Question 6 (2 points) The reason goodwill is sometimes referred to as a master v

Question

Question 6 (2 points)

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

Question 6 options:

it represents the purchase price of a business that is about to be sold

it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business

the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation

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

Question 7 (2 points)

Which of the following is often reported as an extraordinary item?

Question 7 options:

Amortization expense

Impairment losses for intangible assets

Research and development costs

None of the above

Question 8 (2 points)

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

Question 8 options:

the Patent account

an Accumulated Amortization account

a Deferred Credit account

an Expense account

Question 9 (2 points)

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

Question 9 options:

Sum-of-the-years'-digits

Straight-line

Units of production

Double-declining-balance

Question 10 (2 points)

Goodwill may be recorded when ____________.

Question 10 options:

it is identified within a company

one company acquires another in a business combination

the fair value of a company's assets exceeds their cost

a company has exceptional customer relations

it represents the purchase price of a business that is about to be sold

it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business

the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation

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

Explanation / Answer

Solution:

6) the correct option is “it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business”

7) The correct option is “None of the above”

Amortization, impairment losses and research and development are normal transaction in an operating business. None of the items qualify as extraordinary items which are rare.

8) the correct option is “the Patent account”

The following entry is to be passed:

Amortization Expenses Dr.

Patent Account

9) the correct option is “Straight Line”

Straight line method is normally used for intangible assets for amortization.

10) the correct option is “one company acquires another in a business combination”

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