Question 1

Goodwill should be written off

Accepted Answer

Goodwill should be written off when there is evidence that its carrying value has been impaired. This means that if the goodwill's fair value is less than its carrying value, a write-off is necessary to reflect the impaired value of the asset. The other options are not applicable in all situations and do not accurately reflect the accounting treatment for goodwill impairment.

Question 2

A purchased patent has a remaining life of 15 years.It should be

Accepted Answer

According to GAAP, a purchased patent should be amortized over its useful life if it is less than the legal remaining life. Therefore, in this case, the patent should be amortized over its useful life, which may be less than 15 years. Option A is incorrect because purchased patents are not expensed in the year of acquisition, they are capitalized on the balance sheet. Option B is not the best choice because if the useful life of the patent is shorter than the legal remaining life, it should be amortized over the useful life rather than the legal remaining life. Option D is incorrect because 40 years is an unreasonable and unrealistic amortization period for a patent.

Question 3

Current accounting for an available-for-sale AFS)security is consistent with

Accepted Answer

D

Question 4

Pence Corporation,which accounts for its investments in the common stock of Walsh Company by the equity method,should ordinarily record a dividend received from Walsh as

Accepted Answer

Dividends received from an investee under the equity method are considered returns on the investment, thus they reduce the carrying value of the investment on the investor's books. This reflects the fact that the investee company has distributed some of its equity (in the form of dividends) back to its shareholders, including the investor.

Question 5

A trading security is measured at fair value on the balance sheet date and reported as

Accepted Answer

A trading security is measured at fair value on the balance sheet date and reported as a current asset. Changes in fair value are reported in earnings as unrealized gains and losses.

Question 6

Goodwill is an intangible asset

Accepted Answer

The answer of Goodwill is an intangible asset
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Question 7

A net unrealized loss on a company's long-term portfolio of available for sale securities should be reflected in the current financial statements as

Accepted Answer

A net unrealized loss on a company's long-term portfolio of available for sale securities should be reflected in the current financial statements as a component of other comprehensive income. This is because available-for-sale securities are reported at fair value, and changes in fair value are initially recorded in other comprehensive income until the securities are sold.

Question 8

The theoretical justification for expensing research and development R&D)cost as it is incurred is based on which of the following arguments?

Accepted Answer

The theoretical justification for expensing R&D costs as they are incurred is based on the uncertainty of future benefits. This uncertainty means that R&D costs do not meet the strict definition of an asset, which typically requires that future economic benefits are probable.

Question 9

When a patent is successfully defended in court,the cost of the lawsuit

Accepted Answer

When a patent is successfully defended in court, the cost of the lawsuit should be added to the cost of the patent and depreciated over the remaining useful life of the patent. This is because the cost of defending the patent enhances its value and therefore should be included in the cost of the asset. The cost should not be expensed immediately, as this would not accurately reflect the ongoing benefit received from the patent. Similarly, the cost should not be expensed as a period cost, as it is directly related to the acquisition and protection of the asset. The cost should also not be considered already expensed, as it represents a new cost related to the successful defense of the patent.

Question 10

The economic concept of income would require that an investment in the common stock of another entity be

Accepted Answer

According to the economic concept of income, investments in common stock should be reported in the balance sheet at fair value and unrealized gains and losses should be reported in earnings. This is because the economic concept of income focuses on the present value of future cash flows and fair value reflects the current market value of the investment. Unrealized gains and losses are considered part of the overall performance of the investment and should therefore be reported in earnings to accurately represent the economic reality of the investment's performance.

Question 11

Changes in the fair value of a long-term available for sale equity securities portfolio should be reported as a component of

Accepted Answer

Changes in the fair value of long-term available for sale equity securities are reported as a component of other comprehensive income (OCI) under ASC 220-10-45-10. This is because available for sale securities are classified as non-trading investments and therefore gains and losses on these securities are reported in OCI rather than net income.

Question 12

Refer to the facts in problem 4).If Pacer Company uses the lower of cost or market method of accounting for its investment in Queen Company,and the value of its investment hasn't changed,its Investment in Queen Company account on December 31,2013,should be

Accepted Answer

According to problem 4), the cost of Pacer Company's investment in Queen Company is $80,000 and the current market value is $88,000. Since the lower of cost or market method is being used, Pacer company should record its investment at the lower of the cost or market value. Since the market value is higher than the cost, the investment would be recorded at its cost of $80,000. If the value of the investment hasn't changed, then the Investment in Queen Company account on December 31, 2013 should also be $80,000. Therefore, the best choice is C) $80,000.

Question 13

Pacer Company purchased 300 of the 1,000 outstanding shares of Queen Company's common stock for $80,000 on January 2,2012.During 2013,Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000. If Pacer Company uses the equity method of accounting for its investment in Queen Company,its Investment in Queen Company account at December 31,2013 should be

Accepted Answer

Under the equity method, the investment account is initially recorded at cost, which is $80,000 in this case. The investor then recognizes its share of the investee's earnings or losses and dividends declared.

For 2013, Pacer Company's share of Queen Company's earnings is:

300/1,000 x $20,000 = $6,000

Pacer Company's share of Queen Company's dividends is:

300/1,000 x $8,000 = $2,400

The Investment in Queen Company account at December 31, 2013 is:

$80,000 (initial investment) + $6,000 (share of earnings) - $2,400 (share of dividends) = $83,600

Therefore, the correct answer is C ($83,600).

Question 14

On January 15,2005,a corporation was granted a patent on a product.On January 2,2013,to protect its patent,the corporation purchased a patent on a competing product the originally was issued on January 10,2011.Because of its unique plant,the corporation does not feel the competing patent can be used in producing a product.The cost of the competing patent should be

Accepted Answer

Since the corporation does not believe the competing patent can be used in producing a product, it does not have any future economic benefits. Therefore, it should be expensed in 2013. Amortization is used to allocate the cost of an asset over its useful life, but if there is no useful life, as in the case of a patent that cannot generate economic benefits, it should be expensed immediately.

Question 15

An investor purchased a bond as a long-term investment on January 1.Annual interest was received on December 31.The investor's interest income for the year would be lowest if the bond was purchased at

Accepted Answer

Purchasing a bond at a premium means the investor pays more than the face value of the bond. The interest income is effectively reduced by the amortization of the premium paid over the life of the bond, leading to the lowest interest income compared to purchasing at a discount, par, or face value, where the interest income would not be reduced in this manner.

Question 16

The physical capital maintenance concept of income would require that an investment in the common stock of another entity be

Accepted Answer

The answer of The physical capital maintenance concept of income...

Question 17

A large,publicly held company developed and registered a trademark during 2013.The cost of developing and registering the trademark should be accounted for by

Accepted Answer

Trademark costs are typically expensed as incurred because they do not have a definite useful life and the future economic benefits are uncertain.

Question 18

Zink Company owns 32% of Ace Company's outstanding voting stock.Zink Company normally should account for its investment in Ace Company using the

Accepted Answer

According to generally accepted accounting principles (GAAP), when an investor owns between 20% and 50% of another company’s voting stock, the equity method should be used to account for the investment. The equity method requires the investor to recognize its share of the investee’s net income or loss on its own income statement, and to adjust the carrying value of the investment for its share of the investee’s dividends or losses. Therefore, the best choice for Zink Company to account for its investment in Ace Company is the equity method.

Question 19

Under the equity method of accounting for investments,an investor recognizes its share of the earnings in the period in which the

Accepted Answer

Under the equity method, the investor recognizes its share of the earnings in the investee's financial statements in the period in which they are reported. This may not necessarily coincide with the declaration or payment of dividends, and the investor's sale of the investment does not affect the recognition of earnings.

Question 20

An activity that would be expensed currently as research and development costs is the

Accepted Answer

Testing in search for or evaluation of product or process alternatives is a common activity in research and development that involves expenses related to materials, equipment, and labor for conducting experiments and analyzing data. This activity is aimed at discovering new knowledge or improving existing products and processes, which qualifies as research and development costs. The other options describe activities that may involve costs, but they do not necessarily meet the definition of research and development expenses.

Quiz 10: Long-Term Assets Ii: Investments and Intangibles