Intangible Assets
12 – 21
92. ELO Corporation purchased a patent for $135,000 on September 1, 2019. It had a useful
life of 10 years. On January 1, 2021, ELO spent $33,000 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 2021?
a. $30,900.
b. $30,000.
c. $28,200.
d. $23,400.
93. Danks Corporation purchased a patent for $405,000 on September 1, 2019. It had a
useful life of 10 years. On January 1, 2021, Danks spent $99,000 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 2021?
a. $92,700.
b. $90,000.
c. $84,600.
d. $70,200.
94. The general ledger of Vance Corporation as of December 31, 2021, includes the following
accounts:
Copyrights $ 50,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Discount on bonds payable 70,000
Excess of cost over fair value of identifiable net assets of
Acquired subsidiary 480,000
Trademarks 90,000
In the preparation of Vance‘s balance sheet as of December 31, 2021, what should be
reported as total intangible assets?
a. $570,000.
b. $597,000.
c. $620,000.
d. $647,000.
95. In January, 2016, Findley Corporation purchased a patent for a new consumer product for
$960,000. 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 2021 the product was determined to be obsolete due to a
competitors new product. What amount should Findley charge to expense during 2021,
assuming amortization is recorded at the end of each year?
a. $640,000.
b. $480,000.
c. $96,000.
d. $64,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 22
Intangible Assets
12 – 23
96. Day Company purchased a patent on January 1, 2020 for $640,000. The patent had a
remaining useful life of 10 years at that date. In January of 2021, Day successfully
defends the patent at a cost of $288,000, extending the patent’s life to 12/31/32. What
amount of amortization expense would Day record in 2021?
a. $64,000
b. $72,000
c. $77,000
d. $96,000
97. On January 2, 2020, Klein Co. bought a trademark from Royce, Inc. for $2,000,000. An
independent research company estimated that the remaining useful life of the trademark
was 10 years. Its unamortized cost on Royce’s books was $1,500,000. In Klein’s 2020
income statement, what amount should be reported as amortization expense?
a. $200,000.
b. $150,000.
c. $100,000.
d. $ 75,000.
98. A company acquires a patent for a drug with a remaining legal and useful life of six years
on January 1, 2019 for $3,000,000. The company uses straight-line amortization for
patents. On January 2, 2021, 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 2021 is
a. $500,000.
b. $100,000.
c. $136,362.
d. $115,000.
99. Blue Sky Company’s 12/31/21 balance sheet reports assets of $7,000,000 and liabilities
of $2,800,000. All of Blue Sky’s assets’ book values approximate their fair value, except
for land, which has a fair value that is $420,000 greater than its book value. On 12/31/21,
Horace Wimp Corporation paid $7,140,000 to acquire Blue Sky. What amount of goodwill
should Horace Wimp record as a result of this purchase?
a. $ -0-
b. $140,000
c. $2,520,000
d. $2,940,000
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 24
100. Dotel Company’s 12/31/21 balance sheet reports assets of $12,000,000 and liabilities of
$5,000,000. All of Dotel’s assets’ book values approximate their fair value, except for
land, which has a fair value that is $800,000 greater than its book value. On 12/31/21,
Egbert Corporation paid $12,200,000 to acquire Dotel. What amount of goodwill should
Egbert record as a result of this purchase?
a. $ -0-
b. $ 200,000
c. $4,400,000
d. $5,200,000
101. Floyd Company purchases Haeger Company for $2,400,000 cash on January 1, 2021.
The book value of Haeger Company’s net assets, as reflected on its December 31, 2020
balance sheet is $1,860,000. An analysis by Floyd on December 31, 2020 indicates that
the fair value of Haeger’s tangible assets exceeded the book value by $180,000, and the
fair value of identifiable intangible assets exceeded book value by $135,000. How much
goodwill should be recognized by Floyd Company when recording the purchase of
Haeger Company?
a. $ -0-
b. $540,000
c. $360,000
d. $225,000
102. General Products Company bought Special Products Division in 2020 and appropriately
recorded $750,000 of goodwill related to the purchase. On December 31, 2021, the fair
value of Special Products Division is $6,000,000 and it is carried on General Product’s
books for a total of $5,100,000, including the goodwill. What goodwill impairment should
be recognized by General Products in 2021?
a. $0.
b. $900,000.
c. $750,000.
d. $150,000.
