Question 1

Rooney Company incurred $280,000 of research and development cost in its laboratory to develop a patent granted on January 1, 2010. On July 31, 2010, Rooney paid $42,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2010, should be:
A) $280,000.
B) $42,000.
C) $322,000.
D) $238,000.

Accepted Answer

Research and development costs are expensed as incurred and not capitalized. Only the legal fees for the successful defense of the patent are capitalized, which amounts to $42,000.

Question 2

A computer company has $2,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $1,600,000. What is the amount of net income or loss after these R & D costs are accounted for?
A) $400,000 loss
B) $1,600,000 net income
C) $0
D) Cannot be determined from the information provided.

Accepted Answer

In order to calculate the net income after accounting for the research and development costs, we need to subtract these costs from the net income before accounting for them. Therefore, the formula is:

Net Income (after R&D costs) = Net Income (before R&D costs) - R&D Costs

Net Income (after R&D costs) = $1,600,000 - $2,000,000

Net Income (after R&D costs) = -$400,000

This means that the company is operating at a loss of $400,000 after accounting for the research and development costs. Therefore, the correct answer is A) $400,000 loss.

Question 3

If a company incurs legal costs in successfully defending its patent, these costs are recorded by debiting
A) Legal Expense.
B) an Intangible Loss account.
C) the Patent account.
D) a revenue expenditure account.

Accepted Answer

The legal costs incurred in successfully defending a patent are directly related to the patent itself and therefore should be recorded by debiting the Patent account. This increases the carrying amount of the asset on the balance sheet, which reflects the company's increased ownership interest in the patent.

Question 4

Mehring Company reported net sales of $270,000, net income of $54,000, beginning total assets of $240,000, and ending total assets of $360,000. What was the company's asset turnover ratio?
A) 1.13
B) 0.18
C) 0.90
D) 1.11

Accepted Answer

Asset turnover ratio = Net Sales / Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = ($240,000 + $360,000) / 2 = $300,000
Asset turnover ratio = $270,000 / $300,000 = 0.90

Question 5

Intangible assets
A) should be reported under the heading Property, Plant, and Equipment.
B) are not reported on the balance sheet because they lack physical substance.
C) should be reported as Current Assets on the balance sheet.
D) should be reported as a separate classification on the balance sheet.

Accepted Answer

Intangible assets should be reported as a separate classification on the balance sheet because they are non-physical assets that have a recognizable value and can be used to generate future economic benefits for the company. Examples of intangible assets include patents, trademarks, copyrights, and goodwill.

Question 6

Cost allocation of an intangible asset is referred to as
A) amortization.
B) depletion.
C) accretion.
D) capitalization.

Accepted Answer

Amortization is the process of allocating the cost of intangible assets over their useful life, similar to depreciation for tangible assets. Depletion is typically used for natural resources (e.g. oil, gas, minerals). Accretion is used for increase in the carrying value of a liability or asset over time, such as for a bond. Capitalization refers to the initial recording of a cost as an asset rather than an expense.

Question 7

Copyrights are granted by the federal government
A) for the life of the creator or 70 years, whichever is longer.
B) for the life of the creator plus 70 years.
C) for the life of the creator or 70 years, whichever is shorter.
D) and therefore cannot be amortized.

Accepted Answer

Copyrights are granted for the life of the creator plus 70 years. This means that the copyright protection lasts for the entire lifetime of the creator plus an additional 70 years after their death.

Question 8

Natural resources are generally shown on the balance sheet under
A) Intangibles.
B) Investments.
C) Property, Plant, and Equipment.
D) Owner's Equity.

Accepted Answer

Natural resources, which include assets such as timber, minerals, and oil reserves, are generally considered a type of property, plant, and equipment. Therefore, they would be shown on the balance sheet under that category.

Question 9

During 2010, Stein Corporation reported net sales of $3,000,000 and net income of $1,800,000. Stein also reported beginning total assets of $1,000,000 and ending total assets of $1,500,000. Stein's asset turnover ratio is
A) 3.0 times.
B) 2.4 times.
C) 2.0 times.
D) 1.4 times.

Accepted Answer

Asset turnover ratio = Net Sales / Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = ($1,000,000 + $1,500,000) / 2 = $1,250,000

Asset turnover ratio = $3,000,000 / $1,250,000 = 2.4 times

Question 10

The amortization period for a patent cannot exceed
A) 50 years.
B) 40 years.
C) 20 years.
D) 10 years.

Accepted Answer

The amortization period for a patent is the maximum time period during which the cost of acquiring a patent can be spread out for accounting and tax purposes. According to the United States Patent and Trademark Office (USPTO), the maximum term for a patent is 20 years from the date of filing. Therefore, the answer is C. Neither A, B, nor D are correct.

Question 11

All of the following intangible assets are amortized except
A) copyrights.
B) limited-life franchises.
C) patents.
D) trademarks.

Accepted Answer

The answer of All of the following intangible assets are...

Question 12

Henson Company incurred $300,000 of research and development costs in its laboratory to develop a new product. It spent $40,000 in legal fees for a patent granted on January 2, 2010. On July 31, 2010, Henson paid $30,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2010?
A) $300,000
B) $70,000
C) $370,000
D) Some other amount

Accepted Answer

The total amount debited to Patents includes the legal fees for obtaining the patent ($40,000) and the legal fees for the successful defense of the patent ($30,000), totaling $70,000. Research and development costs are not capitalized as part of the patent.

