Question 11 (2 points) Buerhle Company needs to determine if its indefinite-life

Question

Question 11 (2 points)

Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are) ______________.

Question 11 options:

Both recoverability test and fair value test

Recoverability test but not fair value test

Not recoverability test but fair value test

Neither recoverability test nor fair value test

Question 12 (2 points)

How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?

Question 12 options:

Must be capitalized when incurred and then amortized over their estimated useful lives

Must be expensed in the period incurred

May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved

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

Question 13 (2 points)

Companies should test indefinite life intangible assets at least annually for __________.

Question 13 options:

recoverability

amortization

impairment

estimated useful life

Question 14 (3 points)

Thompson Company incurred research and development costs of $100,000 and legal fees of $20,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year?

Question 14 options:

$0.00

$2,000

$6,000

$12,000

Question 15 (3 points)

Logan Company incurred $4,000,000 ($1,100,000 in 2011 and $2,900,000 in 2012) to develop a computer software product. $1,200,000 of this amount was expended before technological feasibility was established in early 2012. The product will earn future revenues of $8,000,000 over its 5-year life, as follows: 2012 – $2,000,000; 2013 – $2,000,000; 2014 – $1,600,000; 2015 – $1,600,000; and 2016 – $800,000. What portion of the $4,000,000 computer software costs should be expensed in 2012?

Question 15 options:

$700,000

$750,000

$800,000

$2,900,000

Both recoverability test and fair value test

Recoverability test but not fair value test

Not recoverability test but fair value test

Neither recoverability test nor fair value test

Explanation / Answer

Answer for 11) Recoverability test but not fair value test.

My answer is Recoverability test but not fair value test as fair value test is done at the time of purchase or transfer.

Answer for 12)must be expensed in the period it incurred.

Research and development expenditure must be expensed in the period it incurred as it cannot be capitalized as it is too risky to capitalise an amount without any assurance they there will be inflows of cash.

Answer for 13) Impairment

Campanies should test indefinite life intangible asset for impairment i.e to see whether it can be continued as continued or needed to be reduced

Answer for 14)$2000

Here,the useful life is shorter as compared to legal life and hence, the useful life must be the period for which the patents needed to be amortised and only legal fee must be taken.

Patent amortisation expense:$20000/10years=$2000

Answer for 15)$700000

Expenses cannot be capitalized for which no technical feasibility is established and hence only $2800000($4000000-$1200000) must be considered.

Cost to be expensed in 2012:

$2800000×$2000000/$8000000=$700000

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