Intangible Assets
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103. During 2021, Bond Company purchased the net assets of May Corporation for
$2,200,000. On the date of the transaction, May had $600,000 of liabilities. The fair value
of May’s assets when acquired were as follows:
Current assets $ 1,080,000
Noncurrent assets 2,520,000
$3,600,000
How should the $800,000 difference between the fair value of the net assets acquired
($3,000,000) and the cost ($2,200,000) be accounted for by Bond?
a. The $800,000 difference should be credited to retained earnings.
b. The $800,000 difference should be recognized as a gain.
c. The current assets should be recorded at $1,080,000 and the noncurrent assets
should be recorded at $1,720,000.
d. A deferred credit of $800,000 should be set up and then amortized to income over a
period not to exceed forty years.
104. Dennis Company purchases Miles Company for $5,000,000 cash on January 1, 2021.
The book value of Miles Company’s net assets reported on its December 31, 2020
financial statement was $3,600,000. An analysis indicated that the fair value of Miles’s
tangible assets exceeded the book value by $600,000, and the fair value of identifiable
intangible assets exceeded book value by $320,000. Determine the fair value of
identifiable net assets used to record goodwill.
a. $280,000.
b. $4,520,000.
c. $4,200,000.
d. $3,600,000.
105. Dennis Company purchases Miles Company for $4,200,000 cash on January 1, 2021.
The book value of Miles Company’s net assets reported on its December 31, 2020
financial statement was $3,600,000. An analysis indicated that the fair value of Miles’s
tangible assets exceeded the book value by $600,000, and the fair value of identifiable
intangible assets exceeded book value by $320,000. What amount of gain or goodwill is
recognized by Dennis?
a. $920,000 gain.
b. $600,000 goodwill.
c. $320,000 gain.
d. $320,000 goodwill.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 26
106. The following information is available for Barkley Company’s patents:
Cost $3,440,000
Carrying amount 1,920,000
Expected future net cash flows 1,600,000
Fair value 1,300,000
Barkley would record a loss on impairment of
a. $ 320,000.
b. $ 620,000.
c. $1,920,000.
d. $1,840,000.
107. Harrel Company acquired a patent on an oil extraction technique on January 1, 2020 for
$7,500,000. It was expected to have a 10 year life and no residual value. Harrel uses
straight-line amortization for patents. On December 31, 2021, the future cash flows
expected from the patent were $900,000 per year for the next eight years. The present
value of these cash flows, discounted at Harrel’s market interest rate, is $4,200,000. At
what amount should the patent be carried on the December 31, 2021 balance sheet?
a. $7,500,000
b. $7,200,000
c. $6,000,000
d. $4,200,000
108. Malrom Manufacturing Company acquired a patent on a manufacturing process on
January 1, 2020 for $5,000,000. It was expected to have a 10 year life and no residual
value. Malrom uses straight-line amortization for patents. On December 31, 2021, the
future cash flows expected from the patent were $400,000 per year for the next eight
years. The present value of these cash flows, discounted at Malrom’s market interest rate,
is $2,400,000. At what amount should the patent be carried on the December 31, 2021
balance sheet?
a. $5,000,000
b. $4,000,000
c. $3,200,000
d. $2,400,000
109. Twilight Corporation acquired End–of–the–World Products on January 1, 2020 for
$6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. At
December 31, 2021, the End-of–the–World Products Division had a fair value of
$5,440,000. The net identifiable assets of the Division (including goodwill) had a carrying
value of $5,740,000 at that time. What amount of loss on impairment of goodwill should
Twilight record in 2021?
