Intermediate Accountingch answerch12

1、CHAPTER 12Intangible AssetsASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)TopicsQuestionsBrief ExercisesExercisesProblems Concepts for Analysis1.Intangible assets; concepts, definitions; items comprising intangible assets.1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 141, 2, 3, 5, 61, 2, 3, 41, 2, 32.Patent

2、s; franchise; organization costs; trade name.9, 10, 11, 251, 2, 3, 4, 7, 12, 134, 5, 6, 7, 8, 9, 10, 11, 131, 2, 3, 4, 61, 23.Goodwill.12, 13, 14, 185, 7, 86, 12, 13, 155, 64.Impairment of intangibles.15, 16, 17, 186, 7, 814, 1565.Research and development costs and similar costs.19, 20, 21, 22, 23,

3、249, 10, 11, 124, 16, 171, 2, 34, 5*6.Computer software costs.26, 27, 281418, 19*This material is covered in an Appendix to the chapter.ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning ObjectivesBrief ExercisesExercisesProblems1.Describe the characteristics of intangible assets.1, 2,

4、32.Identify the costs to include in the initial valuation of intangible assets.1, 2, 3, 45, 7, 9, 10, 111, 2, 3, 63.Explain the procedure for amortizing intangible assets.1, 2, 3, 4, 12, 134, 5, 6, 7, 9, 10, 11, 131, 2, 3, 64.Describe the types of intangible assets.1, 2, 35.Explain the conceptual is

5、sues related to goodwill.12, 136.Describe the accounting procedures for recording goodwill.512, 13, 155, 67.Explain the accounting issues related to intangible-asset impairments.6, 7, 814, 155, 68.Identify the conceptual issues related to research and development costs.5, 99.Describe the accounting

6、for research and development and similar costs.9, 10, 11, 12 4, 6, 8, 16, 17410.Indicate the presentation of intangible assets and related items.134, 6*11.Understand the accounting treatment for computer software costs.1418, 19*This material is covered in an Appendix to the chapter.ASSIGNMENT CHARAC

7、TERISTICS TABLEItemDescriptionLevel of DifficultyTime (minutes) E12-1Classification issuesintangibles.Moderate1520 E12-2Classification issuesintangibles.Simple1015 E12-3Classification issuesintangible asset.Moderate1015 E12-4Intangible amortization.Moderate1520 E12-5Correct intangible asset account.

8、Moderate1520 E12-6Recording and amortization of intangibles.Simple1520 E12-7Accounting for trade name.Simple1015 E12-8Accounting for organization costs.Simple1015 E12-9Accounting for patents, franchises, and R&D.Moderate1520 E12-10Accounting for patents.Moderate2025 E12-11Accounting for patents.

9、Moderate1520 E12-12Accounting for goodwill.Moderate2025 E12-13Accounting for goodwill.Simple1015 E12-14Copyright impairment.Simple1520 E12-15Goodwill impairment.Simple1520 E12-16Accounting for R&D costs.Moderate1520 E12-17Accounting for R&D costs.Moderate1015*E12-18Accounting for computer so

10、ftware costs.Moderate1015*E12-19Accounting for computer software costs.Moderate1520 P12-1Correct intangible asset account.Moderate1520 P12-2Accounting for patents.Moderate2030 P12-3Accounting for franchise, patents, and trade name.Moderate2030 P12-4Accounting for R&D costs.Moderate1520 P12-5Good

11、will, impairment.Complex2530 P12-6Comprehensive intangible assets.Moderate3035 CA12-1Accounting for pollution expenditure.Moderate2530 CA12-2Accounting for pre-opening costs.Moderate2025 CA12-3Accounting for patents.Moderate2530 CA12-4Accounting for research and development costs.Moderate2530 CA12-5

12、Accounting for research and development costs.Moderate2025SOLUTIONS TO CODIFICATION EXERCISESCE12-1According to the Master Glossary:(a)Intangible assets are assets (not including financial assets) that lack physical substance. (The term intangible assets is used to refer to intangible assets other t

13、han goodwill.)(b)An asset representing the future economic benefits arising from other assets acquired in a business combination or an acquisition by a not-for-profit entity that are not individually identified and separately recognized. For ease of reference, this term also includes the immediate c

14、harge recognized by not-for-profit entities in accordance with paragraph 958-805-25-29.(c)Research and Development:Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (referre

15、d to as product) or a new process or technique (referred to as process) or in bringing about a significant improvement to an existing product or process.Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant impr

16、ovement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants.(d)A development stage entity is an entity devoting substantially all of its effo

