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IFRS questions are available at the end of this chapter.
F F F F T T T F T T T F T T F F F F F F
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
Characteristics of intangible assets. Internally created intangibles. Recording internally generated intangibles. Amortization of limited-life intangible assets. Amortization of intangible assets. Amortizing limited-life intangibles. Accounting for a customer list. Amortization of patents. Modification of an existing patent. Basic concept of goodwill. Internally generated goodwill. Recording internally generated goodwill. Impairment of intangibles. Recognition of impairment loss. Recovery of impairment loss. Impairment of intangibles. Example of research and development costs. Capitalizing research and development costs. Recording research and development costs. Reporting intangible assets.
b c a c a b d d b c a b d c d b c a c
21 22 23 24. 25. 26. 27. 28. S 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. S 39.
Characteristics of intangible assets. Characteristics of intangible assets. Characteristics of intangible assets. Accounting for internally-created intangibles. Research and development costs. Amortization methods for intangible assets. Cost of intangible asset. Factors in determining useful life. Classifying intangible assets. Impairment of intangibles. Determining intangible asset useful life. Amortization of intangibles. Patent amortization. Patent amortization. Legal fees associated with patent infringement. Identification of intangible assets. Amortization of intangible assets. Entry to record patent amortization. Trademark costs capitalized.
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Test Bank for Intermediate Accounting, Thirteenth Edition
MULTIPLE CHOICE—Conceptual (cont.)
c b d c b a d a b d c b a d d d d b d d c b a d a a b d c c d d b d c d
40. 41. 42. 43. S 44. 45. 46. 47. 48. 49. S 50. P 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. P 63. S 64. 65. 66. 67. P 68. 69. 70. 71. 72. 73. 74. 75.
Composition of goodwill. When to record goodwill. Intangibles during acquisition of company. Seperability of goodwill. Goodwill as master valuation account. Reporting of "negative goodwill." Accounting for goodwill. Recording goodwill. Impairment of intangible asset. Recoverability test. Impairment test for indefinite-life intangibles. Accounting for organization costs. Capitalization of certain R & D costs. Accounting principle for R & D expenditures. Accounting for R & D costs. Classification of R & D expense. Costs to defend a patent. Purpose of R & D costs. Classification of R & D costs. Classification of R & D costs. Costs excluded from R & D expense. Depreciation of laboratory building used in R & D. Operating losses during start-up period. Accounting for organization costs. Classification of R & D expense. Reporting goodwill. Intangible asset disclosure. Expense classification. Reporting patent amortization. Reporting intangibles. Reporting expenses and losses. Reporting expenses and losses. Cost of computer software. Cost of computer software. Amortization of computer software costs. Amortization of computer software costs.
These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide. * This topic is dealt with in an Appendix to the chapter.
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d d c d c c b b b c b b a b c c d a b b c d b b d c c a a c c c c a b
76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. *106. *107. *108. *109. *110.
Valuation of patent. Valuation of patent. Valuation of patent. Basket purchase of patents. Intangible asset amortization. Intangible asset amortization. Computing patent amortization expense. Computing patent amortization expense. Computing patent amortization expense. Calculate total intangible assets. Determine amount of worthless patent to be written off. Calculate patent amortization. Calculate trademark amortization. Calculate patent amortization. Calculate goodwill amount. Calculate goodwill amount. Calculate amount of goodwill. Calculate goodwill impairment. Proper accounting when fair value of net assets acquired exceeds cost. Calculate impairment loss. Calculate patent carrying value. Calculate patent carrying value. Calculate loss on impairment of goodwill. Calculate loss on impairment of goodwill. Calculate R & D expense. Calculate R & D expense. Calculate R & D expense. Calculate R & D expense. Calculate R & D expense. Reporting intangible assets. Computing computer software costs. Computing computer software costs. Computing computer software costs. Computing computer software costs. Computing computer software costs.
MULTIPLE CHOICE—CPA Adapted
a c d c c d c a c a
111. 112. 113. 114. 115. 116. 117. 118. 119. 120.
Determine capitalized patent costs. Valuation of patent exchanged for common stock. Valuation of patent exchanged for treasury stock. Valuation and amortization of a patent. Amortization of a patent. Amortization of a trademark. Capitalization of legal fees. Amortization of goodwill. Calculate R & D expense. Determine R & D expense for the year.
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Test Bank for Intermediate Accounting, Thirteenth Edition
E12-121 E12-122 E12-123 E12-124 E12-125 E12-126 E12-127 E12-128 E12-129 E12-130 E12-131 E12-132 E12-133 E12-134 E12-135 E12-136 E12-137 E12-138 E12-139 E12-140 E12-141 E12-142 E12-143
Essay – characteristics of intangible assets. Essay – cost of intangibles. Essay – types of intangibles. Essay – definition of and accounting for intangibles. Essay – stock issued for intangible. Essay – costs associated with patents. Intangible assets multiple choice. Essay – intangible asset amortization. Essay – useful life of intangibles. Entries for amortization and impairment. Essay - Intangible assets theory. Identify intangibles. Essay – Goodwill and negative goodwill. Carrying value of patent. Accounting for patent. Essay – goodwill. Essay – impairment. Goodwill impairment. Impairment of copyrights. Essay – R & D costs. Essay – start-up costs. Acquisition of tangible and intangible assets. Computer software amortization.
Intangible assets. Goodwill, impairment.
CHAPTER LEARNING OBJECTIVES
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. *11. Describe the characteristics of intangible assets. Identify the costs to include in the initial valuation of intangible assets. Explain the procedure for amortizing intangible assets. Describe the types of intangible assets. Explain the conceptual issues related to goodwill. Describe the accounting procedures for recording goodwill. Explain the accounting issues related to intangible-asset impairments. Identify the conceptual issues related to research and development costs. Describe the accounting procedures for research and development costs and for other similar costs. Indicate the presentation of intangible assets and related items. Understand the accounting for computer software costs.
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SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS
Ite Typ Ite Typ Ite Typ Item Typ Item Typ Item Typ Item Typ
1. 2. 3.
TF TF TF
21. 24. 25.
MC MC MC
22. 76. 77.
Learning Objective 1 MC 23. MC 121. Learning Objective 2 MC 78. MC 122. MC 79. MC 125. Learning Objective 3 MC 80. MC 128. MC 81. MC 129. MC 82. MC 130. Learning Objective 4 MC 88. MC 114. MC 89. MC 115. MC 111. MC 116. MC 112. MC 117. MC 113. MC 127. Learning Objective 5 MC 124. E MC 145. P Learning Objective 6 MC 90. MC 92. MC 91. MC 93. Learning Objective 7 s MC 50. MC 96. MC 95. MC 97. Learning Objective 8 MC 55. MC 58. MC 57. MC 59. Learning Objective 9 MC 102. MC 119. MC 103. MC 120. MC 104. MC 140. Learning Objective 10 MC 69. MC 71. MC 70. MC 105. Learning Objective *11 MC *108. MC *110. MC *109. MC 143. E = Exercise P = Problem
E E E
4. 5. 6. 7. 8. 9. 33. 34. 10. 40. 11. 12. 13. 14. 17. 18. 19. 56. 60. 20. 32. 72. 73. Note:
TF TF TF TF TF TF MC MC TF MC TF TF TF TF TF TF TF MC MC TF MC MC MC
26. 27. 28. 35. 36. 37. 38. 39. 41. 42. 44. 45. 15. 16. 51. 52.
MC MC MC MC MC MC MC MC MC MC MC MC TF TF MC MC MC MC MC MC MC MC MC
29. 30. 32. 83. 84. 85. 86. 87.
E E E MC MC MC MC E
132. 133. 134. 135. 139.
E E E E E
43. 118. 46. 47. 48. 49. 53. 54. 64. 100. 101. 67. 68.
MC MC MC MC MC MC MC MC E MC MC MC E
94. 136. 98. 99. 145.
MC E MC MC P
61. 62. p 63. 65. 66. 74. 75.
