b. change in reporting entity.
c. correction of an error.
d. change in accounting estimate
2. Wriglee, Inc. went to court this year and successfully defended the brand name of its product, "Sweet Gum," from infringement by a competitor. The cost of this defense should be charged to a. patents and amortized over the legal life of the patent. b. legal fees and amortized over 5 years or less.
c. expenses of the period.
d. trademarks and amortized over a period not to exceed 40 years. d
3. The intangible asset goodwill may be
a. capitalized only when purchased.
b. capitalized either when purchased or created internally. c. capitalized only when created internally.
d. written off directly to retained earnings.
4. Goodwill was purchased when a business was acquired. When the goodwill is amortized, the credit is usually made to a. the Goodwill account.
b. an Accumulated Amortization account.
c. a Deferred Credit account.
d. a stockholders' equity account.
5. Which of the following principles BEST describes the current method of accounting for research and development costs? a. Associating cause and effect
b. Systematic and rational allocation
c. Income tax minimization
d. Immediate recognition as an expense
6. How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement? a. Must be capitalized when incurred and then amortized over their estimated useful lives. b. Must be expensed in the period incurred.
c. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable. d
7. Which of the following costs should be EXCLUDED from research and development expense? a. Modification of the design of a product
b. Acquisition of R & D equipment for use on a current project only. c. Cost of marketing research for a new product.
d. Engineering activity required to advance the design of a product to the manufacturing stage c
8. The proper accounting for the costs incurred in creating computer software products that are to be sold, leased, or otherwise marketed to external parties, is to a. capitalize all costs until the software is sold to external parties. b. charge research and development expense when incurred until technological feasibility has been established for the product. c. charge research and development expense only if the computer software has alternative future uses. d. capitalize all costs as incurred until a detailed program design or working model is created. b
9. In January, 1993, Sanders Corporation purchased a patent for a new consumer product for $720,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 1998 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Sanders charge to expense during 1998, assuming amortization is recorded at the end of each year? a. $480,000.
10. Jeltz Company was organized in late 1997 and began operations on January 1, 1998. The company is engaged in conducting market research studies on behalf of manufacturers. PRIOR to the start of operations, the following costs were incurred: Attorney's fees in connection with the organization of the company $ 42,000 Improvements to leased offices prior to occupancy 36,000 Meetings...