Intermediate Accounting I – Chapter 12
1. How are costs for internally created intangibles treated? Companies capitalize only the
direct costs incurred in developing the intangible, such as legal costs and expense the rest.
2. How are costs of a patent developed by a company treated? Must expense costs as
incurred for research and development costs related to the development of the product,
process, or idea that it subsequently patents.
3. How are costs treated if a company develops a trademark or trade name? Capitalize
costs related to securing it, such as attorney fees, registration fees, design costs, consulting
fees, and successful legal defense costs.
4. How are costs treated if a company purchases a trademark or trade name? Costs are
capitalized at the purchase
5. How are intangible assets typically classified? Typically classified as a long term asset
because they provide benefit over a period of years.
6. How are limited-life intangibles amortized? Amortized over their useful life, which
should reflect the periods in which the asset will contribute to cash flows.
7. How can goodwill be sold? The only way to sell goodwill is to sell the business
8. How do intangible assets derive their value? Value of intangible assets derived from the
rights and privileges granted to the company using them. Ex-Coca Cola formula
9. How is a purchased patent treated? The cost of the purchase and costs incurred to secure
the patent, as well as attorney fees and other unrecovered costs of a successful legal suit to
protect a patent can all be capitalized.
10. How is an intangible accounted for when exchanged for stock or other assets? The cost
of the intangible is the fair value of the consideration given or the fair value of the
intangible received, whichever is more clearly evident.
11. How is the life of a trademark or trade name determined? Registration with the US
Patent and Trademark Office provides legal protection for an indefinite number of
renewals for periods of 10 years each. This allows for an indefinite life and therefore does
not amortize costs.
12. How long is a copyright? Granted for the life of the creator plus 70 years.
13. How often should companies test indefinite-life intangibles for impairment? Test at
least annually
14. How should an intangible be accounted for in basket purchases? The company should
allocate the costs based on fair values.
15. How should an intangible be amortized if a pattern of production or consumption
cannot be determined? Use the straight line method
