Deck 12: Intangible Assets and Goodwill

Question 1

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)charged off in the current period.
B)amortized over the legal life of the purchased patent.
C)added to factory overhead and allocated to production of the purchaser's product.
D)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.

Answer 1

D

Question 2

Santo Corporation was granted a patent on a product on January 1, 2010.To protect its patent, the corporation purchased on January 1, 2009 a patent on a competing product which was originally issued on January 10, 2005.Because of its unique plan, Santo Corporation does not feel the competing patent can be used in producing a product.The cost of the competing patent should be

A)amortized over a maximum period of 20 years.
B)amortized over a maximum period of 16 years.
C)amortized over a maximum period of 11 years.
D)expensed in 2009.

Answer 2

C

Question 3

The intangible asset goodwill may be

A)capitalized only when purchased.
B)capitalized either when purchased or created internally.
C)capitalized only when created internally.
D)written off directly to retained earnings.

Answer 3

A

Question 4

Which of the following intangible assets should not be amortized?

A)Copyrights
B)Organization costs with limited life
C)Goodwill
D)All of these intangible assets should be amortized.

Question 5

Purchased goodwill should be

A)written off as soon as possible against retained earnings.
B)written off as soon as possible as an extraordinary item.
C)written off by systematic charges as a regular operating expense over the period
D)not written off but rather reduced only if impairment occurs.

Question 6

Which of the following statements best describes the accounting for intangible assets after acquisition under Private Entity GAAP?

A)They may be accounted for under the cost model or the revaluation model.
B)They should be accounted for under the cost model.
C)They should be accounted for under the revaluation model.
D)None of these.

Question 7

When determining whether an internally developed intangible asset should be recognized, the process of generating the intangible is usually broken down into the following parts:

A)The research and financing element.
B)The acquisition and disposal stages.
C)The exploitation and disposal stages.
D)The research and development phase.

Question 8

Which of the following is not a characteristic of intangible assets? Intangible assets must be

A)Individually identifiable
B)Non-monetary in nature
C)Non-physical in nature
D)Identifiable as part of the business as a whole

Question 9

Which of the following statements best describes when goodwill should be tested for impairment under IFRS?

A)Goodwill should be tested for impairment when events or changes in circumstance indicate that impairment may have occurred.
B)Goodwill should be tested annually for impairment regardless of the circumstances.
C)Goodwill should be tested for impairment annually and whenever events or changes in circumstance indicate that impairment may have occurred.
D)Goodwill should only be tested for impairment when the company follows a policy to amortize its goodwill.

Question 10

Which of the following methods of amortization is normally used for intangible assets?

A)Capital cost allowance
B)Straight-line
C)Activity method
D)Double declining-balance

Question 11

A franchise or licence with a limited life is

A)expensed.
B)not amortized.
C)amortized over the lesser of its legal or useful life.
D)amortized over its legal life.

Question 12

Wriglee, Ltd.went to court this year and successfully defended the brand name of its product, "Sweet Gum," from infringement by a competitor.The cost of this defence should be charged to

A)patents and amortized over the legal life of the patent.
B)legal fees and amortized over five years or less.
C)expenses of the period.
D)trademarks and amortized over the same period of time as the "Sweet Gum"

Question 13

Goodwill was purchased when a business was acquired.When an impairment to the goodwill is determined, the credit is usually made to

A)the Goodwill account.
B)an Accumulated Amortization account.
C)a Deferred Credit account.
D)a shareholders' equity account.

Question 14

Which of the following statements best describes when previously recognized goodwill impairment may be reversed?

A)Reversals are permitted under both Private Entity GAAP and IFRS.
B)Reversals are permitted under Private Entity GAAP but are not allowed under IFRS
C)Reversals are not permitted under either standard.
D)None of these

Question 15

Which of the following is not an intangible asset?

A)Trade name
B)Long-term investment in bonds
C)Franchise
D)Organization costs

Question 16

If a trademark is developed by the enterprise itself, the costs should be

A)capitalized if future benefits are reasonably assured.
B)capitalized.
C)expensed.
D)expensed if future benefits are reasonably assured.

Question 17

Which of the following statements best describes the accounting for intangible assets after acquisition under IFRS?

