Exam 12: Intangibles

Consider the following information from a company's records for 2016: Required: a. Compute the amount of R&D costs that should be classified as expenses in determining 2016 net income. b. For any listed item not included in your answer to requirement 1, provide the rationale for not expensing it.

Development is the planned search for new knowledge with the hope that such knowledge will be useful in developing a new product or process.

The CMS Co. began operations in January 2016. Listed below are selected transactions for 2016 and 2017: ? During 2016, $125,000 in R&D expenditures were made to develop a new product that was patented on July 1, 2016. CMS believes the patent will provide benefits for ten years. Legal fees incurred were $24,000. ? On September 1, 2016, CMS paid EZ Company $180,000 for its patent on a successful product. The patent has six remaining years in its legal life. ? On October 1, 2016,CMS applied for and received a trade name from the government. The legal costs associated with filing for the trade name were $10,000. In addition, during November 2016, the company incurred $50,000 in advertising its name. Benefits are expected indefinitely. ? In early January 2017, CMS paid $20,000 in legal fees to defend the patent acquired from EZ. CMS's attorneys were successful in the lawsuit. ? During 2017, R&D expenditures of $90,000 were incurred in the development of a product. A patent was received on December 1, 2017. Legal fees paid in connection with the patent were $15,000. The economic life of the product is expected to be five years. Required: a. Prepare a partial balance sheet for CMS Company as of December 31, 2017, showing the intangible assets. In support of your answer, prepare a separate schedule for each intangible asset. The company amortizes its intangible assets using the straight-line method and recognizes amortization to the nearest month. b. Prepare a schedule to calculate CMS's expenses related to the above transactions for both 2016 and 2017.

Engineering follow-through in an early stage of commercial production can be included in R&D.

All of the following items are included in research and development costs except

Which of the following statements concerning intangibles is true?

Start-up costs are an intangible asset with an indefinite life and should be amortized over the expected life of the business.

Which of the following research and development costs should always be capitalized?

Intangible assets are initially recorded at

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?

_____are contractual agreements which grant the right to perform certain functions or sell certain products or services.

A patent is granted by the federal government giving the owner control of the manufacture or other use of an invention for 20 years.

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

All of the following are considered marketing-related intangible assets except

Technological feasibility of software products is established when

Related to in-process R&D, an acquiring company may not