Question 1

The Walters Company made the following expenditures for research and development early in 2010: $40, 000 for materials, $50, 000 for contract services, $40, 000 for employee salaries, and $400, 000 for a building with an expected life of 20 years to be used for current and future research projects.Walters uses straight-line depreciation.The company allocated $10, 000 in overhead to research and development.What is Walters' research and development expense for 2010?
A)$100, 000
B)$110, 000
C)$160, 000
D)$350, 000

Accepted Answer

Research and development expense for 2010 is $160,000, which includes $40,000 for materials, $50,000 for contract services, $40,000 for employee salaries, $10,000 for overhead, and $20,000 for depreciation on the building ($400,000 / 20 years).

Question 2

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have alternative future uses in research and development should be
A)capitalized
B)charged directly to retained earnings
C)included in R&D expense immediately
D)charged as a loss from continuing operations

Accepted Answer

Materials, equipment, facilities, and intangibles purchased from others that have alternative future uses in research and development are considered as assets and should be capitalized. This means that their cost will be recorded as an asset, and they will be amortized over the useful life of the asset or expensed when they are no longer useful. Charging these costs directly to retained earnings (B) or including them in R&D expense immediately (C) is not appropriate because they do not reflect the economic reality of the transaction. Charging them as a loss from continuing operations (D) is also not appropriate because they are not related to a loss.

Question 3

Which of the following describes the appropriate accounting for intangible assets with a finite life? $\begin{array}{lll}
& \text { Amortize}& \text { Write down if imparred}\ 
\text { I. } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { No } \
\text { III. } & \text { No } & \text { Yes }
\end{array}$
A)I
B)II
C)III
D)IV

Accepted Answer

Intangible assets with a finite life should be amortized over their useful life and written down if they are impaired, which matches option I.

Question 4

Which of the following characteristics is not common to both tangible and intangible assets?
A)held for use and not for investment
B)expected life of more than one year
C)derive value from the ability to generate revenue
D)may have value only to a particular company

Accepted Answer

Tangible assets typically have a market value that can be realized by any company, whereas intangible assets like patents or trademarks may have value only to the specific company that owns them.

Question 5

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have no alternative future uses in research and development or other activities should be
A)capitalized
B)charged directly to retained earnings
C)included in R&D expense immediately
D)charged as a loss from continuing operations

Accepted Answer

Materials, equipment, facilities, and intangibles that are acquired for research and development and have no alternative future use should be expensed immediately as R&D expense according to accounting standards. This reflects the immediate consumption of these resources in the research and development process.

Question 6

Which of the following is not required to be disclosed in an entity's financial statements or accompanying footnotes?
A)the total amount of research and development costs charged to expense during the current year
B)the method used to amortize the entity's intangible assets
C)a material amount of internally developed goodwill
D)accumulated amortization on the entity's intangibles as of its year-end

Accepted Answer

All of the other options are required disclosures in financial statements or accompanying footnotes. However, internally developed goodwill is not recognized as an asset under generally accepted accounting principles (GAAP) and therefore would not be disclosed.

Question 7

Which amortization method should be used for intangibles that are amortized?
A)a method based on the expected pattern of benefits to be produced by the asset
B)a method based on an annual review for impairment
C)the straight-line method; all others are inappropriate
D)any method is appropriate

Accepted Answer

The most appropriate amortization method for intangibles is one that is based on the expected pattern of benefits to be produced by the asset. This ensures that the expense recognized each period reflects the benefit received from the asset, and is in line with the matching principle in accounting. The other options listed may not accurately reflect the economic benefits of the asset and do not align with generally accepted accounting principles (GAAP). Therefore, choice A is the best option.

Question 8

Which of the following is not a characteristic of an intangible asset which distinguishes it from a tangible asset?
A)generally a higher degree of uncertainty regarding the future benefit that may be derived
B)value is subject to narrower fluctuations because it is less sensitive to competitive conditions
C)may have value to only a particular company
D)an intangible with an indefinite life is not expensed

Accepted Answer

This is not a characteristic that distinguishes an intangible asset from a tangible asset. Tangible assets can also have value that is subject to narrower fluctuations and be less sensitive to competitive conditions.

