Accounting 315

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Costs incurred internally to create intangibles are

C

Which of the following methods of amortization is normally used for intangible assets?

B

The cost of an intangible asset includes all of the following except

D

Factors considered in determining an intangible asset's useful life include all of the following except

D

Under current accounting practice, intangible assets are classified as

B

One factor that is not considered in determining the useful life of an intangible ass is

C

When a company develops a trademark or trade name, the costs directly related to securing it should be capitalized. Which of the following costs associated with a trademark or trade name would not be allowed to be capitalized?

C

A large publicly held company has developed and registered a trademark during 2008. How should the cost of developing and registering the trademark be accounted for if it is considered to have a limited life?

D

The cost of purchasing patent right for a product that might otherwise have seriously competed with one of the purchaser's patented products should be

D

Rise Corporation was granted a patent on a product on January 1, 1998. To protect its patent, the corporation purchased on January 1, 2007 a patent on a competing product which was originally issued on January 10, 2003. Because of its unique plant, Rise Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be

C

Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charge to

D

Which of the following is not an intangible asset?

B

Which of the following intangible assets should not be amortized?

C

When a patent is amortized, the credit is usually made to

A

Goodwill

C

The reason goodwill is sometimes referred to as a master valuation account is because

B

Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some "negative goodwill." Proper accounting treatment by Easton is to report the amount as

A

Purchased goodwill should

D

The intangible asset goodwill may be

A

The amortization of goodwill

B

The accounting profession does not allow the immediate write-off of goodwill. The best reason for this requirement seems to be that

B

When the fair market value of the assets acquired in a business purchase exceed the purchase price, negative goodwill (also called badwill) arises. When negative goodwill arises, GAAP requires that it be allocated to

A

Jo Jo Chong, Inc. needs to determine if its property, plant, and equipment has been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are):

A

White Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should

B

A loss on impairment of an intangible asset is the difference between the asset's

B

Weaver Boxing Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are)

C

The carrying amount of an intangible is

B

Which of the following research and development related costs should be capitalized and amortized over current and future periods?

A

Which of the following principles best describes the current method of accounting for research and development costs?

D

How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?

D

Which of the following costs should be excluded from research and development expense?

C

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

B

Operating losses incurred during the start-up years of a new business should be

A

The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be

D

Which of the following would be considered an R & D activity?

A

The total amount of patent cost amortized to date is usually

C

Lynne Corporation acquired a patent on May 1, 2008. Lynne paid cash of $20,000 to the seller. Legal fees of $800 were paid related to the acquisition. What amount should be debited to the patent account?

D

Maris Corporation acquired a patent on May 1, 2008. Maris paid cash of $25,000 to the seller. Legal fees of $1,000 were paid related to the acquisition. What amount should be debited to the patent account?

D

Jeff Corporation purchased a limited-life intangible asset for $120,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?

C

Rich Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?

C

Hooker Corporation acquired a franchise to operate a Good Pet Dog Kennel in January, 2003. The cost of the franchise was $125,000 and was estimated to have a limited life of 40 years. Early in the year 2009, the franchise was deemed worthless due to significant law suits that cause the franchisor to go out of business. What amount of cost or expense should be charged to the income statement of Hooker Corporation for years noted below?

D

Smith Co. bought a window franchise from Paine, Inc., on January 2, 2008, for $100,000. A highly regarded independent research company estimated that the remaining useful life of the franchise was 50 years. Its unamortized cost of Paine's books at January 1, 2008, was $15,000. Smith has decided to write off the franchise over the longest possible period. How much should be amortized by Smith Co. for the year ended December 31, 2008?

B

ELO Corporation purchased a patent for $180,000 on September 1, 2006. It had a useful life of 10 years. On January 1, 2008, ELO spent $44,000 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 2008?

B

LRF Corporation purchased a patent for $450,000 on September 1, 2006. It had a useful life of 10 years. On January 1, 2008, LRF spent $110,000 to successfully defend the patent in a lawsuit. LRF feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2008?

B

The general ledger of Vance Corporation as of December 31, 2008, includes the following accounts:
Copyrights $ 20,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Discount on bonds payable 67,500
Excess of cost over fair value of identifiable net assets of
acquired subsidiary 390,000
Trademarks 90,000
In the preparation of Vance's balance sheet as of December 31, 2008, what should be reported as total intangible assets?

C

In January, 2003, Findley Corporation purchased a patent for a new consumer product for $720,000. 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 2008, the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2008, assuming amortization is recorded at the end of each year?

