CHAPTER 11
INTANGIBLE ASSETS
IFRS questions are available at the end of this chapter.
TRUE-FALSE
1. Intangible assets derive their value from the right (claim) to receive cash in the future.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
2. Internally generated intangible assets are initially recorded at fair value.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
3. Limited-life intangibles are amortized by systematic charges to expense over their useful
lives.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
4. Amortization of limited-life intangible assets should not be affected by expected residual
values.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
5. Some intangible assets are not required to be amortized.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
6. All intangibles are subject to periodic consideration of impairment with corresponding
potential write-downs.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
7. If the fair value of an unlimited life intangible other than goodwill is less than its book
value, an impairment loss must be recognized.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
8. After an impairment loss is recorded for a limited-life intangible asset, the carrying amount
becomes the basis for the impaired asset and is used to calculate amortization in future
periods.
Ans: T, LO: 1, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
9. The rules used to account for impairments of limited-life intangible assets are different
from the rules used to account for impairments of plant and equipment.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
10. If the fair value of an impaired asset that is in use recovers after impairment has been
recognized, the impairment may be reversed in a subsequent period.
Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
,11 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
11. In 2021, Grecko Company recorded an impairment on one of its patents. If the fair value
of a patent recovers in 2022, Grecko can record recovery of impairment if the patent is
held for sale.
Ans: T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
12. The same recoverability test that is used for impairments of property, plant, and
equipment is used for impairments of indefinite-life intangibles.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. Research and development expenditures are expensed as incurred because of the
uncertainty regarding their future cash flows.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
14. Amortization expense is generally recorded with a credit to the Accumulated Amortization
account.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
15. Trademarks and tradenames are marketing-related intangible assets with limited lives.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. Examples of customer-related intangible assets include brands, customer lists, and
production backlogs.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. If a company develops a trademark, it should expense the costs related to attorney fees,
registration fees, and design costs.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
18. The cost of acquiring a customer list from another company is recorded as an intangible
asset.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
19. The cost of a purchased patent should be amortized over the remaining legal life of the
patent.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
20. If a new patent is acquired through modification of an existing patent, the remaining book
value of the original patent may be amortized over the life of the new patent.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
21. Contra accounts are generally reported for intangible assets in a manner similar to
accumulated depreciation and property, plant, and equipment.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
, Intangible Assets 11 - 3
22. If the value of a patent is impaired because demand drops for the patented product, it
should be written down or written off in the period of the decline in demand.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
23. In a business combination, a company assigns the cost, where possible, to the identifiable
tangible and intangible net assets, with the remainder recorded as goodwill.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
24. Goodwill is considered a master valuation account because it measures the value of
specifically identifiable intangible assets.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
25. Internally generated goodwill is not capitalized in the accounts.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
26. Internally generated goodwill associated with a business may be recorded as an asset
when a firm offer to purchase that business unit has been received.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
27. In a business combination, the acquiring company may recognize some assets and
liabilities not previously recognized by the acquired company.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
28. Goodwill is recognized as an asset when it is purchased in an arm’s length transaction.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
29. Research and development costs that result in patents may be capitalized to the extent of
the fair value of the patent.
Ans: F, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
30. Research and development costs are reported as intangible assets if they will provide
economic benefits in future years.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
31. GAAP requires start-up costs and initial operating losses during the early years to be
capitalized.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
32. Material, labor, and overhead costs incurred in developing a new product are to be
expensed as these are development costs.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
33. Periodic alterations to existing products are an example of research and development
costs.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
, 11 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
MULTIPLE CHOICE—Conceptual
34. Which of the following does not describe intangible assets?
a. They lack physical existence.
b. They are financial instruments.
c. They provide long-term benefits.
d. They are classified as long-term assets.
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: None, IFRS:
None
35. 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
Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: None, IFRS:
None
36. Which characteristic is not possessed by intangible assets?
a. Physical existence
b. Long-lived
c. Result in future benefits
d. Expensed over current and/or future years
Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: None, IFRS:
None
37. 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.
Ans: c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
38. Which of the following costs incurred internally to create an intangible asset is generally
expensed?
a. Research and development costs
b. Filing costs
c. Legal costs
d. All of these answer choices are correct.
Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Record Keeping, IFRS: None
39. Which of the following methods of amortization is normally used for intangible assets if a
pattern of use cannot be determined?
a. Sum-of-the-years'-digits
b. Straight-line
c. Units of production
d. Double-declining-balance
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
INTANGIBLE ASSETS
IFRS questions are available at the end of this chapter.
