CHAPTER 12: INTANGIBLES
1. Purchased intangible assets are generally expensed at their acquisition costs because the future economic benefits
associate with them are difficult to measure.
a.
True
b.
False
False
1
Easy
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2. Unidentifiable intangible assets are intangible assets that can be separated from the company and sold, transferred,
licensed, rented, or exchanged.
a.
True
b.
False
False
1
Easy
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3. Identifiable intangible assets are intangible assets that can be separated from the company and sold, transferred,
licensed, rented, or exchanged.
a.
True
b.
False
4. Purchased identifiable intangible assets are accounted for in a similar manner to that of tangible assets.
a.
True
b.
False
5. Identifiable intangible assets are accounted for in a similar manner to that of tangible assets..
a.
True
b.
False
6. An identifiable intangible asset that has a finite life is not amortized but is periodically reviewed for impairment.
a.
True
b.
False
7. An intangible asset with an indefinite life is not amortized but is periodically reviewed for impairment.
a.
True
b.
False
8. Development is the planned search for new knowledge with the hope that such knowledge will be useful in developing
a new product or process.
a.
True
b.
False
False
1
Easy
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9. GAAP requires that a company expense all of its research and development costs as they are incurred.
a.
True
b.
False
True
1
Easy
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10. Start-up costs are an intangible asset with an indefinite life and should be amortized over the expected life of the
business.
a.
True
b.
False
False
1
Easy
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11. Engineering follow-through in an early stage of commercial production can be included in R&D.
a.
True
b.
False
False
1
Easy
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12. Legal work in connection with patent applications or litigation, and the sale or licensing of patents is excluded from R
& D.
a.
True
b.
False
True
1
Easy
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13. GAAP requires companies to disclose any costs of research and development acquired and written off as well as
where the information can be found on the income statement.
a.
True
b.
False
True
1
Easy
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14. For intangible assets that are amortized, the total cost, accumulated amortization, amortization expense, and estimated
amortization expense for the next 5 years needs to be disclosed.
a.
True
b.
False
True
1
Easy
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15. Trademarks are considered to have an indefinite life and are therefore not subject to amortization.
a.
True
b.
False
True
1
Easy
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16. A copyright is granted by the federal government giving the owner exclusive rights to sell, publish, and control the
artistic product for the life of the creator.
a.
True
b.
False
1
Easy
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False
17. A patent is granted by the federal government giving the owner control of the manufacture or other use of an invention
for 20 years.
a.
True
b.
False
True
1
Easy
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18. Software development costs are treated as R&D expense until technological feasibility of the product is established.
a.
True
b.
False
True
1
Easy
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19. Technological feasibility of software products is established when the product is ready for general use.
a.
True
b.
False
False
1
Easy
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20. The costs associated with internally developed goodwill are capitalized.
a.
True
b.
False
False
1
Easy
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21. The costs associated with purchased goodwill are capitalized and amortized over a period not to exceed 20 years.
a.
True
b.
False
False
1
Easy
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22. Purchased goodwill is the difference between the acquisition price of an acquired company and the fair value of its
identifiable net assets.
a.
True
b.
False
True
1
Easy
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23. Goodwill is tested for impairment only within the context of its reporting unit.
a.
True
b.
False
True
1
Easy
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24. Negative goodwill is recognized as the difference between the fair value of the net assets of an acquired company and
the lower bargain purchase price.
a.
True
b.
False
False
1
Easy
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25. U.S. GAAP allows a company to capitalize more of the costs of internally generated assets than allowed under IFRS.
a.
True
b.
False
False
1
Easy
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26. Which of the following characteristics is not common to both tangible and intangible assets?
a.
held for use and not for investment
b.
