3.5 Intangible Assets

Question 1

Which of the following types of assets would typically be reported on a company’s balance sheet as an intangible asset?

A. Leasehold improvements.
B. Derivative securities
C. Cost of research and development
D. Cost of patent registrations

Answer 1

D. Cost of patent registrations

Internally developed intangibles other than goodwill are most often initially recorded at the amount of the incidental costs only. Thus, cost of patent registration is capitalized as patent cost and reported in the financial statements.

Question 2

Which of the following assets, if any, acquired this year in an exchange transaction is (are) potentially amortizable for public companies?

• Goodwill: yes/no
• Trademarks: yes/no

Answer 2

• Goodwill: no
• Trademarks: yes

Goodwill is tested for impairment at least annually but is never amortized for public companies. Trademarks, however, may be amortized but only if they have finite useful lives.

Question 3

Kale Co. purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity. Absent an election of the fair value option, Kale should account for these bonds a

A. Cost
B. Fair Value
C. Amortized Cost
D. Lower of cost or market

Answer 3

C. Amortized cost

Without an election of the fair value option, investments in debt securities that the investor has the ability and positive intend to hold until maturity must be classified as held-to-maturity and measured at amortized cost.