Question 9

Smith Corporation is interested in acquiring Dawson Company and has obtained the following information about Dawson:
 Daws on's net income has averaged $ \$ 180,000 $ for the past five years. This average is expected to continue in perpetuity The book value of Dawson's recorded net ass ets is $ \$ 600,000 $
Dawson owns a fully depreciated building with a market value of $ \$ 150,000 $.
Dawson has title to a patent with a market value of $ \$ 40,000 $, which is not included in Dawson's recorded net as sets.
The market value of Dawson's recorded net assets(excluding $ c $ and $ d $ above) is $ \$ 1,000,000 $.
 In evaluating the Dawson data, Smith believes that a 12% discount rate is appropriate.
Required:
Calculate each of the following and provide all necessary computations to support your
a. Based on the information provided, what price shoudd Smith be willing to pay to acquire Dawson?
b. What portion of the puchase price should Smith capitalize as purchased goodwill?

Accepted Answer

The answer of Smith Corporation is interested in acquiring Dawson...

Question 10

Which of the following methods is used to amortize intangible assets over their useful lives?
A)declining balance
B)straight line
C)annual review for impairment
D)none of these since intangible assets are not amortized

Accepted Answer

Intangible assets are amortized over their useful lives using the straight-line method, which evenly spreads the cost of the asset over its estimated useful life. Option A, declining balance method, is used for depreciating tangible assets. Option C, annual review for impairment, is used to test whether intangible assets are still valuable and useful, but it does not pertain to the amortization process. Option D is incorrect because intangible assets, such as patents and trademarks, are amortized over their useful lives, just like tangible assets are depreciated.

Question 11

Which of the following expenditures cannot be included in R&D costs?
A)indirect costs
B)intangibles purchased from others
C)personnel costs
D)contract services performed for others

Accepted Answer

Contract services performed for others cannot be included in R&D costs because R&D costs are typically related to the development of new products or services for the company's own use or sale, not services performed for others.

Question 12

Costs for which of the following activities should not be included in research and development (R&D)?
A)modification of the formulation or design of a product or process
B)design of tools, jigs, molds, and dies involving new technology
C)design, construction, and testing of preproduction prototypes and models
D)trouble-shooting in connection with breakdowns during commercial production

Accepted Answer

Trouble-shooting in connection with breakdowns during commercial production is not part of the research and development (R&D) process. R&D involves activities aimed at improving or creating new products, processes or services, and does not include activities related to resolving problems or issues that arise during commercial production.

Question 13

Which of the following research and development costs should always be capitalized?
A)costs of intangibles purchased from others
B)costs of materials, equipment, and intangibles with alternative future uses purchased from others
C)costs of equipment with an expected life greater than three years
D)costs of contract services purchased from others

Accepted Answer

Costs of materials, equipment, and intangibles with alternative future uses purchased from others should always be capitalized as they meet the criteria for recognition as an asset - they provide future economic benefits and can be reliably measured. The other options do not always meet the criteria for capitalization.

Question 14

Burrell Co.incurred the following costs during 2010 in the development and production of a new product:  How much should be included in R&D expense for 2010?
A)$165, 000
B)$480, 000
C)$510, 000
D)$545, 000

Accepted Answer

The answer of Burrell Co.incurred the following costs during 2010...

Question 15

IFRS and GAAP differ in the application of the fair value concept for impairment tests applied to intangible assets.
Required:
Describe the fair value concept as it is applied for impairment tests in IFRS and GAAP, highlighting the differences.

Accepted Answer

The answer of IFRS and GAAP differ in the application...

Question 16

Which of the following costs should always be expensed as incurred?
A)the costs of externally acquired identifiable intangible assets
B)the externally incurred costs directly associated with internally developed identifiable intangible assets
C)the costs of internally developed unidentifiable intangible assets
D)the costs of externally acquired unidentifiable intangible assets

Accepted Answer

Internally developed unidentifiable intangible assets, such as research and development costs, should always be expensed as incurred according to Generally Accepted Accounting Principles (GAAP). The other options may be subject to different accounting treatments depending on specific circumstances.

