Question 1

ELO Corporation purchased a patent for $90,000 on September 1, 2009.It had a useful life of 10 years.On January 1, 2011, ELO spent $22,000 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 2011?

Accepted Answer

The cost of the patent ($90,000) should be divided by its useful life (10 years) to determine the annual amortization expense, which is $9,000. Since the remaining useful life as of January 1, 2011 is 5 years, the total remaining amortization expense is $45,000 ($9,000 x 5 years). However, $22,000 was spent on the successful defense of the patent in 2011, reducing the remaining value to be amortized to $23,000 ($45,000 - $22,000). Therefore, the patent amortization expense for 2011 is $20,000 ($23,000 / 5 years).

Question 2

Use the following information for questions.
On January 2, 2011, Lutz Inc.purchased a patent with a cost CHF940,000 a useful life of 4 years.At December 31, 2011, and December 31, 2012, the company determines that impairment indicators are present.The following information is available for impairment testing at each year end:  
No changes were made in the asset's estimated useful life.
-The company's 2012 income statement will report

Accepted Answer

The company's 2012 income statement will report an Amortization Expense of CHF235,000 and a Loss on Impairment of CHF25,000, as these are the amounts specified in the correct choice.

Question 3

On January 2, 2011, Klein Co.bought a trademark from Royce, Inc.for $1,000,000.An independent research company estimated that the remaining useful life of the trademark was 10 years.Its unamortized cost on Royce's books was $800,000.In Klein's 2011 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 $1,000,000 / 10 = $100,000.

Question 4

Thompson Company incurred research and development costs of $100,000 and legal fees of $40,000 to acquire a patent.The patent has a legal life of 20 years and a useful life of 10 years.What amount should Thompson record as Patent Amortization Expense in the first year?

Accepted Answer

The answer of Thompson Company incurred research and development costs...

Question 5

Grande Company purchases Enfant Company for €13,985,000 cash on January 1, 2011.The book value of Enfant Company's net assets reported on its December 31, 2010 statement of financial position was €12,620,000.Grande's December 31, 2010 analysis indicated that the fair value of Enfant's tangible assets exceeded the book value by €560,000, and the fair value of identifiable intangible assets exceeded book value by €245,000.How much goodwill should be recognized by Grande Company when recording the purchase of Enfant?

Accepted Answer

The answer of Grande Company purchases Enfant Company for €13,985,000...

Question 6

Dotel Company's 12\31\10 statement of financial position reports assets of $6,000,000 and liabilities of $2,500,000.All of Dotel's assets' book values approximate their fair value, except for land, which has a fair value that is $400,000 greater than its book value.On 12\31\10, Egbert Corporation paid $6,100,000 to acquire Dotel.What amount of goodwill should Egbert record as a result of this purchase?

Accepted Answer

The goodwill is the excess of the purchase price over the fair value of the net assets acquired. The fair value of the net assets is the sum of the fair values of the individual assets minus the fair values of the individual liabilities. In this case, the fair value of the net assets is $6,000,000 + $400,000 - $2,500,000 = $3,900,000. The goodwill is therefore $6,100,000 - $3,900,000 = $2,200,000.

Question 7

In January, 2006, 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 2011 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 2011, assuming amortization is recorded at the end of each year?

Accepted Answer

The patent had a useful life of 10 years, so the total amortization over 10 years would be $720,000/10 = $72,000 per year. Since the product was removed from the market in 2011, and assuming amortization is recorded at the end of each year, Findley Corporation would have already recorded amortization expense of $72,000 each year from 2006 to 2010, or a total of $360,000. Therefore, in 2011, they should charge the remaining unamortized amount of $360,000 to expense, resulting in a total amortization expense of $720,000 over the 10 years. So the correct answer is B) $360,000.

Question 8

On August 1, 2011, Li Inc.purchased a license with a cost of HK$5,265,000 and a useful life of 10 years.At December 31, 2013, when the carrying value of the asset was HK$3,992,625, the company determined that impairment indicators were present.The fair less cost to sell the license was estimated to be HK$3,693,200.The asset's value -in-use is estimated to be HK$3,802,5000.Li's 2013 income statement will report Loss on Impairment of

Accepted Answer

The answer of On August 1, 2011, Li Inc.purchased a...

