Generally Accepted Accounting Principles
1. Question :
Student Answer:
(TCO C) The cost of an intangible asset includes all of the following except purchase price. legal fees. other incidental expenses.
Instructor
Explanation:
Points Received:
All of these are included.
Chapter 12
5 of 5
Comments:
Question 2.Question :
Student Answer:
(TCO C) Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to patents, and amortized over the legal life of the patent. legal fees, and amortized over 5 years or less. expenses of the period.
Instructor
Explanation:
Points Received:
patents, and amortized over the remaining useful life of the patent.
Chapter 12
5 of 5
Comments:
Question 3.Question …show more content…
:
Student Answer:
(TCO C) Negative goodwill arises when the _____ of the net assets acquired is higher than the purchase price of the assets. useful life carrying value fair value
Instructor
Explanation:
Points Received:
excess earnings
Chapter 12
5 of 5
Comments:
Question 4.Question :
Student
(TCO C) ELO Corporation purchased a patent for $90,000 on September
1, 2008. It had a useful life of 10 years. On January 1, 2010, ELO spent
$22,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2010?
$20,600
Answer:
$20,000
$18,800
$15,600
Chapter 12, $90,000 – [($90,000 / 10) X 1 1/3] = $78,000
($78,000 + $22,000) / 5 = $20,000
Instructor
Explanation:
Points Received:
5 of 5
Comments:
Question 5.Question :
Student Answer:
(TCO C) General Products Company bought Special Products Division in
2010 and appropriately recorded $500,000 of goodwill related to the purchase. On December 31, 2011, the fair value of Special Products
Division is $4,000,000 and it is carried on General Products’ books for a total of $3,400,000, including the goodwill. An analysis of Special
Products Division’s assets indicates that goodwill of $400,000 exists on
December 31, 2011. What goodwill impairment should be recognized by
General Products in 2011?
$0
$200,000
$50,000
$300,000
Chapter 12. Because $4,000,000 > $3,400,000, $0 impairment
Instructor
Explanation:
Points Received:
5 of 5
Comments:
Question 6.Question :
Student Answer:
(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 portion of FICA taxes and unemployment taxes. portion of FIT, SIT, and Medicare deductions. portion of FICA taxes, unemployment taxes, and any voluntary deductions. Instructor
Explanation:
Points Received:
portion of FICA taxes and any voluntary deductions.
Chapter 13
5 of 5
Comments:
Question 7.Question :
Student Answer:
(TCO D) Which gives rise to the requirement to accrue a liability for the cost of compensated absences?
Payment is probable.
Employee rights vest or accumulate.
The amount can be reasonably estimated.
Instructor
Explanation:
Points Received:
All of the above
Chapter 13
5 of 5
Comments:
Question 8.Question :
Student Answer:
(TCO D) Which of the following is not acceptable treatment for the presentation of current liabilities?
Listing current liabilities in order of maturity
Listing current liabilities according to amount
Offsetting current liabilities against assets that are to be applied to their liquidation
Instructor
Explanation:
Points Received:
Showing current liabilities immediately below current assets to obtain a presentation of working capital
Chapter 13
5 of 5
Comments:
Question 9.Question :
Student Answer:
(TCO D) Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of shortterm debt could be excluded from current liabilities?
$1,500,000.
$2,500,000.
$1,000,000.
$0
Chapter 13, 75,000 X $20 = $1,500,000.
Instructor
Explanation:
Points Received:
5 of 5
Comments:
Question 10.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 it may lose the case. The attorneys estimated that there is a 40% chance of losing. Tender Foot’s attorney estimated that if it loses, then the amount of any payment would be
$500,000. What is the required journal entry as a result of this litigation?
Student Answer:
Debit Litigation Expense for $500,000 and credit Litigation Liability for
$500,000.
No journal entry is required.
Debit Litigation Expense for $200,000 and credit Litigation Liability for
$200,000.
Debit Litigation Expense for $300,000 and credit Litigation Liability for
$300,000 (
)
Instructor
Explanation:
Points Received:
Chapter 13, likelihood of loss is only possible, not probable
5 of 5
Comments:
Question 11.Question :
Student Answer:
(TCO D) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity 10 years from date of issue. If the bonds were issued at a premium, this indicates that the effective yield or market rate of interest exceeded the stated
(nominal) rate. the nominal rate of interest exceeded the market rate. the market and nominal rates coincided.