Question 17

Which of the following groups would be classified as intangible assets for financial accounting and reporting purposes?
A)long-term notes receivable, copyrights, goodwill, and trademarks
B)patents, computer software costs, franchises, and trademarks
C)computer software costs, research and development costs for internally developed patents, patents, and goodwill
D)organization costs, goodwill, costs of employee training programs, and trademarks

Accepted Answer

Intangible assets include non-physical assets that have a useful life of more than one year. Patents, computer software costs, franchises, and trademarks fit this definition as they are identifiable non-monetary assets without physical substance, which provide economic benefits to the entity.

Question 18

Which of the following relationships between category of intangibles and amortization is not true? $\begin{array}{lll}
&\text { Category }&\text { Amortize }\
\text { I. } & \text { Intangible assetswith a finite life } & \text { Yes } \
\text { II. } & \text { Intangible assetswith an indefinite life } & \text { No } \
\text { III. } & \text { Goodwill } & \text { Yes } \
\text { IV. } & \text { Internally developed unidentifiable intangibles } & \text { No }
\end{array}$

A)I
B)II
C)III
D)IV

Accepted Answer

Category III includes indefinite-lived intangible assets, which are not subject to amortization. Categories I, II, and IV include intangible assets that are subject to amortization.

Question 19

Which of the following is not true regarding the accounting for the cost of intangibles per GAAP? $\begin{array}{lll}
&\text { Category }&\text { Account for cost by}\
 \text { I. } &  \text { Purchased identifiable intangibles } &  \text { Capitalizing all cost } \
 \text { II. } &  \text {  Purchased uniclentifiable intangibles  } &  \text {Capitalizing all cost  } \
 \text {III.} &  \text { Internally developed identifiable intangibles  } &  \text { Capitalizing all cost } \
 \text {IV.} &  \text {  Internally developed uridentifiable intangibles} &  \text {  Expensing all costs} \
\end{array}$

A)I
B)II
C)III
D)IV

Accepted Answer

For internally developed identifiable intangibles, not all costs are capitalized. Some costs are expensed as incurred, such as research and development costs, while only certain development costs meeting specific criteria are capitalized.

Question 20

The cost of an internally developed unidentifiable intangible is expensed as incurred.Accordingly, which one of the following costs would be expensed in the year it was incurred?
A)legal cost of obtaining a patent
B)cost of improvements with a three-year life made to an asset that is being leased by the company for a five-year period
C)deferred charges
D)cost incurred to train management-level employees

Accepted Answer

The cost incurred to train management-level employees is a general training expense and not related to any identifiable intangible asset. Therefore, it should be expensed as incurred. The legal cost of obtaining a patent would be capitalized as part of the cost of obtaining the patent. The cost of improvements with a three-year life made to an asset that is being leased would be capitalized and amortized over the useful life of the asset. Deferred charges would be capitalized and amortized over their useful life.

Quiz 12: Intangibles

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have alternative future uses in research and development should be

Which of the following characteristics is not common to both tangible and intangible assets?

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have no alternative future uses in research and development or other activities should be

Which of the following is not required to be disclosed in an entity's financial statements or accompanying footnotes?

Which amortization method should be used for intangibles that are amortized?

Which of the following is not a characteristic of an intangible asset which distinguishes it from a tangible asset?

Which of the following methods is used to amortize intangible assets over their useful lives?

Which of the following expenditures cannot be included in R&D costs?

Costs for which of the following activities should not be included in research and development (R&D) ?

Which of the following research and development costs should always be capitalized?

Burrell Co.incurred the following costs during 2010 in the development and production of a new product: How much should be included in R&D expense for 2010?

IFRS and GAAP differ in the application of the fair value concept for impairment tests applied to intangible assets. Required: Describe the fair value concept as it is applied for impairment tests in IFRS and GAAP, highlighting the differences.

Which of the following costs should always be expensed as incurred?

Which of the following groups would be classified as intangible assets for financial accounting and reporting purposes?

The cost of an internally developed unidentifiable intangible is expensed as incurred.Accordingly, which one of the following costs would be expensed in the year it was incurred?