MULTIPLE CHOICE—Conceptual

31. Which of the following does not describe intangible assets?

a. They lack physical existence.
b. They are monetary assets.
c. They provide long-term benefits.
d. They are classified as long-term assets.

32. Which of the following characteristics do intangible assets possess?

a. Physical existence.
b. Claim to a specific amount of cash in the future.
c. Long-lived.
d. Held for resale.

33. Which characteristic is not possessed by intangible assets?

a. Physical existence.
b. Identifiable.
c. Result in future benefits.
d. Expensed over current and/or future years.

34. Costs incurred internally to create intangibles are

a. capitalized.
b. capitalized if they have an indefinite life.
c. expensed as incurred.
d. expensed only if they have a limited life.

35. Which of the following costs incurred internally to create an intangible asset is generally
expensed?
a. Research phase costs.
b. Filing costs.
c. Legal costs.
d. All of the above.

36. The major problem of accounting for intangibles is determining

a. fair value.
b. separability.
c. salvage value.
d. useful life.

37. Copyrights should be amortized over

a. their legal life.
b. the life of the creator plus fifty years.
c. twenty years.
d. their useful life or legal life, whichever is shorter.

38. A patent should be amortized over

a. twenty years.
b. its useful life.
c. its useful life or twenty years, whichever is longer.
d. its useful life or twenty years, whichever is shorter.
39. Limited-life intangibles are reported at their
a. replacement cost.
b. carrying amount unless impaired.
c. acquisition cost.
d. liquidation value.

40. Which of the following methods of amortization is normally used for intangible assets?
a. Sum-of-the-years'-digits
b. Straight-line
c. Units of production
d. Double-declining-balance

41. The cost of an intangible asset includes all of the following except
a. purchase price.
b. legal fees.
c. other incidental expenses.
d. all of these are included.

42. Factors considered in determining an intangible asset’s useful life include all of the
following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the asset’s legal life.
d. the amortization method used.

43. Under current accounting practice, intangible assets are classified as

a. amortizable or unamortizable.
b. limited-life or indefinite-life.
c. specifically identifiable or goodwill-type.
d. legally restricted or goodwill-type.

44. Companies should evaluate indefinite life intangible assets at least annually for:
a. recoverability.
b. amortization.
c. impairment.
d. estimated useful life.
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45. One factor that is not considered in determining the useful life of an intangible asset is
a. salvage value.
b. provisions for renewal or extension.
c. legal life.
d. expected actions of competitors.

46. Which intangible assets are amortized?

Limited-Life Indefinite-Life
a. Yes Yes
b. Yes No
c. No Yes
d. No No
47. The cost of purchasing patent rights for a product that might otherwise have seriously
competed with one of the purchaser's patented products should be
a. charged off in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the purchaser's product.
d. amortized over the remaining estimated life of the original patent covering the
product whose market would have been impaired by competition from the newly
patented product.

48. Broadway Corporation was granted a patent on a product on January 1, 2000. To protect
its patent, the corporation purchased on January 1, 2011 a patent on a competing
product which was originally issued on January 10, 2007. Because of its unique plant,
Broadway Corporation does not feel the competing patent can be used in producing a
product. The cost of the competing patent should be
a. amortized over a maximum period of 20 years.
b. amortized over a maximum period of 16 years.
c. amortized over a maximum period of 9 years.
d. expensed in 2011.

49. Wriglee, Inc. went to court this year and successfully defended its patent from infringe-
ment by a competitor. The cost of this defense should be charged to
a. patents and amortized over the legal life of the patent.
b. legal fees and amortized over 5 years or less.
c. expenses of the period.
d. patents and amortized over the remaining useful life of the patent.

50. Which of the following is not an intangible asset?

a. Trade name
b. Research and development costs
c. Franchise
d. Copyrights

51. Which of the following intangible assets should not be amortized?

a. Copyrights
b. Customer lists
c. Perpetual franchises
d. All of these intangible assets should be amortized.

