Question 1

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

Accepted Answer

The cost of the laboratory building is considered a long-term asset and is depreciated over its useful life. Since it is being used as a research and development facility, the cost would be included in the research and development costs and depreciated accordingly.

Question 2

LRF Corporation purchased a patent for $450,000 on September 1, 2006.It had a useful life of 10 years.On January 1, 2008, LRF spent $110,000 to successfully defend the patent in a lawsuit.LRF feels that as of that date, the remaining useful life is 5 years.What amount should be reported for patent amortization expense for 2008?

Accepted Answer

The total cost of the patent is $450,000 + $110,000 = $560,000. The remaining useful life as of January 1, 2008 is 5 years, so the annual amortization expense is $560,000 / 10 = $56,000. The additional legal cost of $110,000 is not amortized over the remaining life of the patent, but rather expensed in the current year. Therefore, the total amortization expense for 2008 is $56,000, and the answer is B.

Question 3

Jeff Corporation purchased a limited-life intangible asset for $120,000 on May 1, 2006.It has a useful life of 10 years.What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?

Accepted Answer

The total amortization expense for 3 years (May 1, 2006 - December 31, 2008) can be calculated as follows:
Annual amortization expense = $120,000 / 10 years = $12,000
Total amortization expense for 3 years = $12,000 x 3 = $36,000. Therefore, the correct answer is (C) $32,000.

Question 4

The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters.These costs are said to benefit the corporation for the entity's entire life.These costs should be

Accepted Answer

The answer of The costs of organizing a corporation include...

Question 5

Which of the following would not be considered an R & D activity?

Accepted Answer

Adaptation of an existing capability to a particular requirement or customer's need would not be considered an R&D activity as it involves using existing knowledge and technology to meet a specific requirement, rather than developing new knowledge or technology. The other options involve activities that aim to discover or create new knowledge or technology.

Question 6

Maris Corporation acquired a patent on May 1, 2008.Maris paid cash of $25,000 to the seller.Legal fees of $1,000 were paid related to the acquisition.What amount should be debited to the patent account?

Accepted Answer

The amount debited to the patent account should include both the purchase price and any additional costs directly related to the acquisition, such as legal fees. Therefore, the total amount is $25,000 (purchase price) + $1,000 (legal fees) = $26,000.

Question 7

A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2005 for $1,200,000.The company uses straight-line amortization for patents.On January 2, 2007, a new patent is received for a timed-release version of the same drug.The new patent has a legal and useful life of twenty years.The least amount of amortization that could be recorded in 2007 is

Accepted Answer

The answer of A company acquires a patent for a...

Question 8

The general ledger of Vance Corporation as of December 31, 2007, includes the following accounts: $$\begin{array} { l r } 
\text { Copyrights } & \$ 20,000 \
\text { Deposits with advertising agency (will be used to promote goodwill) } & 27,000 \
\text { Discount on bonds payable } & 67,500 \
\text { Excess of cost over fair value of identifiable net assets of } & \
\quad \text { Acquired subsidiary } & 390,000 \
\text { Trademarks } & 90,000
\end{array}$$ In the preparation of Vance's balance sheet as of December 31, 2007, what should be reported as total intangible assets?

Accepted Answer

Intangible assets include copyrights, goodwill (excess of cost over fair value of identifiable net assets), and trademarks. Therefore, the total is $20,000 (Copyrights) + $390,000 (Goodwill) + $90,000 (Trademarks) = $500,000.

Question 9

Wildcat Baseball Company had a player contract with Carter that was recorded in its accounting records at $5,800,000.Aggie Baseball Company had a player contract with Jeter that was recorded in its accounting records at $5,600,000.Wildcat traded Carter to Aggie for Jeter by exchanging each player's contract.The fair value of each contract was $6,000,000.What amount should be shown in the accounting records after the exchange of player contracts?
 $\begin{array}{lll}
&\text { Wildcat } & \text ~~~~~~~~~{ Aggie }\  \hline
\end{array}$

Accepted Answer

The answer of Wildcat Baseball Company had a player contract...

