Question

An intangible asset may be recorded when a company ______. (Check all that apply.)

a) trains its employees
b) pays more than the net assets of the company purchased
c) internally creates an asset with no physical properties, such as outstanding customer loyalty
d) purchases a trademark

Answer 1

A company may record an intangible asset when it pays more than the net assets of the company it purchases, which is known as goodwill, or when it purchases a trademark. Costs for training employees and internally created goodwill, such as customer loyalty, are not capitalized.

Step-by-step explanation:

An intangible asset may be recorded on a company's balance sheet in certain situations. When a company pays more than the net assets of another company it purchases, this is often recorded as goodwill, which is an intangible asset. Additionally, if a company purchases a trademark, this is recorded as an intangible asset because trademarks are recognizable signs, designs, or expressions that distinguish products or services.

However, costs incurred to train employees are not capitalized as intangible assets; they are usually expensed as incurred. For internally created assets, such as customer loyalty, accounting standards generally prohibit capitalizing these costs due to the difficulty in objectively measuring the value and future economic benefits.