17、rts to establishing a new business and for which either of the following conditions exists:1.Planned principal operations have not commenced.2.Planned principal operations have commenced, but there has been no significant revenue therefrom.CE12-2See FASB ASC 350-30-35. In the discussions related to

18、“Determining the Useful Life of an Intangible Asset”35-1The accounting for a recognized intangible asset is based on its useful life to the reporting entity. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized.35

19、-2The useful life of an intangible asset to an entity is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of that entity. The useful life is not the period of time that it would take that entity to internally develop an intangible asset that w

20、ould provide similar benefits. However, a reacquired right recognized as an intangible asset is amortized over the remaining contractual period of the contract in which the right was granted. If an entity subsequently reissues (sells) a reacquired right to a third party, the entity includes the rela

21、ted unamortized asset, if any, in determining the gain or loss on the reissuance.CE12-2 (Continued)35-3The estimate of the useful life of an intangible asset to an entity shall be based on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more

22、 presumptive than the other: a.The expected use of the asset by the entity.b.The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate.c.Any legal, regulatory, or contractual provisions that may limit the useful life. The cash flows an

23、d useful lives of intangible assets that are based on legal rights are constrained by the duration of those legal rights. Thus, the useful lives of such intangible assets cannot extend beyond the length of their legal rights and may be shorter.d.The entitys own historical experience in renewing or e

24、xtending similar arrangements, consistent with the intended use of the asset by the entity, regardless of whether those arrangements have explicit renewal or extension provisions. In the absence of that experience, the entity shall consider the assumptions that market participants would use about re

25、newal or extension consistent with the highest and best use of the asset by market participants, adjusted for entity-specific factors in this paragraph.e.The effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, known technological advances,

26、 legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels).f.The level of maintenance expenditures required to obtain the expected future cash flows from the asset (for example, a material level of required maintenance in relat

27、ion to the carrying amount of the asset may suggest a very limited useful life). As in determining the useful life of depreciable tangible assets, regular maintenance may be assumed but enhancements may not.Further, if an income approach is used to measure the fair value of an intangible asset, in d

28、etermining the useful life of the intangible asset for amortization purposes, an entity shall consider the period of expected cash flows used to measure the fair value of the intangible asset adjusted as appropriate for the entity-specific factors in this paragraph. 35-4If no legal, regulatory, cont

29、ractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is

30、 indefinite if that life extends beyond the foreseeable horizonthat is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the reporting entity. Such intangible assets might be airport route authorities, certain trademarks, and taxicab me

31、dallions.CE12-3According the FASB ASC 730-10-50:50-1Disclosure shall be made in the financial statements of the total research and development costs charged to expense in each period for which an income statement is presented. Such disclosure shall include research and development costs incurred for

32、 a computer software product to be sold, leased, or otherwise marketed.CE12-4According the FASB ASC 926-720-25, GeneralOverall Deals25-1An entity may enter into an overall deal arrangement. An entity shall charge the costs of overall deals that cannot be identified with specific projects to expenses

33、 as they are incurred over the related time period.> Exploitation Costs25-2An entity shall account for advertising costs in accordance with the provisions of Subtopic 720-35. That is, expense as incurred.ANSWERS TO QUESTIONS1.The two main characteristics of intangible assets are:(a)they lack phys

34、ical substance.(b)they are not a financial instrument.2.If intangibles are acquired for stock, the cost of the intangible is the fair value of the consideration given or the fair value of the consideration received, whichever is more clearly evident.3.Limited-life intangibles should be amortized by

35、systematic charges to expense over their useful life. An intangible asset with an indefinite life is not amortized.4.When intangibles are created internally, it is often difficult to determine the validity of any future service potential. To permit deferral of these types of costs would lead to a gr

36、eat deal of subject-tivity because management could argue that almost any expense could be capitalized on the basis that it will increase future benefits. The cost of purchased intangibles, however, is capitalized because its cost can be objectively verified and reflects its fair value at the date o

37、f acquisition.5.Companies cannot capitalize self-developed, self-maintained, or self-created goodwill. These expenditures would most likely be reported as selling expenses.6.Factors to be considered in determining useful life are:(a)The expected use of the asset by the entity.(b)The expected useful

38、life of another asset or a group of assets to which the useful life of the intangible asset may relate.(c)Any legal, regulatory, or contractual provisions that may limit useful life.(d)Any legal, regulatory or contractual provisions that enable renewal or extension of the assets legal or contractual