Question 10

In January, 2002, Findley Corporation purchased a patent for a new consumer product for $720,000.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 2007 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product.What amount should Findley charge to expense during 2007, assuming amortization is recorded at the end of each year?

Accepted Answer

The patent was being amortized over 10 years, so the annual amortization expense is $720,000 / 10 = $72,000. By the end of 2006, 5 years of amortization would have been recorded, totaling $360,000. In 2007, the remaining unamortized balance of $360,000 should be charged to expense due to the product's removal from the market.

Question 11

Which of the following principles best describes the current method of accounting for research and development costs?

Accepted Answer

The current method of accounting for research and development costs involves immediate recognition as an expense, meaning the costs are expensed as incurred and do not get recognized as an asset on the balance sheet. This follows the principle of conservatism and is in line with generally accepted accounting principles (GAAP).

Question 12

Kerr Company purchased a patent on January 1, 2006 for $180,000.The patent had a remaining useful life of 10 years at that date.In January of 2007, Kerr successfully defends the patent at a cost of $81,000, extending the patent's life to 12/31/18.What amount of amortization expense would Kerr record in 2007?

Accepted Answer

The answer of Kerr Company purchased a patent on January...

Question 13

How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?

Accepted Answer

According to Financial Accounting Standards Board Statement No. 2, research and development costs 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. Therefore, choice D is the correct answer.

Question 14

Lynne Corporation acquired a patent on May 1, 2008.Lynne paid cash of $20,000 to the seller.Legal fees of $800 were paid related to the acquisition.What amount should be debited to the patent account?

Accepted Answer

The patent account should be debited with the total cost of acquiring the patent, which includes both the purchase price and any related legal fees. Therefore, $20,000 (purchase price) + $800 (legal fees) = $20,800 should be debited to the patent account.

Question 15

ELO Corporation purchased a patent for $180,000 on September 1, 2006.It had a useful life of 10 years.On January 1, 2008, ELO spent $44,000 to successfully defend the patent in a lawsuit.ELO feels that as of that date, the remaining useful life is 5 years.What amount should be reported for patent amortization expense for 2008?

Accepted Answer

The answer of ELO Corporation purchased a patent for $180,000...

Question 16

Which of the following costs should be excluded from research and development expense?

Accepted Answer

Cost of marketing research for a new product should be excluded from research and development expense because it is considered a selling expense, not an R&D expense. R&D expenses typically include costs directly associated with the research and development of new products or services, not the costs to market them.

Question 17

Operating losses incurred during the start-up years of a new business should be

Accepted Answer

Operating losses incurred during the start-up years of a new business should be accounted for and reported like the operating losses of any other business. They should be recognized as an expense in the income statement and deducted from revenues to arrive at the net income or loss. Writing off losses directly against retained earnings, capitalizing them as a deferred charge, or as an intangible asset are not acceptable accounting treatments for start-up losses.

Question 18

On January 2, 2007, Klein Co.bought a trademark from Royce, Inc.for $500,000.An independent research company estimated that the remaining useful life of the trademark was 10 years.Its unamortized cost on Royce's books was $400,000.In Klein's 2007 income statement, what amount should be reported as amortization expense?

Accepted Answer

The trademark should be amortized over its estimated useful life of 10 years. Therefore, the annual amortization expense is $500,000 / 10 = $50,000.

Question 19

Rich Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006.It has a useful life of 10 years.What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?

Accepted Answer

The total amount of amortization expense that should have been recorded on the intangible asset by December 31, 2008, can be calculated using the straight-line method of amortization.

First, we need to calculate the annual amortization expense:

Annual amortization expense = Cost of the asset / Useful life

Annual amortization expense = $180,000 / 10 years = $18,000

Next, we need to calculate the total amortization expense for the period from May 1, 2006, to December 31, 2008:

Total amortization expense = Annual amortization expense x Number of years

Total amortization expense = $18,000 x 2.67 years (from May 1, 2006, to December 31, 2008)

Total amortization expense = $48,060

Therefore, the correct answer is C) $48,000.

Question 20

The total amount of patent cost amortized to date is usually

Accepted Answer

The answer of The total amount of patent cost amortized...

Quiz 12: Intangible Assets