a. $ -0-
b. $300,000
c. $660,000
d. $960,000
Intangible Assets
12 – 27
110. Jenks Corporation acquired Linebrink Products on January 1, 2021 for $8,000,000, and
recorded goodwill of $1,700,000 as a result of that purchase. At December 31, 2021,
Linebrink Products had a fair value of $6,800,000. The net identifiable assets of the
Linebrink (including goodwill) had a carrying value of $7,300,000 at that time. What
amount of loss on impairment of goodwill should Jenks record in 2021?
a. $ -0-
b. $500,000
c. $700,000
d. $1,200,000
111. Platteville Corporation has the following account balances at 12/31/21:
Amortization expense $ 20,000
Goodwill 280,000
Patent, net of $60,000 amortization 160,000
What amount should Platteville report for intangible assets on the 12/31/21 balance sheet?
a. $160,000
b. $220,000
c. $440,000
d. $460,000
112. Hall Co. incurred research and development costs in 2021 as follows:
Materials used in research and development projects $ 950,000
Equipment acquired that will have alternate future uses in future research
and development projects 3,000,000
Depreciation for 2021 on above equipment 500,000
Personnel costs of persons involved in research and development projects 750,000
Consulting fees paid to outsiders for research and development projects 300,000
Indirect costs reasonably allocable to research and development projects 225,000
$5,725,000
The amount of research and development costs charged to Hall’s 2021 income statement
should be
a. $2,000,000.
b. $2,200,000.
c. $2,725,000.
d. $5,000,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 28
113. Loazia Inc. incurred the following costs during the year ended December 31, 2021:
Laboratory research aimed at discovery of new knowledge $270,000
Costs of testing prototype and design modifications 75,000
Quality control during commercial production, including routine testing
of products 270,000
Construction of research facilities having an estimated useful life of
6 years but no alternative future use 360,000
The total amount to be classified and expensed as research and development in 2021 is
a. $675,000.
b. $975,000.
c. $705,000.
d. $405,000.
114. MaBelle Corporation incurred the following costs in 2021:
Acquisition of R&D equipment with a useful life of
4 years in R&D projects $800,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full
production stage 600,000
What amount should MaBelle report as research & development expense in 2021?
a. $ 800,000
b. $1,040,000
c. $1,400,000
d. $1,540,000
115. Leeper Corporation incurred the following costs in 2021:
Acquisition of R&D equipment with a useful life of
4 years in R&D projects $900,000
Cost of making minor modifications to an existing product 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full
production stage 800,000
What amount should Leeper report as research & development expense in 2021?
a. $1,025,000
b. $1,090,000
c. $1,500,000
d. $1,790,000
Intangible Assets
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116. In 2020, Edwards Corporation incurred research and development costs as follows:
Materials and equipment $ 110,000
Personnel 130,000
Indirect costs 170,000
$ 410,000
These costs relate to a product that will be marketed in 2021. It is estimated that these
costs will be recouped by December 31, 2023. The equipment has no alternative future
use. What is the amount of research and development costs that should be expensed in
2020?
a. $0.
b. $280,000.
c. $300,000.
d. $410,000.
Multiple Choice Answers—Computational
MULTIPLE CHOICE—CPA Adapted
117. Lopez Corp. incurred $840,000 of research and development costs to develop a product
for which a patent was granted on January 2, 2018. Legal fees and other costs associated
with registration of the patent totaled $160,000. On March 31, 2021, Lopez paid $350,000
for legal fees in a successful defense of the patent. The total amount capitalized for the
patent through March 31, 2021 should be
a. $510,000.
b. $1,000,000.
c. $1,190,000.
d. $1,350,000.