Instructor
Explanation:
Points Received:
no necessary relationship exists between the two rates.
Chapter 14
5 of 5
Comments:
Question 12.Question :
Student Answer:
(TCO D) If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a debit to Interest Payable. credit to Interest Receivable. credit to Interest Expense.
Instructor
Explanation:
Points Received:
credit to Unearned Interest.
Chapter 14
5 of 5
Comments:
Question 13.Question :
(TCO D) On January 1, 2010, Ellison Co. issued 8-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable
semiannually on June 30 and December 31. The bonds were sold to yield
8%. Table values are as follows:
Present value of 1 for eight periods at 6%
Present value of 1 for eight periods at 8%
Present value of 1 for 16 periods at 3%
Present value of 1 for 16 periods at 4%
Present value of annuity for eight periods at 6%
Present value of annuity for eight periods at 8%
Present value of annuity for 16 periods at 3%
Present value of annuity for 16 periods at 4%
.627
.540
.623
.534
6.210
5.747
12.561
11.652
The issue price of the bonds is
Student Answer:
$883,560.
$884,820.
$889,560.
Instructor
Explanation:
Points Received:
$999,600.
Chapter 14, $534,000 + $349,560 = $883,560
5 of 5
Comments:
Question 14.Question :
Student Answer:
(TCO D) A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on June 30 and December 31. The proceeds from the bonds are $4,901,036. Using effective-interest amortization, how much interest expense will be recognized in 2010?
$195,000
$390,000
$392,124
$392,083
Chapter 14, ($4,901,036 X .04) + ($4,902,077 X .04) = $392,124
Instructor
Explanation:
Points Received:
0 of 5
Comments:
Question 15.Question :
Student
Answer:
(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
$185,130.
$184,500.
$173,550.
$165,000.
Chapter 14, ($3,000,000 X .11) – ($3,195,000 X .10) = $10,500
Instructor
($3,195,000 – $3,000,000) – $10,500 = $184,500
Explanation:
Points Received:
5 of 5
Comments:
1. Question :
Student Answer:
Instructor
Explanation:
(TCO C) Intangible assets may be internally generated or purchased from another party. In either case, the cost that should be included in the initial valuation of the asset is an issue.
Instructions:
- Identify the typical costs included in the cash purchase of an intangible asset. - Discuss how to determine the cost of an intangible asset acquired in a noncash transaction.
- Describe how to determine the cost of several intangible assets acquired in a basket purchase. Provide a numerical example involving intangibles being acquired for a total price of $120,000.
a.) Intangible asset purchased by cash from another company are recorded at cost. Costs includes all acquisition costs plus expenditures to make the intangible asset ready for its intended use.
Purchase price, legal fees, and other incidental expenses are typical costs included in cash purchase an intangible assets. b) Companies that acquire intangible asset in a non-cash transaction like exchange for stock or other assets, the cost of the intangible is the fair value of the consideration given or the fair value of the intangible received, whichever is more clearly evident. c) In case of a basket purchase where company buys several intangibles or a combination or intangibles and tangibles, the company usually allocate the cost on the basis of fair values. The accounting treatment for purchased of intangibles is parallels that for purchased tangible assets. For example the company purchased an intangible asset with a total price of $120,000, this includes internet domains that has a fair market value of $20,000 and a customer database that has a limited life of five years and the fair market value is $100,000.
(Chapter 12)
- The typical costs included in the purchase of an intangible asset are purchase price, legal fees, and other incidental expenses.
- In a noncash acquisition of an intangible asset, the initial cost of the intangible is either the fair market value of the consideration given or the fair market value of the intangible received, whichever is more clearly evident.
- When several intangible assets are acquired in a basket purchase, the cost of the individual assets is based on their relative fair market values. An example is below.
Asset FMV %
Allocation
Patent A $ 60,000 60 60% x $120,000 = $ 72,000
Patent B 40,000 40
40% x $120,000 = 48,000
Totals $100,000 100
$120,000
Points Received:
30 of 30
Comments:
Question 2.Question :
Student Answer:
Instructor
Explanation:
Points Received:
(TCO C) Under what circumstances is it appropriate to record goodwill in the accounts?