TF = True-False MC = Multiple Choice
6 Test Bank for Intermediate Accounting.12 . Thirteenth Edition .
Limited-life intangibles are amortized by systematic charges to expense over their useful life. 2. If a new patent is acquired through modification of an existing patent. Amortization of limited-life intangible assets should not be impacted by expected residual values. The cost of acquiring a customer list from another company is recorded as an intangible asset. . In a business combination. 6. Internally created intangibles are recorded at cost. 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. with the remainder recorded as goodwill. Intangible assets derive their value from the right (claim) to receive cash in the future. 3. 8. 5.7 TRUE-FALSE—Conceptual 1. to the identifiable tangible and intangible assets. 4. Internally generated intangible assets are initially recorded at fair value. The cost of purchased patents should be amortized over the remaining legal life of the patent. 7.Intangible Assets 12 . Some intangible assets are not required to be amortized every year. where possible. the remaining book value of the original patent may be amortized over the life of the new patent. 9. 13. a company assigns the cost. All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs. 10. 12. Internally generated goodwill should not be capitalized in the accounts. 11.
an impairment loss must be recognized. 16. plant. .8 14. c. Ans. F F F F T Item 6. 15. 8. 2. Ans. 13. Which of the following characteristics do intangible assets possess? a. 18. 20. The same recoverability test that is used for impairments of property. d. Long-lived. 17. 19. Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years. If market value of an impaired asset recovers after an impairment has been recognized. 17. They provide long-term benefits. They are financial instruments. 14. F F F F F MULTIPLE CHOICE—Conceptual 21. Physical existence. T T F T T Item 11. Claim to a specific amount of cash in the future. plant. d. Periodic alterations to existing products are an example of research and development costs. 22. 15. b. 12. and equipment is used for impairments of indefinite-life intangibles. 18. Ans. Thirteenth Edition If the fair value of an unlimited life intangible other than goodwill is less than its book value. 19. Held for resale. 20. 3. T F T T F Item 16. They are classified as long-term assets. Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property. 4. 5. 7. 10. Which of the following does not describe intangible assets? a. They lack physical existence. 9. and equipment. Ans. c. b. True False Answers—Conceptual Item 1. the impairment may be reversed in a subsequent period. Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent. Test Bank for Intermediate Accounting.12 .
expensed only if they have a limited life. c. specifically identifiable or goodwill-type. b. All of the above. b. legal fees.Intangible Assets 23. d. other incidental expenses. Straight-line c. 25.9 24. intangible assets are classified as a. Units of production d. capitalized if they have an indefinite life. Which characteristic is not possessed by intangible assets? a. all of these are included. 26. Under current accounting practice. . d. Research and development costs. Factors considered in determining an intangible asset’s useful life include all of the following except a. Short-lived. b. c. b. the expected use of the asset. Expensed over current and/or future years. the amortization method used. expensed as incurred. any legal or contractual provisions that may limit the useful life. any provisions for renewal or extension of the asset’s legal life. 28. Result in future benefits. legally restricted or goodwill-type. d. c. Filing costs. purchase price. 12 . c. c. d. b. d. c. 29. capitalized. limited-life or indefinite-life. b. Which of the following costs incurred internally to create an intangible asset is generally expensed? a. Double-declining-balance The cost of an intangible asset includes all of the following except a. d. 27. Legal costs. Costs incurred internally to create intangibles are a. Physical existence. Which of the following methods of amortization is normally used for intangible assets? a. amortizable or unamortizable. Sum-of-the-years'-digits b.
33. b. Because of its unique plant. patents and amortized over the legal life of the patent. 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. . No No 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. Thirteenth Edition 30. expenses of the period. b. amortization. 32. c. 34. c. patents and amortized over the remaining useful life of the patent. impairment. Broadway Corporation does not feel the competing patent can be used in producing a product. amortized over the legal life of the purchased patent. salvage value. legal fees and amortized over 5 years or less. charged off in the current period. b. S 31. d. the corporation purchased on January 1. The cost of the competing patent should be a. amortized over a maximum period of 9 years. provisions for renewal or extension. c. 2005. b.10 Test Bank for Intermediate Accounting. recoverability. Companies should test indefinite life intangible assets at least annually for: a. 1998. d. amortized over a maximum period of 16 years. d. legal life. Inc. No Yes d. amortized over a maximum period of 20 years. To protect its patent. d. expensed in 2009. Yes Yes b. Which intangible assets are amortized? Limited-Life Indefinite-Life a. d. One factor that is not considered in determining the useful life of an intangible asset is a. expected actions of competitors. added to factory overhead and allocated to production of the purchaser's product. Wriglee. estimated useful life. 2009 a patent on a competing product which was originally issued on January 10. 35. b. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to a. Yes No c. c. Broadway Corporation was granted a patent on a product on January 1. c.12 .
Customer lists c. When a company develops a trademark the costs directly related to securing it should generally be capitalized. b. the Patent account. c. one company acquires another in a business combination.11 37. Research and development fees. . All of these intangible assets should be amortized. companies record identifiable intangible assets that they can reliably measure. c. other assets. direct costs. Goodwill may be recorded when: a. d.Intangible Assets 36. 40. Copyrights b. the credit is usually made to a. c. In a business combination. too difficult to identify or measure. c. When a patent is amortized. Research and development costs c. 12 . 39. an Accumulated Amortization account. it is identified within a company. d. Trade name b. Consulting fees. indirect costs. Copyrights Which of the following intangible assets should not be amortized? a. a company has exceptional customer relations. Which of the following costs associated with a trademark would not be allowed to be capitalized? a. are recorded as: a. Attorney fees. Perpetual franchises d. d. the fair market value of a company’s assets exceeds their cost. an expense account. d. b. Which of the following is not an intangible asset? a. Design costs. 41. goodwill. b. a Deferred Credit account. All other intangible assets. Franchise d. 38. b.
c. The reason goodwill is sometimes referred to as a master valuation account is because a. All of the above. which of these intangible assets. Brand Name. 46. A brand name. b. c. Goodwill. 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. b. Purchased goodwill should a. might be recorded in addition to goodwill? a.12 . When a new company is acquired. Which of the following intangible assets could not be sold by a business to raise needed cash for a capital project? a. d. Easton Company and Lofton Company were combined in a purchase transaction. . it is the only account in the financial statements that is based on value. b. 43.12 Test Bank for Intermediate Accounting. not be amortized. c. it represents the purchase price of a business that is about to be sold. Patent. c. part of current income in the year of combination. be written off as soon as possible as an extraordinary item. d. 44. c. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. Easton was able to acquire Lofton at a bargain price." Proper accounting treatment by Easton is to report the amount as a. there was still some "negative goodwill. b. a deferred credit and amortize it. b. be written off as soon as possible against retained earnings. unrecorded on the acquired company’s books. paid-in capital. d. A customer list. d. a gain. be written off by systematic charges as a regular operating expense over the period benefited. Thirteenth Edition 42. After revaluing noncurrent assets to zero. d. all other accounts are recorded at an amount other than their value. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. A patent. Copyright. 45.
Intangible Assets 47. d. the asset's acquisition cost less the total related amortization recorded to date. Goodwill. written off directly to retained earnings. b. Recoverability Test Yes Yes No No Fair Value Test Yes No Yes No 50. 51. A loss on impairment of an intangible asset is the difference between the asset’s a. Which of the following research and development related costs should be capitalized and depreciated over current and future periods? a. capitalized only when purchased. fair value and the expected future net cash flows. The carrying amount of an intangible is a. Limited life intangibles. d. the fair market value of the asset at a balance sheet date. c d. carrying amount and its fair value. d. c. Buerhle 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 assessed value of the asset for intangible tax purposes. b. Research findings purchased from another company to aid a particular research project currently in process 52. capitalized only when created internally. d. equal to the balance of the related accumulated amortization account. c. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets? a. c. 12 . book value and its fair value. capitalized either when purchased or created internally. carrying amount and the expected future net cash flows. 49. Administrative salaries allocated to research and development d. b. Inventory used for a specific research project c. . The intangible asset goodwill may be a. b. Indefinite life intangibles other than goodwill. c. The impairment test(s) to be used is (are) a. Indefinite life intangibles.13 48. b. Research and development general laboratory building which can be put to alternative uses in the future b.
12 . Must be expensed in the period incurred. Immediate recognition as an expense How should research and development costs be accounted for. b. are intangible assets. c. Translation of research findings or other knowledge into a plan or design for a new product or process. d. b. c. 57. all of the above. all of the above. d. May be either capitalized or expensed when incurred. may result in the development of a patent. b. Research and development costs a.14 Test Bank for Intermediate Accounting. Income tax minimization d. Which of the following costs should be capitalized in the year incurred? a. . 56. Associating cause and effect b. b. Costs to internally generate goodwill. d. Which of the following would be considered research and development? a. 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. c. Translation of research findings or other knowledge into a significant improvement of an existing product. are easily identified with specific projects. Organizational costs. Costs to successfully defend a patent. Which of the following is considered research and development costs? a. Thirteenth Edition 53. 58. Research and development costs. 55. c. d. Which of the following principles best describes the current method of accounting for research and development costs? a. Periodic alterations to existing production lines. Systematic and rational allocation c. Routine efforts to refine an existing product. according to a Financial Accounting Standards Board Statement? a. Planned search or critical investigation aimed at discovery of new knowledge. c. Must be capitalized when incurred and then amortized over their estimated useful lives. Construction of prototypes. 54. d. b. depending upon the materiality of the amounts involved. Marketing research to promote a new product.