118. On June 30, 2021, Cey, Inc. exchanged 6,000 shares of Seely Corp. $30 par value
common stock for a patent owned by Gore Co. The Seely stock was acquired in 2021 at a
cost of $165,000. At the exchange date, Seely common stock had a fair value of $48 per
share, and the patent had a net carrying value of $310,000 on Gore’s books. Cey should
record the patent at
a. $165,000.
b. $180,000.
c. $288,000.
d. $310,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 30
119. On May 5, 2018, MacDougal Corp. exchanged 4,000 shares of its $25 par value treasury
common stock for a patent owned by Masset Co. The treasury shares were acquired in
2017 for $90,000. At May 5, 2018, MacDougal’s common stock was quoted at $36 per
share, and the patent had a carrying value of $115,000 on Masset’s books. MacDougal
should record the patent at
a. $90,000.
b. $100,000.
c. $115,000.
d. $144,000.
120. Ely Co. bought a patent from Baden Corp. on January 1, 2018, for $900,000. An
independent consultant retained by Ely estimated that the remaining useful life at January
1, 2018 is 15 years. Its unamortized cost on Baden’s accounting records was $450,000;
the patent had been amortized for 5 years by Baden. How much should be amortized for
the year ended December 31, 2018 by Ely Co.?
a. $0.
b. $45,000.
c. $60,000.
d. $90,000.
121. January 2, 2015, Koll, Inc. purchased a patent for a new consumer product for $800,000.
At the time of purchase, the patent was valid for 15 years; however, the patent’s useful life
was estimated to be only 10 years due to the competitive nature of the product. On
December 31, 2018, the product was permanently withdrawn from the market under
governmental order because of a potential health hazard in the product. What amount
should Koll charge against income during 2018, assuming amortization is recorded at the
end of each year?
a. $ 80,000
b. $480,000
c. $560,000
d. $640,000
122. On January 1, 2014, Russell Company purchased a copyright for $2,500,000, having an
estimated useful life of 16 years. In January 2018, Russell paid $375,000 for legal fees in
a successful defense of the copyright. Copyright amortization expense for the year ended
December 31, 2018, should be
a. $0.
b. $156,250.
c. $179,686.
d. $187,500.
Intangible Assets
12 – 31
123. Which of the following legal fees should be capitalized?
Legal fees to Legal fees to successfully
obtain a copyright defend a trademark
a. No No
b. No Yes
c. Yes Yes
d. Yes No
124. Which of the following costs of goodwill should be amortized over their estimated useful
lives?
Costs of goodwill from a Costs of developing
business combination goodwill internally
a. No No
b. No Yes
c. Yes Yes
d. Yes No
125. During 2021, Leon Co. incurred the following costs:
Testing in search for process alternatives $ 380,000
Costs of marketing research for new product 250,000
Modification of the formulation of a process 560,000
Research and development services performed by Beck Corp. for Leon 475,000
In Leon‘s 2021 income statement, research and development expense should be
a. $560,000.
b. $1,035,000.
c. $1,415,000.
d. $1,635,000.
126. Riley Co. incurred the following costs during 2021:
Significant modification to the formulation of a chemical product $160,000
Trouble-shooting in connection with breakdowns during commercial
production 150,000
Cost of exploration of new formulas 200,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 355,000
In its income statement for the year ended December 31, 2021, Riley should report
research and development expense of
a. $715,000.
b. $865,000.
c. $90,000.
d. $1,050,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 32
Multiple Choice Answers—CPA Adapted
DERIVATIONS — Computational
No. Answer Derivation
Intangible Assets
12 – 33
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 34
DERIVATIONS — CPA Adapted
Intangible Assets
12 – 35
BRIEF EXERCISES
BE. 12-127
Remington Corporation purchases a patent from Durler Company on January 1, 2020, for
$84,000. The patent has a remaining legal of 16 years. Remington feels the patent will be useful
for 10 years. Assume that at January 1, 2022, the carrying amount of the patent on Remington’s
books is $67,200. In January, Remington spends $20,000 successfully defending a patent suit.
Remington still feels the patent will be useful until the end of 2029. Prepare Remington’s journal
entries to record the amortization for 2020 and 2022.