How should goodwill, properly recorded on the books, be written off in accordance with generally accepted accounting principles?
Goodwill is recorded in the accounts only under the circumstances that is is acquired through a purchase of another business or combination of businesses. According to Generally Accepted
Accounting Principle under these circumstances where goodwill is acquired through a purchase by another business that it is recognized as having indefinite life and should not be amortized but should be tested for impairment on at least an annual basis.
Chapter 12, Goodwill is recorded only when it is acquired through a business combination. Goodwill acquired in a business combination is considered to have an indefinite life and therefore should not be amortized, but should be tested for impairment on at least an annual basis.
15 of 15
Comments:
Question 3.Question :
(TCO D) Irving Music Shop gives its customers coupons redeemable for a poster plus a Dixie Chicks CD. One coupon is issued for each dollar of sales. On the surrender of 100 coupons and $5.00 cash, the poster and
CD are given to the customer. It is estimated that 80% of the coupons
will be presented for redemption. Sales for the first period were $700,000, and the coupons redeemed totaled 340,000. Sales for the second period were $840,000, and the coupons redeemed totaled 850,000. Irving Music
Shop bought 20,000 posters at $2.00/poster and 20,000 CDs at
$6.00/CD.
Instructions: Prepare the following entries for the two periods, assuming all the coupons expected to be redeemed from the first period were redeemed by the end of the second period.
Entry
(a) To record coupons redeemed
(b) To record estimated liability
Student Answer:
Period 1
Period 2
Entry Period 1 Period 2 (a) To record coupons redeemed dr cr dr cr
Estimated liability for premiums 6,600 (700,000*80%)340,000/100)*$3 Premium Expense (340,000/100)($8-$5) 10,200
18,900 Cash (340,000/100)*$5 17,000 42,500 Inventory of
Premium Posters and CDs 27,200 68,000 (b) To record estimated liability Premium expense 6,600 1,260 Estimated liability for
Premiums 6,600 1,260 Period 2 Computation Period 1 Inventory of
Posters ($340,000/100)*$2................6,800 Inventory of
CDs($340,000/100)*$6....................20,400 Total inventory 27,200
(b) To record estimated liability (($700,000*80%)-$340,000)/100)
* ($6+$2-$5) = $6,600 Period 2 (a) To record coupons redeemed
Premium expense ($850,000/100)($8-$5) - 6,600 = 18,900
Inventory for Posters ($850,000/100)*$2................17,000 Inventory for CDs ($850,000/100)*$6....................51,000 Total inventory......................................................68,000 (b) Estimated liability ((840,000*80%=672,000 - 850,000)/100 * $3) +6,600 =
$1,260
Instructor
Explanation:
Chapter 13
Entry
Period
1
Period 2
(a) Estimated liability for premiums 6,600
Premium expense [(340,000 / 100) X ($8.00 –
$5)] 10,200
18,900
Cash (340,000 / 100) x
$5
17,000
42,500
Inventory of premium posters and
CDs
27,200
68,000
(b) Premium expense 6,600
Estimate liability for premiums 6,600
[(700,000 X .80) – 340,000] / 100 X $3.00
Points Received:
1,260
1,260
30 of 30
Comments:
Question 4.Question :
(TCO D) On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield
12%. Table values are:
Present value of 1 for 10 periods at
10%
.386
Present value of 1 for 10 periods at
12%
.322
Present value of 1 for 20 periods at
5%
.377
Present value of 1 for 20 periods at
6%
.312
Present value of annuity for 10 periods at
10%
6.145
Present value of annuity for 10 periods at
12%
5.650
Present value of annuity for 20 periods at
5%
12.462
Present value of annuity for 20 periods at
6%
11.470
Instructions:
- Calculate the issue price of the bonds.
- Without prejudice to your solution in Part (a), assume that the issue price was $884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.