B

Kerr Company purchased a patent on January 1, 2006 for $180,000. The patent had a remaining useful life of 10 years at that date. In January of 2007, Kerr successfully defends the patent at a cost of $81,000, extending the patent's life to 12/31/18. What amount of amortization expense would Kerr record in 2007?

B

On January 2, 2007, Klein Co. bought a trademark from Royce, Inc. for $500,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce's books was $400,000. In Klein's 2007 income statement, what amount should be reported as amortization expense?

A

Wildcat Baseball Company had a player contract with Carter that was recorded in its accounting records at $5,800,000. Aggie Baseball Company had a player contract with Jeter that was recorded in its accounting records at $5,600,000. Wildcat traded Carter to Aggie for Jeter by exchanging each player's contract. The fair value of each contract was $6,000,000. What amount should be shown in the accounting records after the exchange of player contracts?

C

A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2005 for $1,200,000. The company uses straight-line amortization for patents. On January 2, 2007, 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 2007 is

B

Blue Sky Company's 12/31/08 balance sheet reports assets of $5,000,000 and liabilities of $2,000,000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $300,000 greater than its book value. On 12/31/08, Horace Wimp Corporation paid $5,100,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?

C

Turner Company's 12/31/08 balance sheet reports assets of $6,000,000 and liabilities of $2,500,000. All of Turner's assets' book values approximate their fair value, except for land, which has a fair value that is $400,000 greater than its book value. On 12/31/08, Benedict Corporation paid $6,100,000 to acquire Turner. What amount of goodwill should Benedict record as a result of this purchase?

C

Distributor Company purchases Supplier Company for $800,000 cash on January 1, 2009. The book value of Supplier Company's net assets, as reflected on its December 31, 2008 balance sheet is $620,000. An analysis by Distributor on December 31, 2008 indicates that the fair value of Supplier's tangible assets exceeded the book value by $60,000, and the fair value of identifiable intangible assets exceeded book value by $45,000. How much goodwill should be recognized by Distributor Company when recording the purchase of Supplier Company?

D

During 2008, Bond Company purchased the net assets of May Corporation for $950,000. On the date of the transaction, May had $300,000 of liabilities. The fair value of May's assets when acquired were as follows:
Current assets $ 540,000
Noncurrent assets 1,260,000
$1,800,000
How should the $550,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($950,000) be accounted for by Bond?

B

General Products Company bought Special Products Division in 2007 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2008, the fair value of Special Products Division is $2,000,000 and it is carried on General Product's books for a total of $1,700,000, including the goodwill. An analysis of Special Products Division's assets indicates that goodwill of $200,000 exists on December 31, 2008. What goodwill impairment should be recognized by General Products in 2008?

A

The following information is available for Barkley Company's patents:
Cost $1,720,000
Carrying amount 860,000
Expected future net cash flows 800,000
Fair value 640,000
Barkley would record a loss on impairment of

B

Mining Company acquired a patent on an oil extraction technique on January 1, 2007 for $5,000,000. It was expected to have a 10 year life and no residual value. Mining uses straight-line amortization for patents. On December 31, 2008, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years. The present value of these cash flows, discounted at Mining's market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2008 balance sheet?

C

Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2007 for $10,000,000. It was expected to have a 10 year life and no residual value. Malrom uses straight-line amortization for patents. On December 31, 2008, the expected future cash flows expected from the patent were expected to be $800,000 per year for the next eight years. The present value of these cash flows, discounted at Malrom's market interest rate, is $4,800,000. At what amount should the patent be carried on the December 31, 2008 balance sheet?

D

Twilight Corporation acquired End-of-the-World Products on January 1, 2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that purchase. At December 31, 2008, the End-of-the-World Products Division had a fair value of $1,700,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $1,450,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2008?

B

Fleming Corporation acquired Out-of-Sight Products on January 1, 2008 for $4,000,000, and recorded goodwill of $750,000 as a result of that purchase. At December 31, 2008, the Out-of-Sight Products Division had a fair value of $3,400,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $2,900,000 at that time. What amount of loss on impairment of goodwill should Fleming record in 2008?

B

In 2005, Hume, Inc. purchased Rousseau Metals for $3 million. At December 31, 2008, the Rousseau division reported net assets of $3,300,000 (including $1,700,000 of goodwill). Hume reviewed the Rousseau division and determined that expected net future cash flows equal $2,500,000 and the fair value is estimated to be only $1,800,000. What entry should Hume record concerning the Rousseau division on December 31, 2008?

