Indicate whether each of the following statements is true or false.________ a) A patent with a useful life of 5 years and a legal life of 10 years is amortized over 5 years.________ b) Intangible assets with indefinite useful lives must be tested each year for impairment.________ c) If it is determined that the original value recorded for goodwill is too high, then an entry is made directly to Retained Earnings, reducing the balance in this account._____d) The entry to recognize an impairment loss on goodwill includes a debit to Amortization Expense and a credit to Goodwill._____e) The recognition of an impairment loss involves a cash outflow classified as a financing activity.

Question

What will be an ideal response?

Answer 1

a) T b) T c) F d) F e) F

a) This is true. Intangible assets, such as patents, with identifiable lives are amortized over the shorter of their legal or useful lives.
b) This is true. If an intangible asset does not have an identifiable useful life, such as a trademark or goodwill, it is not amortized, but it is tested for impairment each year.
c) This is false. The income statement account Impairment Loss is charged.
d) This is false. The debit is to the account Impairment Loss, not to Amortization Expense. 
e) This is false. An impairment loss does not affect cash flows.