Student
Answer:
Instructor
Explanation:
(a) Issue Price of the bonds = $312,000+$573,500 = $885,500
$1,000,000*.312 = $312,000 ($1,000,000*10%*6/12)*11.470= $573,500
(b) Amortization table for 2011 1/1/11 Carrying
Amount........................$884,000 6/30/11 Interest
Expense($884,000*.12)/2........53,040 6/30/11Cash interest amortized
($1,000,000*.05)....50,000 6/30/11 Discount 53,04050,000..........................3,040 6/30 Carrying amount $884,0003,040.................880,960 12/31/11 Interest Expense
(880,960*.12)/2.....52,858 12/31/11 Cash
Amortized1,000,000*.05........50,000 12/31/11 Discount 52,85850,000.......2,858 12/31/11 Carrying Amount 880,960-2,858 ......878,102
Date Interest Expense Cash Amortized Discount Carrying Amount 1/1/11
$884,000 6/30/11 $53,040 50,000 $3,040 880,960 12/31/11 52,858 50,000
2,858 878,102
Chapter 14
.312 X $1,000,000
11,470 X $50,000
573,500
=
$312,000
=
$885,500
Carrying
Date
Points Received:
Cash
1/1/11
6/30/11
12/31/11
Expense
$50,000 $53,040 3,040
50,000
53,222
Amortization
Amount
$884,000
887,040
3,222
890,262
25 of 30
Comments:
Question 5.Question :
(TCO D) Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar). The December 31, 2010 balance sheet of Wolfe Co. included the following items:
7.5% bonds payable due December 31, 2018 $1,200,000
Unamortized discount on bonds payable
48,000
The bonds were issued on December 31, 2008 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization)
On April 1, 2011, Wolfe retired $240,000 of these bonds at 101 plus accrued interest.
Student Answer:
Interest Expense......................................4,800 Cash
($240,000*7.5%*3/12).....................................4,500 Discount on Bonds
Payable ($48,000*1/5*1/8*3/12)......300 Bonds
Payable....................................240,000 Loss on Redemption of
Bonds.................11,700
Cash.................................................................242,400 Discount on Bonds
Payable (($48,000*1/5)-300).......9,300
Instructor
Explanation:
Chapter 14
Interest expense
Cash ($240,000 X 7.5% X 3/12)
Discount on bonds payable ($48,000 X 1/5 X 3/12)
Bonds payable
Loss on redemption of bonds
Discount on bonds payable [(1/5 X $48,000) –
$300]
9,300
Cash
Points Received:
20 of 20
4,800
4,500
300
240,000
11,700
242,400
Student Answer:
(TCO C) The cost of an intangible asset includes all of the following except purchase price. legal fees. other incidental expenses.
Instructor
Explanation:
Points Received:
All of these are included.
Chapter 12
5 of 5
Comments:
Question 2.Question :
Student Answer:
(TCO C) Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to patents, and amortized over the legal life of the patent. legal fees, and amortized over 5 years or less. expenses of the period.
Instructor
Explanation:
Points Received:
patents, and amortized over the remaining useful life of the patent.
Chapter 12
5 of 5
Comments:
Question 3.Question …show more content…
:
Student Answer:
(TCO C) Negative goodwill arises when the _____ of the net assets acquired is higher than the purchase price of the assets. useful life carrying value fair value
Instructor
Explanation:
Points Received:
excess earnings
Chapter 12
5 of 5
Comments:
Question 4.Question :
Student
(TCO C) ELO Corporation purchased a patent for $90,000 on September
1, 2008. It had a useful life of 10 years. On January 1, 2010, ELO spent
$22,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2010?
$20,600
Answer:
$20,000
$18,800
$15,600
Chapter 12, $90,000 – [($90,000 / 10) X 1 1/3] = $78,000
($78,000 + $22,000) / 5 = $20,000
Instructor
Explanation:
Points Received:
5 of 5
Comments:
Question 5.Question :
Student Answer:
(TCO C) General Products Company bought Special Products Division in
2010 and appropriately recorded $500,000 of goodwill related to the purchase. On December 31, 2011, the fair value of Special Products
Division is $4,000,000 and it is carried on General Products’ books for a total of $3,400,000, including the goodwill. An analysis of Special
Products Division’s assets indicates that goodwill of $400,000 exists on
December 31, 2011. What goodwill impairment should be recognized by
General Products in 2011?
$0
$200,000
$50,000
$300,000
Chapter 12. Because $4,000,000 > $3,400,000, $0 impairment
Instructor
Explanation:
Points Received:
5 of 5
Comments:
Question 6.Question :
Student Answer:
(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 portion of FICA taxes and unemployment taxes. portion of FIT, SIT, and Medicare deductions. portion of FICA taxes, unemployment taxes, and any voluntary deductions. Instructor
Explanation:
Points Received:
portion of FICA taxes and any voluntary deductions.