Question 13

Research and development costs
A) are classified as intangible assets.
B) must be expensed when incurred under generally accepted accounting principles.
C) should be included in the cost of the patent they relate to.
D) are capitalized and then amortized over a period not to exceed 40 years.

Accepted Answer

Research and development costs must be expensed when incurred under generally accepted accounting principles. They cannot be capitalized as an asset, except in certain rare cases where the future economic benefits of the R&D can be demonstrated with certainty.

Question 14

In recording the acquisition cost of an entire business,
A) goodwill is recorded as the excess of cost over the fair value of identifiable net assets.
B) assets are recorded at the seller's book values.
C) goodwill, if it exists, is never recorded.
D) goodwill is recorded as the excess of cost over the book value of identifiable net assets.

Accepted Answer

Goodwill is recorded as the excess of cost over the fair value of identifiable net assets. This means that in recording the acquisition cost of an entire business, any amount paid above the fair value of the business's identifiable net assets is considered goodwill. It is important to note that identifiable net assets do not include goodwill, as it is an intangible asset that does not have a specific fair value.

Question 15

Goodwill
A) is only recorded when generated internally.
B) can be subdivided and sold in parts.
C) can only be identified with the business as a whole.
D) can be defined as normal earnings less accumulated amortization.

Accepted Answer

Goodwill can only be identified with the business as a whole and cannot be subdivided or sold in parts. It is recorded when a company acquires another company and pays more than the fair market value of its net assets. Goodwill is the excess of the purchase price over the fair market value of the net assets acquired. It is tested annually for impairment and is not amortized but rather subject to impairment testing annually or whenever events or changes in circumstances indicate that it may be impaired.

Question 16

Which of the following statements concerning financial statement presentation is not a true statement?
A) Intangibles are reported separately under Intangible Assets.
B) The balances of major classes of assets may be disclosed in the footnotes.
C) The balances of the accumulated depreciation of major classes of assets may be disclosed in the footnotes.
D) The balances of all individual assets, as they appear in the subsidiary plant ledger, should be disclosed in the footnotes.

Accepted Answer

The balances of all individual assets, as they appear in the subsidiary plant ledger, should not be disclosed in the footnotes as they are too detailed and unnecessary for users of the financial statements. Only major classes of assets and accumulated depreciation should be disclosed in the footnotes.

Question 17

Given the following account balances at year end, compute the total intangible assets on the balance sheet of Kepler Enterprises. 
A) $11,500,000
B) $7,500,000
C) $5,500,000
D) $9,500,000

Accepted Answer

The answer of Given the following account balances at year...

Question 18

During 2010, Rathke Corporation reported net sales of $2,000,000, net income of $1,200,000, and depreciation expense of $100,000. Rathke also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Rathke's asset turnover ratio is
A) 2 times.
B) 1.6 times.
C) 1.3 times.
D) .96 times.

Accepted Answer

Asset turnover ratio is calculated by dividing net sales by average total assets.

Average total assets = (Beginning total assets + Ending total assets) / 2 
Average total assets = ($1,000,000 + $1,500,000) / 2 = $1,250,000

Asset turnover ratio = Net sales / Average total assets 
Asset turnover ratio = $2,000,000 / $1,250,000 
Asset turnover ratio = 1.6 times

Question 19

Which of the following is not an intangible asset arising from a government grant?
A) Goodwill
B) Patent
C) Trademark
D) Trade name

Accepted Answer

Goodwill is not an intangible asset arising from a government grant, it refers to the value of a company or brand based on its reputation and customer loyalty. Patents, trademarks, and trade names can all be intangible assets that arise from a government grant.

Question 20

A patent
A) has a legal life of 40 years.
B) is nonrenewable.
C) can be renewed indefinitely.
D) is rarely subject to litigation because it is an exclusive right.

Accepted Answer

A patent is granted for a fixed period of time, usually 20 years from the filing date. Once the patent term expires, the invention becomes part of the public domain and anyone can use or manufacture it without permission. Patents are nonrenewable, meaning that the 20-year term cannot be extended or renewed. However, it is possible to obtain multiple patents for different aspects of the same invention or for improvements or modifications made to it.

Quiz 10: Plant Assets, Natural Resources, and Intangible Assets

Rooney Company incurred $280,000 of research and development cost in its laboratory to develop a patent granted on January 1, 2010. On July 31, 2010, Rooney paid $42,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2010, should be:

A computer company has $2,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $1,600,000. What is the amount of net income or loss after these R & D costs are accounted for?

If a company incurs legal costs in successfully defending its patent, these costs are recorded by debiting

Mehring Company reported net sales of $270,000, net income of $54,000, beginning total assets of $240,000, and ending total assets of $360,000. What was the company's asset turnover ratio?

Intangible assets

Cost allocation of an intangible asset is referred to as

Copyrights are granted by the federal government

Natural resources are generally shown on the balance sheet under

During 2010, Stein Corporation reported net sales of $3,000,000 and net income of $1,800,000. Stein also reported beginning total assets of $1,000,000 and ending total assets of $1,500,000. Stein's asset turnover ratio is

The amortization period for a patent cannot exceed

All of the following intangible assets are amortized except

Research and development costs

In recording the acquisition cost of an entire business,

Goodwill

Which of the following statements concerning financial statement presentation is not a true statement?

Given the following account balances at year end, compute the total intangible assets on the balance sheet of Kepler Enterprises.

Which of the following is not an intangible asset arising from a government grant?

A patent