Question 9

Use the following information for questions.
On January 1, 2011, Bingham Inc.purchased a patent with a cost €1,160,000, a useful life of 5 years.The company uses straight-line depreciation.At December 31, 2012, the company determines that impairment indicators are present.The fair value less cost to sell the patent is estimated to be €540,000.The patent's value-in-use is estimated to be €565,000.The asset's remaining useful life is estimated to be 2 years.
-The company's 2013 income statement will report amortization expense for the patent of

Accepted Answer

The answer of Use the following information for questions.
On January...

Question 10

During 2011, Bond Company purchased the net assets of May Corporation for $1,000,000.On the date of the transaction, May had $300,000 of liabilities.The fair value of May's assets when acquired were as follows:  How should the $500,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($1,000,000) be accounted for by Bond?

Accepted Answer

The $500,000 difference between the fair value of net assets acquired and the cost should be recognized as a gain, since the purchase price is less than the fair value of the net assets acquired. This is in accordance with the accounting principle of bargain purchase. Therefore, option B is the correct answer. Option A is incorrect because the gain should not be credited to retained earnings. Option C is incorrect because the fair value of each asset should be recorded separately, and not grouped together as current and noncurrent assets. Option D is incorrect because a deferred credit should only be set up if the purchase price is more than the fair value of the net assets acquired.

Question 11

Use the following information for questions.
On January 2, 2011, Lutz Inc.purchased a patent with a cost CHF940,000 a useful life of 4 years.At December 31, 2011, and December 31, 2012, the company determines that impairment indicators are present.The following information is available for impairment testing at each year end:  
No changes were made in the asset's estimated useful life.
-The company's 2012 income statement will report

Accepted Answer

The company's 2012 income statement will report an Amortization Expense of CHF235,000, as this is the only option that reflects a standard amortization expense without additional impairment or recovery adjustments.

Question 12

Day Company purchased a patent on January 1, 2010 for $360,000.The patent had a remaining useful life of 10 years at that date.In January of 2011, Day successfully defends the patent at a cost of $162,000, extending the patent's life to 12\31\22.What amount of amortization expense would Kerr record in 2011?

Accepted Answer

The patent was purchased for $360,000 and had a remaining useful life of 10 years at that date. This means that the annual amortization expense would be $36,000 ($360,000 / 10). In January of 2011, Day successfully defends the patent at a cost of $162,000, extending the patent's life to 12/31/22. This means that the remaining useful life of the patent is now 12 years. The new annual amortization expense would be $40,500 ($360,000 + $162,000 / 12).

Question 13

A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2009 for $1,800,000.The company uses straight-line amortization for patents.On January 2, 2011, 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 2011 is

Accepted Answer

The original patent is amortized over 6 years, so the annual amortization is $1,800,000 / 6 = $300,000. By 2011, two years have passed, so $600,000 has been amortized, leaving $1,200,000 to be amortized over the remaining 4 years. Thus, the amortization for 2011 is $1,200,000 / 4 = $300,000. The new patent does not affect the amortization of the old patent, and the least amount of amortization recorded in 2011 is $300,000.

Question 14

Blue Sky Company's 12\31\10 statement of financial position reports assets of $5,000,000 and liabilities of $2,000,000.All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $300,000 greater than its book value.On 12\31\10, Horace Wimp Corporation paid $5,100,000 to acquire Blue Sky.What amount of goodwill should Horace Wimp record as a result of this purchase?

Accepted Answer

The answer of Blue Sky Company's 12\31\10 statement of financial...

Question 15

On June 2, 2011, Lindt Inc.Purchased a trademark with a cost €9,440,000.The trademark is classified as an indefinite-life intangible asset.At December 31, 2011 and December 31, 2012, the following information is available for impairment testing:  The 2012 income statement will report

Accepted Answer

The answer of On June 2, 2011, Lindt Inc.Purchased a...