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

a. the Patent account.
b. an Accumulated Amortization account.
c. an Accumulated Depreciation account.
d. an expense account.

53. When a company develops a trademark the costs directly related to securing it should
generally be capitalized. Which of the following costs associated with a trademark would
not be allowed to be capitalized?
a. Attorney fees.
b. Consulting fees.
c. Research and development fees.
d. Design costs.
54. In a business combination, the excess of the cost of the purchase over the fair value of
the identifiable net assets purchased is:
a. other assets.
b. indirect costs.
c. goodwill.
d. a bargain purchase.

55. Goodwill may be recorded when:

a. it is identified within a company.
b. one company acquires another in a business combination.
c. the fair value of a company’s assets exceeds their cost.
d. a company has exceptional customer relations.

56. When a new company is acquired, which of these intangible assets, unrecorded on the
acquired company’s books, might be recorded in addition to goodwill?
a. A trade name.
b. A patent.
c. A customer list.
d. All of the above.

57. Which of the following intangible assets could not be sold by a business to raise needed
cash for a capital project?
a. Patent.
b. Copyright.
c. Goodwill.
d. Trade name.

58. The reason goodwill is sometimes referred to as a master valuation account is because
a. it represents the purchase price of a business that is about to be sold.
b. it is the difference between the fair value of the net identifiable assets as compared
with the purchase price of the acquired business.
c. the value of a business is computed without consideration of goodwill and then
goodwill is added to arrive at a master valuation.
d. it is the only account in the financial statements that is based on value, all other
accounts are recorded at an amount other than their value.

59. Purchased goodwill should

a. be written off as soon as possible against retained earnings.
b. be written off as soon as possible as an other expense item.
c. be written off by systematic charges as a regular operating expense over the period
benefited.
d. not be amortized.

60. The intangible asset goodwill may be

a. capitalized only when purchased.
b. capitalized either when purchased or created internally.
c. capitalized only when created internally.
d. written off directly to retained earnings.
61. A loss on impairment of an intangible asset is the difference between the asset’s
a. carrying amount and the expected future net cash flows.
b. carrying amount and its recoverable amount.
c. recoverable amount and the expected future net cash flows.
d. book value and its fair value.

62. Recovery of impairment is recognized for all the following except

a. Patent held for sale.
b. Patent held for use.
c. Trademark.
d. Goodwill.

63. All of the following are true regarding recovery of impairments for intangible assets
except:
a. After a recovery of impairment has been recognized, the carrying value of the asset
reported on the statement of financial position will be the higher of the fair value less
cost to sell or the value-in-use.
b. No recovery of impairment is allowed for Goodwill.
c. A recovery of impairment will be reported in the "Other income and expense" section
of the income statement.
d. The amount of the recovery is limited to the carrying value of the asset that would
have been reported had no impairment occurred.

64. Which of the following is not a criteria which must be met before development costs can
be capitalized?
a. The company has sufficient financial resources to complete the project.
b. The company intends to complete the project and either use or sell the intangible
asset.
c. The company can reliably identify the research costs incurred to bring the project to
economic feasibility.
d. The project has achieved technical feasibility.

65. Which of the following research and development related costs should be capitalized
and depreciated over current and future periods?
a. Research and development general laboratory building which can be put to
alternative uses in the future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a particular research
project currently in process

66. Which of the following principles best describes the current method of accounting for
research and development costs?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
67. How should research and development costs be accounted for, according to an IASB
Statement?
a. Must be capitalized when incurred and then amortized over their estimated useful
lives.
b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred, depending upon the materiality
of the amounts involved.
d. Must be expensed in the period incurred unless it can be clearly demonstrated that
the expenditure will have alternative future uses or unless contractually
reimbursable.

68. Which of the following would be considered research and development?

a. Routine efforts to refine an existing product.
b. Periodic alterations to existing production lines.
c. Marketing research to promote a new product.
d. Construction of prototypes.

69. Research and development costs

a. are intangible assets.
b. may result in the development of a patent.
c. are easily identified with specific projects.
d. all of the above.