BE. 12-128
Snyder Industries had one patent recorded on its books as of January 1, 2021. This patent had a
carrying amount of $252,000 and a remaining useful life of 7 years. During 2021, Snyder brought
a patent infringement suit against a competitor. On October 1, 2021, Snyder received the good
news that its patent was valid and that its competitor could not use the process Snyder had
patented. The company incurred $90,000 to defend the patent. Compute the carrying amount of
the patent that would be reported on the December 31, 2021, balance sheet, assuming monthly
amortization of carrying value of the patents.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 36
BE. 12-129
On September 1, 2021, Vernon Corporation acquired Barlow Enterprises for a cash payment of
$820,000. At the time of purchases, Barlow’s balance sheet showed assets of $610,000,
liabilities of $240,000, and owner’s equity of $420,000. The fair value of Barlow’s assets is
estimated to be $970,000. Compute the amount of goodwill acquired by Vernon.
BE. 12-130
Merlin Corporation owns a patent that has a carrying amount of $600,000. Merlin expects future
net cash flows from this patent to total $375,000. The fair value of the patent is $465,000.
Prepare journal entry, if necessary, to record the loss on impairment.
Note: An impairment has occurred because expected net future cash flows ($505,000) are less
then the carrying amount ($600,000). The loss is measured as the difference between the
carrying amount and fair value ($465,000).
BE. 12-131
Weaver Corporation purchased Merando Company 3 years ago and at that time recorded
goodwill of $720,000. The Division’s net identifiable assets, including the goodwill, have a
carrying amount of $1,200,000. The fair value of the division is estimated to be $1,100,000.
Prepare Weaver’s journal entry, if necessary, to record impairment of the goodwill.
Intangible Assets
12 – 37
EXERCISES
Ex. 12-132
Intangible assets have two main characteristics: (1) they lack physical existence, and (2)
they are not financial instruments.
Instructions
(a) Explain why intangible assets are classified as assets if they have no physical
existence.
(b) Explain why intangible assets are not considered financial instruments.
Ex. 12-133
Intangible assets may be internally generated or purchased from another party. In either
case, what costs should be included in the initial valuation of the asset is an issue.
Instructions
(a) Identify the typical costs included in the cash purchase of an intangible asset.
(b) Discuss how to determine the cost of an intangible asset acquired in a non-cash
transaction.
(c) Describe how to determine the cost of several intangible assets acquired in a “basket
purchase.” Provide a numerical example involving intangibles being acquired for a
total acquisition cost of $90,000.
Test Bank for Intermediate Accounting, Seventeenth Edition
12 – 38
Ex. 12-134
Why does the accounting profession make a distinction between internally created intangible
assets and purchased intangible assets?
Solution 12-134
Ex. 12–135
1. What are intangible assets?
2. How are limited-life intangibles accounted for subsequent to acquisition?
Ex. 12-136
Redstone Company spent $190,000 developing a new process, $45,000 in legal fees to
obtain a patent, and $91,000 to market the process that was patented. How should these
costs be accounted for in the year they are incurred?
Ex. 12-137
Intangible assets have either a limited useful life or an indefinite useful life. How should these
two different types of intangibles be amortized?
Intangible Assets
12 – 39
Solution 12-137
Ex. 12-138
What factors are considered in estimating the useful life of an intangible asset?
Ex. 12-139
It has been argued on the grounds of conservatism that all intangible assets should be written off
immediately after acquisition. Discuss the accounting arguments against this treatment.
Ex. 12-140
Barkley Corp. obtained a trade name in January 2019, incurring legal costs of $72,000. The
company amortizes the trade name over 8 years. Barkley successfully defended its trade
name in January 2020, incurring $19,600 in legal fees. At the beginning of 2021, based on
new marketing research, Barkley determines that the fair value of the trade name is $60,000.
Estimated future net cash flows from the trade name are $64,000 on January 4, 2021.
Instructions
Prepare the necessary journal entries for the years ending December 31, 2019, 2020, and
2021. Show all computations.