39、 life without substantial cost.(e)The effects of obsolescence, demand, competition, and other economic factors.(f)The level of maintenance expenditure required to obtain the expected future cash flows from the asset.7.The amount of amortization expensed for a limited-life intangible asset should ref

40、lect the pattern in which the asset is consumed or used up, if that pattern can be reliably determined. If the pattern of production or consumption cannot be determined, the straight-line method of amortization should be used.8.This trademark is an indefinite life intangible and, therefore, should n

41、ot be amortized.9.The $190,000 should be expensed as research and development expense in 2012. The $91,000 is expensed as selling and promotion expense in 2012. The $45,000 of costs to legally obtain the patent should be capitalized and amortized over the useful or legal life of the patent, whicheve

42、r is shorter.10.Amortization Expense35,000Patents (or Accumulated Patent Amortization)35,000Straight-line amortization is used because the pattern of use cannot be reliably determined.11.Artistic-related intangible assets involve ownership rights to plays, pictures, photographs, and video and audiov

43、isual material. These ownership rights are protected by copyrights. Contract related intangible assets represent the value of rights that arise from contractual arrangements. Examples are franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts.Ques

44、tions Chapter 12 (Continued)12.Varying approaches are used to define goodwill. They are(a)Goodwill should be measured initially as the excess of the fair value of the acquisition cost over the fair value of the net assets acquired. This definition is a measurement definition but does not conceptuall

45、y define goodwill.(b)Goodwill is sometimes defined as one or more unidentified intangible assets and identifiable intangible assets that are not reliably measurable. Examples of elements of goodwill include new channels of distribution, synergies of combining sales forces, and a superior management

46、team.(c)Goodwill may also be defined as the intrinsic value that a business has acquired beyond the mere value of its net assets whether due to the personality of those conducting it, the nature of its location, its reputation, or any other circumstance incidental to the business and tending to make

47、 it permanent. Another definition is the capitalized value of the excess of estimated future profits of a business over the rate of return on capital considered normal in the industry.Negative goodwill develops when the fair value of the assets purchased is higher than the cost. This situation may d

48、evelop from a market imperfection. In this case, the seller would have been better off to sell the assets individually than in total. However, situations do occur (e.g., a forced liquidation or distressed sale due to the death of the company founder), in which the purchase price is less than the val

49、ue of the identifiable net assets.13.Goodwill is recorded only when it is acquired by purchase. Goodwill acquired in a business combination is considered to have an indefinite life and therefore should not be amortized, but should be tested for impairment on at least an annual basis.14.Many analysts

50、 believe that the value of goodwill is so subjective that it should not be given the same status as other types of assets such as cash, receivables, inventory, etc. The analysts are simply stating that they believe that presentation of goodwill on the balance sheet does not provide any useful inform

51、ation to the users of financial statements. Whether this is true or not is a difficult point to prove, but it should be noted that it appears contradictory to pay for the goodwill and then immediately write it off, denying that it has any value.15.Accounting standards require that if events or chang

52、es in circumstances indicate that the carrying amount of such assets may not be recoverable, then the carrying amount of the asset should be assessed. The assessment or review takes the form of a recoverability test that compares the sum of the expected future cash flows from the asset (undiscounted

53、) to the carrying amount. If the cash flows are less than the carrying amount, the asset has been impaired. The impairment loss is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of assets is measured by their fair value if an active market for

54、 them exists. If no market price is available, the present value of the expected future net cash flows from the asset may be used.16.Under U.S. GAAP, impairment losses on assets held for use may not be restored.17.Impairment losses are reported as part of income from continuing operations, generally

55、 in the “Other expenses and losses” section. Impairment losses (and recovery of losses for assets to be disposed of) are similar to other costs that would flow through operations. Thus, gains (recoveries of losses) on assets to be disposed of should be reported as part of income from continuing oper

56、ations.18.The amount of goodwill impaired is $40,000, computed as follows:Recorded goodwill$400,000Implied goodwill (360,000)Impaired goodwill$ 40,000Questions Chapter 12 (Continued)19.Research and development costs are incurred to develop new products or processes, to improve present products, or t

57、o discover new knowledge. R&D expenditures present problems of (1) identifying the costs associated with particular activities, projects, or achievements, and (2) determining the magnitude of the future benefits and the length of time over which such benefits may be realized. R&D activities may incur costs classified as follows:(a)materials, equipment, and facilities,(b)personnel,(c)purchased intangibles,(d)contract services, and(e)indirect costs.20.(a)Personnel (labor) type costs incurred in R&D activities should be expensed as incurred.(b)Materials and equipment co