70. Which of the following is considered research and development costs?

a. Laboratory research aimed at discovery of new knowledge.
b. Application of research findings or other knowledge to a plan or design for a new
product or process.
c. Conceptual formulation and design of possible product or process alternatives.
d. all of the above.

71. Which of the following is considered research and development costs?

a. Planned investigation undertaken with the prospect of gaining new scientific or
technical knowledge and understanding.
b. Application of research findings or other knowledge to a plan or design for a new
product or process.
c. Neither a nor b.
d. Both a and b.

72. Which of the following costs should be capitalized in the year incurred?
a. Research and development costs.
b. Costs to internally generate goodwill.
c. Organizational costs.
d. Costs to successfully defend a patent.

73. Which of the following costs would be capitalized?

a. Acquisition cost of equipment to be used on current research project only.
b. Engineering costs incurred to advance the product to the full production stage.
c. Cost of research to determine whether a market for the product exists.
d. Salaries of research staff.
74. Which of the following costs would be capitalized?
a. Acquisition cost of equipment to be used on current and future research projects.
b. Engineering costs incurred to advance the project to the full production stage.
c. Cost incurred to file for patent.
d. Cost of testing prototype before economic feasibility has been demonstration.

75. Which of the following costs should be excluded from research and development
expense?
a. Modification of the design of a product
b. Acquisition of R & D equipment for use on a current project only
c. Cost of marketing research for a new product
d. Engineering activity required to advance the design of a product to the manufacturing
stage

76. 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
a. research and development expense in the period(s) of construction.
b. depreciation deducted as part of research and development costs.
c. depreciation or immediate write-off depending on company policy.
d. an expense at such time as productive research and development has been
obtained from the facility.

77. Operating losses incurred during the start-up years of a new business should be
a. accounted for and reported like the operating losses of any other business.
b. written off directly against retained earnings.
c. capitalized as a deferred charge and amortized over five years.
d. capitalized as an intangible asset and amortized over a period not to exceed 20
years.

78. Start-up costs include organizational costs, such as legal and state fees incurred to
organize a new business entity. These costs should be
a. capitalized and never amortized.
b. capitalized and amortized over 40 years.
c. capitalized and amortized over 5 years.
d. expensed as incurred.

79. Which of the following would not be considered an R & D activity?

a. Adaptation of an existing capability to a particular requirement or customer's need.
b. Application of research findings or other knowledge to a plan for a new product or
process.
c. Laboratory research aimed at discovery of new knowledge.
d. Conceptual formulation and design of possible product or process alternatives.

80. Which of the following intangible assets should be shown as a separate item on the
statement of financial position?
a. Goodwill
b. Franchise
c. Patent
d. Trademark
 81. Which of the following should not be reported under the “Other income and expense”
section of the income statement?
a. Goodwill impairment losses.
b. Trade name amortization expense.
c. Recovery of impairment losses
d. All of the above.

82. The total amount of patent cost amortized to date is usually

a. shown in a separate Accumulated Patent Amortization account which is shown
contra to the Patent account.
b. shown in the current income statement.
c. reflected as credits in the Patent account.
d. reflected as a contra property, plant and equipment item.

83. Intangible assets are reported on the statement of financial position

a. with an accumulated depreciation account.
b. in the property, plant, and equipment section.
c. as a separate item.
d. none of the above.

Multiple Choice Answers—Conceptual

Item Ans Item Ans Item Ans. Item Ans Item Ans Item Ans Item Ans.
31. b 39. d 47. d 55. b 63. a 71. d 79. a
32. c 40. b 48. c 56. d 64. c 72. d 80. a
33. a 41. d 49. d 57. c 65. a 73. b 81. b
34. c 42. d 50. b 58. b 66. d 74. d 82. c
35. a 43. b 51. c 59. d 67. d 75. c 83. c
36. d 44. c 52. a 60. a 68. d 76. b
37. d 45. a 53. c 61. b 69. b 77. a
38. d 46. b 54. c 62. d 70. d 78. d