FAR 3 Module 6 Flashcards
Which intangible asset is subject to the recoverability test when testing for impairment?
a. Goodwill
b. R&D costs for a patent
c. trademark with indefinite useful life
d. A patent
D. A Patent
Which of the following types of assets would typically be reported on a company’s balance sheet as an intangible asset?
A Cost of research and development.
B. Leasehold improvements.
C. Cost of patent registrations.
D. Derivative securities.
C. Cost of patent Registrations
Bay Co. incurred legal fees in defending its patent rights. These legal fees should be capitalized when the outcome of the litigation is:
Successful?
Unsuccessful?
Successful: YES
Unsuccessful: NO
How are crypto assets classified and recognized?
Classified as intangible assets with indefinite life, recognized at fair value if criteria are met.
How should legal costs incurred to successfully defend a patent be treated?
What is the remaining useful life over which a copyright should be amortized if its legal life is 30 years, the original useful life was 38 years, but the company expects to generate cash flows for only 25 years?
If the pattern in which the economic benefits of an intangible asset are consumed cannot be determined, which amortization method should be used?
Straight line method
What happens if the trademark can be renewed indefinitely?
There will be no amortization expense on the books.
Amortization is only recorded for intangible assets with a definite life.
What is the difference between the legal life and useful life of a copyright, and why is the useful life used for amortization?
How should organization costs be treated in financial statements under GAAP?
Do we capitalize the research and development for the patent?
No.
Under U.S. GAAP, research and development (R&D) costs are expensed as incurred and are not capitalized.
What should be (included and can be capitalized) and excluded in intangible asset costs?
What is an indefinite-lived intangible asset?
How is the “cost to sell” contract similar to salvage value in amortization?
“West signed a contract to sell the asset for $10,000 in 10 years.”
Wind Co. incurred $6,000 in organization costs at the start of its first year. How should these organization costs be treated in the financial statements?
Expensed Immediately
Organization costs expensed for GAAP financial income (no asset) but deducted in later years for tax purposes.