Which of the following costs should be excluded from research and development expense? a. c. the cost of the laboratory building is matched against earnings as a. 60. Planned search or critical investigation aimed at discovery of new knowledge. d. capitalized and amortized over 5 years. Engineering activity required to advance the design of a product to the manufacturing stage If a company constructs a laboratory building to be used as a research and development facility. Neither a nor b. d. d. 62.Intangible Assets 59. b. c. These costs are said to benefit the corporation for the entity's entire life. accounted for and reported like the operating losses of any other business. c. The costs of organizing a corporation include legal fees. Modification of the design of a product b. d. written off directly against retained earnings. fees paid to the state of incorporation.15 Which of the following is considered research and development costs? a. b. fees paid to promoters. research and development expense in the period(s) of construction. an expense at such time as productive research and development has been obtained from the facility. b. capitalized as an intangible asset and amortized over a period not to exceed 20 years. depreciation deducted as part of research and development costs. 12 . Translation of research findings or other knowledge into a plan or design for a new product or process. These costs should be a. 63. and the costs of meetings for organizing the promoters. b. 61. expensed as incurred. Both a and b. capitalized as a deferred charge and amortized over five years. Operating losses incurred during the start-up years of a new business should be a. Cost of marketing research for a new product d. capitalized and amortized over 40 years. depreciation or immediate write-off depending on company policy. . c. capitalized and never amortized. Acquisition of R & D equipment for use on a current project only c.
plant and equipment item.16 Test Bank for Intermediate Accounting. 65. Trademark 66. 4 d. Which of the following intangible assets should be shown as a separate item on the balance sheet? a. Trade name amortization expense.12 . 5 c. 6 b. none of the above. d. reflected as a contra property. b. reflected as credits in the Patent account. c. b. Patent impairment losses d. Patent d. Intangible assets are reported on the balance sheet a. Goodwill b. The notes to the financial statements should include information about acquired intangible assets. Franchise c. in the property. . with an accumulated depreciation account. Laboratory research aimed at discovery of new knowledge. d. shown in the current income statement. Thirteenth Edition 64. None of the above. d. 69. and aggregate amortization expense for how many succeeding years? a. b. Conceptual formulation and design of possible product or process alternatives. The total amount of patent cost amortized to date is usually a. Adaptation of an existing capability to a particular requirement or customer's need. c. c. Goodwill impairment losses. 68. c. separately from other assets. Which of the following would not be considered an R & D activity? a. plant. and equipment section. shown in a separate Accumulated Patent Amortization account which is shown contra to the Patent account. 3 67. b. Searching for applications of new research findings. Which of the following should be reported under the “Other Expenses and Losses” section of the income statement? a.
c. d. d. When developing computer software to be sold. d. c. b. Capitalized costs incurred while developing computer software to be sold should be amortized using the: a. *74. Testing. Capitalized costs incurred to develop internal use computer software should be amortized using the: a.Intangible Assets 70. Impairment losses for intangible assets. *75. Which of the following costs incurred with developing computer software for internal use should be capitalized? a. c. *73. percent-of-revenue approach. Research and development costs. accelerated amortization approach. b. b. lower of the percent-of-revenue method or the percent-of-completion method. b. Amortization expense. Which of the following is often reported as an extraordinary item? a. c. Amortization expense. 71. d. d. b. . straight-line approach. Impairment losses on goodwill. Designing. Coding. higher of the straight-line method or the percent-of-revenue method. percent-of-completion approach. 12 . None of the above. None of the above. c. Maintenance. Training.17 *72. higher of the percent-of-revenue method or the percent-of-completion method. Coding. b. which of the following costs should be capitalized? a. lower of the straight-line method or the percent-of-revenue method. d. None of the above. Which of the following is often reported as an extraordinary item? a. c. Evaluation of alternatives. Impairment losses for intangible assets other than goodwill.
73. 22.’s $5 par value common stock and $75. 66. 2010.’s stock was selling at $7. Item Ans. Contreras paid cash of $25. 32. 71. 49.000 d.000 c.000 77. 35. 75. Item Ans.500 d. Contreras Corporation acquired a patent on May 1. $93.. $29.000 to the seller. 58. Thirteenth Edition Multiple Choice Answers—Conceptual Item Ans. 24.18 Test Bank for Intermediate Accounting. 63. $1. Legal fees of $900 were paid related to the acquisition. 44.900 78.000 . $25. b a d a a b d c 69. 65. Lynne paid cash of $30. should record the patent at what amount? a. $900 b. $97. a d a b d c b a 53. c a c c b d c b 45.000 b. 30. 64. 68. c d d b d c d MULTIPLE CHOICE—Computational 76. Mini Corp. acquired the patent. Item Ans. 60.000 cash.000 were paid related to the acquisition. 25. Lynne Corporation acquired a patent on May 1. When Mini Corp. $30. 70. 46. Mini Corp. $25. 59. 26. 57. 28. 39. What amount should be debited to the patent account? a.100 c. 48. its stock was selling for $9 a share. 54. 23. $24. b c a c a b d d 29. 27.000 d. Item Ans. in exchange for 2. acquires a patent from Maxi Co. 34. 2010. 51.000 to the seller. 38. $87. What amount should be debited to the patent account? a. b c a b d c d b 37. Item Ans.500 b.50 per share.12 . 72. 40. 47. 43. $75. Legal fees of $1. 52. 62. Item Ans. $31. When the patent was initially issued to Maxi Co.750 c. 33. 56.500 shares of Mini Corp. 74. 50. Mini Corp. 31. 55. 36. 41. 21. 42. d d d d b d d c 61. 67.
The patent has a legal life of 20 years and a useful life of 10 years.000 c. for a total of $360.000. 2010? a. It has a useful life of 10 years. $ -0b. $56. $32.000 d. $15.19 79. What total amount of amortization expense should have been recorded on the intangible asset by December 31. What amount should be reported for patent amortization expense for 2010? a.000. Alonzo Co. Rich Corporation purchased a limited-life intangible asset for $210.000. On January 1. c.000 on May 1.800.000 c. $270. 2010.000.000 d.000. What total amount of amortization expense should have been recorded on the intangible asset by December 31.000 82. Patent BB: $2.000 b. . ELO Corporation purchased a patent for $90. $42. b. d. $63. $2. Thompson Company incurred research and development costs of $100. It has a useful life of 10 years. and Patent CC: $60. $14. $ -0-.000.000 81.000 and legal fees of $40. $36. 2008.000 on September 1. ELO spent $22. the remaining useful life is 5 years. It had a useful life of 10 years.000 to successfully defend the patent in a lawsuit. c.000 80. 2010? a. acquires 3 patents from Shaq Corp. $240.000 to acquire a patent. 2008.000. d. What amount should Thompson record as Patent Amortization Expense in the first year? a.000 c. b. When Alonzo acquired the patents their fair market values were: Patent AA: $20.000 on May 1. 83.000.000. $0.000. The patents were carried on Shaq’s books as follows: Patent AA: $5. b.600.000.000 d. ELO feels that as of that date. At what amount should Alonzo record Patent BB? a. $120. Jeff Corporation purchased a limited-life intangible asset for $120. $18.600. Patent BB: $240. $24. $20. and Patent CC: $3.Intangible Assets 12 . $ 7. $ 4. $20. 2008.
During 2011 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product.000. The patent had a remaining useful life of 10 years at that date.000 to successfully defend the patent in a lawsuit.000 70. Thirteenth Edition 84.000 b.000. $54.000 390. At the time of purchase. includes the following accounts: Copyrights Deposits with advertising agency (will be used to promote goodwill) Discount on bonds payable Excess of cost over fair value of identifiable net assets of Acquired subsidiary Trademarks $ 30. $40. $72. $43. Findley Corporation purchased a patent for a new consumer product for $720. the patent was valid for fifteen years.12 . . b. In January. the remaining useful life is 5 years. extending the patent’s life to 12/31/22.000.000. however. Danks Corporation purchased a patent for $450.500 d.000 27.000. 86. 2011. $510. c. $36.000 85.000 on September 1.000 87. $48. b. In the preparation of Vance's balance sheet as of December 31. The general ledger of Vance Corporation as of December 31. It had a useful life of 10 years. $360.000. c. Day successfully defends the patent at a cost of $162.000.000.500 c. Due to the competitive nature of the product. the patent was estimated to have a useful life of only ten years. d. d.000 90. 2008. $78. What amount should be reported for patent amortization expense for 2010? a.000. Danks feels that as of that date. 2011. c. 2006. what should be reported as total intangible assets? a. In January of 2011. On January 1. b. 2010 for $360. $537. What amount of amortization expense would Kerr record in 2011? a.000. Danks spent $110. assuming amortization is recorded at the end of each year? a. $480. $480.000.20 Test Bank for Intermediate Accounting.000. d.000.000. $94. What amount should Findley charge to expense during 2011.000. $100. $103. 2010. Day Company purchased a patent on January 1. $507.
bought a trademark from Royce.000.000. All of Blue Sky’s assets’ book values approximate their fair value.21 On January 2.000 greater than its book value.000 . what amount should be reported as amortization expense? a.000. The least amount of amortization that could be recorded in 2011 is a.Intangible Assets 88. Klein Co.000. 90. 2009 for $1. On 12/31/10. The new patent has a legal and useful life of twenty years.000 d.000 d.000. d. What amount of goodwill should Egbert record as a result of this purchase? a. $ 81. Its unamortized cost on Royce’s books was $800. which has a fair value that is $300. $2. 2011.000 and liabilities of $2.000. An independent research company estimated that the remaining useful life of the trademark was 10 years. In Klein’s 2011 income statement. $ 50. $ -0b. 2011. c. Blue Sky Company’s 12/31/10 balance sheet reports assets of $5.000. $ 69. The company uses straight-line amortization for patents. except for land. b. $ 100.500.100.600.100.000 to acquire Blue Sky. $ -0b. 89. All of Dotel’s assets’ book values approximate their fair value. Horace Wimp Corporation paid $5. $ 40. Egbert Corporation paid $6. c.000 c.000. $300. A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1. Dotel Company’s 12/31/10 balance sheet reports assets of $6. $100.000 greater than its book value.000.000.000 c. $ 60.000.000.818. $2. except for land.000. Inc.000 to acquire Dotel. d.000.100.200.800. b.000 and liabilities of $2.000 91. for $1. a new patent is received for a timed-release version of the same drug. On 12/31/10.800. 12 . $1.000. $100. $ 80.000. which has a fair value that is $400. $2. On January 2. What amount of goodwill should Horace Wimp record as a result of this purchase? a.