Question 16

Use the following information for questions.
On January 1, 2011, Bingham Inc.purchased a patent with a cost €1,160,000, a useful life of 5 years.The company uses straight-line depreciation.At December 31, 2012, the company determines that impairment indicators are present.The fair value less cost to sell the patent is estimated to be €540,000.The patent's value-in-use is estimated to be €565,000.The asset's remaining useful life is estimated to be 2 years.
-Bingham's 2012 income statement will report Loss on Impairment of

Accepted Answer

The loss on impairment is calculated as the carrying value of the patent (original cost minus accumulated depreciation) minus the fair value less cost to sell. As of December 31, 2012, the carrying value of the patent would be €928,000, and the fair value less cost to sell is €540,000. Therefore, the loss on impairment would be €388,000. However, since the patent only has 2 years of remaining useful life, the loss on impairment is limited to the amount that reduces the carrying value to the asset's recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell (€540,000) and its value-in-use (€565,000). Since the patent's carrying value cannot be reduced below its recoverable amount, the loss on impairment is limited to €131,000 (€928,000 - €565,000).

Question 17

The general ledger of Vance Corporation as of December 31, 2011, includes the following accounts:  In the preparation of Vance's statement of financial position as of December 31, 2011, what should be reported as total intangible assets?

Accepted Answer

To determine total intangible assets, we need to add up the balances of the accounts related to intangible assets. The accounts related to intangible assets are: 
- Goodwill: $360,000 
- Patent: $90,000 
- Trademark: $60,000 
Adding up these three balances gives us a total of $510,000, which should be reported as total intangible assets on Vance Corporation's statement of financial position as of December 31, 2011.

Question 18

Danks Corporation purchased a patent for $450,000 on September 1, 2009.It had a useful life of 10 years.On January 1, 2011, Danks spent $110,000 to successfully defend the patent in a lawsuit.Danks feels that as of that date, the remaining useful life is 5 years.What amount should be reported for patent amortization expense for 2011?

Accepted Answer

The answer of Danks Corporation purchased a patent for $450,000...

Question 19

Rich Corporation purchased a limited-life intangible asset for $210,000 on May 1, 2009.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, 2011?

Accepted Answer

The formula for calculating annual amortization expense for a limited-life intangible asset is: Cost of Intangible Asset / Useful Life.
So, in this case, the annual amortization expense would be $210,000 / 10 = $21,000.
From May 1, 2009 to December 31, 2011, there would be a total of 2 years and 8 months, or 32 months.
Therefore, the total amount of amortization expense that should have been recorded on the intangible asset by December 31, 2011, would be $21,000 x (32/12) = $56,000. 
Therefore, the correct answer is C.

Question 20

Floyd Company purchases Haeger Company for $800,000 cash on January 1, 2011.The book value of Haeger Company's net assets, as reflected on its December 31, 2010 statement of financial position is $620,000.An analysis by Floyd on December 31, 2010 indicates that the fair value of Haeger's tangible assets exceeded the book value by $60,000, and the fair value of identifiable intangible assets exceeded book value by $45,000.How much goodwill should be recognized by Floyd Company when recording the purchase of Haeger Company?

Accepted Answer

The answer of Floyd Company purchases Haeger Company for $800,000...

Quiz 12: Intangible Assets

Thompson Company incurred research and development costs of $100,000 and legal fees of $40,000 to acquire a patent.The patent has a legal life of 20 years and a useful life of 10 years.What amount should Thompson record as Patent Amortization Expense in the first year?

On June 2, 2011, Lindt Inc.Purchased a trademark with a cost €9,440,000.The trademark is classified as an indefinite-life intangible asset.At December 31, 2011 and December 31, 2012, the following information is available for impairment testing: The 2012 income statement will report

The general ledger of Vance Corporation as of December 31, 2011, includes the following accounts: In the preparation of Vance's statement of financial position as of December 31, 2011, what should be reported as total intangible assets?

Rich Corporation purchased a limited-life intangible asset for $210,000 on May 1, 2009.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, 2011?