Exam 2 Flashcards
1
Q
intangible assets derive their value from the right to receive cash in the future?
A
FALSE
2
Q
Internally generated intangible assets are initially recorded at fair value
A
false
3
Q
direct costs can be capitalized
A
true
4
Q
most direct costs are generated through
A
research and development
5
Q
research and development costs are
A
expenses
6
Q
limited-life intangibles are amortized by systematic charges to expense over their useful life (amortized)
A
true
7
Q
some intangible assets are not required to be amortized
A
true
8
Q
indefinite assets are amortized
A
true
9
Q
intangible or expense: research costs to internally develop a customer list over a 3-year period
A
expense
10
Q
intangible or expense: purchase of patent with an expected useful life of 10 years
A
intangible - finite
11
Q
intangible or expense: purchase of copyright, allowing certain printing rights for 50 years
A
intangible - finite
12
Q
intangible or expense or goodwill: purchase of a company for 50,000 over the fair value of its identifiable net asset
A
goodwill - indefinite
13
Q
intangible or expense: customer list purchased from a research institution with a benefit period estimated to be 5 years
A
intangible - finite
14
Q
intangible or expense: purchase of a trademark, expected to be renewed indefinitely
A
intangible - indefinite
15
Q
intangible or expense: legal costs incurred for an outside counsel to register a patent, which was internally developed
A
intangible - finite
16
Q
intangible or expense: legal costs incurred fo ran outside counsel to successfully defend a patent internally developed
A
intangible - finite
17
Q
intangible or expense: legal costs incurred for an outside counsel to successfully defend a patent internally developed
A
intangible finite
18
Q
research and development costs incurred by the company’s technology division to develop a patent
A
expense
19
Q
if a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs
A
false
20
Q
if a company develops a trademark, it should capitalize the costs related to attorney fees, registration fees, and design costs
A
true
21
Q
the cost of acquiring a customer list from another company is recorded as an intangible asset
A
true
22
Q
the cost of a purchased patent should be amortized over the remaining legal life of the patent
A
false
23
Q
the cost of a purchased patent should be amortized over the legal life or useful life, whichever is shorter
A
true
24
Q
if the 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
A
true
25
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.
true
26
Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets.
false
27
Goodwill is considered a master valuation account because it measures the value of unidentifiable intangible assets
true
28
Internally generated goodwill should not be capitalized in the accounts.
true
29
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
false
30
Internally generated goodwill associated with a business may be recorded as an asset when a firm actually purchases a business unit
true
31
All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs
true
32
If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized
true
33
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.
true
34
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.
false
35
The rules used to account for impairments of limited-life intangible assets are the same two-step test that is used to account for impairments of plant and equipment.
true
36
If fair value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.
false
37
If the fair value of an impaired asset recovers after impairment has been recognized, the impairment can never be reversed
true
38
The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.
false
39
Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property, plant, and equipment.
false
40
Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.
false
41
Research and development costs that result in patents need to be expensed
true
42
Research and development costs are reported as intangible assets if they will provide economic benefits in future years
false
43
GAAP requires start-up costs and initial operating losses during the early years to be capitalized.
false
44
GAAP requires start-up costs and initial operating losses are always expensed.
true
45
Material, labor, and overhead costs incurred in developing a new product are to be
expensed as these are development costs.
true
46
Periodic alterations to existing products are an example of research and development costs.
false
47
R&D expense, non-R&D expense, or asset? Routine quality reviews to improve upon the qualities of an existing product.
non-R&D expense
48
R&D expense, non-R&D expense, or asset? Engineering activity required to advance the design of a product to the point that it meets specific functional requirements necessary to be ready to manufacture
R&D expense
49
R&D expense, non-R&D expense, or asset? Costs to adapt a product requirement to meet a current customer’s specific need
non-R&D expense
50
R&D expense, non-R&D expense, or asset? Testing of a product prototype
R&D expense
51
R&D expense, non-R&D expense, or asset? Seasonal design change to an existing product
non-R&D expense
52
R&D expense, non-R&D expense, or asset? Purchase of a facility with alternative possible uses to be used to perform ongoingresearch activities
asset
53
R&D expense, non-R&D expense, or asset? Salaries and related expenses of employees developing a design that represents a
significant improvement to a current product
R&D expense
54
A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized
false
55
Dividends in arrears on cumulative preferred stock should be recorded as a current liability
false
56
Dividends in arrears on cumulative preferred stock should be recorded as a legal liability is the board determines
true
57
Magazine subscriptions and airline ticket sales both result in unearned revenues.
true
58
Discount on Notes Payable is a contra account to Notes Payable on the balance sheet
true
59
All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.
false
60
Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.
true
61
A company must accrue a liability for sick pay that accumulates but does not vest.
false
62
Companies report the amount of social security taxes withheld from employees as well as the companies’ matching portion as current liabilities until they are remitted
true
63
Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment
false
64
vesting exists when an employer has an obligation to make payment to an employee even after terminating his employment
true
65
Companies should recognize the expense and related liability for compensated absences in the year earned by employees.
true
66
An employee has the right to receive compensation for future paid leave, and the payment of compensation is probable. If the obligation relates to rights that vest but the amount cannot be reasonably estimated, the employer should:
not accrue a liability; however, disclosure is required
67
The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.
true
68
The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.
false
69
Current liabilities are usually recorded and reported in financial statements at their full maturity value.
true
70
A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis and demonstrates the ability to consummate the refinancing
true
71
Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty.
false
72
Under an service type warranty, companies charge warranty costs only to the period in which they comply with the warranty.
true
73
Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred.
false
74
A company discloses gain contingencies in the notes only when a high probability exists for realizing them.
true
75
The revenue from a service-type warranty that covers several years should all be recognized in the period the warranty is sold.
false
76
The revenue from a assurance-type warranty that covers several years should all be recognized in the period the warranty is sold.
true
77
Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.
true
78
A mortgage bond is referred to as a debenture bond.
false
79
Bond issues that mature in installments are called serial bonds
true
80
If the market rate is greater than the coupon rate, bonds will be sold at a premium.
false
81
If the market rate is greater than the coupon rate, bonds will be sold at a discount
true
82
The interest rate written in the terms of the bond indenture is called the effective yield or market rate
false
83
The stated rate is the same as the coupon or nominal rate.
true
84
Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.
false
85
A bond may only be issued on a payment interest date
false
86
The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.
false
87
Companies report bond discounts as a deduction from the face amount of the bond.
true
88
term bonds
A bond that matures on a single date
89
mortgage bond
A loan secured by real estate
90
debenture bond
A bond that is unsecured
91
income bond
A bond that pays no interest unless the company is profitable
92
callable bond
A bond that may be called and retired by the issuer prior to maturity
93
registered bond
A bond that is issued in the name of the owner
94
a bearer or coupon bond
A bond which is not recorded in the name of the owner and may be transferred to another owner by mere delivery
95
convertible bond
A bond that pays no interest unless the company is profitable
96
commodity-backed bond
A bond that may be redeemed in terms of a commodity
97
deep discount bond
Also called a zero-interest bond
98
issuance costs are put on the books as an
asset
99
issuance costs are amortized
over the life of the note/bond
100
If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate
false
101
If companies choose the fair value option for measuring bonds and long-term notes, the unrealized holding gains or losses are reported as part of net income.
true
102
Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.
true
103
The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.
true
104
If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.
false
105
The two ratios that provide information about debt-paying ability and long-run solvency are the debt-to-assets ratio and the times interest earned ratio.
true
106
The bond is classified as current only if the current assets are use to pay them
true
