Assessment No.

3-Finals

I. True or False
1. A distinguishing characteristic of intangible assets is that the extent and timing of their
future benefits typically are highly uncertain.
2. Intangible assets generally represent exclusive rights that provide benefits to the
owner..
3. The cost to purchase a patent is expensed in the period incurred..
4. Both patents and copyrights have legal lives of 20 years.
5. Trademarks can have either definite or indefinite useful lives.
6. The initial franchise fee plus the present value of estimated future fees paid to the
franchisor for future services are capitalized at the beginning of the franchise period.
7. The relative fair values of individual assets acquired in a lump-sum purchase are used
to determine the valuation of each of those assets..
8. If the sum of the fair values of the assets acquired in a lump-sum purchase is greater
than the consideration given, a gain is recorded..
9. According to International Financial Reporting Standards (IFRS), the costs to
successfully defend an intangible right normally are capitalized and amortized.
10. According to International Financial Reporting Standards (IFRS), the impairment loss
for an indefinite-life intangible asset other than goodwill is the difference between book
value and the recoverable amount.

II. Multiple Choice

11. The legal life of a patent is:
a. 40 years.
b. 20 years.
c. Life of the inventor plus 50 years.
d. Indefinite.
12. If an intangible asset has a legal life of eight years but contractually the
usefulness is limited to six years, a company will amortize the cost over:
a. Eight years.
b. Six years.
c. Seven years.
d. Either six or eight years is allowed.
13. Intangible assets that have an indefinite useful life:
a. Are those with no foreseeable limit on the period of time over which the asset
is expected to contribute to the cash flows of the entity.
b. Are those with no legal, contractual, or economic factors that are expected to
limit their useful life to a company.
c. Are those whose acquisition costs are not amortized over their useful life.
d. All of these answer choices are correct.
14. Short Corporation acquired Hathaway, Inc., for $52,000,000. The fair value of all
Hathaway's identifiable tangible and intangible assets was $48,000,000. Short will
amortize any goodwill over the maximum number of years allowed. What is the
annual amortization of goodwill for this acquisition?

15. Granite Enterprises acquired a patent from Southern Research Corporation on

January 1, 2021, for $4 million. The patent will be used for five years, even
though its legal life is 20 years. Rocky Corporation has made a commitment to
purchase the patent from Granite for $200,000 at the end of five years. Compute
Granite's patent amortization for 2021, assuming the straight-line method is used.
16. At the beginning of the year, a company purchases a patent for $2,400,000. The
remaining legal life of the patent is 12 years, but management estimates that the
patent will generate additional revenue for the next 16 years because there are
currently no known competitors. At the end of the first year, management
calculates straight-line amortization to be $150,000 ($2,400,000 ÷ 16 years).
Which of the following statements is correct?
a. Management should amortize the asset over 20 years.
b. Management should amortize the asset over 12 years.
c. Management should not amortize the asset until its useful life becomes more
evident.
d. Management's calculation is correct.
17. On January 1, 2021, Tabitha Designs purchased a patent for $240,000 giving it
exclusive rights to manufacture a new type of synthetic clothing. While the patent
had a remaining legal life of 15 years at the time of purchase, Tabitha expects
the useful life to be only eight more years. In addition, Tabitha purchased
equipment related to production of the new clothing for $140,000. The equipment
has a physical life of 10 years, but Tabitha plans to use the equipment only over
the patent's service life and then sell it for an estimated $20,000. Tabitha uses
straight-line for all long-term assets. The amount to expense in 2024 related to
the patent and equipment should be
18. Russell Enterprises acquired a franchise from Michael Incorporated for $300,000.
The franchise agreement is for a period of six years. Russell uses straight-line to
amortize all intangible assets. What would be the reported book value of the
franchise two years after the purchase?
19. On January 3, 2021, Tracer Incorporated purchased a patent for $450,000 to
manufacture a new type of chair. The patent has a remaining legal life of 12
years. Tracer plans to manufacture the chair for eight years and then sell the
patent for $50,000. The company amortizes intangible assets using the straight-
line method. On December 29, 2023, Tracer decides to sell the patent for
$325,000. Assuming the company has a December 31 year-end, what is the gain
recorded on the sale of the patent?
20. The allocationbase for an asset is ______
a. its service life
b. the excess of its cost over residual value
c. the difference between its replacement value and cost
d. the amount allowable under fair value method
 21. On January 3, 2018, Tracer Incorporated purchased a patent for $450,000 to
manufacture a new type of chair. The patent has a remaining legal life of twelve
years. Tracer plans to manufacture the chair for eight years and then sell the
patent for $50,000. The company amortizes intangible assets using the straight-
line method. On December 29, 2020, Tracer decides to sell the patent for
$325,000. Assuming the company has a December 31 year-end, what is the loss
recorded on the sale of the patent?

On December 31, 2004, Silver Corporation acquired the following three intangible
assets:

 A trademark for P300,000. The trademark has 7 years remaining legal life. It is
anticipated that the trademark will be renewed in the future, indefinitely, without
problem.

 Goodwill for P1,500,000. The goodwill is associated with Silver’s Hayo

Manufacturing reporting unit.

 A customer list for P220,000. By contract, Silver has exclusive use of the list for 5
years. Because of market conditions, it is expected that the list will have economic
value for just 3 years.

On December 31, 2005, before any adjusting entries for the year were made, the
following information was assembled about each of the intangible assets:

a) Because of a decline in the economy, the trademark is now expected to generate

cash flows of just P10,000 per year. The useful life of trademark still extends
beyond the foreseeable horizon.

b) The cash flows expected to be generated by the Hayo Manufacturing reporting unit
is P250,000 per year for the next 22 years. Book values and fair values of the
assets and liabilities of the Hayo Manufacturing reporting unit are as follows:

Book values Fair values

Identifiable assets P2,700,000 P3,000,000
Goodwill 1,500,000
Liabilities 1,800,000 1,800,000

The cash flows expected to be generated by the customer list are P120,000 in 2006 and
P80,000 in 2007. Assuming that 6% is the discount rate of all items.

22. Total amortization for the year 2005

a. P73,333 b. P141,515 c. P116,190 d. P86,857

23. Impairment loss for the year 2005

 a. P90,476 b. P133,333 c. P179,584 d. P0

24. Carrying value of Trademark as of December 31, 2005

a. P300,000 b. P257,143 c. P166,667 d. P120,416

25. Carrying value of Goodwill as of December 31, 2005

a. P1,500,000 b. P1,431,818 c. P1,425,000 d. P1,462,500

26. Carrying value of Customer list as of December 31, 2005

a. P220,000 b. P146,667 c. P176,000 d. P0