$ -0b. 2011. and the fair value of identifiable intangible assets exceeded book value by $45. Thirteenth Edition 92.000) and the cost ($1. 2011.000 c. 2011. $0.000. Floyd Company purchases Haeger Company for $800. b.000 of liabilities.000) be accounted for by Bond? a.800. The current assets should be recorded at $540.400. $180.500.000.000 difference should be recognized as a gain. $200. During 2011. On December 31.000 should be set up and then amortized to income over a period not to exceed forty years.000.000. 2010 balance sheet is $620.000. General Products Company bought Special Products Division in 2010 and appropriately recorded $500.000. May had $300. d.260. The $500.000 d. Bond Company purchased the net assets of May Corporation for $1. d.12 .000. On the date of the transaction. 2010 indicates that the fair value of Haeger’s tangible assets exceeded the book value by $60. How much goodwill should be recognized by Floyd Company when recording the purchase of Haeger Company? a. 94.000.000 $1. An analysis by Floyd on December 31.000 cash on January 1.000.000 and the noncurrent assets should be recorded at $760.000 of goodwill related to the purchase. the fair value of Special Products Division is $4.000 How should the $500.000 1. $75. The book value of Haeger Company’s net assets.000 difference should be credited to retained earnings.000 exists on December 31. The $500.22 Test Bank for Intermediate Accounting. . A deferred credit of $500.000.000 and it is carried on General Product’s books for a total of $3. c. c. $120. including the goodwill. $300.000 difference between the fair value of the net assets acquired ($1. as reflected on its December 31. $50. b. An analysis of Special Products Division’s assets indicates that goodwill of $400.000. The fair value of May's assets when acquired were as follows: Current assets Noncurrent assets $ 540.000 93. What goodwill impairment should be recognized by General Products in 2011? a.000.
It was expected to have a 10 year life and no residual value.000 d. the expected future cash flows expected from the patent were expected to be $400. It was expected to have a 10 year life and no residual value. The present value of these cash flows. $5.400.000 at that time. At what amount should the patent be carried on the December 31. $ -0b. What amount of loss on impairment of goodwill should Twilight record in 2010? a.000 as a result of that purchase.000 per year for the next eight years.200. and recorded goodwill of $750.23 Barkley would record a loss on impairment of a. 96. 2011.Intangible Assets 95.000.000 b.000 per year for the next eight years. The present value of these cash flows.720.000.000.000 c.000.800. 2011 balance sheet? a. On December 31. Harrel Company acquired a patent on an oil extraction technique on January 1. discounted at Harrel’s market interest rate. b. 2010 for $5.800.000 d. Malrom uses straight-line amortization for patents. 2010. $4.000 c.000 c.000. $920. the End-of-the-World Products Division had a fair value of $3. The net identifiable assets of the Division (excluding goodwill) had a fair value of $2.000 860. the expected future cash flows expected from the patent were expected to be $600.000 650.000.000 800. is $2.000 d. 2011 balance sheet? a.000.000.000 12 . discounted at Malrom’s market interest rate.000.000. Twilight Corporation acquired End-of-the-World Products on January 1.000.000.000. Harrel uses straight-line amortization for patents. is $2. The following information is available for Barkley Company’s patents: Cost Carrying amount Expected future net cash flows Fair value $1.900. $4. $ 60.000 98.400. 2010 for $4. 2010 for $5. $350. $210. $5. c.800. 2011.000 b. $860. $600.000.000 . $2.000. At what amount should the patent be carried on the December 31. $250. At December 31. Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1.400. d.000. $3. $2.000 97. $4.000. On December 31.
000.000 These costs relate to a product that will be marketed in 2011.000 as a result of that purchase.000 $360. What is the amount of research and development costs that should be expensed in 2010? a. In 2010.000 Depreciation for 2011 on above equipment 300. 101. d.025.000. What amount of loss on impairment of goodwill should Jenks record in 2010? a. c. Jenks Corporation acquired Linebrink Products on January 1. $0.500.12 .000.000 Equipment acquired that will have alternate future uses in future research and development projects 3.500.000 at that time. $4. $1.000. incurred research and development costs in 2011 as follows: Materials used in research and development projects $ 450.000.000 The amount of research and development costs charged to Hall's 2011 income statement should be a.000 c.000 $5. $ -0b. $250.000 Indirect costs reasonably allocable to research and development projects 225. b. The equipment has no alternative future use. 2013. Thirteenth Edition 99.000 Consulting fees paid to outsiders for research and development projects 300. $600. $270. d. Linebrink Products had a fair value of $3. $2.400.000 120. Hall Co. c. .000.025. $1.000. The net identifiable assets of the Linebrink (excluding goodwill) had a fair value of $2. b. $360. $350.900.000 100. and recorded goodwill of $750. It is estimated that these costs will be recouped by December 31.000 150.000.000. $210.000 Personnel costs of persons involved in research and development projects 750.000.900. Edwards Corporation incurred research and development costs as follows: Materials and equipment Personnel Indirect costs $ 90.000.24 Test Bank for Intermediate Accounting. 2010 for $4. At December 31. 2010.000 d.
000 Start-up costs incurred when opening a new plant 140.000 Engineering costs incurred to advance a product to full production stage 400.300. Leeper Corporation incurred the following costs in 2010: Acquisition of R&D equipment with a useful life of 4 years in R&D projects $800.25 $180.000.000 d.000 d.000 b. $ 800. c.000 Advertising expense to introduce a new product 700.000 270. including routine testing of products Construction of research facilities having an estimated useful life of 6 years but no alternative future use 12 .640. $ 550. MaBelle Corporation incurred the following costs in 2010: Acquisition of R&D equipment with a useful life of 4 years in R&D projects $600.000 c. $1.000 Engineering costs incurred to advance a product to full production stage 600. $ 940.000 360. $1.000 Cost of making minor modifications to an existing product 140.000 What amount should MaBelle record as research & development expense in 2010? a.000 b. $585.000 c. $ 740. d. $1.000. $855.000 The total amount to be classified and expensed as research and development in 2011 is a. incurred the following costs during the year ended December 31. Loazia Inc. b.000.000. 103. $285. $555.140.000 Advertising expense to introduce a new product 700.000 .000.000 45. 2011: Laboratory research aimed at discovery of new knowledge Costs of testing prototype and design modifications Quality control during commercial production.000 104. $1.000 What amount should Leeper record as research & development expense in 2010? a.Intangible Assets 102.
000 d. 2013 .000 computer software costs should be expensed in 2010? a.000. The product will earn future revenues of $4.000.$500.500. $350.000.000.000 Goodwill 140.000.000. d.000. 2012 – $800. Geller Inc.000 of this amount was expended before technological feasibility was established in early 2010.000.000 Patent.000 c. $600.000 over its 5-year life.000.000 amortization 70. $1.000 c.000 ($800.000 b.000 of capitalizable costs to develop computer software during 2011.26 Test Bank for Intermediate Accounting.$600. 2011 – $1. as follows: 2010 – $2. $100.100.600.100. $500. $700.000 b.200. $500.000 in 2010) to develop a computer software product. net of $30.000. What amount of the computer software costs should be expensed in 2011? a. $250. $300.000 in 2009 and $1.000 in 2010) to develop a computer software product.000 What amount should Platteville report for intangible assets on the 12/31/10 balance sheet? a.200.000.000.$500. and 2014 .000 ($400. and 2014 – $400.000.000.000. b. Shangra-La Company incurred $1. 2013 – $800. $2. 2013 – $1.000. Logan Company incurred $3.000.000. $210.000 *107.000 d.000. as follows: 2010 – $1. c. $100.000.000 of this amount was expended before technological feasibility was established in early 2010. Platteville Corporation has the following account balances at 12/31/10: Amortization expense $ 10. $125. $1.000.000. and 2014 – $800. The product will earn future revenues of $8. 2012 .500. What portion of the $3. 2011 – $2.000 .12 . $500. $220. $ 70. *108. Thirteenth Edition 105.000.000. $175. The software will earn total revenues over its 4-year life as follows: 2011 $400.000 over its 5-year life.000.000 d. 2012 – $1.000 computer software costs should be expensed in 2010? a.600.000 c.000.000 b.000 *106.000 in 2009 and $2. incurred $500. What portion of the $1.000.
98.000 c.000 for legal fees in a successful defense of the patent. *108. 80.000. $230. *107. Lopez paid $150. Item Ans.000 b.000. 78. 2014 .$100. 2006. Item Ans.000 d. 99. d. $120. 104.000 of research and development costs to develop a product for which a patent was granted on January 2. Tripiani Inc.000 of capitalizable costs to develop computer software during 2011. incurred $420. 2013 . 84.000 b. . 2011 should be a. 90. 97. 92. incurred $600.000 c. 89.27 *109.Intangible Assets 12 . 103. Legal fees and other costs associated with registration of the patent totaled $80. $135. $135. $200. and 2015 .$200.000 *110. d c c a a c *106. On March 31. $650.000. $570. The software will be used internally over its 5-year life. $600. *110. 96. incurred $600.$600.000. 2011.$600.000. 93.000. c c c a b MULTIPLE CHOICE—CPA Adapted 111. 102. $200.000. 87. 85. 2012 . *77. $500. 105. The total amount capitalized for the patent through March 31. What amount of the computer software costs should be expensed in 2011? a. 83. What amount of the computer software costs should be expensed in 2011? a.000. 95. *109. Item Ans.000.000 of capitalizable costs to develop computer software during 2011. Item Ans. $150. 86.000 Multiple Choice Answers—Computational Item Ans. 91. The software will earn total revenues over its 5-year life as follows: 2011 $500. Lopez Corp. $120. d d c d c c 82. c. b. 81. b b b c b b 88.000.000 d. Tripiani Inc. 79. b b c d b b 100. *76. 101. a b c c d a 94. Item Ans.
