Question 1

Which of the following is not a required disclosure regarding goodwill for each period a company presents a balance sheet?
A) the amount of goodwill acquired
B) the amount of goodwill sold
C) the amount of any impairment loss recognized
D) the amount of any goodwill included in the disposal of a reporting unit

Accepted Answer

The amount of goodwill sold is not a required disclosure for each period a company presents a balance sheet. The other options, i.e. the amount of goodwill acquired, any impairment loss recognized, and any goodwill included in the disposal of a reporting unit, are required disclosures regarding goodwill for each period a company presents a balance sheet.

Question 2

In January 2014, Western Co. purchased a patent for $750,000 that had an estimated remaining economic life of ten years. On January 2, 2017, the company incurred $140,000 in legal fees to successfully defend the validity of the patent. In January 2019, the company incurred $88,000 in legal fees in a new infringement lawsuit. In this situation, the lawsuit was lost, and the patent was determined to be worthless as a result. What is the expense to be recognized in 2019 by Western with regard to the patent?
A) $750,000
B) $150,000
C) $475,000
D) $563,000

Accepted Answer

The expense recognized in 2019 includes the original cost of the patent ($750,000), the cost of legal fees to defend the patent in 2017 ($140,000), and the legal fees incurred in 2019 ($88,000) before it was deemed worthless. The total expense is $750,000 + $140,000 + $88,000 = $978,000. However, since the patent was being amortized over its useful life, by 2019, it would have been amortized for 5 years (2014-2018), which means 5/10 of its original cost would have already been expensed. Thus, the remaining book value by 2019 would be $750,000 - ($750,000 * 5/10) = $375,000. Adding the legal fees from 2017 and 2019 to this amount gives $375,000 + $140,000 + $88,000 = $603,000. However, due to an error in calculation, the correct total expense recognized should be based on the remaining unamortized amount plus the additional legal fees, which was not accurately represented in the provided options. The correct approach involves recognizing the loss of the remaining book value plus the incurred legal fees, which was intended to be calculated as the sum of the remaining unamortized patent cost and the legal fees. The explanation mistakenly provided a total that does not match any of the options due to a calculation oversight. The correct answer should reflect the expense related to the patent's remaining value and the legal costs directly associated with its defense and the final lawsuit, adjusted for any amortization up to the point the patent was deemed worthless.

Question 3

During 2016, Debbie Company incurred $240,000 in legal fees in defending a patent with a carrying value of $4,500,000 against an infringement. Debbie's lawyers were not successful with the defense of the patent. The legal fees should be
A) expensed in 2016 and classified as ordinary expense.
B) classified as an extraordinary item on the income statement for 2016.
C) capitalized and amortized over the remaining legal life of the patent.
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter.

Accepted Answer

Legal fees incurred in defending a patent, regardless of the outcome, are considered period costs and should be expensed in the period they are incurred. They are treated as ordinary expenses because they do not meet the criteria for capitalization or classification as extraordinary items.

Question 4

All of the following items are expensed as start-up costs except
A) promotional costs for opening a new facility.
B) one-time costs for conducting business in a new territory.
C) licensing fees for starting a new franchise.
D) accounting fees for forming a new company.

Accepted Answer

Licensing fees for starting a new franchise are not expensed as start-up costs; instead, they are typically capitalized and amortized over their useful life because they provide a benefit over multiple periods.

Question 5

R Company registered a patent on January 1, 2015. P Company purchased the patent from R Company for $450,000 on January 1, 2020, and began to amortize the patent over its remaining legal life. In early 2021, P Company determined that the patent's economic benefits would last only until the end of 2025. What amount should P Company record for patent amortization in 2021?
A) $90,000
B) $84,000
C) $70,000
D) $30,000

Accepted Answer

The answer of R Company registered a patent on January...

Question 6

All of the following items are included in research and development costs except
A) legal work in connection with patent application.
B) design of prototype models.
C) evaluation of a potential new product.
D) research aimed at discovery of new knowledge.

Accepted Answer

Legal work in connection with patent application is not included in research and development costs; it is typically considered a separate legal expense related to protecting intellectual property, not a direct R&D cost.

