Question 1

If a company wants exclusive rights to a special name,image or slogan,it should obtain a:
A) trademark.
B) copyright.
C) license.
D) patent.

Accepted Answer

A trademark is a symbol, name, word, or other device that is used to identify and distinguish a company's products or services from those of others, and it provides exclusive rights to the owner to use and protect it from being used by others without permission. Copyrights protect original works of authorship, such as literary, artistic, musical, or other creative works, while a license grants permission to use a particular product, service, or technology. A patent protects an invention or discovery's functional aspects, such as a new machine, process, or composition of matter. Therefore, obtaining a trademark is the best choice for a company to get exclusive rights to its special name, image, or slogan.

Question 2

Amortization is an adjusting entry that records the amount of:
A) intangible assets' usefulness used during the accounting period.
B) tangible assets' remaining usefulness as of the end of the accounting period.
C) the increase in value of intangible assets during the accounting period.
D) the increase in value of tangible assets during the accounting period.

Accepted Answer

Amortization is the process of gradually expensing the cost of intangible assets over their useful life. Therefore, the amount recorded in the amortization entry represents the portion of the asset's usefulness that has been used up during the accounting period.

Question 3

Which of the following statements about disposal of long-lived assets is not correct?
A) The gain or loss resulting from the disposal of a long-lived asset always appears below the "Income from Operations" line on the income statement.
B) A journal entry is usually needed to update depreciation expense on a long-lived asset at the time of disposal.
C) A company may dispose of long-lived assets by selling them, trading them in on new assets, or by scrapping them.
D) The amount of the gain or loss on disposal of a long-lived asset before the end of its useful life will be influenced by the depreciation method that had been used.

Accepted Answer

The gain or loss resulting from the disposal of a long-lived asset may appear above or below the "Income from Operations" line on the income statement, depending on whether it relates to the company's primary operations or not.

Question 4

Which of McGraw-Hill's intangible assets gives it the legal right to prevent you from borrowing a textbook from a friend and photocopying several chapters from the book?
A) Patent
B) Trademark
C) Franchise agreement
D) Copyright

Accepted Answer

Copyrights give McGraw-Hill the legal right to control the reproduction and distribution of the content in their textbooks, including photocopying of several chapters from the book by someone who does not own the copyright. Patents relate to inventions, trademarks relate to brand names and logos, and franchise agreements relate to business arrangements.

Question 5

The right to exclude others from making or using an invention is a:
A) patent.
B) copyright
C) franchise.
D) licensing right.

Accepted Answer

The right to exclude others from making or using an invention is a patent. A patent is a form of intellectual property that provides the inventor with the exclusive right to prevent others from making, using, selling or importing the invention for a certain period of time. Copyright, franchise and licensing rights do not provide the same protection as a patent for inventions.

Question 6

If Company A has a contractual right to sell certain products or services,use certain trademarks,or perform activities in a certain geographical regions,then Company A has:
A) a trademark.
B) a copyright.
C) goodwill.
D) a franchise.

Accepted Answer

A franchise is a contractual agreement between two parties, where the franchisor gives the franchisee the right to use its trademarks, sell its products, and perform specific activities in a certain region. Therefore, if Company A has a contractual right to sell certain products or services, use certain trademarks or perform activities in certain geographical regions, it has a franchise.

Question 7

Permission to use something in accordance with specific terms and conditions are called:
A) licensing rights.
B) trademarks.
C) patents.
D) copyrights.

Accepted Answer

Licensing rights provide specific terms and conditions for using a product or service, typically including limitations on how the item may be used and fees that must be paid for the right to use it. Trademarks, patents, and copyrights all refer to types of intellectual property, but they do not necessarily involve permission for others to use it in the way that licensing does.

Question 8

Which of the following characteristics is not associated with intangible assets?
A) Lack physical substance.
B) Those with an unlimited life are not amortized.
C) Usually have a residual value.
D) Amortization expense is reported each period for those with finite lives.

Accepted Answer

Intangible assets usually do not have a residual value. Unlike tangible assets such as equipment or buildings, intangible assets do not have a physical substance that can be sold or disposed of at the end of their useful life. Therefore, they typically do not have a residual value.

Question 9

The MegaHit Film Studio has a licensing right (or agreement)to distribute films produced by the Artsy Film Company.How would the MegaHit Company classify this licensing right?
A) Tangible asset
B) Research and development
C) Intangible asset
D) Fixed asset

Accepted Answer

The licensing right is an intangible asset as it does not have physical substance but rather represents a legal agreement between two companies.

Question 10

Goodwill:
A) should be treated like most other intangible assets and amortized over a useful life of not more than 40 years.
B) is an accounting measurement of how well a company's employees behave towards the company's customers.
C) should be recorded as a negative value if a company is purchased for less than the net carrying value of its assets.
D) is recorded when the purchasers of a business pay more than the fair value of the assets purchased.

Accepted Answer

Goodwill is recorded on a company's balance sheet when the purchasers of a business pay more than the fair value of the assets purchased. It represents the value of the business beyond its tangible assets and is considered an intangible asset. Goodwill is not amortized, but rather tested for impairment at least annually or whenever there is an indication that the value may be impaired.

Question 11

Goodwill
A) is not amortized, but is tested annually for impairment.
B) is amortized using the straight-line method.
C) is amortized using the units-of-production method.
D) is not amortized and is not tested for impairment.

Accepted Answer

Goodwill is not amortized, but is tested annually for impairment. This means that the value of goodwill is not systematically reduced over time, but companies are required to test whether the value of goodwill has decreased below its recorded value on an annual basis. If the value has decreased, an impairment loss must be recognized in the financial statements.

