Question

Using the acquisition method, a company acquires all of the shares of stock of another company. In-process research and development is present and estimated to have a $300,000 fair value. How would you account for these costs?

A) Always expense these costs at the acquisition date
B) Expense these costs unless such costs represent assets with alternative future use
C) Recognize these costs as an intangible asset and amortize the cost over a reasonable life
D) Recognize these costs as an intangible asset and test for impairment
E) These costs have no impact on the purchase.

Answer 1

D) Recognize these costs as an intangible asset and test for impairment

Step-by-step explanation:

Given that

The estimated fair value of the research and development = $300,000

Since the research and development estimated fair value treated as an intangible asset that is cannot be seen or touched but it would be recognized in the financial statements as an impairment test like as goodwill which is also an intangible asset plus it also use for impairment test.