Chapter 2 Timing Issues: Matching of Revenue and Expense, Correcting and Adjusting accoutns Flashcards
How are costs related to R&D recorded prior to technological feasibility?
They are expensed
How would you calculate interest expense?
Calculate the total interest expense and multiply it by the percentage of that year.
How are successful legal costs associated with defending a patent treated?
They are added to the caring value of the patent.
How are R&D expenses related to a patent treated?
They are expensed
How is a patent amortized?
Over the lesser of legal life or economic life.
How should royalities paid be treated?
As an expense when incurred
How is goodwill treated?
Good will is not amortized but is subject to impairment testing. Any costs related to internal goodwill is expensed.
How are costs related to RD treated?
Third party - expensed
prototypes - expensed
new products/process - expensed
Are cost related to internal computer development and costs of market research activites, RD expense?
No
What if a patent is unsuccessfully defended
You expense the total costs related to the patent and the unsuscscsufl defense.
When should a franchisor report revenue?
Franchisor should report revenue from initial franchise fees when all material conditions of the sale have been “Substantially performed”
What are the four conditions that must be met before you can recorded sales revenue with an unlimited right of return?
- the sales price is fixed
- the buyer assumes all risk of loss
- the buyer has paid some form of consideration
- the amount of returns can be reasonably estimated.
all four must be met
How do you treat software developed for internal use?
The costs after the preliminary project stage are capitalized and depreciated over the economic life of the product.
How are start up costs related to startup activities, organizations costs treated?
Costs of start-up activities, including organization costs, should be expensed as incurred
At what level should Goodwill impairment be tested?
Each reporting unit
