CH 12 and 13 Flashcards
Give an example of an intangible asset that relates to technical knowledge, creative knowledge and marketing (three different assets – one for each type).
a. Market related intangible assets ( Trademark),
b. Customer related intangible assets ( customer’s list), and
c. Artistic related intangible assets ( copy rights)
d. Contract related intangible assets ( Franchise)
e. Technology related intangible assets ( patent)
How do we treat research and development costs?
a. Companies must expense all research and development costs when incurred
What determines the useful life of intangible assets?
a. The expected use of the asset by the company
b. The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate (such as lease rights to a studio lot)
c. Any legal, regulatory, or contractual provisions that may limit the useful life.
d. Any provisions (legal, regulatory, or contractual) that enable renewal or extension of the asset’s legal or contractual life without substantial cost. This factor assumes that there is evidence to support renewal or extension. Disney also must be able to accomplish renewal or extension without material modifications of the existing terms and conditions.
e. The effects of obsolescence, demand, competition, and other economic factors. Examples include the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels.
f. The level of maintenance expenditure required to obtain the expected future cash flows from the asset. For example, a material level of required maintenance in relation to the carrying amount of the asset may suggest a very limited useful life.
What is goodwill?
a. It is measured as the excess of the cost of the purchase over the fair value of the identifiable net assets (assets less liabilities) purchased.
What is the adjusting entry needed to record amortization of a patent of $5,000?
a. (DR) Amortization Expense 5000
b. (CR) Patent 5000
Describe the test(s) used to determine impairment of intangible assets.
a. Recovery test-estimates the future cash flows expected from use of the asset and its eventual disposal
b. Fair value test- measures the impairment loss by comparing the asset’s fair value with its carrying amount
What is the adjusting entry needed if there is impairment?
a. Loss on Impairment 40000000
i. Patents 4000000000
What is the entry to record interest due on a note payable (i.e. interest accrued to date, but not yet paid)?
a. (DR) Interest expense
b. (CR) Interest payable
What is a contingent liability?
a. Liabilities that depend on a contingency, that is, on the occurrence of one or more future events to confirm either the amount payable, the payee, the date payable, or its existence.
A company is involved in a lawsuit. At year-end, the attorney feels that there is a 65% chance that the suit will be settled within 6 months for somewhere between $100,000 - $150,000. What, if anything, needs to be done on the year-end financial statement?
a. Record the settlement because it is probable gain
How would your answer to #10 change if the attorney said there is a 65% chance the company will be liable to pay damages – but could not estimate the amount?
a. Cannot be record if there isn’t probability
We sell 100 widgets that each has a 3 year warranty. Total estimated warranty costs for the warranty period are $60,000. Assume sales all took place at the beginning of the year and that by the end of the year, we have incurred $15,000 in warranty costs. How much warranty expense should we show for this year? What is the journal entry needed?
a. Warrant expense (DR) 15000
b. Cash(CR) 15000