2011.000 b. Thirteenth Edition 112. 2011.000. assuming amortization is recorded at the end of each year? a.? a.000 shares of its $25 par value treasury common stock for a patent owned by Masset Co. bought a patent from Baden Corp. What amount should Koll charge against income during 2011. Inc. and the patent had a carrying value of $55.000.000. Inc. Koll. $ 27. d. the patent’s useful life was estimated to be only 10 years due to the competitive nature of the product. Cey. Seely common stock had a fair value of $46 per share. $55.000.12 .000. $15. At May 5. Cey should record the patent at a. $30. An independent consultant retained by Ely estimated that the remaining useful life at January 1. Its unamortized cost on Baden’s accounting records was $150. 2011. The Seely stock was acquired in 2011 at a cost of $55. 2011.000. At the exchange date. 2011. purchased a patent for a new consumer product for $270. on January 1. How much should be amortized for the year ended December 31. 114. and the patent had a net carrying value of $110. d. however. $50.000 113. The treasury shares were acquired in 2010 for $45. MacDougal's common stock was quoted at $34 per share.000.000. the patent had been amortized for 5 years by Baden. for $300. Ely Co.000. $0. 2008. d. exchanged 2. 2011 is 15 years. On May 5. January 2. c.000.000. $92. On June 30.000. exchanged 2. $216. $60. $20.000.000 d.000 on Gore's books. $68. c. the patent was valid for 15 years. At the time of purchase. b. $189. On December 31.000 on Masset's books. $55. MacDougal should record the patent at a. . 2011 by Ely Co.000. $110. 115. $162.000 shares of Seely Corp.000. c. b. MacDougal Corp. $45. b.28 Test Bank for Intermediate Accounting.000. $30 par value common stock for a patent owned by Gore Co.000 c. the product was permanently withdrawn from the market under governmental order because of a potential health hazard in the product.
000 Research and development services performed by Beck Corp. $1.000. incurred the following costs: Testing in search for process alternatives $ 350. b. $0. Copyright amortization expense for the year ended December 31.000. research and development expense should be a.000 In Leon's 2011 income statement. 118.29 On January 1. In January 2011. 2011. $71. No No b.285. should be a.000.000 Modification of the formulation of a process 510.000. Yes d. d. Yes Yes d. $62. . c. Yes No During 2011. Which of the following costs of goodwill should be amortized over their estimated useful lives? Costs of goodwill from a Costs of developing business combination goodwill internally a. $75.Intangible Assets 116. having an estimated useful life of 16 years.000. d. Which of the following legal fees should be capitalized? Legal fees to obtain a copyright a. 2007. c. No b. No c. $1. 119. Yes Legal fees to successfully defend a trademark No Yes Yes No 117.000. Russell Company purchased a copyright for $1. $510. Leon Co. Russell paid $150.500.000 for legal fees in a successful defense of the copyright. No Yes c. for Leon 425.000.875. b. $935. 12 .000 Costs of marketing research for new product 250.535.
c a 119. 80. c d 117. $770.000) ÷ 5 = $100.500.000 ÷ 10) × 5 = $360.000. 114.000 + $900 = $25. Item Ans. 2011.000) + $162. ($78. 86. 81. 87.000.000.900. d d c d c c b b b c b b Derivation $30. c.000 + $22.000.000 – [($450.000 185.000. $40.000 ÷ 10) × 1 1/3] = $390.000 = $510. d c 115.000. 118. c a DERIVATIONS — Computational No.30 Test Bank for Intermediate Accounting. Item Ans. incurred the following costs during 2011: Significant modification to the formulation of a chemical product Trouble-shooting in connection with breakdowns during commercial production Cost of exploration of new formulas Seasonal or other periodic design changes to existing products Laboratory research aimed at discovery of new technology $160.000 225. Riley should report research and development expense of a.000. Riley Co. 77.000 = $97.000 X ($240.000. d.000 / $320.000 + $1. 111.000 ÷ 10) × 1 1/3] = $78.000 ÷ 10) × 2 2/3 = $32.000 – $36. $585.500 X $9) + $75. $920.000.000 + $390.12 . ($390. $30.000. ($720.000 ÷ 10 = $4.000) ÷ 5 = $20.500. Multiple Choice Answers—CPA Adapted Item Ans.000. b.000 200. ($210. 112. 79. $735.000] ÷ 12 = $40. 120. 83.000. 116. Answer 76. ($120. 84.000 + $90. $360. $450. $25. 85. [($360. Item Ans. Thirteenth Edition 120.000.000.000 In its income statement for the year ended December 31. (2.000.000) = $270.000 = $31. Item Ans.000 – [($90.000 150. 82. a c 113.000 ÷ 10) × 2 2/3 = $56. . $90. 78.000 + $110.
000 +$70. 99.000.000 = $2.000 – $3.400. Expense total of $360.000 – $500. $800. ($5.800. $0 impairment. 103. 90. ($600. $5.000 = $550.000 = $800.800.000.300.000 – $1.000.025. patent is reported at $2. 95.200.000.000.000 $750.) No.000.000 = $500. 102.000 – [($1. Answer 88.900.000 = $500.200.000. $1.000.000 – [($5.000 (present value of cash flows.000 > ($400.000 = $210. 101. 105.000 = $500.000.000 $5.000 ÷ 4) + $400.000.000.000 + $45.000 ÷ 20 = $60. Since $4. $860.000) – $2.000 – $725.900. ($6. Since $4.000.000. 96.900.000 = $250. 94.000 – $500.000.000. $3. 98.000 – $2.000.000 – $2.000 ÷ 10) × 2] = $4.000 ÷ 6) × 2] = $1.000 ÷ 10) × 2] = $4.000 = $3.400.31 DERIVATIONS — Computational (cont.500.100. $1.800. $3.000 + $300.000.000.000.000 – $650. $620.000.000 ÷ 10 = $100.000 – $3.000.000.000 = $1.000.000 + $45. 104.000 $750.300.000 gain. $1.000 = $75. ($800.000) – $2.000 > $3.200.000 = $250.000.Intangible Assets 12 . 97.000 + $60.400.000 ÷ 4) + $600.900.000 × 8).000.500.000.000 + $400.000 = $3.000 = $585.400. a b c c d a b b c d Derivation $1. $140.025. 89. b b d c c a a c .000.000 + $360. $180.000.100.000 – [($5.000.000.000.000 = $2. $5. 92.000.000 – $3. 93.000 = $725. $5. $6.000.000 = $210. 100.000. 91.
$2.000 X $500.000) = $350.000) × ($2.000. *108. *109.000.000 – [($270.000 ÷ 10) × 3] = $189.000 X 1/5 = $120.000.000. ($1.000). $250. 115.285. c c c a b Derivation ($1. Answer *106.000 + ($500.000) = $700.000.000 / $2.000 – $800.000.000.000.000 ÷ $4. .000. $160.000 + $510.000.000.000. 118. Conceptual.000 × $34 = $68.000) = $500.500.000 ÷ 15 = $20.12 .000 + $225. $270. 119.000.000 = $585.000).000.000 + $150. 117.000 + $425.000.32 Test Bank for Intermediate Accounting. $300.000.000 + $200.000 – $1. 120.000) × ($1.000) ÷ 12 = $75.000 ($750.000 (greater than $120. *107.000) = $250. Conceptual.000 + ($1. *110.000.000.000.000 = $1.000 = $150.000. $600. a c d c c d c a c a $80. $500.000. $350.000 × $46 = $92. DERIVATIONS — CPA Adapted 111.000 (greater than $100.000 ÷ $8.000 – [($1.000 – $400. 116.000 + $150.000 – $500. Thirteenth Edition No. 113.000 = $230. $2. ($3. $600. 112.000 X ¼ = $125.000 ÷ 16) × 4] = $750. 114.000. $500.000.
000 40% x $120.33 EXERCISES Ex. and other incidental expenses. (b) Discuss how to determine the cost of an intangible asset acquired in a non-cash transaction. For example: Asset Patent A Patent B Totals FMV $ 60. 12-121 Intangible assets have two main characteristics: (1) they lack physical existence.000 $120. (b) Explain why intangibles are not considered financial instruments.000 = $ 72.000 $100.000 . what costs should be included in the initial valuation of the asset is an issue.000 40. and (2) they are not financial instruments. Instructions (a) Identify the typical costs included in the cash purchase of an intangible asset. Ex.000. (b) In a non-cash acquisition of an intangible asset. legal fees. whichever is more clearly evident.Intangible Assets 12 .000 % 60 40 100 Allocation 60% x $120. In either case. Solution 12-122 (a) The typical costs included in the purchase of an intangible asset are: purchase price. 12-122 Intangible assets may be internally generated or purchased from another party. the initial cost of the intangible is either the fair market value of the consideration given or the fair market value of the intangible received. the cost of the individual assets is based on their relative fair market values. (c) When several intangible assets are acquired in a “basket purchase”.” Provide a numerical example involving intangibles being acquired for a total price of $120. Instructions (a) Explain why intangibles are classified as assets if they have no physical existence. Solution 12-121 (a) Intangible assets derive their value from the rights and privileges they grant to the company that owns them. (b) Intangibles are not considered financial instruments because they do not derive their value from the right (claim) to receive cash or cash equivalents in the future. (c) Describe how to determine the cost of several intangible assets acquired in a “basket purchase.000 = 48.