Question 7

Trademarks or trade names
A) must be renewed every 35 years.
B) can be considered intangibles with indefinite lives.
C) are developed internally and thus should not have any related costs capitalized and amortized.
D) are synonymous with internally developed goodwill.

Accepted Answer

Trademarks or trade names can be considered intangibles with indefinite lives if they are expected to generate cash flows indefinitely and are not subject to legal, contractual, competitive, economic, or other factors that might limit their useful life. This means they do not have to be amortized but should be tested annually for impairment.

Question 8

Which of the following statements regarding intangible assets is true?
A) The expected useful life of an intangible asset is generally easier to estimate than the expected useful life of a tangible noncurrent asset.
B) The cost of an intangible asset is not permitted to be amortized for income tax purposes.
C) Intangible assets have a lower degree of uncertainty with regard to their expected future benefits than tangible noncurrent assets.
D) The accumulated amortization for intangible assets that are amortized must be disclosed.

Accepted Answer

The accumulated amortization for intangible assets that are subject to amortization must be disclosed in the financial statements. Option A is not true as the estimation of useful life for intangible assets is difficult due to factors such as obsolescence, market competition, technological developments, etc. Option B is incorrect as the cost of an intangible asset is eligible for amortization for income tax purposes. Option C is also not true as the future benefits of intangible assets are dependent on many uncertain factors, such as market competition and technological changes.

Question 9

In January 2014, the Jennifer Corporation purchased a patent for $231,000 from Travis Company that had a remaining legal life of 14 years. Jennifer estimated that the remaining economic life would be seven years. In January 2018, the company incurred $30,000 in legal costs to defend the patent from an infringement. Jennifer's lawyers were successful, and the remaining years of benefit from the patent were estimated to be six years. What is the patent amortization expense for 2018?
A) $7,615
B) $9,923
C) $16,500
D) $21,500

Accepted Answer

The answer of In January 2014, the Jennifer Corporation purchased...

Question 10

Which of the following is not a required disclosure regarding intangible assets in the period a company acquires intangible assets?
A) the cost of any intangible assets acquired, separated into assets subject to amortization, assets not subject to amortization, and goodwill
B) for assets subject to amortization, the residual value and the weighted-average amortization period
C) the rate of return used to estimate the value of goodwill purchased
D) the cost of any research and development acquired and written off, and where it is included in the income statement

Accepted Answer

The rate of return used to estimate the value of goodwill purchased is not a required disclosure regarding intangible assets in the period a company acquires intangible assets. Financial reporting standards require disclosure of cost, amortization methods, and research and development costs, but not the internal rate of return for goodwill valuation.

Question 11

In 1975, Riveria Company had acquired copyrights for $750,000 on several literary works from some obscure 18th century authors. These copyrights were fully amortized by 2015. In early 2015, a new anthropological discovery made these copyrights worth $2,500,000. As a result, Riveria should report which of the following in its financial statements for 2015?
A) $2,500,000 as a holding gain
B) $750,000 as copyrights-based recovery of value limited to historical cost
C) $2,500,000 as an extraordinary item
D) cannot be recognized under U.S. GAAP in the financial statements

Accepted Answer

Under U.S. GAAP, once an intangible asset like copyrights is fully amortized, any subsequent increase in value cannot be recognized in the financial statements. The historical cost principle and the conservatism principle prevent the recognition of unrealized gains.

Question 12

The amortization period for a patent is
A) indefinite; patents should be reviewed for impairment annually.
B) 20 years.
C) 20 years or the expected useful life of the patent, whichever is longer.
D) 20 years or the expected useful life of the patent, whichever is shorter.

Accepted Answer

The amortization period for a patent is typically the shorter of its legal life (20 years) or its expected useful life. This is because the value of the patent to the company may diminish before the legal expiration due to technological advancements or changes in market demand.

Question 13

_____are contractual agreements which grant the right to perform certain functions or sell certain products or services.
A) Noncompete agreements
B) Franchises
C) Trademarks
D) Customer acquisition lists

Accepted Answer

Franchises are contractual agreements that allow individuals or entities the right to operate a business under the franchisor's brand and sell its products or services, often including operational support and guidelines.

Question 14

Which of the following is an intangible asset that is not typically amortized?
A) patent
B) copyright
C) franchise
D) goodwill

Accepted Answer

Goodwill is an intangible asset that is not typically amortized because it has an indefinite useful life, unlike patents, copyrights, and franchises which have finite useful lives and are amortized over their useful periods.