Chapter 13
5 of 5
Comments:
Question 7.Question :
Student Answer:
(TCO D) Which gives rise to the requirement to accrue a liability for the cost of compensated absences?
Payment is probable.
Employee rights vest or accumulate.
The amount can be reasonably estimated.
Instructor
Explanation:
Points Received:
All of the above
Chapter 13
5 of 5
Comments:
Question 8.Question :
Student Answer:
(TCO D) Which of the following is not acceptable treatment for the presentation of current liabilities?
Listing current liabilities in order of maturity
Listing current liabilities according to amount
Offsetting current liabilities against assets that are to be applied to their liquidation
Instructor
Explanation:
Points Received:
Showing current liabilities immediately below current assets to obtain a presentation of working capital
Chapter 13
5 of 5
Comments:
Question 9.Question :
Student Answer:
(TCO D) Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of shortterm debt could be excluded from current liabilities?
$1,500,000.
$2,500,000.
$1,000,000.
$0
Chapter 13, 75,000 X $20 = $1,500,000.
Instructor
Explanation:
Points Received:
5 of 5
Comments:
Question 10.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 it may lose the case. The attorneys estimated that there is a 40% chance of losing. Tender Foot’s attorney estimated that if it loses, then the amount of any payment would be
$500,000. What is the required journal entry as a result of this litigation?
Student Answer:
Debit Litigation Expense for $500,000 and credit Litigation Liability for
$500,000.
No journal entry is required.
Debit Litigation Expense for $200,000 and credit Litigation Liability for
$200,000.
Debit Litigation Expense for $300,000 and credit Litigation Liability for
$300,000 (
)
Instructor
Explanation:
Points Received:
Chapter 13, likelihood of loss is only possible, not probable
5 of 5
Comments:
Question 11.Question :
Student Answer:
(TCO D) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity 10 years from date of issue. If the bonds were issued at a premium, this indicates that the effective yield or market rate of interest exceeded the stated
(nominal) rate. the nominal rate of interest exceeded the market rate. the market and nominal rates coincided.
Instructor
Explanation:
Points Received:
no necessary relationship exists between the two rates.
Chapter 14
5 of 5
Comments:
Question 12.Question :
Student Answer:
(TCO D) If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a debit to Interest Payable. credit to Interest Receivable. credit to Interest Expense.
Instructor
Explanation:
Points Received:
credit to Unearned Interest.
Chapter 14
5 of 5
Comments:
Question 13.Question :
(TCO D) On January 1, 2010, Ellison Co. issued 8-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable
semiannually on June 30 and December 31. The bonds were sold to yield
8%. Table values are as follows:
Present value of 1 for eight periods at 6%
Present value of 1 for eight periods at 8%
Present value of 1 for 16 periods at 3%
Present value of 1 for 16 periods at 4%
Present value of annuity for eight periods at 6%
Present value of annuity for eight periods at 8%
Present value of annuity for 16 periods at 3%
Present value of annuity for 16 periods at 4%
.627
.540
.623
.534
6.210
5.747
12.561
11.652
The issue price of the bonds is
Student Answer:
$883,560.
$884,820.
$889,560.
Instructor
Explanation:
Points Received:
$999,600.
Chapter 14, $534,000 + $349,560 = $883,560
5 of 5
Comments:
Question 14.Question :
Student Answer:
(TCO D) A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on June 30 and December 31. The proceeds from the bonds are $4,901,036. Using effective-interest amortization, how much interest expense will be recognized in 2010?
$195,000
$390,000
$392,124
$392,083
Chapter 14, ($4,901,036 X .04) + ($4,902,077 X .04) = $392,124
Instructor
Explanation:
Points Received:
0 of 5
Comments:
Question 15.Question :
Student
Answer:
(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
$185,130.
$184,500.
$173,550.
$165,000.
Chapter 14, ($3,000,000 X .11) – ($3,195,000 X .10) = $10,500
Instructor
($3,195,000 – $3,000,000) – $10,500 = $184,500
Explanation:
Points Received:
5 of 5
Comments:
1. Question :
Student Answer:
Instructor
Explanation:
(TCO C) Intangible assets may be internally generated or purchased from another party. In either case, the cost that should be included in the initial valuation of the asset is an issue.