A)They may be accounted for under the cost model or the revaluation model.
B)They should be accounted for under the cost model.
C)They should be accounted for under the revaluation model if an active market exists
D)None of these

Question 18

Which of the following statements best describes when goodwill should be tested for impairment under Private Entity GAAP?

A)Goodwill should be tested for impairment when events or changes in circumstances indicate that impairment may have occurred.
B)Goodwill should be tested annually for impairment regardless of the circumstances.
C)Goodwill should be tested for impairment annually and whenever events or changes in circumstance indicate that impairment may have occurred.
D)Goodwill should only be tested for impairment when the company follows a policy to amortize its goodwill.

Question 19

A change in the amortization rate for an intangible asset should be accounted for as a

A)change in accounting principle.
B)change in reporting entity.
C)correction of an error.
D)change in accounting estimate.

Question 20

Negative goodwill arises when

A)the book value of identifiable net assets acquired exceeds the purchase price.
B)the fair value of identifiable net assets acquired exceeds the purchase price.
C)the fair value of identifiable net assets acquired is less than the purchase price.
D)the fair value of identifiable net assets acquired exceeds the book value.

Question 21

In January, 2005, Targa Corporation purchased a patent for a new consumer product for $900,000.At the time of purchase, the patent was valid for fifteen years.Due to the competitive nature of the product, however, the patent was estimated to have a useful life
Of only ten years.During 2010 the product was permanently removed from the market
Under governmental order because of a potential health hazard present in the product.What amount should Targa recognize as an impairment during 2010, assuming amortization is recorded at the end of each year?

A)$600,000.
B)$450,000.
C)$90,000.
D)$60,000.

Question 22

The owners of Dallas' Electronics Store are contemplating selling the business to new interests.The cumulative earnings for the past 5 years amounted to $900,000 including extraordinary gains of $30,000.The annual earnings based on an average rate of return on investment for this industry would have been $138,000.If excess earnings are to be capitalized at 15%, then implied goodwill should be

A)$210,000.
B)$280,000.
C)$240,000.
D)$870,000.

Question 23

Huber Co.incurred research and development costs in 2010 as follows: The amount of research and development costs charged to Huber's 2010 income statement or deferred as development costs should be

A)$3,750,000.
B)$1,580,000.
C)$950,000.
D)$3,435,000

Question 24

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

A)research and development expense in the period(s) of construction.
B)amortization deducted as part of research and development costs.
C)amortization or immediate write-off, depending on company policy.
D)an expense at such time as productive research and development has been obtained from the facility.

Question 25

Which of the following is an appropriate method to determine when the development stage is over for an enterprise in the development stage?

A)b, c, and d
B)When significant revenue has been earned.
C)After a specific date.
D)When a specific level of sales has been reached.

Question 26

Use the following information for questions
Jeremiah Inc.is being targeted for acquisition by Argo Corporation.As an analyst for
Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction.
The available information relating to Jeremiah includes the following: Current net assets: $5.1 million.
Expected return on net asset for industry: 10%
Reported net income for the previous six consecutive years:

The earnings for 2007 included a $200,000 gain from the sale of a discontinued part of its business.
During 2010, Kurz Company purchased the net assets of Sims Corporation for $635,000. On the date of the transaction, Sims had no long-term investments in marketable securities and had $200,000 of liabilities.The fair value of Sims' assets, when acquired were as follows: How should the $365,000 difference between the fair value of the net assets acquired ($1 million) and the cost ($635,000) be accounted for by Kurz?

A)The $365,000 difference should be credited to retained earnings.
B)The noncurrent assets should be recorded at $475,000.
C)The current assets should be recorded at $250,500 and the noncurrent assets should be recorded at $584,500.
D)It is not possible to answer this question until the components of the assets are

Question 27

Use the following information for questions
Jeremiah Inc.is being targeted for acquisition by Argo Corporation.As an analyst for
Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction.
The available information relating to Jeremiah includes the following: Current net assets: $5.1 million.
Expected return on net asset for industry: 10%
Reported net income for the previous six consecutive years:

The earnings for 2007 included a $200,000 gain from the sale of a discontinued part of its business.
Monarch Football Company had a player contract with Sidka that was recorded in its accounting records at $2.9 million.Markos Football Company had a player contract with Leber that was recorded in its accounting records at $2.8 million.Monarch traded Sidka to Markos for Leber by exchanging each player's contract.The fair value of each contract was $3 million.What amount should be shown in the accounting records after the exchange of player contracts?