B

Isa Company has equipment that, due to changes in use, is reviewed for possible impairment. The asset's carrying amount is $400,000 ($500,000 cost less $100,000 accumulated depreciation). The expected future net cash flows (undiscounted) from the use of the asset and its eventual disposition are determined to be $380,000 and it has a current market value of $350,000. What is the amount of the impairment, if any, that should be recorded by Isa Company?

C

Peppers Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $200,000. The machinery has a fair value of $140,000. Peppers should recognize a loss on impairment of

A

Dillman Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $175,000. The machinery has a fair value of $140,000. Dillman should recognize a loss on impairment of

C

Calvin Company incurred the following costs related to the start-up of the business:
Attorney's fee $10,000
Underwriter's fee 15,000
State incorporation fee
7,000
$32,000
The company wishes to amortize these costs over the maximum period allowed under generally accepted accounting principles. Assuming that Calvin Company began operation on January 1, 2008, what amount of the start-up costs should be amortized in 2009?

D

In 2008, Edwards Corporation incurred research and development costs as follows:
Materials and equipment $ 80,000
Personnel 120,000
Indirect costs 150,000
$350,000
These costs relate to a product that will be marketed in 2009. It is estimated that these costs will be recouped by December 31, 2011. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2008?

D

Hall Co. incurred research and development costs in 2008 as follows:
Materials used in research and development projects $ 450,000
Equipment acquired that will have alternate future uses in future research
and development projects
3,000,000
Depreciation for 2008 on above equipment 300,000
Personnel costs of persons involved in research and development projects 750,000
Consulting fees paid to outsiders for research and development projects 150,000
Indirect costs reasonably allocable to research and development projects 225,000
$4,875,000
The amount of research and development costs charged to Hall's 2008 income statement should be

C

Martin Inc. incurred the following costs during the year ended December 31, 2008:
Laboratory research aimed at discovery of new knowledge $180,000
Costs of testing prototype and design modifications 45,000
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 2008 is

C

MaBelle Corporation incurred the following costs in 2008:
Acquisition of R&D equipment with a useful life of
4 years in R&D projects $600,000
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 350,000
What amount should MaBelle record as research & development expense in 2008?

A

Lopez Corp. incurred $420,000 of research and development costs to develop a product for which a patent was granted on January 2, 2003. Legal fees and other costs associated with registration of the patent totaled $80,000. On March 31, 2008, Lopez paid $120,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2008 should be

A

On June 30, 2008, Cey, Inc. exchanged 2,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2008 at a cost of $55,000. At the exchange date, Seely common stock had a fair value of $45 per share, and the patent had a net carrying value of $110,000 on Gore's books. Cey should record the patent at

C

On May 5, 2008, Flynn Corp. exchanged 2,000 shares of its $25 par value treasury common stock for a patent owned by Denson Co. The treasury shares were acquired in 2006 for $45,000. At May 5, 2008, Flynn's common stock was quoted at $32 per share, and the patent had a carrying value of $55,000 on Denson's books. Flynn should record the patent at

D

Ely Co. bought a patent from Baden Corp. on January 1, 2008, for $300,000. An independent consultant retained by Ely estimated that the remaining useful life is 30 years. Its unamortized cost on Baden 's accounting records was $150,000; the patent had been amortized for 5 years by Baden. How much should be amortized for the year ended December 31, 2008?

D

On January 2, 2005, Koll, Inc. purchased a patent for a new consumer product for $180,000. 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, 2008, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2008, assuming amortization is recorded at the end of each year?

C

On January 1, 2004, Unruh Company purchased a copyright for $800,000, having an estimated useful life of 16 years. In January 2008, Unruh paid $120,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2008, should be

D

Which of the following legal fees should be capitalized?
Legal fees to Legal fees to successfully defend a
obtain a copyright trademark

C

Which of the following costs of goodwill should be amortized over their estimated useful lives?
Costs of goodwill from a
business combination
accounted for as a purchase goodwill internally

Costs of developing goodwill internally

A

During 2008, Leon Co. incurred the following costs:
Testing in search for process alternatives $350,000
Costs of marketing research for new product 250,000
Modification of the formulation of a process 510,000
Research and development services performed by Beck Corp. for Leon 325,000
In Leon's 2008 income statement, research and development expense should be

