CPA Financial Accounting and Reporting Far Quiz: Account For Intangible Assets And Goodwill

What this quiz covers

This quiz focuses on Account For Intangible Assets And Goodwill, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Financial Accounting and Reporting Far.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. Test recoverability by comparing the asset’s carrying amount to undiscounted expected future cash flows; if not recoverable, measure impairment as the excess of carrying amount over fair value. (correct answer)
2. Measure impairment as the excess of carrying amount over discounted expected future cash flows, and recognize the difference as an impairment loss.
3. Skip recoverability testing and revalue the intangible asset to fair value each period, recognizing gains and losses in other comprehensive income.
4. Do not test finite-lived intangible assets for impairment because only goodwill and indefinite-lived intangibles are subject to impairment testing.

Explanation: FASB ASC 360-10-35-17 prescribes a two-step impairment test for finite-lived intangible assets: first test recoverability by comparing carrying amount to undiscounted expected future cash flows, then if not recoverable, measure impairment as the excess of carrying amount over fair value. This differs from the impairment test for indefinite-lived intangibles and goodwill, which skip the recoverability test and go directly to fair value comparison. The undiscounted cash flow test serves as a screen to avoid recognizing impairment when temporary market fluctuations reduce fair value below carrying amount but the asset remains economically recoverable. Choice B incorrectly uses discounted cash flows for measurement, Choice C incorrectly applies a revaluation model not permitted under U.S. GAAP, and Choice D incorrectly exempts finite-lived intangibles from impairment testing. The key framework is the two-step approach: recoverability test using undiscounted cash flows, followed by fair value measurement only if the asset fails the recoverability test.

Question 2

1. 12 years, because the legal life is the maximum period over which amortization is required.
2. 8 years, because amortization is based on the asset’s estimated useful (economic) life. (correct answer)
3. Not amortized, because intangible assets are treated as indefinite-lived unless management elects amortization.
4. 20 years, using a straight-line method consistent with the maximum period permitted for goodwill.

Explanation: FASB ASC 350-30-35-1 requires finite-lived intangible assets to be amortized over their useful life, which is the period over which the asset is expected to contribute to the entity's cash flows. The useful life (8 years) represents the economic benefit period and takes precedence over the legal life (12 years) when determining the amortization period. The patent should be amortized systematically over 8 years using a method that reflects the pattern of economic benefits, typically straight-line when the pattern is not reliably determinable. Choice A incorrectly uses legal life over economic life, Choice C incorrectly treats all intangibles as indefinite-lived by default, and Choice D references an outdated goodwill amortization concept. The decision rule is that amortization period equals the shorter of legal life or economic useful life, with economic life being the primary consideration for financial reporting purposes.

Question 3

1. Do not recognize the brand name because internally developed intangibles are prohibited from recognition under U.S. GAAP.
2. Recognize the brand name as an identifiable intangible asset at fair value on the acquisition date, even if it was not recognized by the acquiree before the business combination. (correct answer)
3. Recognize the brand name only at the acquiree’s historical cost and amortize it over 40 years.
4. Include the brand name in goodwill because it is indefinite-lived and therefore not separately recognizable.

Explanation: FASB ASC 805-20-25-10 requires all identifiable intangible assets acquired in a business combination to be recognized at fair value on the acquisition date, regardless of whether they were previously recognized by the acquiree. The brand name meets the identifiability criteria as it is capable of being separated or divided from the entity and provides future economic benefits. The fact that it was internally developed by the acquiree and not previously recognized is irrelevant in purchase accounting, as the business combination provides a new measurement basis at fair value. Choice A incorrectly applies the prohibition on recognizing internally generated intangibles to the acquirer's accounting for acquired assets, Choice C incorrectly uses historical cost and excessive amortization period, and Choice D incorrectly subsumes identifiable intangibles in goodwill based on their useful life. The principle is that business combinations result in fresh-start accounting at fair value for all identifiable assets, eliminating any book-tax differences or unrecognized internally developed intangibles of the acquiree.

Question 4

1. Amortize the trademark over 10 years and test for impairment only if the entity reports a net loss.
2. Test the trademark for impairment at least annually (and more frequently if indicators exist) by comparing fair value to carrying amount; recognize an impairment loss for any excess of carrying amount over fair value. (correct answer)
3. Remeasure the trademark to fair value each reporting period and recognize unrealized gains and losses in earnings.
4. Test the trademark for impairment only upon disposal because indefinite-lived intangibles are not subject to impairment testing.