Question 12

Which of the following assets would be amortized?
A) Land improvements
B) Trademarks
C) Goodwill
D) Franchise

Accepted Answer

The only asset listed that can be amortized is a franchise. Land improvements, trademarks, and goodwill are all assets that are not amortized but rather either depreciated or tested for impairment.

Question 13

Which of the following statements regarding goodwill is not correct?
A) Goodwill is not amortized.
B) Goodwill is tested annually for impairment.
C) Goodwill is written down if its value is found to be impaired.
D) Private companies amortize goodwill using the straight-line method over 20 years or less.

Accepted Answer

Private companies are not allowed to use the straight-line method to amortize goodwill over a period of 20 years or less. Under U.S. GAAP, private companies have the option to amortize goodwill over a period of up to 10 years, using any method they choose.

Question 14

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:
A) the price for which it could be sold.
B) its book value or impaired fair value, whichever is lower.
C) its purchase price minus accumulated amortization.
D) its purchase price adjusted for inflation.

Accepted Answer

For intangible assets with an unlimited life, they are not subject to amortization, but they need to be tested for impairment at least annually. The net amount shown on a balance sheet for such assets should be their book value or impaired fair value, whichever is lower. This is because the book value or impaired fair value provides a more conservative estimate of the asset's value. The price for which it could be sold or its purchase price minus accumulated amortization may not reflect the current value of the intangible asset. The adjustment for inflation is also irrelevant in this case.

Question 15

If a company wants to receive exclusive rights to a manufacturing process,it should obtain a:
A) license.
B) copyright.
C) patent.
D) trademark.

Accepted Answer

A patent is the best choice for obtaining exclusive rights to a manufacturing process. This grants the holder of the patent the sole right to use, sell, and profit from the product or process. A license grants permission from the holder of a patent to someone else to use the rights, while a copyright protects creative works such as music and literature. A trademark is used for protecting brand names and logos.

Question 16

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 represents the value of the business beyond its tangible assets, such as its reputation, customer base, and other intangible factors. The fair value of identifiable net assets is determined by deducting the fair value of liabilities assumed from the fair value of total assets acquired. This method ensures that the recorded value of goodwill is a true representation of the premium paid to acquire the business.

Question 17

Which of the following intangible assets has an unlimited life?
A) Copyrights
B) Licensing rights
C) Goodwill
D) Franchises

Accepted Answer

Goodwill is an intangible asset that does not have a definite or measurable life span. It represents the value of a company's reputation, customer base, and brand recognition, which can last indefinitely as long as the company maintains a positive image and customer loyalty. Therefore, it has an unlimited life. Copyrights, licensing rights, and franchises all have a limited life and are subject to expiration or termination.

Question 18

Goodwill may be attributable to all of the following except:
A) a significant amount of charitable contributions.
B) a great reputation.
C) an established customer base.
D) successful business operations.

Accepted Answer

Goodwill refers to the value of a business beyond its tangible assets, such as its reputation, customer base, and successful operations. While charitable contributions may reflect positively on a business's reputation, they are not directly considered part of its goodwill.

Question 19

The balance sheet category "Intangible Assets" includes:
A) patents, trademarks, and franchises.
B) equipment, land, and buildings.
C) investments, receivables, and cash.
D) goodwill, inventory, and vehicles.

Accepted Answer

Intangible assets are non-physical assets that have no intrinsic value but provide the company with long-term benefits. Patents, trademarks, and franchises are examples of intangible assets as they are valuable property rights that give the company a competitive advantage. Option B includes physical assets such as equipment, land, and buildings which are not considered intangible assets. Similarly, option C includes current assets such as investments, receivables, and cash while intangible assets are long-term assets. Option D includes goodwill which is an intangible asset, but inventory and vehicles are physical assets and not considered intangible assets.

Question 20

If a company wants exclusive rights to artistic material,it should obtain:
A) a copyright.
B) a patent.
C) goodwill.
D) a license.

Accepted Answer

Copyright is the legal mechanism that grants exclusive rights to artistic material such as music, literature, and movies. A company can obtain a copyright by registering the work with the appropriate copyright office. A patent grants exclusive rights to an invention or process, not artistic material. Goodwill refers to the reputation and intangible value of a business. A license grants permission to use someone else's work, but does not grant exclusive rights.

Quiz 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

If a company wants exclusive rights to a special name,image or slogan,it should obtain a:

Amortization is an adjusting entry that records the amount of:

Which of the following statements about disposal of long-lived assets is not correct?

Which of McGraw-Hill's intangible assets gives it the legal right to prevent you from borrowing a textbook from a friend and photocopying several chapters from the book?

The right to exclude others from making or using an invention is a:

If Company A has a contractual right to sell certain products or services,use certain trademarks,or perform activities in a certain geographical regions,then Company A has:

Permission to use something in accordance with specific terms and conditions are called:

Which of the following characteristics is not associated with intangible assets?

The MegaHit Film Studio has a licensing right (or agreement) to distribute films produced by the Artsy Film Company.How would the MegaHit Company classify this licensing right?

Goodwill:

Goodwill

Which of the following assets would be amortized?

Which of the following statements regarding goodwill is not correct?

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:

If a company wants to receive exclusive rights to a manufacturing process,it should obtain a:

In recording the acquisition cost of an entire business:

Which of the following intangible assets has an unlimited life?

Goodwill may be attributable to all of the following except:

The balance sheet category "Intangible Assets" includes:

If a company wants exclusive rights to artistic material,it should obtain: