Question 1

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

Accepted Answer

A purchased patent should be amortized over its useful life if less than 15 years. If the useful life of the patent is longer than 15 years, it will still be amortized over the useful life rather than 15 years. However, if the useful life cannot be determined or is uncertain, the patent should be amortized over the maximum allowable time period, which is typically 20 years.

Question 2

Goodwill is an intangible asset

Accepted Answer

D

Question 3

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 4

Cash dividends declared out of current earnings are distributed to an investor.How will the investor's investment account be affected by those dividends under each of the following accounting methods? Fair Value Method Equity Method

Accepted Answer

Under the Fair Value Method, dividends received are recognized as income, and there is no adjustment to the investment account's carrying amount. Under the Equity Method, dividends reduce the carrying amount of the investment, as they are considered a return on investment.

Question 5

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 the lawsuit is directly related to the creation and defense of the patent, and therefore should be included in the capitalized cost of the patent. Depreciating the cost over the remaining useful life of the patent ensures that the cost is appropriately matched with the revenue generated by the patent.

Question 6

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 a long-term available for sale equity securities portfolio should be reported as a component of other comprehensive income, which is a separate section of the statement of comprehensive income. This treatment recognizes that the investment is not held for trading but rather is intended to be held for a longer period of time. Therefore, fluctuations in fair value are more appropriately reflected in other comprehensive income rather than net income.

Question 7

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 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

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 the unrealized loss is a result of market fluctuations and is not a realized loss. In accordance with accounting standards, such losses are reported in the statement of comprehensive income in the equity section of the balance sheet.

Question 10

On January 15,2002,a corporation was granted a patent on a product.On January 2,2010,to protect its patent,the corporation purchased a patent on a competing product the originally was issued on January 10,2008.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

The corporation does not feel that the competing patent can be used in producing a product, so it should be expensed in 2010 rather than amortized over a period of time.

Question 11

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 the goodwill has lost value or the business has not performed as expected, and therefore, its value needs to be adjusted downwards. Writing off goodwill against retained earnings or over a specified period may not accurately reflect the true value of the asset in light of changing business conditions.

Question 12

Pacer Company purchased 300 of the 1,000 outstanding shares of Queen Company's common stock for $80,000 on January 2,2008.During 2009,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 31,2009 should be

Accepted Answer

Under the equity method, the investment account is initially recorded at cost and subsequently adjusted for the investor's share of the investee's earnings or losses and dividends declared.

The investment in Queen Company account would be adjusted as follows:

Initial investment: $80,000 
Pacer's share of earnings (50% of $20,000): $10,000 
Dividends received: $4,000 (50% of $8,000)

Investment in Queen Company account at December 31, 2009:

$80,000 + $10,000 - $4,000 = $86,000

However, we also need to consider any amortization of the excess of the purchase price over the fair value of identifiable net assets acquired (goodwill) that may have been recorded at the time of acquisition. If no goodwill was recorded, the answer is C.

Question 13

A large,publicly held company developed and registered a trademark during 2010.The cost of developing and registering the trademark should be accounted for by

Accepted Answer

According to accounting standards, costs related to internally developed intangible assets, such as trademarks, should be expensed as incurred.

Question 14

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 31,2009,should be

Accepted Answer

According to the information given in problem 4, the cost of Pacer Company's investment in Queen Company was $80,000, and the market value of the investment was $88,000 on December 31, 2008. Since the value of the investment hasn't changed, Pacer would still use the lower of cost or market method and the Investment in Queen Company account would be valued at the lower amount, which is the cost of $80,000. Therefore, the correct answer is C.

Question 15

Should the following fees associated with the registration of an internally developed patent be capitalized? Registration
Legal fees fees

Accepted Answer

Legal fees and registration fees associated with the registration of an internally developed patent should be capitalized as they are directly attributable to the creation of the intangible asset, enhancing its value and extending its useful life.

Question 16

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 typical activity that is considered as research and development costs because it involves the development of new or improved products, processes, or techniques. Other activities such as adaptation of an existing capability, legal work in connection with patent applications, or engineering follow-through in an early phase of commercial production may or may not qualify as research and development costs depending on the circumstances.

Question 17

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

Accepted Answer

According to the equity method of accounting, an investor recognizes its share of the earnings reported by the investee in its financial statements. Therefore, the correct choice is option D. Selling the investment or the investee declaring or paying a dividend do not necessarily affect the recognition of earnings under the equity method.

Question 18

Which of the following assets acquired in 2010 are amortizable? Goodwill Trademarks

Accepted Answer

Goodwill is not amortizable but trademarks are amortizable assets.

Question 19

Which of the following amounts incurred in connection with a trademark should be capitalized? Cost of a Registration
Successful defense fees

Accepted Answer

Costs incurred in the successful defense of a trademark are capitalized because they extend the asset's useful life and enhance its value. Registration fees are also capitalized as they are directly associated with securing the trademark, which is a valuable intangible asset.

Question 20

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

Zink Company has significant influence over Ace Company but does not control it, so the equity method is appropriate for accounting for this investment.

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