Accounting Final Exam

Question 1

What is consigned inventory?

Answer 1

Goods that are shipped, but title remains with the shipper

Question 2

When using a perpetual inventory system,

a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.

Answer 2

All of these

Question 3

Goods in transit which are shipped f.o.b. shipping point should be

Answer 3

included in the inventory of the buyer.

Question 4

Goods in transit which are shipped f.o.b. destination should be

Answer 4

included in the inventory of the seller.

Question 5

Which of the following items should be included in a company’s inventory at the balance sheet date?

a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for at his or her convenience.
d. None of these.

Answer 5

None of these

Question 6

During 2012 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2013. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2013 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.

This transaction is known as a

Answer 6

product financing arrangement.

Question 7

During 2012 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2013. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2013 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.

On whose books should the cost of the inventory appear at the December 31, 2012 balance sheet date?

Answer 7

Carne Corporation

Question 8

Goods on consignment are

Answer 8

recorded in a Consignment Out account which is an inventory account.

Question 9

Valuation of inventories requires the determination of all of the following except

Answer 9

the cost of goods held on consign¬ment from other companies.

Question 10

The accountant for the Pryor Sales Company is preparing the income statement for 2012 and the balance sheet at December 31, 2012. Pryor uses the periodic inventory system. The January 1, 2012 merchandise inventory balance will appear

Answer 10

only in the cost of goods sold section of the income statement.

Question 11

If the beginning inventory for 2012 is overstated, the effects of this error on cost of goods sold for 2012, net income for 2012, and assets at December 31, 2013, respectively, are

Answer 11

overstatement, understatement, no effect.

Question 12

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

Answer 12

an understatement of liabilities and an overstatement of owners’ equity.

Question 13

Morgan Manufacturing Company has the following account balances at year end:

Office supplies	   $  4,000
Raw materials	     27,000
Work-in-process	     59,000
Finished goods	     82,000
Prepaid insurance     6,000

What amount should Morgan report as inventories in its balance sheet?

Answer 13

$168,000

Question 14

Lawson Manufacturing Company has the following account balances at year end:

Office supplies	   $  4,000
Raw materials	     27,000
Work-in-process	     59,000
Finished goods	     97,000
Prepaid insurance     6,000

What amount should Lawson report as inventories in its balance sheet?

Answer 14

$183,000

Question 15

Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $20,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $2,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit

Answer 15

inventory for $360.

Question 16

Malone Corporation uses the perpetual inventory method. On March 1, it purchased $50,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost $5,000. On March 9, Malone paid the supplier. On March 9, Malone should credit

Answer 16

inventory for $900.

Question 17

Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?

Answer 17

$930,000

Question 18

Bell Inc. took a physical inventory at the end of the year and determined that $760,000 of goods were on hand. In addition, the following items were not included in the physical count. Bell, Inc. determined that $96,000 of goods were in transit that were shipped f.o.b. destination (goods were actually received by the company three days after the inventory count).The company sold $40,000 worth of inventory f.o.b. destination. What amount should Bell report as inventory at the end of the year?

Answer 18

$800,000

Question 19

Risers Inc. reported total assets of $1,800,000 and net income of $200,000 for the current year. Risers determined that inventory was overstated by $15,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year?

Answer 19

$1,800,000 and $215,000

Question 20

Risers Inc. reported total assets of $3,200,000 and net income of $170,000 for the current year. Risers determined that inventory was understated by $46,000 at the beginning of the year and $20,000 at the end of the year. What is the corrected amount for total assets and net income for the year?

Answer 20

$3,220,000 and $144,000

Question 21

Hudson, Inc. is a calendar-year corporation.  Its financial statements for the years 2013 and 2012 contained errors as follows:
2013:
Ending inventory	$4,500 
Depreciation expense	$3,000 understated
2012:
Ending inventory $12,000 overstated
Depreciation expense	$9,000 overstated

Assume that the proper correcting entries were made at December 31, 2012. By how much will 2013 income before taxes be overstated or understated?