Explanation: FASB ASC 350-30-35-15 through 35-18 requires indefinite-lived intangible assets to be tested for impairment at least annually and more frequently when indicators suggest the asset may be impaired. The impairment test compares the asset's carrying amount to its fair value, with any excess of carrying amount over fair value recognized as an impairment loss in the period identified. Increased competition represents a triggering event requiring an interim impairment test beyond the annual requirement. Choice A incorrectly amortizes an indefinite-lived asset and limits testing to loss periods, Choice C incorrectly requires fair value remeasurement with gain recognition, and Choice D incorrectly exempts indefinite-lived intangibles from impairment testing. The key framework is that indefinite-lived intangibles are not amortized but must be tested for impairment using a fair value test, with more frequent testing when adverse indicators arise.

Question 5

1. Defer testing until December 31 because goodwill impairment testing is required only annually and interim events are ignored.
2. Perform an interim goodwill impairment test as of September 30 because a triggering event indicates it is more likely than not that goodwill is impaired. (correct answer)
3. Amortize goodwill prospectively over the remaining period until December 31 to reflect the adverse legal ruling.
4. Write off goodwill immediately to zero because any adverse legal ruling requires full derecognition of goodwill.

Explanation: FASB ASC 350-20-35-30 requires goodwill to be tested for impairment between annual tests if events or circumstances indicate it is more likely than not that goodwill is impaired. A significant adverse legal ruling that reduces expected future cash flows is a clear triggering event requiring an interim impairment test as of the date the event occurred (September 30). The entity cannot wait until the annual test date when impairment indicators arise during the year. Choice A incorrectly defers testing despite the triggering event, Choice C incorrectly suggests amortizing goodwill which is prohibited under current GAAP, and Choice D incorrectly requires automatic full write-off without performing the impairment test. The professional judgment framework requires immediate testing when significant adverse events occur, as delaying recognition of impairment would misstate the financial position and violate the timely recognition principle.

Question 6

1. A significant adverse change in business climate and market capitalization falling below book value, indicating it is more likely than not that goodwill is impaired. (correct answer)
2. Any general market volatility, regardless of entity-specific effects, automatically requires a goodwill impairment test each quarter.
3. Goodwill must be tested only when management commits to a plan to sell the reporting unit.
4. Goodwill is tested for impairment only at the end of the reporting unit’s remaining useful life.

Explanation: FASB ASC 350-20-35-3C requires goodwill to be tested for impairment at least annually and more frequently if events or circumstances indicate it is more likely than not that goodwill is impaired. The combination of sustained revenue decline, loss of a major customer, and market capitalization falling below book value represents multiple triggering events that indicate it is more likely than not (greater than 50% likelihood) that the fair value of the reporting unit is below its carrying amount. Choice B incorrectly suggests general market volatility alone requires quarterly testing, when entity-specific adverse effects are needed. Choice C incorrectly limits testing to disposal situations, and Choice D incorrectly treats goodwill as having a finite life. The professional judgment framework requires evaluating whether the totality of adverse events and circumstances, both qualitative and quantitative, indicates a more-likely-than-not threshold for impairment has been met.

Question 7

1. Recognize an impairment loss of $10 million, limited to the amount of goodwill, and reduce goodwill accordingly. (correct answer)
2. Recognize an impairment loss of $10 million and allocate it pro rata to goodwill and all identifiable intangible assets.
3. Recognize no impairment loss because goodwill impairment is recognized only upon disposal of the reporting unit.
4. Recognize an impairment loss of $25 million because any excess of carrying amount over fair value requires writing goodwill down to zero.

Explanation: FASB ASC 350-20-35-2 through 35-13 prescribes the goodwill impairment test, which compares the reporting unit's carrying amount to its fair value. When the carrying amount ($120 million) exceeds fair value ($110 million), an impairment loss is recognized for the difference ($10 million), but limited to the amount of goodwill allocated to that reporting unit ($25 million). The impairment loss reduces goodwill directly and cannot exceed the carrying amount of goodwill. Choice B incorrectly allocates impairment to other assets beyond goodwill, Choice C incorrectly defers recognition until disposal, and Choice D incorrectly writes goodwill to zero when the impairment is only $10 million. The key principle is that goodwill impairment is measured as the excess of carrying amount over fair value, capped at the goodwill balance, ensuring goodwill cannot be written down below zero or create a deferred debit.

Question 8

1. Recognize both the customer list and the assembled workforce as identifiable intangible assets at fair value on the acquisition date.
2. Recognize the customer list as an identifiable intangible asset at fair value and include the assembled workforce in goodwill. (correct answer)
3. Include both the customer list and the assembled workforce in goodwill because they were not recognized on the acquiree’s preacquisition balance sheet.
4. Recognize the customer list as a tangible asset and include the assembled workforce in goodwill.

