F2 - Matching Revenues and Expenses

Question 1

Amortization of capitalized software costs equals

Answer 1

The greater of straight-line amortization or sales revenue from the software for the period divided by the total projected sale.

Question 2

Under U.S. GAAP, the research and development costs should be:

Answer 2

Expensed.

Question 3

Royalties paid should be reported as expense in:

Answer 3

The period incurred.

Question 4

Internal development of goodwill:

Answer 4

Cannot be capitalized and is therefore expensed.

Question 5

What are some examples of Research and Development (R&D) ?

Answer 5

R&D contracted out to a third party, preproduction prototypes and models costs, and costs for searching for new products or new process alternatives.

Question 6

Goodwill is capitalized only when:

Answer 6

Incurred in the purchase of another entity.

Question 7

In regards to research and development, market research is:

Answer 7

Not considered research and development because it is not aimed at discover of new knowledge to develop a new product or service.

Question 8

In regards to research and development, legal fees and other costs associated with registering a patent are:

Answer 8

Capitalized. Research and development costs are Expenses under U.S. GAAP.

Question 9

Legal costs incurred to successfully defend an internally developed patent should be:

Answer 9

Capitalized and amortized over the patent’s remaining economic life.

Question 10

What should a company do when there is an unsuccessful defense on a patent?

Answer 10

Expense the unsuccessful patent including acquisition costs, cost of patent, and legal fees for the unsuccessful defense.

Question 11

A franchisor should report revenue from the initial franchise fees when:

Answer 11

All material conditions of the sale have been “substantially performed.” If all material conditions of the sale have not been performed then no revenue should be recognized.

Question 12

In regards to sales revenue, when there is an unlimited right of return…

Answer 12

Nothing should be recorded as sales revenue unless four conditions are satisfied:

1. Sales price is fixed
2. Buyer assumes all risk of loss
3. Buyer has paid some form of consideration
4. The amount of returns can be reasonably estimated.

Question 13

For software developed internally, costs incurred in the preliminary project stage are _______________. Costs AFTER the preliminary project stage are ____________.

Answer 13

Expensed.

Capitalized and Depreciated over the economic life of the product.

Question 14

Collections received for service contracts should be recorded as an increase in a:

Answer 14

“Deferred revenue account.”

Question 15

When service contracts are sold:

Answer 15

Deferred revenue increases, but service revenue does not increase until the services are performed.

Question 16

GAAP requires that start-up costs, including organizational costs:

Answer 16

Be expensed as incurred, without exception.

Question 17

Goodwill should be tested for value impairment at which level under U.S. GAAP?

Answer 17

Each Reporting Unit. (For IFRS - at each Cash-Generating Unit).
Step 1: Identify potential impairment by comparing the fair value of each reporting unit with its carrying amount, including good will.

Step 2: Measure the amount of goodwill impairment loss by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.

Question 18

Under U.S. GAAP, subsequent reversal of intangible asset impairment losses is:

Answer 18

Prohibited unless the intangible asset is held for sale.

Question 19

A decrease in accounts receivable represents:

Answer 19

Cash paid in the current period on accounts receivable from prior periods. Under the cash basis, amounts would be recorded as current period income but under accrual basis the revenue would have been recorded in the prior periods.

Question 20

An increase in accounts payable represents:

Answer 20

Expenses incurred but not yet paid. Under the cash basis, no expense would be recorded for an increase because cash has not been paid. Under the accrual basis, expenses are recorded when the payables are recorded.

Question 21

The matching principle:

Answer 21

Matches expenses against revenues in the same accounting period.

Question 22

For costs to develop computer software for ultimate sale, all relevant costs incurred before technological feasibility is established should be:

Answer 22

Expensed as research and development expenditures. AFTER technological feasibility is established, all relevant costs are capitalized until the product is released for sale.

Question 23

Under IFRS, development costs may be :

Answer 23

Capitalized if certain criteria are met. If the patent has been granted, it is generally appropriate to capitalize the related design costs.

Question 24

Under IFRS, Revaluation losses are reported on ____________________. A revaluation loss that reverses a previously recognized revaluation gain is recognized in _________________.

Answer 24

The Income Statement.

Other Comprehensive Income.

Question 25

Under IFRS, Revaluation Gains are reported in ____________________. A revaluation gain that reverses a previously recognized revaluation loss is recognized on __________________.

Answer 25

Other Comprehensive Income

The Income Statement.

Question 26

Under IFRS, goodwill impairment is:

Answer 26

A one-step test in which the carrying value of the cash-generating unit (CGU) is compared to the CGU’s recoverable amount, which is the greater of the CGU’s fair value less costs to sell and its value in use (PV of future cash flows expected from the CGU).