Answer 21

$7,500 overstated

Question 22

Which of the following is true about lower-of-cost-or-market?

a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these.

Answer 22

All of these

Question 23

The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

Answer 23

future utility will be less than their cost.

Question 24

When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term “market”?

Answer 24

Current replacement cost

Question 25

In no case can “market” in the lower-of-cost-or-market rule be more than

Answer 25

estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.

Question 26

Designated market value

Answer 26

is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin.

Question 27

Lower-of-cost-or-market

Answer 27

is most conservative if applied to individual items of inventory.

Question 28

An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true?

a. The cost of sales of the following year will be understated.
b. The current year’s income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.

Answer 28

Income of the following year will be understated.

Question 29

When the cost-of-goods-sold method is used to record inventory at market

Answer 29

the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.

Question 30

Lower-of-cost-or-market as it applies to inventory is best described as the

Answer 30

drop of future utility below its original cost.

Question 31

The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the

Answer 31

net realizable value less normal profit margin.

Question 32

Given the acquisition cost of product ALPHA is $17, the net realizable value for product ALPHA is $16.70, the normal profit for product ALPHA is $1.24, and the market value (replacement cost) for product ALPHA is $14.72, what is the proper per unit inventory price for product ALPHA?

Answer 32

$15.46

Question 33

Given the acquisition cost of product Dominoe is $43.31, the net realizable value for product Dominoe is $38.49, the normal profit for product Dominoe is $4.32, and the market value (replacement cost) for product Dominoe is $40.68, what is the proper
per unit inventory price for product Dominoe?

Answer 33

$38.49

Question 34

Given the historical cost of product Z is $80, the selling price of product Z is $95, costs to sell product Z are $11, the replacement cost for product Z is $83, and the normal profit margin is 40% of sales price, what is the market value that should be used in the lower-of-cost-or-market comparison?

Answer 34

$83

Question 35

Given the historical cost of product Z is $80, the selling price of product Z is $95, costs to sell product Z are $11, the replacement cost for product Z is $83, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method?

Answer 35

$80

Question 36

Given the historical cost of product Dominoe is $43, the selling price of product Dominoe is $60, costs to sell product Dominoe are $11, the replacement cost for product Dominoe is $40, and the normal profit margin is 20% of sales price, what is the cost amount that should be used in the lower-of-cost-or-market comparison?

Answer 36

$43

Question 37

Given the historical cost of product Dominoe is $43, the selling price of product Dominoe is $60, costs to sell product Dominoe are $11, the replacement cost for product Dominoe is $40, and the normal profit margin is 20% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method?

Answer 37

$40

Question 38

Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $3,250, a replacement cost of $3,100, a net realizable value of $3,200, and a normal profit margin of $200. What is the final lower-of-cost-or-market inventory value for product 66?

Answer 38

$3,100

Question 39

Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $524, a replacement cost of $402, a net realizable value of $468, and a normal profit margin of $21. What is the final lower-of-cost-or-market inventory value for Packit?

Answer 39

$447

Question 40

Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $251, a replacement cost of $234, a net realizable value of $266, and a normal profit margin of $34. What is the final lower-of-cost-or-market inventory value for Acer Top?

Answer 40

$234

Question 41

Plant assets may properly include

a. deposits on machinery not yet received.
b. idle equipment awaiting sale.
c. land held for possible use as a future plant site.
d. none of these.

Answer 41

None of these

Question 42

Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Yields services over a number of years

Answer 42

Acquired for resale

Question 43

Which of these is not a major characteristic of a plant asset?

a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant asset.

Answer 43

All of these are major characteristics of a plant asset.

Question 44

Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be

Answer 44

capitalized as part of the cost of the land.

Question 45

The cost of land does not include

Answer 45

costs of improvements with limited lives.

Question 46

The cost of land typically includes the purchase price and all of the following costs except

Answer 46

private driveways and parking lots.

Question 47

If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on

Answer 47

the intention of management for the property when the building was acquired.