Intangible assets are assets that derive their value from the rights and privileges granted to the company using them.000 should be expensed when incurred as research and development expense. Ex. Ex. the cost of the intangible is the fair value of the consideration given or the fair value of the consideration received.34 Test Bank for Intermediate Accounting. 1. Thirteenth Edition Ex. Limited-life intangibles are amortized by systematic charges to expense over their useful life. whichever is more clearly evident. $45. Impairment occurs when the future net cash flows are less than the carrying amount of the intangible asset. The intangible asset is reduced for the amount by which its carrying value exceeds its fair value at year end. and trade names.12 . copyrights. How should these costs be accounted for in the year they are incurred? Solution 12-126 The $190. goodwill. how is the cost of the intangible determined? Solution 12-125 If intangible assets are acquired for stock. 2. they are reviewed for impairment each year. it is often difficult to determine the validity of any future service potential. To permit deferral of these types of costs would lead to a great deal of subjectivity because management could argue that almost any expense could be capitalized on the basis that it will increase future benefits. The $45. however. They provide services over a period of years and are normally classified as long-term assets.000 in legal fees to obtain a patent. is capitalized because its cost can be objectively verified and reflects its fair value at the date of acquisition. What are intangible assets? How are limited-life intangibles accounted for subsequent to acquisition? Solution 12-124 1. franchises. Examples are patents. .000 is expensed as selling and promotion expense when incurred. 12-124—Short essay questions. The cost of purchased intangible assets. 12-125 If intangible assets are acquired for stock. trademarks. The $91.000 to market the process that was patented.000 of costs to legally obtain the patent should be capitalized and amortized over the useful or legal life of the patent. and $91. In addition. whichever is shorter. 12-126 Redstone Company spent $190. 12-123 Why does the accounting profession make a distinction between internally created intangible assets and purchased intangible assets? Solution 12-123 When intangible assets are created internally.000 developing a new process. 2. Ex.
How should these two different types of intangibles be amortized? Solution 12-128 Limited-life intangible assets should be amortized by systematic charges to expense over the shorter of their useful life or legal life. d Ex. their useful life or legal life. c. b. 3. c. 12 . d. b. its useful life or twenty years. b. whichever is shorter. their legal life. 1. 2. carrying amount unless impaired. c. b 5. d 3. Negative goodwill arises when the ______________ of the net assets acquired is higher than the purchase price of the assets. carrying value c. fair market value d. its useful life. liquidation value. Copyrights should be amortized over a. its useful life or twenty years. b. fair market value. acquisition cost.Intangible Assets Ex. 4. twenty years. twenty years. Limited-life intangibles are reported at their a. the life of the creator plus fifty years. d. d.35 5. replacement cost. salvage value. An intangible asset with an indefinite life is not amortized. d 4. The major problem of accounting for intangibles is determining a. useful life. whichever is shorter. whichever is longer. 2. separability. d. excess earnings Solution 12-127 1. A patent should be amortized over a. a. c . Indicate the best answer by circling the proper letter. 12-128 Intangible assets have either a limited useful life or an indefinite useful life. useful life b. 12-127—Intangible assets questions. c.
Thirteenth Edition Ex. 12-129 What are factors to be considered in estimating the useful life of an intangible asset? Solution 12-129 Factors to be considered in determining useful life are: a. demand. 2010. and other economic factors. 2011. incurring legal costs of $15. Estimated total future cash flows from the trade name are $13.900 in legal fees. and 2011. 12-130 Barkley Corp. The level of maintenance expenditure required to obtain the expected future cash flows from the asset. competition. Any legal. Any legal. b.36 Test Bank for Intermediate Accounting. or contractual provisions that may limit useful life. The company amortizes the trade name over 8 years.000. Ex. d. c. Show all computations. based on new marketing research. incurring $4. f. At the beginning of 2011.12 . The expected use of the asset by the entity. e. regulatory. . The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate.000. Barkley successfully defended its trade name in January 2010. The effects of obsolescence. regulatory or contractual provisions that enable renewal or extension of the asset’s legal or contractual life without substantial cost. Barkley determines that the fair value of the trade name is $12. obtained a trade name in January 2009.000 on January 4. 2009. Instructions Prepare the necessary journal entries for the years ending December 31.
000) = $ 3.450 Total future cash flows = 13. 12-132 Listed below is a selection of accounts found in the general ledger of Marshall Corporation as of December 31.900 .000 .000 ÷ 8 years) 1. Limited-life intangibles are therefore capitalized and amortized by systematic charges to expense over their useful life. 12-131—Intangible assets theory.575 Trade Name [($15. Solution 12-131 Intangible assets provide revenues over a period of years.000 Therefore. 31 = $15.450 Amortization Expense – Trade Name 2.$2.000 Trade Name ($12.450 2.Trade Name Trade Name ($15.875 + $4.000 .875 12 .875 1.Intangible Assets Solution 12-130 2009 Dec.450 Carrying value = $15.37 2010 Dec. It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. 2011: Accounts receivable Goodwill Organization costs Prepaid insurance Radio broadcasting rights Premium on bonds payable Research & development costs Internet domain name Initial operating loss Non-competition agreement Customer list Video copyrights .450 = (12. This treatment is in accordance with the matching principle—deducting expenses in the same period(s) that revenues are reported.$1.575 2011 Dec.900) ÷ 7 years] Loss on Impairment Trade Name 3.$1.875 + $4. 31 Amortization Expense – Trade Name 2.575 = $15. 31 Amortization Expense .000 Ex. Discuss the accounting arguments against this treatment. 31 3.000 ÷ 6 years) 2. Ex. an impairment loss has occurred Carrying value Fair value Loss on impairment 2011 Dec.
the nature of its location. 2011.000 for successful litigation in defense of the patent were paid on July 1. situations do occur (e. This situation may develop from a market imperfection. Another definition is the capitalized value of the excess of estimated future profits of a business over the rate of return on capital considered normal in the industry. and a superior management team. Expenditures of $68. 2008. Sisco Co. its reputation.38 Test Bank for Intermediate Accounting. synergies of combining sales forces. a forced liquidation or distressed sale due to the death of the company founder)..000 on July 1. 12-133 Define the following terms. Ex. Examples of elements of goodwill include new channels of distribution. • Goodwill is sometimes defined as one or more unidentified intangible assets and identifiable intangible assets that are not reliably measurable. or any other circumstance incidental to the business and tending to make it permanent. Non-competition agreement Customer list Video copyrights . in which the purchase price is less than the value of the identifiable net assets. Thirteenth Edition Trade name Notes receivable Instructions List those accounts that should be classified as intangible assets. However.12 . the seller would have been better off to sell the assets individually than in total. (b) Negative goodwill develops when the fair value of the assets purchased is higher than the cost. (a) Goodwill (b) Negative goodwill Solution 12-133 (a) Varying approaches are used to define goodwill. Instructions Prepare a computation of the carrying value of the patent at December 31. Sisco estimates that the useful life of the patent will be 20 years from the date of acquisition. purchased a patent from Thornton Co. 12-134—Carrying value of patent. 2011. for $180.g. In this case. Solution 12-132 Goodwill Radio broadcasting rights Trade name Internet domain name Ex. They are: • Goodwill should be measured initially as the excess of the fair value of the acquisition cost over the fair value of the net assets acquired. • Goodwill may also be defined as the intrinsic value that a business has acquired beyond the mere value of its net assets whether due to the personality of those conducting it.
an impairment loss must be computed. properly recorded on the books. and 12/31/10 carrying value if the company amortizes the patent over 10 years. = $5.500 Ex. Lerner determines that the fair value of the patent is $44.000 2011 amortization: $44. Instructions (a) Compute 2009 amortization.Intangible Assets 12 .000 (27. In January 2010.500 . 12/31/09 carrying value.000. 12-136 Under what circumstances is it appropriate to record goodwill in the accounts? How should goodwill. incurring legal costs of $50.000 (6. assuming that at the beginning of 2011.000 + $9.500 12/31/11 carrying value: $44.39 Solution 12-134 Cost of patent Amortization 7/1/08 to 7/1/11 [($180.000 × 1/(20 – 3) × 1/2] Carrying value at 12/31/11 Ex.000 ÷ 10 yrs. Solution 12-135 (a) 2009 amortization: $50. Goodwill acquired in a business combination is considered to have an indefinite life and therefore should not be amortized. 2011.000) – $6.000. Loss on impairment: $48. = $5. Estimated future cash flows from the patent are $45.000 12/31/10 carrying value: ($45. (b) Compute the 2011 amortization and the 12/31/11 carrying value. In early January 2009. Lerner incurred $9.000 221.000 of legal fees in a successful defense of its patent. based on new market research.000 fair value = $4. 12-135—Accounting for patent. Lerner Corporation applied for a patent. $180.000 ÷ 8 yrs.500 = $38.000).000 on January 3.000 carrying value – $44. be written off in accordance with generally accepted accounting principles? Solution 12-136 Goodwill is recorded only when it is acquired through a business combination.000 (b) Since the expected future cash flows ($45.000) ÷ 9 yrs.000 ÷ 20) × 3] Carrying value at 7/1/11 Cost of successful defense Carrying value Amortization 7/1/11 to 12/31/11 [$221.000 68.000) are less than the carrying value ($48. = $6.000 – $5.000 12/31/09 carrying value: $50.000 = $48.000) 153.000 – $5.000 = $45.000 2010 amortization: ($45. 2010 amortization.000 + $9. but should be tested for impairment on at least an annual basis.500) $214.