Have an expected life of more than one year
c.
derive value from the ability to generate revenue
d.
may have value only to a particular company
d
1
Easy
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27. All of the following characteristics are common to both tangible and intangible noncurrent assets with finite lives
except
a.
held for use and not for investment.
b.
expensed in the periods in which the assets are used in operations.
c.
have either a physical or financial nature.
d.
derive value from the ability to generate economic benefits.
c
1
Easy
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28. The cost of an internally developed unidentifiable intangible is expensed as incurred. Accordingly, which one of the
following costs would be expensed in the year it was incurred?
a.
legal cost of obtaining a patent.
b.
cost of improvements with a three-year life made to an asset that is being leased by the company for a five-
year period.
c.
costs of developing new software products with proven technological feasibility.
d.
Costs of developing knowledge and skill levels for new management-level employees.
d
1
Moderate
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29. Intangible assets are initially recorded at
a.
cost.
b.
expected future value.
c.
present value.
d.
fair value.
a
1
Easy
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30. Identifiable intangible assets would include all of the following except
a.
patents.
b.
trademarks.
c.
goodwill.
d.
franchises.
c
1
Easy
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31. _____________ occurs when the fair value of an asset is less than its carrying value.
a.
Unidentification
b.
Amortization
c.
Goodwill
d.
Impairment
d
1
Moderate
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32. Which of the following groups would be classified as intangible assets for financial accounting and reporting
purposes?
a.
Long-term notes receivable, copyrights, goodwill, and trademarks
b.
Patents, software development costs, franchises, copyrights, and trademarks
c.
Computer software costs, development costs for internally developed patents, research, and goodwill
d.
Start-up costs, goodwill, costs of employee training programs, and trademarks
b
1
Moderate
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33. Which of the following is not required to be disclosed in an entity’s financial statements or accompanying footnotes?
a.
the total amount of research and development costs charged to expense during the current year
b.
the method used to amortize the entity’s intangible assets
c.
a material amount of internally developed goodwill
d.
accumulated amortization on the entity’s intangibles as of its year-end
c
1
Easy
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34. Which of the following sets represents a false relationship regarding the accounting for the cost of intangibles
according to GAAP
Set
Category
Account for cost by
I.
Purchased identifiable intangibles
Capitalize costs
II.
Purchased unidentifiable intangibles
Capitalize costs
III.
Internally developed identifiable intangibles
Capitalize costs
IV.
Internally developed unidentifiable intangibles
Expense costs
a.
Set I
b.
Set II
c.
Set III
d.
Set IV
c
1
Moderate
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35. Which of the following costs should always be expensed as incurred?
a.
the costs of externally acquired identifiable intangible assets
b.
the costs incurred directly associated with establishing and successfully defending the rights associated with
internally developed identifiable intangible assets
c.
the costs of internally developed unidentifiable intangible assets
d.
the costs of externally acquired unidentifiable intangible assets
c
1
Easy
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36. Which of the following relationships between category of intangibles and amortization is false?
Set
Category
Amortize
I.
Intangible assets with a finite life
Yes
II.
Intangible assets with an indefinite life
No
III.
Goodwill
Yes
IV.
Internally developed unidentifiable intangibles
No
a.
Set I
b.
Set II
c.
Set III
d.
Set IV
c
1
Easy
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37. Which of the following methods is commonly used to amortize intangible assets over their useful lives?
a.
declining balance
b.
straight line
c.
annual review for impairment
d.
none of these since intangible assets are not amortized
b
1
Easy
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38. Which amortization method should be used for intangibles that are amortized?
a.
a method based on the expected pattern of benefits to be produced by the asset
b.
a method based on an annual review for impairment
c.
the straight-line method; all others are inappropriate
d.
any method is appropriate
a
1
Easy
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39. Which of the following sets describes the appropriate accounting for intangible assets with a finite life?
Set
Amortize
Write down if impaired
I.
Yes
Yes
II.
Yes
No
III.
No
Yes
IV.
No
No
a.
Set I
b.
Set II
c.
Set III
d.
Set IV
a
1
Easy
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40. ________ cannot be separated from the entity and sold, transferred, licensed, rented, or exchanged.
a.
Internally developed identifiable intangible asset
b.
Tangible asset
c.
Purchased identifiable intangible asset
d.
Unidentifiable intangible asset
d
1
Easy
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41. ________ are capitalized and amortized over their useful life.
a.
