Multiple Choice Questions Amortization, impairment of intangibles.
1. On January 2, 2007, Klein Co. bought a trademark from Royce, Inc. for $300,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce's books was $240,000. In Klein's 2007 income statement, what amount should be reported as amortization expense?
a. $30,000
b. $24,000
c. $15,000
d. $12,000
2. 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
3. Which of the following intangibles should not be amortized?
a. Copyrights
b. Customer lists
c. Perpetual franchises
d. All of these intangible assets should be amortized
4. Purchased goodwill should
a. Be written off as soon as possible against retained earnings
b. Be written off as soon as possible as an extraordinary item
c. Be written off by systematic charges as a regular operating expense over the period benefited
d. Not be amortized
5. Tyson Co. incurred the following costs during 2007:
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Modification to the formulation of a chemical product
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$360,000
|
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Trouble-shooting in connection with breakdowns during commercial production
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450,000
|
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Costs of testing prototype and design modifications
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600,000
|
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Seasonal or other periodic design changes to existing products
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555,000
|
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Laboratory research aimed at discovery of new technology
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675,000
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In its income statement for the year ended December 31, 2007, Tyson should report research and development expense of
a. $1,635,000.
b. $2,085,000.
c. $1,275,000.
d. $1,035,000.
6. Riser 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, Riser Corporation does not feel the competing patent can be used in produced 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 11 years.
d. expensed in 2007.
7. The following information is available for Barkley Company's patents:
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Cost
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$1,720,000
|
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Carrying amount
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860,000
|
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Expected future net cash flows
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800,000
|
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Fair value
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640,000
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Barkley would record a loss on impairment of
a. $1,080,000.
b. $220,000.
c. $160,000.
d. $60,000.
8. 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 fair value.
c. fair value and the expected future net cash flows.
d. book value and its fair value.