000) is less than the carrying amount of its assets ($700. 2010. Solution 12-137 Accounting standards require that if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.000). Thirteenth Edition Ex. if necessary. purchased Spinks Co. Include the entry. Ex. goodwill is not impaired and no entry is necessary. The Sinks Division’s net assets.000 Assume Wamser will continue to use this asset in the future.000 Fair value 1. Loss on Impairment Goodwill Ex. If the cash flows are less than the carrying amount. the present value of the expected future net cash flows from the asset may be used.000.000. As of December 31. The fair value of the division is estimated to be $750. the difference between the recorded goodwill ($300.000) exceeds the carrying amount of its assets ($700. Therefore. goodwill is impaired.000 and the implied goodwill is $225.000) and the implied goodwill ($225. then the carrying amount of the asset should be assessed. 2010. 12-137 Fred’s Company is considering the write-off of a limited life intangible asset because of its lack of profitability.400. the asset has been impaired. including goodwill. (b) The fair value of the division ($650.000 75.40 Test Bank for Intermediate Accounting. Instructions (a) Explain whether or not Leon Corp. Therefore. The amount of the impairment loss is $75. 75. 12-139—Impairment of copyrights.100.000. Cost $2. 4 years ago and at that time recorded goodwill of $300. The fair value of assets is measured by their market value if an active market for them exists. Explain to the management of Fred’s how to determine whether a writeoff is permitted.000). Solution 12-138 (a) The fair value of the division ($750. the copyrights have a remaining useful life of 5 years. The assessment or review takes the form of a recoverability test that compares the sum of the expected future cash flows from the asset (undiscounted) to the carrying amount. have a carrying amount of $700. The impairment loss is measured as the amount by which the carrying amount exceeds the fair value of the asset.000 . Presented below is information related to copyrights owned by Wamser Corporation at December 31.12 .000 Carrying amount 2.000 Expected future net cash flows 2. 12-138 Leon Corp.000. (b) Repeat instruction (a) assuming that the fair value of the division is estimated to be $650.350.000.000).700. If no market price is available. must prepare an entry to record impairment of the goodwill.
.........400....... Solution 12-139 (a) December 31..350...............000.Intangible Assets 12 ........ which must be clearly related to be included) and expensed............ What is the recommended accounting treatment for these three types of R&D costs? Solution 12-140 (a) Personnel (labor) type costs incurred in R & D activities should be expensed as incurred... the materials should be recorded as inventories and allocated as consumed and the equipment should be capitalized and depreciated as used............000 280........ (b) Prepare the journal entry to record amortization expense for 2011.......000 $ 950.............. 2010............ .... 2011 Amortization Expense............... Carrying amount Fair value Loss on impairment (b) $2....... If the items have alternative future uses.. 2010 Loss on Impairment.... 12-140 Research and development activities may include (a) personnel costs.. 2009 is $1....... (c) The fair value of the copyright at December 31...... (b) materials and equipment costs........ (c) Indirect costs of R & D activities should be reasonably allocated to R & D (except for general and administrative costs......000 280..... Copyrights. Copyrights................. New carrying amount Useful life Amortization $1.000 December 31.000 (c) No entry necessary.... Ex.000 1.000 950......... and (c) indirect costs...................... Restoration of any impairment loss is not permitted for assets held for future use.41 Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31.......................................... Prepare the journal entry (if any) necessary to record this increase in fair value..000 ÷ 5 years $ 280..... (b) Materials and equipment costs should be expensed immediately unless the items have alternative future uses.400.............................000 950..500.
000 $2.000 $ 115.000 $2.000) Appraisal increment—inventory Appraisal increment—plant assets Total fair market value of tangible net assets acquired Goodwill $2. Another wishes to defer these costs and amortize them in the future.000 200. However.000 and that the fair market value of the plant assets was $1. 2011 was as follows: Wasserman Company Balance Sheet December 31.000 1.000 550. The balance sheet of Wasserman Company as of December 31.000 800.060. and this amount was paid in cash to the previous owners of Wasserman Company.075.060. 12-142—Acquisition of tangible and intangible assets.225.000. 12-141 Recently.000 An appraisal. state incorporation fees. The fair market value of the receivables is equal to the amount reported on the balance sheet.000 75. One student wishes to charge these costs against revenue in the current period.000 275. to determine the amount and timing of future benefits is so difficult that a conservative approach—expensing these costs as incurred—is required. Accounting for start up costs is straightforward—expense these costs as incurred.075. Which student is correct and why? Solution 12-141 These costs are referred to as start-up costs. and stamp taxes.025. a group of university students decided to incorporate for the purposes of selling a process to recycle the waste product from manufacturing cheese. or more specifically organizational costs in this case. Some of the initial costs involved were legal fees and office expenses incurred in starting the business.075.42 Test Bank for Intermediate Accounting.960.000 1. Vasquez Manufacturing Company decided to expand further by purchasing Wasserman Company. Solution 12-142 Purchase price Less tangible net assets acquired: Book value ($2.000 – $375.000 $1.000 .000 885.000 Liabilities and Equities Accounts payable Common stock Retained earnings Total liabilities and equities $ 375.000. indicated that the fair market value of the inventory was $350.060. Show calculations.000.12 . Instructions Determine the amount of goodwill (if any) implied in the purchase price of $2. Ex. The agreed purchase price was $2. 2011 Assets Cash Receivables Inventory Plant assets (net) Total assets $ 210. The profession recognizes that these costs are incurred with the expectation that future revenues will occur or increased efficiencies will result. agreed to by the parties.685. Thirteenth Edition Ex.
12-144—Intangible assets.000 x 1/5 = $120.Intangible Assets *Ex. 2011 to record any resultant amortization. If no entry is required at a particular date.000 of software costs. The following transactions involving intangible assets of Minton Corporation occurred on or near December 31. Sales from this product were $360. MacroSoft estimates additional revenues of $840. Solution 12-143 Computations: Percent of revenue approach $600.000 + $840.000 x [$360. has capitalized $600. Complete the chart below by writing the journal entry(ies) needed at that date to record the transaction and at December 31. write "none needed.000)] = $180.000 in the first year. 12-143 12 .000 Journal Entry: Amortization Expense Computer Software Costs 180. Instructions Prepare the journal entry to record software cost amortization for the first year.000 over the product’s economic life of 5 years. Show all computations.000 Straight-line approach $600.000 180." . 2010.000/($360.43 MacroSoft Inc.000 PROBLEMS Pr.
... Minton paid Grand Company $500.. Cash..... The patent expires during December.. 2011. with a remaining unamortized cost of $252..... Patent Amortization Expense..000 600. 12.. 2011 12......... Cash..000 3.....” On December 31..... It has applied for a patent...000 ...000 192....... Patents. and it believes that its application will be successful...44 Test Bank for Intermediate Accounting...000 Patents....... 6. Minton spent $600... Research and Devel... 4... On December 31.. Cash.. the patent... 2.. Minton paid Sneed Laboratories $104..000 developing a new manufacturing process... The benefits are expected to last six years." 600.. Patents......... The manufacturing process will be useful to Minton for 10 years..12 . As a result of the adverse verdict.....000 for the exclusive right to market a particular product.000 120.... "None needed.....000 in successfully defending one of its patents in an infringement suit. 5.... 4.. “None needed....... 2014.. Minton incurred $480. The franchise runs for as long as Minton is in business.. Minton's application for a patent (#2 above) was granted.......000 for research and development work performed by Sneed under contract for Minton..000 120.000 500. Thirteenth Edition Pr...... 3....000 2..... 500...... Minton incurred $192...000 Patents.. 4........... Franchise.. In January.... 2011 1.......000.000... 48.... Solution 12-144 On Date of Transaction 1. 12-144 (Cont.. 2.. 3.000 in an unsuccessful patent defense. Cash. using the Grand name and logo in promotional material.. Patent Amortization Expense.) On Date of Transaction 1..... Legal and registration costs incurred were $120.000 48......... Expense.. is deemed worthless.. The patent runs for 20 years...000 192..
