Exam 12: Intangibles

IFRS and GAAP differ in the application of the fair value concept for impairment tests applied to intangible assets. Required: Describe the fair value concept as it is applied for impairment tests in IFRS and GAAP, highlighting the differences.

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.

What characteristics do intangible and tangible noncurrent assets have in common?

During the period from 2013 to the end of 2014, Excellence, Inc. spent $90,000 on research and development for an invention that was patented on January 1, 2015. Excellence estimated that the patented invention would be useful in its production for 10 years. At the beginning of 2017, Excellence paid $16,000 in legal fees in a successful defense of the patent. What is Excellence's patent amortization expense for 2017?

The following items are excluded from research and development costs except

The Arnett Corporation is contemplating building a research and development facility and performing R&D activities in the area of robotics. The president of the company is interested in the accounting required for R&D costs such as materials, facilities, personnel costs, equipment, intangibles purchased from others, and any indirect costs. Arnett's president has asked the company's controller to describe current GAAP requirements with respect to R&D expenditures. Required: a. a. All expenditures incurred for R&D activities are to be expensed unless the expenditures are for specific assets, such as equipment, machinery, and facilities that have alternative future uses. The latter type of expenditures should be capitalized, and the depreciation charges related to these assets should be included in R&D expense. The R&D expense for the period must be disclosed in a. Based on current GAAP, describe the accounting and reporting requirements for R&D expenditures such as the ones listed above. b. Describe the rationale that was used by the FASB in its decision to account for R&D costs as prescribed in your answer to requirement

The Jessie Company acquired a competitor company in January 2015. When Jessie's accountant recorded the purchase, she correctly recorded an amount for goodwill based on the expectation of the acquired company's earning a rate of return on its assets that was in excess of the industry's rate of return. In fact, the acquired company doubled the expected rate of return in 2015 and 2016. As a result of these increased earnings, in early 2017 the president of the Jessie Company asked the company's accountant to increase the amount recognized as goodwill. Required: a. Define the term "goodwill." In addition, discuss several possible factors that might contribute to a company having goodwill. b. Discuss the accounting treatment under current GAAP for goodwill that is internally developed. Discuss the rationale for this treatment. c. Discuss the accounting treatment under current GAAP for goodwill that is acquired through an external transaction. d. Discuss the appropriateness of the president's request to increase the recorded amount of goodwill.

Research and development costs are

The Ripkin Corporation was organized and began to operate on January 1 of the current year to manufacture and sell children's clothes. During the year, the following expenditures were recorded in the company's goodwill account: Required: a. Prepare an entry as of December 31, to reclassify the appropriate items from the goodwill account to appropriate accounts. b. Prepare the adjusting entry or entries required to amortize the intangible assets using the straight-line method. Calculate amortization to the nearest month. The above transactions were recorded by an inexperienced data entry clerk.

New Co. received a patent on a new type of machine. The legal costs and the patent application costs totaled $180,000. R&D costs incurred to create the machine were $120,000. In the year in which the company received the patent, $25,000 was spent in the successful defense of a patent infringement suit. Required: What amount of patent costs, if any, should be capitalized as an intangible asset?

A patent is amortized over its expected useful life or 20 years. The expected useful life can be impacted by all of the following except

Boggs Company is looking to purchase the Grafton Company below is their balance sheet at December 31, 2015. Boggs Company is looking to purchase the Grafton Company for $150,000 cash. The fair value of their equipment is $35,600, the fair value of their inventory is $20,000, their accounts receivable fair value is $24,500, and they have an unrecorded patent of $15,000. All other book values equal fair value as of January 1, 2015. Required: 1.) Compute the goodwill associated with the purchase of Grafton. 2.) Prepare the journal entry necessary at January 1, 2015 to record the purchase of Grafton. 3.) What if the purchase price was $69,000 would any goodwill be reported?

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?

_____are expensed as incurred.

An inconsistency in accounting theory can occur because

Which statement about negative goodwill is true?

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.

Which of the following statements concerning internally developed goodwill is true?

______are capitalized and amortized over their useful life.