C

Riley Co. incurred the following costs during 2008:
Modification to the formulation of a chemical product $160,000
Trouble-shooting in connection with breakdowns during commercial
production 150,000
Costs of marketing research for new product 200,000
Seasonal or other periodic design changes to existing products
185,000
Laboratory research aimed at discovery of new technology
215,000
In its income statement for the year ended December 31, 2008, Riley should report research and development expense of

A

Copyrights should be amortized over

D

A patent should be amortized over

D

The major problem of accounting for intangibles is determining

D

Limited-life intangibles are reported at their

B

Negative goodwill arises when the ________ of the net assets acquired is higher than the purchase of the assets

C

General-purpose financial statements are the product of

A

Users of financial reports include all of the following except

D

The financial statements most frequently provided include all of the following except the

D

The information provided by financial reporting pertains to

A

The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization's operations is called

B

Whether a business is successful and thrives is determined by

D

An effective capital allocation process

D

Financial statements in the early 2000s provide information related to

C

Which of the following statements is not an objective of financial reporting?

C

Accrual accounting is used because

B

One objective of financial reporting is to provide

C

Accounting principles are "generally accepted" only when

C

A common set of accounting standards and procedures are called

B

The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as

C

The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

C

Companies that are listed on a stock exchange are required to submit their financial statements to the

D

The Financial Accounting Standards Board (FASB) was proposed by the

D

The Financial Accounting Standards Board

D

The Financial Accounting Foundation

A

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

B

The Financial Accounting Standards Board employs a "due process" system which

B

Which of the following is not a publication of the FASB?

B

FASB Technical Bulletins

C

The purpose of the Emerging Issues Task Force is to

D

The Government Accounting Standards Board

B

The Government Accounting Standards Board's main purpose is to develop standards for

C

Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?

C

An organization that has not published accounting standards is the

D

The purpose of the Statements of Financial Accounting Concepts is to

C

Members of the Financial Accounting Standards Board are

D

The following published documents are part of the "due process" system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards:

1. Exposure Draft
2. Statement of Financial Accounting Standards
3. Discussion Memorandum

The chronological order in which these items are released is as follows:

D

In the House of GAAP, is the following on the highest level of authoritative status (meaning among the most authoritative)?

D

Generally Accepted Accounting Principles include: 1) FASB Technical Bulletins, 2) APB Opinions, and 3) Widely-accepted industry practices. These three items rank from most authoritative to least authoritative as follows

C

Generally accepted accounting principles

D

The most significant current source of generally accepted accounting principles is the

D

The most authoritative category of generally accepted accounting principles includes all of the following except

D

Which of the following is not a part of generally accepted accounting principles?

D

Which of the following publications does not qualify as a statement of generally accepted accounting principles?

D

Financial accounting standard-setting in the United States

A

The purpose of the International Accounting Standards Board is to

C

Publications:

1. Accounting Research Bulletins (1953-1959)
2. Statements of Auditing Standards
3. Journal of Accountancy
4. Emerging Issues Task Force Statements
5. Opinions (1962-1973)
6. Technical Bulletins
7. Statements of Financial Accounting Standards
8. Statements of Financial Accounting Concepts
9. Statements of Position (SOPs)

D
A
C
F
E
F
F
F
B

Generally accepted accounting principles

C

A soundly developed conceptual framework of concepts and objectives should

D

Which of the following (a-c) are not true concerning a conceptual framework in accounting?

C

Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

D

In the conceptual framework for financial reporting, what provides "the why"--the goals and purposes of accounting?

D

The underlying theme of the conceptual framework is

A

Which of the following is not an objective of financial reporting?

D

The objective of financial reporting include all of the following except to provide information that

A

Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is

C

The overriding criterion by which accounting information can be judged is that of

A

The two primary qualities that make accounting information useful for decision making are

C

Accounting information is considered to be relevant when it

B

The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is

B

According to Statement of Financial Account Concepts No. 2, which of the following relates to both relevance and reliability?

D

According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of

C

According to Statement of Financial Accounting Concepts No. 2, verifiability is an ingredient of the primary quality of

D

According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the primary quality of

B

Information is neutral if it

D

The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is

C

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the primary quality of

A

Under Statement of Financial Accounting Concepts No. 2, representational faithfulness is an ingredient of the primary quality of

C

Financial information does not demonstrate consistency when

D

Financial information exhibits the characteristic of consistency when

B

Information about different entitities and about different periods of the same entity can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?

B

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