Question 48

The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to

Answer 48

the machinery account.

Question 49

Fences and parking lots are reported on the balance sheet as

Answer 49

land improvements

Question 50

Worthington Chandler Company purchased equipment for $12,000. Sales tax on the purchase was $800. Other costs incurred were freight charges of $200, repairs of $350 for damage during installation, and installation costs of $225. What is the cost of the equipment?

Answer 50

$13,225

Question 51

Fogelberg Company purchased equipment for $15,000. Sales tax on the purchase was $900. Other costs incurred were freight charges of $240, repairs of $420 for damage during installation, and installation costs of $270. What is the cost of the equipment?

Answer 51

$16,410

Question 52

During self-construction of an asset by Samuelson Company, the following were among the costs incurred:

• Fixed overhead for the year $1,000,000
• Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production 50,000
• Variable overhead attributable to self-construction 35,000

What amount of overhead should be included in the cost of the self-constructed asset?

Answer 52

$85,000

Question 53

During self-construction of an asset by Richardson Company, the following were among the costs incurred:

• Fixed overhead for the year $1,000,000
• Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production 60,000
• Variable overhead attributable to self-construction 75,000

What amount of overhead should be included in the cost of the self-constructed asset?

Answer 53

$135,000

Question 54

Mendenhall Corporation constructed a building at a cost of $10,000,000. Average accumulated expenditures were $4,000,000, actual interest was $600,000, and avoidable interest was $400,000. If the salvage value is $800,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is

Answer 54

$240,000

Question 55

Messersmith Company is constructing a building. Construction began in 2012 and the building was completed 12/31/12. Messersmith made payments to the construction company of $1,500,000 on 7/1, $3,150,000 on 9/1, and $3,000,000 on 12/31. Average accumulated expenditures were

Answer 55

$1,800,000

Question 56

Huffman Corporation constructed a building at a cost of $20,000,000. Average accumulated expenditures were $8,000,000, actual interest was $1,200,000, and avoidable interest was $800,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is

Answer 56

$480,000

Question 57

Gutierrez Company is constructing a building. Construction began in 2012 and the building was completed 12/31/12. Gutierrez made payments to the construction company of $2,000,000 on 7/1, $4,400,000 on 9/1, and $4,000,000 on 12/31. Average accumulated expenditures were

Answer 57

$2,466,667

Question 58

On May 1, 2012, Goodman Company began construction of a building. Expenditures of $240,000 were incurred monthly for 5 months beginning on May 1. The building was completed and ready for occupancy on September 1, 2012. For the purpose of determining the amount of interest cost to be capitalized, the average accumulated expenditures on the building during 2012 were

Answer 58

$200,000

Question 59

During 2012, Kimmel Co. incurred average accumulated expenditures of $600,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2012 was a $750,000, 10%, 5-year note payable dated January 1, 2010. What is the amount of interest that should be capitalized by Kimmel during 2012?

Answer 59

$60,000

Question 60

On March 1, Felt Co. began construction of a small building. Payments of $160,000 were made monthly for three months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are

Answer 60

$80,000

Question 61

On March 1, Imhoff Co. began construction of a small building. Payments of $240,000 were made monthly for four months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are

Answer 61

$120,000

Question 62

The following is true of depreciation accounting.

a. It is not a matter of valuation.
b. It is part of the matching of revenues and expenses.
c. It retains funds by reducing income taxes and dividends.
d. All of these.

Answer 62

All of these

Question 63

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

Answer 63

Systematic and rational allocation

Question 64

Depreciation accounting

Answer 64

retains funds

Question 65

Which of the following most accurately reflects the concept of depreciation as used in accounting?

Answer 65

The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.

Question 66

The major difference between the service life of an asset and its physical life is that

Answer 66

service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

Question 67

The term “depreciable base,” or “depreciation base,” as it is used in accounting, refers to

Answer 67

the total amount to be charged (debited) to expense over an asset’s useful life.