Question 28

Use the following information for questions
Jeremiah Inc.is being targeted for acquisition by Argo Corporation.As an analyst for
Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction.
The available information relating to Jeremiah includes the following: Current net assets: $5.1 million.
Expected return on net asset for industry: 10%
Reported net income for the previous six consecutive years:

The earnings for 2007 included a $200,000 gain from the sale of a discontinued part of its business.
Estimated goodwill by capitalizing average excess earnings at 14% is

A)$1,791,667
B)$760,833
C)$2,029,762
D)$1,654,331

Question 29

Under private-entity GAAP, to determine if there is an impairment loss:

A)Compare the fair value of the identifiable assets to the book value of the assets
B)Compare the fair value of the reporting unit against the carrying value of the reporting unit
C)Compare the imputed current fair value of goodwill with the carrying value of goodwill
D)Compare the imputed carrying value of the assets with the fair value of the assets

Question 30

Under IFRS, to determine if there is an impairment loss:

A)Compare the fair value of the identifiable assets to the book value of the assets
B)Compare the fair value of the reporting unit against the carrying value of the reporting unit
C)Compare the imputed current fair value of goodwill with the carrying value of goodwill
D)Compare the carrying amount of the CGU with the recoverable amount

Question 31

In 2010, Lawrence Corporation incurred development costs as follows: These costs relate to a product that it expects to market in 2011.It is estimated that these costs will be recouped by December 31, 2013.What is the amount of development costs that could be deferred in 2010, assuming that required conditions for capitalization are met?

A)$160,000.
B)$250,000.
C)$410,000.
D)$0.

Question 32

If the fair value of the net asset acquired is greater than the purchase price the amount is:

A)negative goodwill
B)contributed surplus
C)purchased goodwill
D)organizational costs

Question 33

Which of the following statements best describes the accounting treatment for pre- opening costs for new businesses?

A)They should always be capitalized.
B)They should always be expensed.
C)Certain cost, such as mail order catalogues, may be capitalized under Private Entity
D)Certain cost, such as mail order catalogues, may be capitalized under IFRS.

Question 34

Which of the following research and development related costs should be capitalized and amortized over current and future periods?

A)Research and development general laboratory building which can be put to alternative uses in the future
B)Inventory used for a specific research project
C)Administrative salaries allocated to research and development
D)Research findings purchased from another company to aid a particular research project currently in process

Question 35

Decker Inc.incurred the following costs during the year ended December 31, 2010: The total amount to be classified as development costs in 2010 is

A)$72,500.
B)$120,000.
C)$300,000
D)$163,500

Question 36

Which of the following is not a method of calculating goodwill?

A)Capitalize excess earnings
B)Discount the excess earnings for a limited number of years
C)Capitalize total average earnings and subtract the fair value of net assets
D)All of these are methods of calculating goodwill.

Question 37

The general ledger of Babcock Corporation as of December 31, 2010, includes the following accounts: In the preparation of Babcock's balance sheet as of December 31, 2010, what should be reported as total intangible assets, excluding goodwill?

A)$76,000.
B)$365,000.
C)$381,000.
D)$401,350.

Question 38

The proper accounting for the costs incurred in creating computer software products that are to be sold, leased, or otherwise marketed to external parties, is to

A)capitalize all costs until the software is sold to external parties.
B)charge research and development expense when incurred until technological feasibility has been established for the product.
C)charge research and development expense only if the computer software has alternative future uses.
D)capitalize all costs as incurred until a detailed program design or working model is

Question 39

Use the following information for questions
Jeremiah Inc.is being targeted for acquisition by Argo Corporation.As an analyst for
Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction.
The available information relating to Jeremiah includes the following: Current net assets: $5.1 million.
Expected return on net asset for industry: 10%
Reported net income for the previous six consecutive years:

The earnings for 2007 included a $200,000 gain from the sale of a discontinued part of its business.
Assuming that excess earnings are expected to continue for 8 years, and average excess earnings are discounted at 11%, estimated goodwill is (use interest table)

A)$1,784,331
B)$1,661,432
C)$1,462,356
D)$1,290,818

Question 40

Use the following information for questions
Jeremiah Inc.is being targeted for acquisition by Argo Corporation.As an analyst for
Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction.
The available information relating to Jeremiah includes the following: Current net assets: $5.1 million.
Expected return on net asset for industry: 10%
Reported net income for the previous six consecutive years:

The earnings for 2007 included a $200,000 gain from the sale of a discontinued part of its business.
Assuming that excess earnings are expected to continue for 8 years, and ignoring the time value of money, estimated goodwill is

A)$2,273,000
B)$2,006,667
C)$1,854,333
D)$1,531,733

Question 41

On June 30, 2010, Rock, Ltd.exchanged 3,000 of Shale Corp.no par value common shares for a patent owned by Iller Co.The Shale shares were acquired in 2008 at a cost of $80,000.At the exchange date, Shale common shares have a fair value of $45 per share, and the patent had a net carrying value of $160,000 on Iller's books.Rock should record the patent at

A)$160,000.
B)$135,000.
C)$90,000.
D)$80,000.

Question 42

Use the following information for questions
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
Assuming the fair value of Parasol's net-assets is $10.2 million, and Jessup acquired a 75% share, goodwill can be calculated as

A)$1,243,000
B)$1,000,000
C)$1,550,000
D)$750,000

Question 43

Which of the following costs of goodwill should be capitalized?

Question 44

On January 2, 2007, Mortensen, Ltd.purchased a patent for a new consumer product for $90,000.At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product.
On December 31, 2010, the product was permanently withdrawn from sale under
Governmental order because of a potential health hazard in the product.What amount should Mortensen charge against income during 2010, assuming amortization is recorded
At the end of each year?

A)$72,000.
B)$63,000.
C)$54,000.
D)$9,000.

Question 45

Which of the following legal fees should be capitalized?

Question 46

Use the following information for questions
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
Beasley Corp.incurred $160,000 of basic research and $50,000 of development costs to develop a product for which a patent was granted on January 2, 2005.Legal fees and other costs associated with registration of the patent totalled $60,000.On March 31, 2010, Beasley paid $90,000 for legal fees in a successful defence of the patent.The total amount capitalized for the patent through March 31, 2010 should be

A)$360,000.
B)$270,000.
C)$200,000.
D)$150,000.

Question 47

On May 5, 2010, Mulder Corp.exchanged 5,000 of its common shares for a patent owned by Drucker Co.At May 5, 2010, Mulder's common shares were quoted at $28 per share, and the patent had a carrying value of $130,000 on Drucker's books.Mulder should record the patent at

A)$130,000.
B)$110,000.
C)$140,000.
D)$120,000.

Question 48

Use the following information for questions
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
Parasol's average annual net income is $75,000 above the average for Parasol's industry. Assuming Jessup estimates goodwill by capitalizing excess earnings at 14%, the estimate of goodwill is

A)nil
B)$1,050,000
C)$535,714
D)$954,333

Question 49

Use the following information for questions
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
Mouse Software Company has capitalized computer software costs of $3.6 million related to its spreadsheet product.The software is expected to have a four-year economic life and generate future revenues of $25 million.Revenues generated by this software during 2010 (first year) amounted to $7.5 million.The proper amount of software costs amortized to be recognized by Mouse in 2010 should be

A)$900,000.
B)$3,600,000.
C)$2,812,000.
D)$1,080,000.

Question 50

On January 1, 2006, Robson Company purchased a trademark for $400,000, having an estimated useful life of 16 years.In January 2010, Robson paid $60,000 for legal fees in a successful defence of the trademark.Trademark amortization expense for the year ended December 31, 2010, should be

A)$30,000.
B)$28,750.
C)$25,000.
D)$0.

Question 51

Drip Co.bought a trademark from Gregg Corp.on January 1, 2010, for $163,000.An independent consultant retained by Drip estimated that the remaining useful life is 50 years.Its unamortized cost on Gregg's accounting records was $61,000.Drip decided to write off the trademark over the maximum period allowed.How much should be amortized for the year ended December 31, 2010?

A)$1,220.
B)$3,260.
C)$2,333.
D)$2,700.

Question 52

Use the following information for questions
Jessup Corp.will acquire a controlling stake in the outstanding shares of Parasol Inc.for
$9.2 million in cash.
Assuming the fair value of Parasol's net-assets is $12.5 million, and Jessup acquired a 75% share, goodwill can be calculated as

A)$175,000
B)$175,000 negative
C)$375,000
D)nil