Question

For internally developed intangible assets, research and development expenditures incurred by the firm in the development of a patent are generally recorded as: A current period operating expense. An intangible asset which is amortized over its estimated useful life. An intangible asset which is amortized over 40 years. An intangible asset which is not amortized.

Answer 1

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A current period operating expense.

Balance sheet as a deduction from the cost of the natural resources.

The future cash flows expected to be generated by the asset are determined to be less than the asset's book value.

Notes payable in two years.

A liability owed to the federal government.

All are correct.

Neither record a liability nor disclose in the footnotes.

Answer 2

ANSWERS :

1. an intangible asset which is amortised over its estimated useful life.

R&D expenditures for development of new product or patent are internally developed intangible assets. These are to be amortised over useful life of the patent /product.

2. balance sheet as a deduction from the cost of natural resources.

Natural resources are acquired at a cost and are used over a period of more than one year. With the extraction of the resources, there is depletion of reserves. So, the accumulated depletion cost is deducted from the cost of acquiring the natural resources like mines etc.

to indicate the book value of this kind of assets in the balance sheet.

3.  the asset is inspected and determined to have suffered damage and the amount of damage is ascertained by a qualified property appraiser.

This is quite reasonable and correct way of determining the existence  and extent of damage.

4. Notes payable in two years.

Anything payable in the current year is considered as current liability. So, notes payable in two years is not a current liability.

5. FICA 

FICA is Social security and Medicare taxes which is is to be paid by employer and employee both in equal amounts. Employees’ share is withheld by the employer from the pay and to be paid by employer along with his share to the government.

Hence, it is pay deductible.

6. Disclose in footnotes to the financial statements but record no journal entry.

Contingent liability is a probability only. When it becomes a fact it is to be recorded in the accounts otherwise not. So, a mention in footnotes of the statements is considered legally ok.