Purchased identifiable intangible assets with finite life
b.
Research and development costs
c.
Purchased identifiable intangible assets with indefinite life
d.
Unidentifiable intangible assets
a
1
Easy
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42. ________ are expensed as incurred.
a.
Purchased identifiable intangible assets with finite life
b.
Research and development costs
c.
Purchased identifiable intangible assets with indefinite life
d.
Unidentifiable intangible assets
b
1
Easy
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43. The allocation of the cost of intangible assets in a systematic manner over the asset’s useful life is called
a.
depreciation.
b.
systemization.
c.
amortization.
d.
impairment.
c
1
Easy
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44. Costs for which of the following activities should not be included in research and development (R&D)?
a.
modification of the formulation or design of a product or process
b.
design of tools, jigs, molds, and dies involving new technology
c.
design, construction, and testing of preproduction prototypes and models
d.
trouble-shooting in connection with breakdowns during commercial production
d
1
Easy
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45. Costs for which of the following activities would not be included as part of research and development (R&D) costs?
a.
testing in search for or evaluation of product or process alternatives.
b.
adaptation of an existing capability to a particular requirement or customer’s need as part of a continuing
commercial activity.
c.
searching for applications of new research findings or of other knowledge.
d.
design, construction, and testing or preproduction prototypes and models.
b
1
Easy
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46. Research and development costs are
a.
capitalized and depreciated over the period which they benefit
b.
expensed as incurred
c.
added to the cost of the invented product
d.
added to the cost of the invented product if a reliable date of actual production is known
b
1
Easy
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47. GAAP requires that research and development costs must be
a.
Capitalized.
b.
expensed as incurred.
c.
accumulated until the existence of future benefits is determined.
d.
expensed in part and capitalized in part.
b
1
Easy
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48. At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have alternative
future uses in research and development should be
a.
capitalized
b.
charged directly to retained earnings
c.
included in R&D expense immediately
d.
charged as a loss from continuing operations
a
1
Easy
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49. Related to in-process R&D, an acquiring company may not
a.
capitalize in-process R&D.
b.
treat in-process R&D as an intangible asset.
c.
increase the amount of goodwill for in-process R&D.
d.
establish a patent for in-process R&D.
c
1
Moderate
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50. When a company that is performing R&D activities is acquired by another company, the acquiring company must
allocate a portion of the purchase price to the R&D activities that are purchased, creating an intangible asset called
a.
intangible development.
b.
in-process research and development.
c.
goodwill.
d.
start-up costs.
c
1
Easy
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51. At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have no alternative
future uses in research and development or other activities should be
a.
capitalized
b.
charged directly to retained earnings
c.
included in R&D expense immediately
d.
charged as a loss from continuing operations
c
1
Easy
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52. Which of the following expenditures cannot be included in R&D costs?
a.
indirect costs
b.
intangibles purchased from others
c.
personnel costs
d.
contract services performed for others
d
1
Easy
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53. The Wagner Company made the following expenditures for research and development early in 2014: $80,000 for
materials, $100,000 for contract services, $80,000 for employee salaries, and $800,000 for a building with an
expected life of 20 years to be used for current and future research projects. Wagner uses straight-line depreciation.
The company allocated $20,000 in overhead to research and development. What is Wagners’ research and
development expense for 2014?
a.
$200,000
b.
$220,000
c.
$320,000
d.
$960,000
c
1
Moderate
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54. The Chambers Corporation was formed in early 2017. At the time of formation, Chamber spent the following
amounts: accounting fees, $4,000; legal fees, $8,000; stock certificate costs, $3,000; initial franchise fee, $10,000;
initial lease payment, $5,000; promotional fees, $3,000. Chamber intends to capitalize and amortize intangibles over
the maximum allowable period in accordance with generally accepted accounting principles. Based on this strategy,
what is Chambers’s expense associated with organization costs in 2017?
a.
$ 6,000
b.
$18,000
c.
$28,000
d.
$33,000
b
1
Moderate
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