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Practice CPA®CPA FAR Practice Exam 5Question 35

Medium1 markMultiple Choice

Area II: Balance Sheet AccountsFARIntangibles

CPA · Question 35 · Area II: Balance Sheet Accounts

A company purchases a trademark for $50,000. It expects to renew the trademark indefinitely for a nominal fee. How should this asset be amortized?

Answer options:

A.

Over 10 years.

B.

Over 40 years.

C.

Over its legal life.

D.

It should not be amortized.

How to approach this question

Indefinite life intangibles (Goodwill, Trademarks with indefinite renewal) -> No Amortization. Test for impairment annually.

Full Answer

D.It should not be amortized.✓ Correct

Intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually.

Common mistakes

Amortizing over legal life even when renewal is indefinite.

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