800. Prepare the journal entry to record the impairment loss.. because the fair value of Hall ($2." 104.000 2. Cash.500.000) is greater than the carrying value ($2.800. 6. 2011.” 12 .500. 12-145—Goodwill..Intangible Assets Solution 12-144 (Cont.000.000 2.100.. .. "None needed.. which became a division of Armstrong.000) of the new assets....100..000 It is determined that the fair market value of the Hall division is $2..000 $3. On May 31..45 Pr. except for property.100..000 (700. 2011.000 480. Hall reported the following balance sheet at the time of the acquisition: Current assets Noncurrent assets Total assets $ 900..600.000 252.700. plant. Patents.000 252. 2011..400..000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall was $2.000 104. “None needed. if any.000 500.) 5.. impairment.... if any.000 – $2..... 2011. 480. .000 to acquire all of the common stock of Hall Corporation.000.. (b) Determine the impairment loss..000 6..000) (500. 2011. Hall reports the following balance sheet information: Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets $ 800.000 above the carrying value. Armstrong Company paid $3. (b) No impairment loss is recorded. .000 2..000) $2. Patent Expense..500... (c) Assume that the fair value of the Hall division is $1.. At December 31..000 Current liabilities Long-term liabilities Stockholders’ equity Total liabilities and stockholders’ equity $ 600..000 = $700. The recorded amount for Hall’s net assets (excluding goodwill) is the same as fair value. on December 31.. Cash..900... Expense.600. Instructions (a) Compute the amount of goodwill recognized.. on May 31..000. which has a fair value of $200.000 5. Research and Devel. Solution 12-145 (a) Goodwill = Fair value of the division less the fair value of the identifiable assets.000 instead of $2. to be recorded on December 31..000. $3... Legal Fees Exp. if any.000 $3. and equipment.000.000.
000 (700..46 Test Bank for Intermediate Accounting..........000 (500......000) $ (100.000 $1.....) (c) Computation of impairment loss: Implied fair value of goodwill = Fair value of division less the carrying value of the division (adjusted for fair value changes)..................000 200.............000) (1........900......12 ..000) . Goodwill.................. net of goodwill: Fair value of Hall division Carrying value of division Increase in fair value of PP&E Less goodwill Implied value of goodwill Carrying amount of goodwill Loss on impairment Loss on Impairment.........000 $2......000) 400... Thirteenth Edition Solution 12-145 (Cont..........000........................500...........000 100... 100.
8. Costs in the research phase are always expensed under both iGAAP and U.S. 3.S. 6. GAAP. iGAAP differs from U. iGAAP and U. under iGAAP the costs associated with research and development are segregated into a. GAAP. it requires no such test for intangibles once a legal or useful life has been determined. Answers to True/False: 1. three components. three components. As in U. 5. While iGAAP requires an impairment test at each reporting date for long-lived assets. False 3. True 2.S. 7. True 7. GAAP.S. . the analysis phase.47 IFRS QUESTIONS True/False Questions 1.Intangible Assets 12 . 10. the planning phase. False Multiple-Choice Questions 1. Costs in the research phase are expensed under U.S. impairment losses cannot be reversed for assets to be held and used. False 8. iGAAP allows reversal of impairment losses when there has been a change in economic conditions or in the expected use of the asset. the development phase and the production phase. The increased acceptance of iGAAP has caused costs associated with internally generated intangible assets to be capitalized under U.S. True 4. iGAAP permits some capitalization of internally generated intangible assets. GAAP are similar in the accounting for impairments of assets held for disposal.S GAAP.S. 2. GAAP. d. the research phase and the development phase. 9. True 10. True 5. Under U.S. but capitalized under iGAAP. impairment loss is measured as the excess of the carrying amount over the assets discounted cash flow. two components. the research phase and the production phase. Under U. under iGAAP the costs associated with research and development are segregated into two components. GAAP. As in U. the research phase and the production phase. False 6. 4. c. GAAP. two components. b. True 9. GAAP in the development phase in that costs are capitalized once technological feasibility is achieved. if it is probable there will be a future benefit and the amount can be readily measured.
000 Salaries of research staff designing new laser bone scanner 1.S. be capitalized.200.000 d. Thirteenth Edition 2. The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge Search for application of new research findings Salaries of research staff designing new laser bone scanner Material.S.000 Material. GAAP and iGAAP. IAS 16 and IAS 36.000 1. planned costs be capitalized.400. c. $ 900. while costs in excess of plan be expensed.12 .000 (technological feasibility reached) Identify which of these are research phase items and will be immediately expensed under U. b. GAAP iGAAP a. c. d. d.000 1.000 Identify which of these are development phase items and will be immediately expensed under U.000 4.000 $ 900. $ 900. 4.200. U. 2.000 850.S. 3. .100.200. labor and overhead costs of prototype laser scanner Costs of testing prototype and design modifications Engineering costs incurred to advance the laser scanner to full production stage (technological feasibility reached) $500. only material costs be capitalized.000 450.000 c.000 b.000 b. 3. IAS 38 and IAS 36.100. In accounting for internally generated intangible assets.200.200.000 1. 3.100.000 Search for application of new research findings 400.000 3. all costs be expensed.100. labor and overhead costs of prototype laser scanner 850.S.000 400.000 3.S.000 d.48 Test Bank for Intermediate Accounting. no matter how immaterial. U. IAS 38 and IAS 10.200.200. U.100. GAAP and iGAAP. GAAP iGAAP a.000 c. all costs. IAS 1 and IAS 34. b. 2. The primary iGAAP related to intangible assets and impairments is found in a.000 Costs of testing prototype and design modifications 450.000 4. GAAP requires that a.200.000 Engineering costs incurred to advance the laser scanner to full production stage 700.000 700. 4.000 $ 900.000 5.000 3. The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge $500.
c. GAAP. none of the above. a 4. GAAP a. c. Under U. b. c. b. are moving toward common ground in their accounting for impairments of assets held for disposal. d 5. d. d. c 7. b. d. capitalized on an interim basis.Intangible Assets 12 . the reversal falls in a subsequent fiscal year of the company's operations. are similar in the accounting for impairments of assets held for disposal. there has been a change in economic conditions or in the expected use of the asset. but then expensed prior to the end of the company's fiscal year. but expensed as they are under U. the reversal is greater than the amount of the original impairment. c . iGAAP and U. can be reversed but only if the reversal is greater than the amount of the original impairment.49 6. capitalized if they exceed development phase costS incurred for previously successful ventures. c 9. impairment losses a. GAAP. d. c 8. Answers to Multiple Choice: 1. iGAAP allows reversal of impairment losses when a. 7. reversal of impairment losses is never allowed. can be reversed but only if the reversal falls in a subsequent fiscal year of the company's operations.S. cannot be reversed for assets to be held and used. b 2. 9. b. never capitalized. Under iGAAP. d 3. c.S. are moving further apart in their accounting for impairments of assets held for disposal. capitalized once technological feasibility is achieved. 8. d 6.S. are diametrically opposed in their accounting for impairments of assets held for disposal. costs in the development phase are a.
A second project. GAAP.12 . U. Under U. GAAP. it will be challenging to develop converged standards for intangible assets.S. . the recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use.S. GAAP. (3) iGAAP requires an impairment test at each reporting date for long-lived assets and intangibles and records an impairment if the asset’s carrying amount exceeds its recoverable amount. if it is probable there will be a future benefit and the amount can be reliably measured. in a very preliminary stage. iGAAP permits more recognition of intangibles compared to U. impairment losses cannot be reversed for assets to be held and used. As indicated. GAAP are similar in the accounting for impairments of assets held for disposal.S. Similarities include (1) in U. transferred. the costs associated with research and development are segregated into the two components. under iGAAP costs in the development phase are capitalized once technological feasibility is achieved.S. licensed. Briefly describe some of the similarities and differences between U. or exchanged. Thus.S. The IASB and FASB have identified a project relating to the accounting for research and development that could possibly converge iGAAP and U. but goodwill indefinite life intangibles are not amortized. 2. the impairment loss results in a new cost basis for the asset.S. GAAP.S. limited life intangibles are subject to amortization. rented. U. 2. One possibility is to amend U.g. Under U. 1. GAAP and iGAAP. Briefly discuss the convergence efforts that are underway in the area of intangible assets.S. GAAP and iGAAP with respect to the accounting for intangible assets.50 Test Bank for Intermediate Accounting. (2) iGAAP and U. GAAP are similar for intangibles acquired in a business combination. Value in use is the future cash flows to be derived from the particular asset. GAAP on the issue of in-process R&D.S. Thirteenth Edition Short Answer 1. brand value). (3) Under both GAAPs. (4) iGAAP allows reversal of impairment losses when there has been a change in economic conditions or in the expected use of the asset. requires acquired IPR&D to be written off.S.S. GAAP requires expensing of all costs associated with internally generated intangibles. (4) iGAAP and U. given the long-standing prohibition on capitalizing intangible assets and research and development in U. GAAP. impairment loss is measured as the excess of the carrying amount over the asset’s fair value. (5) under iGAAP. That is. GAAP to allow capitalization of in-process R&D similar to the provisions in iGAAP. rather they are assessed for impairment on an annual basis. discounted to present value. would consider expanded recognition of internally generated intangible assets. acquired in-process research and development (IPR&D) is recognized as a separate intangible asset if it meets the definition of an intangible asset and its fair value can be measured reliably.S. (2) iGAAP permits some capitalization of internally generated intangible assets (e.S. an intangible asset is recognized separately from goodwill if it represents contractual or legal rights or is capable of being separated or divided and sold. Notable differences are: (1) while costs in the research phase are always expensed under both iGAAP and U.
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