Explanation: FASB ASC 805 requires identifiable intangible assets acquired in a business combination to be recognized separately from goodwill at fair value on the acquisition date. The customer list meets the separability criterion as it is separately transferable, making it an identifiable intangible asset that must be recognized at fair value. However, assembled workforce is specifically excluded from separate recognition under ASC 805-20-55-6 and must be included in goodwill, even though it provides future economic benefits. Choice A incorrectly recognizes assembled workforce separately, which violates the explicit prohibition in ASC 805. Choice C incorrectly includes the customer list in goodwill despite it meeting the identifiability criteria, and Choice D misclassifies the customer list as tangible rather than intangible. The key decision rule is that all identifiable intangible assets meeting the contractual-legal or separability criteria must be recognized separately at fair value, except for assembled workforce which is always subsumed in goodwill.

Question 9

1. An increase in general interest rates alone always requires a goodwill impairment test, even if there is no entity-specific adverse effect.
2. Stable cash flows eliminate the need for any goodwill impairment testing, including the annual test.
3. A triggering event exists only if management plans to change the annual impairment testing date.
4. Redstone must perform at least an annual goodwill impairment test regardless of indicators; interim testing is required only if events and circumstances indicate it is more likely than not that goodwill is impaired. (correct answer)

Explanation: FASB ASC 350-20-35-30 requires goodwill to be tested for impairment at least annually, regardless of whether triggering events exist, with more frequent testing required only when events and circumstances indicate it is more likely than not that goodwill is impaired. The annual test is mandatory and cannot be skipped even with stable operations. General interest rate increases without entity-specific adverse effects do not constitute a triggering event requiring interim testing, as the standard focuses on entity-specific indicators rather than broad economic changes. Choice A overstates the impact of general interest rates, Choice B incorrectly eliminates the mandatory annual test, and Choice C mischaracterizes what constitutes a triggering event. The decision framework distinguishes between the mandatory annual test (required regardless of indicators) and interim testing (required only with specific adverse indicators affecting the reporting unit's fair value).

Question 10

1. Expense the in-process R&D immediately because research costs are expensed as incurred under U.S. GAAP.
2. Recognize the in-process R&D as an identifiable indefinite-lived intangible asset at fair value on the acquisition date until completion or abandonment, then reassess its useful life. (correct answer)
3. Include the in-process R&D in goodwill because it is not separately transferable at the acquisition date.
4. Recognize the in-process R&D as inventory at fair value and expense it when the related product is sold.

Explanation: FASB ASC 805-20-25-10 and ASC 350-30-35-17A specifically require in-process research and development (IPR&D) acquired in a business combination to be recognized as an identifiable intangible asset at fair value, regardless of whether it has reached technological feasibility. IPR&D is initially classified as indefinite-lived until the project is completed or abandoned, at which point its useful life is reassessed and it either begins amortization (if completed) or is written off (if abandoned). This treatment differs from internally generated R&D, which is expensed as incurred under ASC 730. Choice A incorrectly applies the internal R&D expensing rule to acquired IPR&D, Choice C incorrectly includes it in goodwill despite its identifiability, and Choice D misclassifies it as inventory. The critical distinction is that acquired IPR&D in a business combination receives asset recognition at fair value, while internally generated R&D is expensed, creating an important exception to the general R&D accounting rules.

Question 11

1. Total intangible assets of $1.8 million representing capitalizable development and patent costs (correct answer)
2. Total intangible assets of $2.0 million including all development costs and patent acquisition
3. Total intangible assets of $3.0 million representing all costs except initial research
4. Total intangible assets of $600,000 representing only the patent purchase price

Explanation: Research costs ($800,000) and training costs ($400,000) should be expensed as incurred under ASC 730. Only development costs incurred after technological feasibility ($1,200,000) can be capitalized as an intangible asset. The patent purchase ($600,000) is also capitalized. Total intangible assets = $1,200,000 +$600,000 = $1,800,000. Choice B incorrectly capitalizes training costs. Choice C incorrectly capitalizes both development and training costs. Choice D only includes the patent and ignores capitalizable development costs. The key distinction is that only development costs after technological feasibility, not all development costs or training costs, can be capitalized.