Instructions:
- Identify the typical costs included in the cash purchase of an intangible asset. - Discuss how to determine the cost of an intangible asset acquired in a noncash transaction.
- Describe how to determine the cost of several intangible assets acquired in a basket purchase. Provide a numerical example involving intangibles being acquired for a total price of $120,000.
a.) Intangible asset purchased by cash from another company are recorded at cost. Costs includes all acquisition costs plus expenditures to make the intangible asset ready for its intended use.
Purchase price, legal fees, and other incidental expenses are typical costs included in cash purchase an intangible assets. b) Companies that acquire intangible asset in a non-cash transaction like exchange for stock or other assets, the cost of the intangible is the fair value of the consideration given or the fair value of the intangible received, whichever is more clearly evident. c) In case of a basket purchase where company buys several intangibles or a combination or intangibles and tangibles, the company usually allocate the cost on the basis of fair values. The accounting treatment for purchased of intangibles is parallels that for purchased tangible assets. For example the company purchased an intangible asset with a total price of $120,000, this includes internet domains that has a fair market value of $20,000 and a customer database that has a limited life of five years and the fair market value is $100,000.
(Chapter 12)
- The typical costs included in the purchase of an intangible asset are purchase price, legal fees, and other incidental expenses.
- In a noncash acquisition of an intangible asset, the initial cost of the intangible is either the fair market value of the consideration given or the fair market value of the intangible received, whichever is more clearly evident.
- When several intangible assets are acquired in a basket purchase, the cost of the individual assets is based on their relative fair market values. An example is below.
Asset FMV %
Allocation
Patent A $ 60,000 60 60% x $120,000 = $ 72,000
Patent B 40,000 40
40% x $120,000 = 48,000
Totals $100,000 100
$120,000
Points Received:
30 of 30
Comments:
Question 2.Question :
Student Answer:
Instructor
Explanation:
Points Received:
(TCO C) Under what circumstances is it appropriate to record goodwill in the accounts?
How should goodwill, properly recorded on the books, be written off in accordance with generally accepted accounting principles?
Goodwill is recorded in the accounts only under the circumstances that is is acquired through a purchase of another business or combination of businesses. According to Generally Accepted
Accounting Principle under these circumstances where goodwill is acquired through a purchase by another business that it is recognized as having indefinite life and should not be amortized but should be tested for impairment on at least an annual basis.
Chapter 12, Goodwill is recorded only when it is acquired through a business combination. Goodwill acquired in a business combination is considered to have an indefinite life and therefore should not be amortized, but should be tested for impairment on at least an annual basis.
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Comments:
Question 3.Question :
(TCO D) Irving Music Shop gives its customers coupons redeemable for a poster plus a Dixie Chicks CD. One coupon is issued for each dollar of sales. On the surrender of 100 coupons and $5.00 cash, the poster and
CD are given to the customer. It is estimated that 80% of the coupons
will be presented for redemption. Sales for the first period were $700,000, and the coupons redeemed totaled 340,000. Sales for the second period were $840,000, and the coupons redeemed totaled 850,000. Irving Music
Shop bought 20,000 posters at $2.00/poster and 20,000 CDs at
$6.00/CD.
Instructions: Prepare the following entries for the two periods, assuming all the coupons expected to be redeemed from the first period were redeemed by the end of the second period.
