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Question 2

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Intermediate Accounting (Kieso)
Found in: Page 637

Short Answer

If intangibles are acquired for stock, how is the cost of the intangible determined?

Suppose intangibles are purchased in exchange for stock. In that case, the cost of the intangible is the fair value of the consideration given or the fair value of the consideration received, depending upon whichever is more.

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Step by Step Solution

Intangible Asset

Intangibles have two types of useful lives: limited and indefinite

Cost of Intangible

It is the fair value of the consideration given or the fair value of the consideration received (whichever is more).

Most popular questions for Business-studies Textbooks

Question: (Accounting for Research and Development Costs) Cuevas Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31, 2017), the new product has not been manufactured for resale. However, a prototype unit was built and is in operation.

Throughout 2017, the new division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, approximately $900,000 in equipment (with an estimated useful life of 10 years) was purchased for use in developing and manufacturing the new product. Approximately $315,000 of this equipment was built specifically for the design development of the new product. The remaining $585,000 of equipment was used to manufacture the pre-production prototype and will be used to manufacture the new product once it is in commercial production.

Instructions

  1. How are “research” and “development” defined in the authoritative literature (GAAP)?
  2. Briefly indicate the practical and conceptual reasons for the conclusion reached by the Financial Accounting Standards Board on accounting and reporting practices for research and development costs.
  3. In accordance with GAAP, how should the various costs of Cuevas described above be recorded on the financial statements for the year ended December 31, 2017?
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