a 160000 200000 275000 635000 Test Bank for Intermediate Accounting Fourteenth

A 160000 200000 275000 635000 test bank for

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120. a $160,000 + $200,000 + $275,000 = $635,000.
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Test Bank for Intermediate Accounting, Fourteenth Edition 12 - 32 EXERCISES Ex. 12-121Intangible assets have two main characteristics: (1) they lack physical existence, and (2) they are not financial instruments. Instructions (a) Explain why intangibles are classified as assets if they have no physical existence. (b) Explain why intangibles are not considered financial instruments. Solution 12-121 (a) Intangible assets derive their value from the rights and privileges they grant to the company that owns them. (b) Intangibles are not considered financial instruments because they do not derive their value from the right (claim) to receive cash or cash equivalents in the future. Ex. 12-122Intangible assets may be internally generated or purchased from another party. In either case, what costs should be included in the initial valuation of the asset is an issue. Instructions (a) Identify the typical costs included in the cash purchase of an intangible asset. (b) Discuss how to determine the cost of an intangible asset acquired in a non-cash transaction. (c) Describe how to determine the cost of several intangible assets acquired in a “basket purchase.” Provide a numerical example involving intangibles being acquired for a total price of $90,000. Solution12-122 (a) The typical costs included in the purchase of an intangible asset are: purchase price, legal fees, and other incidental expenses. (b) In a non-cash acquisition of an intangible asset, the initial cost of the intangible is either the fair value of the consideration given or the fair value of the intangible received, whichever is more clearly evident. (c) When several intangible assets are acquired in a “basket purchase”, the cost of the individual assets is based on their relative fair values. For example: AssetFV%AllocationPatent A $ 60,000 60 60% x $90,000 = $ 54,000 Patent B 40,0004040% x $90,000 = 36,000Totals $100,000100$90,000
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Intangible Assets 12 - 33Ex. 12-123Why does the accounting profession make a distinction between internally created intangible assets and purchased intangible assets? Solution 12-123 When intangible assets 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 great deal of subjectivity because management could argue that almost any expense could be capitalized on the basis that it will increase future benefits. The cost of purchased intangible assets, however, is capitalized because its cost can be objectively verified and reflects its fair value at the date of acquisition. Ex. 12-124—Short essay questions. 1. What are intangible assets? 2. How are limited-life intangibles accounted for subsequent to acquisition? Solution 12-124 1. Intangible assets are assets that derive their value from the rights and privileges granted to the company using them. They provide services over a period of years and are normally classified as long-term assets. Examples are patents, copyrights, franchises, goodwill, trademarks, and trade names.
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