Entry
(a) To record coupons redeemed
(b) To record estimated liability
Student Answer:
Period 1
Period 2
Entry Period 1 Period 2 (a) To record coupons redeemed dr cr dr cr
Estimated liability for premiums 6,600 (700,000*80%)340,000/100)*$3 Premium Expense (340,000/100)($8-$5) 10,200
18,900 Cash (340,000/100)*$5 17,000 42,500 Inventory of
Premium Posters and CDs 27,200 68,000 (b) To record estimated liability Premium expense 6,600 1,260 Estimated liability for
Premiums 6,600 1,260 Period 2 Computation Period 1 Inventory of
Posters ($340,000/100)*$2................6,800 Inventory of
CDs($340,000/100)*$6....................20,400 Total inventory 27,200
(b) To record estimated liability (($700,000*80%)-$340,000)/100)
* ($6+$2-$5) = $6,600 Period 2 (a) To record coupons redeemed
Premium expense ($850,000/100)($8-$5) - 6,600 = 18,900
Inventory for Posters ($850,000/100)*$2................17,000 Inventory for CDs ($850,000/100)*$6....................51,000 Total inventory......................................................68,000 (b) Estimated liability ((840,000*80%=672,000 - 850,000)/100 * $3) +6,600 =
$1,260
Instructor
Explanation:
Chapter 13
Entry
Period
1
Period 2
(a) Estimated liability for premiums 6,600
Premium expense [(340,000 / 100) X ($8.00 –
$5)] 10,200
18,900
Cash (340,000 / 100) x
$5
17,000
42,500
Inventory of premium posters and
CDs
27,200
68,000
(b) Premium expense 6,600
Estimate liability for premiums 6,600
[(700,000 X .80) – 340,000] / 100 X $3.00
Points Received:
1,260
1,260
30 of 30
Comments:
Question 4.Question :
(TCO D) On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield
12%. Table values are:
Present value of 1 for 10 periods at
10%
.386
Present value of 1 for 10 periods at
12%
.322
Present value of 1 for 20 periods at
5%
.377
Present value of 1 for 20 periods at
6%
.312
Present value of annuity for 10 periods at
10%
6.145
Present value of annuity for 10 periods at
12%
5.650
Present value of annuity for 20 periods at
5%
12.462
Present value of annuity for 20 periods at
6%
11.470
Instructions:
- Calculate the issue price of the bonds.
- Without prejudice to your solution in Part (a), assume that the issue price was $884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.
Student
Answer:
Instructor
Explanation:
(a) Issue Price of the bonds = $312,000+$573,500 = $885,500
$1,000,000*.312 = $312,000 ($1,000,000*10%*6/12)*11.470= $573,500
(b) Amortization table for 2011 1/1/11 Carrying
Amount........................$884,000 6/30/11 Interest
Expense($884,000*.12)/2........53,040 6/30/11Cash interest amortized
($1,000,000*.05)....50,000 6/30/11 Discount 53,04050,000..........................3,040 6/30 Carrying amount $884,0003,040.................880,960 12/31/11 Interest Expense
(880,960*.12)/2.....52,858 12/31/11 Cash
Amortized1,000,000*.05........50,000 12/31/11 Discount 52,85850,000.......2,858 12/31/11 Carrying Amount 880,960-2,858 ......878,102
Date Interest Expense Cash Amortized Discount Carrying Amount 1/1/11
$884,000 6/30/11 $53,040 50,000 $3,040 880,960 12/31/11 52,858 50,000
2,858 878,102
Chapter 14
.312 X $1,000,000
11,470 X $50,000
573,500
=
$312,000
=
$885,500
Carrying
Date
Points Received:
Cash
1/1/11
6/30/11
12/31/11
Expense
$50,000 $53,040 3,040
50,000
53,222
Amortization
Amount
$884,000
887,040
3,222
890,262
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Comments:
Question 5.Question :
(TCO D) Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar). The December 31, 2010 balance sheet of Wolfe Co. included the following items:
7.5% bonds payable due December 31, 2018 $1,200,000
Unamortized discount on bonds payable
48,000
The bonds were issued on December 31, 2008 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization)
On April 1, 2011, Wolfe retired $240,000 of these bonds at 101 plus accrued interest.
Student Answer:
Interest Expense......................................4,800 Cash
($240,000*7.5%*3/12).....................................4,500 Discount on Bonds
Payable ($48,000*1/5*1/8*3/12)......300 Bonds
Payable....................................240,000 Loss on Redemption of
Bonds.................11,700
Cash.................................................................242,400 Discount on Bonds
Payable (($48,000*1/5)-300).......9,300
Instructor
Explanation:
Chapter 14
Interest expense
Cash ($240,000 X 7.5% X 3/12)
Discount on bonds payable ($48,000 X 1/5 X 3/12)
Bonds payable
Loss on redemption of bonds
Discount on bonds payable [(1/5 X $48,000) –
$300]
9,300
Cash
Points Received:
20 of 20
4,800
4,500
300
240,000
11,700
242,400