Question 12

1. $500,000, representing the fair value after impairment recognition (correct answer)
2. $600,000, representing the recoverable amount before impairment
3. $720,000, representing the carrying amount before impairment testing
4. $960,000, representing the original cost less accumulated amortization

Explanation: The patent is amortized over its useful life of 10 years: $1.2M ÷ 10 =$120,000 per year. After 2 years (2022-2023), accumulated amortization is $240,000, giving a carrying amount of$960,000 on January 1, 2024. Since the undiscounted future cash flows ($600,000) are less than the carrying amount ($960,000), impairment exists. The impairment loss is the excess of carrying amount over fair value: $960,000 -$500,000 = $460,000. The new carrying amount is$500,000. Choice B uses undiscounted cash flows instead of fair value. Choice C appears to use incorrect amortization calculation. Choice D shows the pre-impairment carrying amount.

Question 13

1. Capitalize $480,000; Q4 2024 amortization expense of$30,000
2. Capitalize $580,000; Q4 2024 amortization expense of$36,250 (correct answer)
3. Capitalize $400,000; Q4 2024 amortization expense of$25,000
4. Capitalize $730,000; Q4 2024 amortization expense of$45,625

Explanation: Software development costs under U.S. GAAP follow specific capitalization rules. During the research phase, all costs are expensed immediately. Once technological feasibility is established (typically when development begins), costs can be capitalized until the product is ready for release. Let's analyze GlobalTech's costs: Research phase costs of $150,000 must be expensed since they occur before technological feasibility. The development phase ($400,000) and testing phases ($100,000 +$80,000) can be capitalized as they occur after feasibility is established and before release. However, marketing and launch preparation costs ($120,000) are period expenses, not capitalizable development costs. Total capitalizable amount: $400,000 +$100,000 + $80,000 =$580,000. For amortization, the asset begins amortizing when available for use (October 1, 2024). With a 4-year useful life, annual amortization is $\frac{580,000}{4} = 145,000$. Q4 2024 covers 3 months (October-December), so quarterly amortization is $\frac{145,000}{4} = 36,250$. Answer choice A incorrectly excludes testing costs from capitalization. Answer choice C only capitalizes development phase costs, missing the testing phases that occur before release. Answer choice D incorrectly capitalizes all costs including research and marketing expenses. Remember this pattern: For software development, expense research costs, capitalize post-feasibility development and testing costs, and expense marketing costs. Amortization begins when the software is ready for its intended use, not when development starts.

Question 14

1. Capitalize $500,000 and record 2024 amortization expense of$100,000
2. Capitalize $500,000 and record 2024 amortization expense of$50,000
3. Capitalize $200,000 and record 2024 amortization expense of$20,000 (correct answer)
4. Capitalize $200,000 and record 2024 amortization expense of$40,000

Explanation: Under ASC 350-40, only costs incurred during the application development stage should be capitalized for internal-use software. Preliminary project stage costs ($300,000) and post-implementation costs ($300,000) are expensed as incurred. Therefore, only the $200,000 coding costs are capitalized. The software was placed in service July 1, 2024, so amortization for 2024 is for 6 months: ($200,000 ÷ 5 years) × (6/12) = $20,000. Choice A incorrectly capitalizes preliminary costs. Choice B capitalizes preliminary costs but uses correct partial-year amortization. Choice D uses correct capitalization but calculates a full year of amortization instead of 6 months.

Question 15

1. $1.75 million, representing the average of impaired and recovered values
2. $1.9 million, representing the current fair value after recovery
3. $2.0 million, representing the restoration to original cost
4. $1.6 million, as impairment losses on intangible assets cannot be reversed (correct answer)

Explanation: When you encounter questions about intangible asset impairment and recovery, remember that U.S. GAAP treats impairment losses on intangible assets as permanent write-downs that cannot be reversed. Here's what happened with Phoenix's trademark: The company acquired it for $2 million in 2022. When the 2024 impairment test showed the fair value had declined to$1.6 million, Phoenix was required to recognize an impairment loss of $400,000, reducing the carrying amount to$1.6 million. Even though the fair value recovered to $1.9 million in 2025, U.S. GAAP prohibits reversing previously recognized impairment losses on intangible assets. The carrying amount remains at$1.6 million. Answer A is incorrect because averaging impaired and recovered values has no basis in accounting standards. Answer B wrongly assumes you can write the asset back up to current fair value, which would constitute an impairment reversal that's prohibited under U.S. GAAP. Answer C incorrectly suggests you can restore the asset to its original cost, which would also represent an impairment reversal. The correct answer is D because once an intangible asset is impaired, that loss is permanent under U.S. GAAP, regardless of subsequent fair value increases. Study tip: Remember the key difference between U.S. GAAP and IFRS here—while IFRS allows impairment reversals for some intangible assets, U.S. GAAP never does. On the CPA exam, always assume U.S. GAAP unless explicitly told otherwise, and remember that impairment losses on intangibles are one-way streets downward.