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A company has a tangible manufacturing asset and is trying to determine whether the asset needs to be evaluated for impairment. Which of the following would not indicate a need to perform this test?
Operational losses do not indicate that the fair value of the asset is less than the asset's carrying value. The other choices indicate that the asset's fair value could be less than it's carrying value.
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Which of the following is correct, under US GAAP, regarding impairment losses?
Impairment losses on discontinued operations are presented after-tax; Impairment losses are recorded when the fair value of an asset falls below its carrying value, not the other way around.
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The Mallory Corp has a fixed asset with a carrying value of $100,000, expected future cash flows of $90,000, present value of expected future cash flows of $70,000, and a market value of $75,000. What amount of impairment loss should Mallory record for this asset?
Because expected future cash flows of $90K are lower than the asset's carrying value of $100K, impairment should be recorded. The amount of impairment loss recorded will be equal to the carrying value of $100K - the asset's fair value of $75K.
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After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct under US GAAP?
Under US GAAP, subsequent reversal of intangible asset impairment losses is prohibited unless the intangible asset is held for sale.
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Of the following, which is a pair of value that are compared to determined the amount of a possible impairment loss on an intangible asset, with an indefinite life, other than goodwill?
An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.
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Under US GAAP, long term fixed assets that are impaired can only have their carrying value reinstated if they are:
Only when these assets are held for disposal can they have their carrying values restored.
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Which of the following is correct regarding accounting for patent costs?
Most costs incurred to generate a patent internally will be expenses; however, legal costs to defend an existing patent will be capitalized if the legal proceedings are successful. When an existing patent is purchased from another party, that cost is capitalized.
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Which of the following is correct regarding costs associated with goodwill?
Costs to develop and maintain goodwill be expensed, not capitalized. Goodwill itself is capitalized but not amortized.
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Pop Co purchases a patent in Year 1 from another organization at the cost of $100,000. In Year 3, Pop Co defended its patent in a law suit, during which it spent $20,000 in legal fees. Pop Co was successful in defending the patent. The entry to record the $20,000 in legal fees should include which of the following?
Costs incurred to defend a patent will be capitalized if the lawsuit is successful. Therefore, the entry to record these costs will include a debit to an intangible asset.
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Under IFRS rules, which of the following statements about intangible assets is correct?
Internally generated goodwill cannot be capitalized and is treated as an expense in the period incurred.
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Are routine efforts to improve an existing product considered R&D expenses?
Routine expenses to maintain a product that already exists could not be R&D as the product is technologically feasible.
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A long lived asset should be tested for recoverability:
Carrying amounts of fixed long term assets should be tested for recoverability no less than annually or when circumstances indicate a possible permanent change in carrying amount.
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Which of the following costs will be expensed rather than capitalized?
Costs incurred to develop software for internal use will be expensed up until the project has reached the preliminary project state. After this point, costs incurred will be capitalized. Costs incurred to customize purchased software and costs to develop software to sell, after the point of technological feasibility, will be capitalized.
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During Year 5, BioTech, Inc incurred $500,000 of research and development costs to develop a product for which a patent was granted on August 1, Year 5. Legal fees and other costs associated with the patent totaled $85,000. BioTech estimates the useful life of the patent to be 15 years. What amount should BioTech capitalize for the patent on August 1, Year 1?
Research and development costs that resulted in a patented product will be expensed, but legal fees to establish the patent will be capitalized. Therefore, only the $85K in legal fees will be capitalized.
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Coleman Inc produces software for sale and internal use. In the current year, Coleman incurred the following costs: research & development costs outsourced to a third party of $30,000; design and testing of preproduction prototypes of $110,000; testing in search for new products of $15,000; and quality control costs of $18,000. What amount of costs should be expensed as research & development in the current year?
All of the listed costs will be expensed, however, the $18K in quality control costs will be exposed as quality control costs, not research and development. All other costs will be expensed as research and development costs.
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ABC incurred organization costs of $3,000 at the beginning of its first year of operations. How should ABC treat the organization costs in its financial statements?
Organization costs are expensed for US GAAP financial income but deducted later for tax purposes.
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ABC company incurred legal fees in defending its patent rights. These legal fees should be capitalize when the outcome of the litigation is:
The accounting treatment for legal fees depends on the defense of a legal outcome. If successful the costs are capitalized, the preferable treatment.
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Which term signifies that expenses can begin to be capitalized for software development?
Technological feasibility is a key term which indicates that software expenses can begin to be capitalized, which is a preferable outcome.
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Of the following, which is a pair of value that are compared to determined the amount of a possible impairment loss on an intangible asset, with an indefinite life, other than goodwill?
An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.
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Under US GAAP, long term fixed assets that are impaired can only have their carrying value reinstated if they are:
Only when these assets are held for disposal can they have their carrying values restored.
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