Question 1

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

Accepted Answer

Research and development costs are expensed as incurred under U.S. GAAP, except for certain development costs in the software industry or where costs are capitalized as part of tangible assets. The costs directly associated with securing a patent (legal fees, filing fees, etc.) can be capitalized, but not the research and development costs themselves.

Question 2

Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to

Accepted Answer

The cost of defending a patent in court is capitalized to the patent's cost and then amortized over the remaining useful life of the patent. This approach reflects the benefit the defense expenditure provides over the patent's useful life.

Question 3

Costs incurred internally to create intangibles are

Accepted Answer

Costs incurred internally to create intangibles are expensed as incurred, regardless of whether they have a limited or indefinite life. Only certain costs related to the development of intangibles can be capitalized, but those are costs incurred after the intangible asset has been recognized.

Question 4

Which intangible assets are amortized?

Accepted Answer

The answer of Which intangible assets are amortized? ...

Question 5

Factors considered in determining an intangible asset's useful life include all of the following except

Accepted Answer

The amortization method used is not a factor in determining an intangible asset's useful life. The other choices (A, B, and C) are all relevant factors that should be considered in determining the useful life of an intangible asset.

Question 6

Which of the following characteristics do intangible assets possess?

Accepted Answer

Intangible assets are non-physical assets that have a useful life beyond one year, making them long-lived. They do not have physical existence, do not directly claim a specific amount of cash in the future, and are not typically held for resale.

Question 7

Which characteristic is not possessed by intangible assets?

Accepted Answer

Intangible assets do not have physical existence, unlike tangible assets like machinery, buildings, and land.

Question 8

Companies should test indefinite life intangible assets at least annually for

Accepted Answer

Indefinite life intangible assets, such as brand names or goodwill, are not amortized like finite life assets. Instead, they must be tested for impairment. This is done to make sure that the asset's value has not decreased to the point where it is worth less than its carrying value on the balance sheet. Therefore, companies should test indefinite life intangible assets at least annually for impairment.

Question 9

Which of the following does not describe intangible assets?

Accepted Answer

Intangible assets are assets that lack physical existence but have long-term benefits. They are classified as long-term assets and include items such as patents, trademarks, and copyrights. They are not financial instruments, which include items such as stocks and bonds.

Question 10

Broadway Corporation was granted a patent on a product on January 1, 2004. To protect its patent, the corporation purchased on January 1, 2015 a patent on a competing product which was originally issued on January 10, 2011. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing the product. The cost of the competing patent should be

Accepted Answer

The competing patent should be amortized over the remaining legal life of the patent, which is 20 years from the original issue date (January 10, 2011). As of January 1, 2015, there are 16 years remaining, so it should be amortized over 16 years.

Question 11

The cost of an intangible asset includes all of the following except

Accepted Answer

The cost of an intangible asset includes all of the choices listed, including purchase price, legal fees, and other incidental expenses.

Question 12

Research and development costs are recorded as intangible assets if it is felt they will provide economic benefits in future years.

Accepted Answer

Research and development costs are typically expensed as incurred under U.S. GAAP, rather than capitalized as intangible assets, unless certain criteria are met after technological feasibility is established.

Question 13

The cost of successfully defending a patent suit should be

Accepted Answer

The cost of successfully defending a patent suit should be amortized over the remaining estimated useful life of the patent because it is related to preserving or extending the economic benefits of the patent. Charging it off in the current period or adding it to factory overhead and allocating it to production of the product are not appropriate as it does not match with the benefit that the legal action generated. Amortizing it over the legal life of the purchased patent is not correct either as the legal action has no impact on the legal life of the patent.

Question 14

Under current accounting practice, intangible assets are classified as

Accepted Answer

Intangible assets are generally categorized as either limited-life or indefinite-life assets. Limited-life intangible assets have an identifiable useful life and are subject to amortization, while indefinite-life intangible assets have an unclear or infinite useful life and are not amortized but are tested for impairment annually. The other options, such as specifically identifiable or goodwill-type, are subcategories within the broader classification of limited-life and indefinite-life intangible assets. Legally restricted is another subcategory, but not a commonly used one for classifying intangible assets.

Question 15

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

Accepted Answer

Straight-line method is normally used for intangible assets as it evenly allocates the cost of the intangible asset over its estimated useful life. Other methods like Sum-of-the-years'-digits, Units of production, and Double-declining-balance may not be appropriate for intangible assets.

Question 16

Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property, plant, and equipment.

Accepted Answer

The answer of Contra accounts must be reported for intangible...

Question 17

Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.

Accepted Answer

Development costs are expensed as incurred because they are not considered to be assets.

Question 18

GAAP requires start-up costs and initial operating losses during the early years to be capitalized.

Accepted Answer

GAAP does not require start-up costs and initial operating losses during the early years to be capitalized. Instead, they are typically expensed as incurred.

Question 19

Which of the following costs incurred internally to create an intangible asset is generally expensed?

Accepted Answer

Research and development costs incurred internally to create an intangible asset are generally expensed. Filing costs and legal costs may be capitalized as part of the cost of creating the intangible asset.

Question 20

One factor that is not considered in determining the useful life of an intangible asset is

Accepted Answer

Salvage value is not considered in determining the useful life of an intangible asset because intangible assets typically do not have a residual value at the end of their useful life.

Quiz 12: Intangible Assets