ACCT 551 Midterm Exam Question Answer

1.         Question::        (TCO C) The cost of an intangible asset includes all of the following except

         
2.         Question: :       (TCO C) Which of the following is not an intangible asset?

         

3.         Question: :       (TCO C) The intangible asset goodwill may be

         

4.         Question: :       (TCO C) ELO Corporation purchased a patent for $90,000 on September 1, 2008. It had a useful life of ten years. On March 1, 2010, ELO spent $17,500 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is five years. What amount should be reported for patent amortization expense for 2010?

         

5.         Question: :       (TCO C) Floyd Company purchases Haeger Company for $800,000 cash on January 1, 2011. The book value of Haeger Company’s net assets, as reflected on its December 31, 2010 balance sheet, is $620,000. An analysis by Floyd on December 31, 2010 indicates that the fair value of Haeger’s tangible assets exceeded the book value by $60,000, and the fair value of identifiable intangible assets was equal to book value. How much goodwill should be recognized by Floyd Company when recording the purchase of Haeger Company?



6.         Question: :       (TCO D) An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

         
7.         Question: :       (TCO D) Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for one year that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty

         
8.         Question: :       (TCO D) On December 31, 2010, Irey Co. has $2,000,000 of short-term notes payable due on February 14, 2011. On January 10, 2011, Irey arranged a line of credit with County Bank which allows Irey to borrow up to $1,700,000 at one percent above the prime rate for three years. On February 2, 2011, Irey borrowed $1,700,000 from County Bank and used $300,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2010 balance sheet which is issued on March 5, 2011 is

         
9.         Question: :       (TCO D) Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation?

10.       Question: :       (TCO D) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a discount this indicates that

         
11.       Question: :       (TCO D) If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

         
12.       Question: :       (TCO D)When the interest payment dates of a bond are June 1 and December 1, and a bond issue is sold on November 1, the amount of cash received by the issuer will be

         
13.       Question: :       (TCO D) Feller Company issues $20,000,000 of ten-year, 9% bonds on August 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest annually on December 31. What is the total cash received on the issue date?

         
14.       Question: :       (TCO D) A company issues $5,000,000, 7.8/%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on December 31. The proceeds from the bonds are $4,901,036. Using effective-interest amortization, how much interest expense will be recognized in 2010?

         

15.       Question: :       (TCO D) On January 1, Martinez Inc. issued $3,000,000, 11% bonds for $3,195,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of:

         

1.         Question: :       (TCO C) Sisco Co. purchased a patent from Thornton Co. for $180,000 on July 1, 2007. Sisco amortizes the patent over a period of 10 years. Expenditures of $92,000 for successful litigation in defense of the patent were paid on July 1, 2011. Sisco estimates that the useful life of the patent will be increase by 10 years from the date of litigation becasue of successfully defending it
Instructions:
Prepare a computation of the carrying value of the patent at December 31, 2011.

         

2.         Question: :       (TCO C) Fred’s Company is considering the write-off of a limited life intangible asset because of its lack of profitability. Explain to the management of Fred’s how to determine whether a writeoff is permitted.

         

3.         Question: :       (TCO D) Edwards Co. includes one coupon in each bag of dog food it sells. In return for four coupons, customers receive a dog toy that the company purchases for $1.20 each. Edwards's experience indicates that 60 percent of the coupons will be redeemed. During 2010, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2011, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Instructions:
Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the balance sheet for 2010 and 2011.



4.         Question: :       (TCO D) Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.
(a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.
(b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.

         


5.         Question: :       (TCO D) Mann, Inc., which owes Doran Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty. To settle the debt, Doran agrees to accept from Mann equipment with a fair value of $570,000, an original cost of $840,000, and accumulated depreciation of $195,000.
Instructions:
(a) Compute the gain or loss to Mann on the settlement of the debt.
(b) Compute the gain or loss to Mann on the transfer of the equipment.