Question 15

All of the following are considered marketing-related intangible assets except
A) copyright.
B) internet domain name.
C) noncompete agreement.
D) trademark.

Accepted Answer

The answer of All of the following are considered marketing-related...

Question 16

During 2016, Frank Company incurred $200,000 in legal fees in defending a patent with a carrying value of $3,500,000 against an infringement. Farver's lawyers were successful with the defense of the patent. The legal fees should be
A) expensed in 2016 and classified as ordinary expense.
B) classified as an extraordinary item on the income statement for 2016.
C) capitalized and amortized over the remaining legal life of the patent.
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter.

Accepted Answer

The legal fees incurred in successfully defending a patent should be capitalized and amortized over the shorter of the remaining economic life or legal life of the patent.

Question 17

The cost of a copyright should
A) be amortized over a period not to exceed the life of the author plus 50 years.
B) be amortized over a period not to exceed 20 years, unless the right is renewed.
C) not be amortized and the cost should be capitalized as an asset with indefinite life.
D) be amortized over a period not to exceed its economic life.

Accepted Answer

The cost of a copyright should be amortized over a period not to exceed its economic life. This is because copyrights have a finite life and their economic value decreases over time. Therefore, it is appropriate to amortize the cost of a copyright over its estimated economic life, which may be less than its legal life.

Question 18

Debbie acquired a franchise to operate a donut shop from Dollar Donuts, Inc., for $100,000. She incurred an additional $4,000 in legal costs to negotiate the terms with the franchiser. In five years, the franchise contract will be renegotiated. The current contract also states that there will be a $3,000 annual fee plus a two percent charge based on the store's annual revenue, which is expected to average 90,000 per year. What is the franchise cost that should be capitalized?
A) $88,000
B) $92,000
C) $100,000
D) $104,000

Accepted Answer

The franchise cost that should be capitalized includes the initial fee paid to acquire the franchise ($100,000) plus the legal costs incurred to negotiate the franchise terms ($4,000), totaling $104,000. The annual fees and percentage charges based on revenue are considered operating expenses and are not capitalized.

Question 19

A patent is amortized over its expected useful life or 20 years. The expected useful life can be impacted by all of the following except
A) a unsuccessful lawsuit against a competitor.
B) the federal government renewing the original patent.
C) technical innovations by a competitor.
D) product improvements by the patent holder.

Accepted Answer

The renewal of the original patent by the federal government does not impact the expected useful life of the patent, as the amortization period is based on the original patent's life or 20 years, whichever is shorter.

Question 20

Which of the following is not a required disclosure regarding intangible assets that are amortized for each period a company presents a balance sheet?
A) the total cost
B) the accumulated amortization
C) the amortization expense
D) the estimated amortization expense for the next ten years

Accepted Answer

The estimated amortization expense for the next ten years is not a required disclosure. The other three options, total cost, accumulated amortization, and amortization expense, are required disclosures for intangible assets that are amortized.

Quiz 12: Intangibles

Which of the following is not a required disclosure regarding goodwill for each period a company presents a balance sheet?

During 2016, Debbie Company incurred $240,000 in legal fees in defending a patent with a carrying value of $4,500,000 against an infringement. Debbie's lawyers were not successful with the defense of the patent. The legal fees should be

All of the following items are expensed as start-up costs except

All of the following items are included in research and development costs except

Trademarks or trade names

Which of the following statements regarding intangible assets is true?

Which of the following is not a required disclosure regarding intangible assets in the period a company acquires intangible assets?

The amortization period for a patent is

_____are contractual agreements which grant the right to perform certain functions or sell certain products or services.

Which of the following is an intangible asset that is not typically amortized?

All of the following are considered marketing-related intangible assets except

During 2016, Frank Company incurred $200,000 in legal fees in defending a patent with a carrying value of $3,500,000 against an infringement. Farver's lawyers were successful with the defense of the patent. The legal fees should be

The cost of a copyright should

A patent is amortized over its expected useful life or 20 years. The expected useful life can be impacted by all of the following except

Which of the following is not a required disclosure regarding intangible assets that are amortized for each period a company presents a balance sheet?