Question 21

The theoretical justification for expensing research and development (R&D) cost as it is incurred is based on which of the following arguments?

R&D costs provide no future benefits, thus it does not meet the definition of an asset

R&D costs are incurred to generate current period revenue; thus the matching concept requires that it be expensed as incurred.

Whether R&D costs that have been incurred will provide future benefit is uncertain, thus it does not meet the definition of an asset.

Since R&D costs have been incurred during the current period, they meet the definition of an expense.

Question 22

A large, publicly held company developed and registered a trademark during the current year. The cost of developing and registering the trademark should be accounted for by

Charging it to an asset account that should not be amortized

Expensing it as incurred

Amortizing it over 25 years if in accordance with management's evaluation

Amortizing it over its useful life or 17 years, whichever is shorter

Question 23

An investor purchased a bond as a long-term investment on January 1. Annual interest was received on December 31. The investor's interest income for the year would be lowest if the bond was purchased at

A discount

A premium

Par

Face value

Question 24

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee

The investor should always use the equity method to account for its investment

The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee

The investor should always use the fair value method to account for its investment

Question 25

Mayberrry Company owns 40% of Xnau Corporation's outstanding common stock. During the calendar year 2018, Xnau had net earnings of $500,000 and paid dividends of $60,000. Mayberry mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on Mayberry's investment account, net income, and retained earnings, respectively?

Overstate, understate, understate

Understate, understate, understate

Understate, overstate, overstate

Overstate, overstate, overstate