TRUE-FALSE
1. Intangible assets derive their value from the right (claim) to receive cash in the future.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
2. Internally generated intangible assets are initially recorded at fair value.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
3. Limited-life intangibles are amortized by systematic charges to expense over their useful
lives.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
4. Amortization of limited-life intangible assets should not be affected by expected residual
values.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
5. Some intangible assets are not required to be amortized.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
6. All intangibles are subject to periodic consideration of impairment with corresponding
potential write-downs.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
7. If the fair value of an unlimited life intangible other than goodwill is less than its book
value, an impairment loss must be recognized.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
8. After an impairment loss is recorded for a limited-life intangible asset, the carrying amount
becomes the basis for the impaired asset and is used to calculate amortization in future
periods.
Ans: T, LO: 1, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
9. The rules used to account for impairments of limited-life intangible assets are different
from the rules used to account for impairments of plant and equipment.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
10. If the fair value of an impaired asset that is in use recovers after impairment has been
recognized, the impairment may be reversed in a subsequent period.
Ans: F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
,11 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
11. In 2021, Grecko Company recorded an impairment on one of its patents. If the fair value
of a patent recovers in 2022, Grecko can record recovery of impairment if the patent is
held for sale.
Ans: T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
12. The same recoverability test that is used for impairments of property, plant, and
equipment is used for impairments of indefinite-life intangibles.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. Research and development expenditures are expensed as incurred because of the
uncertainty regarding their future cash flows.
Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
14. Amortization expense is generally recorded with a credit to the Accumulated Amortization
account.
Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
15. Trademarks and tradenames are marketing-related intangible assets with limited lives.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. Examples of customer-related intangible assets include brands, customer lists, and
production backlogs.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. If a company develops a trademark, it should expense the costs related to attorney fees,
registration fees, and design costs.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
18. The cost of acquiring a customer list from another company is recorded as an intangible
asset.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
19. The cost of a purchased patent should be amortized over the remaining legal life of the
patent.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
20. If a new patent is acquired through modification of an existing patent, the remaining book
value of the original patent may be amortized over the life of the new patent.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
21. Contra accounts are generally reported for intangible assets in a manner similar to
accumulated depreciation and property, plant, and equipment.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
, Intangible Assets 11 - 3
22. If the value of a patent is impaired because demand drops for the patented product, it
should be written down or written off in the period of the decline in demand.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
23. In a business combination, a company assigns the cost, where possible, to the identifiable
tangible and intangible net assets, with the remainder recorded as goodwill.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
24. Goodwill is considered a master valuation account because it measures the value of
specifically identifiable intangible assets.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
25. Internally generated goodwill is not capitalized in the accounts.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
26. Internally generated goodwill associated with a business may be recorded as an asset
when a firm offer to purchase that business unit has been received.
Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
27. In a business combination, the acquiring company may recognize some assets and
liabilities not previously recognized by the acquired company.
Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
28. Goodwill is recognized as an asset when it is purchased in an arm’s length transaction.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
29. Research and development costs that result in patents may be capitalized to the extent of
the fair value of the patent.
Ans: F, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
30. Research and development costs are reported as intangible assets if they will provide
economic benefits in future years.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
31. GAAP requires start-up costs and initial operating losses during the early years to be
capitalized.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
32. Material, labor, and overhead costs incurred in developing a new product are to be
expensed as these are development costs.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
33. Periodic alterations to existing products are an example of research and development
costs.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
, 11 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
MULTIPLE CHOICE—Conceptual
34. Which of the following does not describe intangible assets?
a. They lack physical existence.
b. They are financial instruments.
c. They provide long-term benefits.
d. They are classified as long-term assets.
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: None, IFRS:
None
35. 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
Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: None, IFRS:
None
36. Which characteristic is not possessed by intangible assets?
a. Physical existence
b. Long-lived
c. Result in future benefits
d. Expensed over current and/or future years
Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: None, IFRS:
None
37. 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.
Ans: c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation,
AICPA PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
38. Which of the following costs incurred internally to create an intangible asset is generally
expensed?
a. Research and development costs
b. Filing costs
c. Legal costs
d. All of these answer choices are correct.
Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Record Keeping, IFRS: None
39. Which of the following methods of amortization is normally used for intangible assets if a
pattern of use cannot be determined?
a. Sum-of-the-years'-digits
b. Straight-line
c. Units of production
d. Double-declining-balance
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA
PC: None, IMA: Reporting & Control: Financial Record Keeping, IFRS: None
