because a. it represents represents the purchase purchase price price of a busines business s that is is about to to be sold. sold. b. it is the differen difference ce bet!een bet!een the fair value value of the net identif identifiab iable le assets assets as compar compared ed !ith the purchase price of the ac,uired business. c. the the valu value e of a busi busine ness ss is comp comput uted ed !ith !ithou outt cons consid ider erat atio ion n of good good!i !illll and and then then good!ill is added to arrive at a master valuation. d. it is the the only only accoun accountt in the fina financ ncia iall stat statem emen ents ts that that is based based on valu value e all othe other  r  accounts are recorded at an amount other than their value.

%. %.

9urc 9urcha hase sed d goo good! d!ililll sho shoul uld d a. be !ritten !ritten off off as soon as as possible possible against against retain retained ed earnings. earnings. b. be !ritten !ritten off off as soon as as possible possible as an other other expense expense item. item. c. be !ritten !ritten off by system systemati atic c charge charges s as a regular regular operatin operating g expense expense over the period period benefited. d. not not be be amo amort rtiz ized ed..

". ".

he he int intan angi gible ble asse assett goo good! d!ililll may may be a. capita capitaliz lized ed only only !hen !hen purc purchas hased. ed. b. capitalize capitalized d either either !hen purchased purchased or created created internall internally. y. c. capita capitaliz lized ed only only !hen !hen created created inter internal nally ly.. d. !ritt !ritten en off off directl directly y to retain retained ed earning earnings. s.

12 & 3

Test Bank for Intermediate Ao!ntin"# I$RS Edition# 2e

"1.

( loss on impairm impairment ent of an intangib intangible le asset asset is the diffe difference rence bet!een bet!een the asset6s asset6s a. carrying carrying amount amount and the expecte expected d future future net cash cash flo!s flo!s.. b. carryi carrying ng amount amount and and its recov recovera erable ble amoun amount. t. c. recoverable recoverable amount and the the expected expected future future net cash cash flo!s. flo!s. d. boo boo valu value e and and its its fair fair valu value. e.

"2.

)ecove )ecovery ry of impair impairmen mentt is reco recogni gnized zed for all the the foll follo!i o!ing ng e/e(t a. 9ate 9atent nt held held for for sal sale. e. b. 9ate 9atent nt hel held d for for use. use. c. rademar. d. 5ood!il d!illl.

"3.

(ll of the follo! follo!ing ing are true regarding regarding recovery recovery of impairm impairments ents for intangi intangible ble assets assets e/e(t a. (fter (fter a recove recovery ry of impair impairmen mentt has been recogn recognize ized d the carrying carrying value value of the asset reported on the statement of financial position !ill be the higher of the fair value less cost to sell or the valueinuse. b. Co recovery recovery of impairm impairment ent is is allo!ed allo!ed for for 5ood!il 5ood!ill. l. c. ( recovery recovery of impairment impairment !ill !ill be reported reported in the 7Ather 7Ather income income and expense7 expense7 section section of the income statement. d. he amount amount of the recover recovery y is limited limited to the carrying carrying value value of the asset that that !ould !ould have been reported had no impairment occurred.

"4.

:hic :hich h of of the the follo ollo! !ing ing is is not a criteria !hich must be met before development costs can be capitalized; a. he company company has suffi sufficient cient financi financial al resources resources to complete complete the the pro*ect. pro*ect. b. he compan company y intends intends to complete complete the pro*ec pro*ectt and either use or sell the intang intangibl ible e asset. c. he compan company y can reliably reliably identify identify the researc research h costs incurr incurred ed to bring bring the pro*ect pro*ect to economic feasibility. feasibility. d. he pro*ect pro*ect has achieved achieved techni technical cal feasibilit feasibility. y.

".

:hich :hich of the follo! follo!ing ing researc research h and develop developmen mentt related related costs costs should should be capita capitaliz lized ed and depreciated over current and future periods; a. )esearch )esearch and developme development nt general general laboratory laboratory building building !hich !hich can be put to alternati alternative ve uses in the future b. Inventory Inventory used for a specifi specific c researc research h pro*ect pro*ect c. (dministra (dministrative tive salari salaries es allocate allocated d to research research and and developm development ent d. )ese )esearc arch h find findin ings gs purc purcha hase sed d from from anot anothe herr comp company any to aid aid a part partic icul ular ar rese resear arch ch pro*ect currently in process

"". "".

:hic :hich h of the foll follo! o!ing ing princi principl ples es best best descr describ ibes es the curr curren entt meth method od of accou account ntin ing g for  for  research and development costs; a. (ssoci (ssociati ating ng caus cause e and and effect effect b. /yste /ystemat matic ic and and ration rational al alloc allocati ation on c. Inco Income me tax tax min minim imiz izat atio ion n d. Immedi Immediate ate reco recogni gnitio tion n as an exp expens ense e

Intangible (ssets

12 & 4

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