Question 68

Economic factors that shorten the service life of an asset include

a. obsolescence.
b. supersession.
c. inadequacy.
d. all of these.

Answer 68

All of these

Question 69

Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed?

a. What is the depreciation base to use for the asset?
b. What is the asset’s useful life?
c. What method of cost apportionment is best for this asset?
d. What product or service is the asset related to?

Answer 69

What product or service is the asset related to?

Question 70

Which of the following is a realistic assumption of the straight-line method of depreciation?

Answer 70

Depreciation is a function of time rather than a function of usage.

Question 71

The activity method of depreciation

Answer 71

is a variable charge approach.

Question 72

For income statement purposes, depreciation is a variable expense if the depreciation method used is

Answer 72

units-of-production.

Question 73

Ferguson Company purchased a depreciable asset for $120,000. The estimated salvage value is $10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Answer 73

$110,000

Question 74

Hamilton Company purchased a depreciable asset for $240,000. The estimated salvage value is $20,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Answer 74

$220,000

Question 75

Solar Products purchased a machine for $39,000 on July 1, 2012. The company intends to depreciate it over 4 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2012 is

Answer 75

$9,750

Question 76

Solar Products purchased a machine for $39,000 on July 1, 2012. The company intends to depreciate it over 4 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2013 is

Answer 76

$14,625

Question 77

Gardner Corporation purchased a truck at the beginning of 2012 for $90,000. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 18,000 miles in 2012 and 32,000 miles in 2013. What is the depreciation expense for 2012?

Answer 77

$12,960

Question 78

Gardner Corporation purchased a truck at the beginning of 2012 for $90,000. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 18,000 miles in 2012 and 32,000 miles in 2013. What is the depreciation expense for 2013?

Answer 78

$23,040

Question 79

Kinder Company purchased a depreciable asset for $280,000. The estimated salvage value is $14,000, and the estimated useful life is 10,000 hours. Kinder used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

Answer 79

$29,260

Question 80

Jamar Company purchased a depreciable asset for $225,000. The estimated salvage value is $15,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

Answer 80

$42,188

Question 81

Engels Company purchased a depreciable asset for $800,000. The estimated salvage value is $40,000, and the estimated useful life is 10,000 hours. Engels used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

Answer 81

$83,600

Question 82

Hart Company purchased a depreciable asset for $450,000. The estimated salvage value is $30,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

Answer 82

$84,375

Question 83

On July 1, 2012, Gonzalez Corporation purchased factory equipment for $225,000. Salvage value was estimated to be $6,000. The equipment will be depreciated over ten years using the double-declining balance method. Counting the year of acquisition as one-half year, Gonzalez should record depreciation expense for 2013 on this equipment of

Answer 83

$40,500

Question 84

Krause Corporation purchased factory equipment that was installed and put into service January 2, 2012, at a total cost of $120,000. Salvage value was estimated at $8,000. The equipment is being depreciated over four years using the double-declining balance method. For the year 2013, Krause should record depreciation expense on this equipment of

Answer 84

$30,000

Question 85

On April 13, 2012, Neill Co. purchased machinery for $168,000. Salvage value was estimated to be $7,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Neill should record depreciation expense for 2013 on this machinery of

Answer 85

$28,560

Question 86

Matile Co. purchased machinery that was installed and ready for use on January 3, 2012, at a total cost of $115,000. Salvage value was estimated at $15,000. The machinery will be depreciated over five years using the double-declining balance method. For the year 2013, Matile should record depreciation expense on this machinery of

Answer 86

$27,600

Question 87

A plant asset has a cost of $32,000 and a salvage value of $8,000. The asset has a three-year life. If depreciation in the third year amounted to $4,000, which depreciation method was used?

Answer 87

Sum-of-the-years’-digits

Question 88

Companies should test indefinite life intangible assets at least annually for:

Answer 88

impairment.

Question 89

One factor that is not considered in determining the useful life of an intangible asset is

Answer 89

salvage value

Question 90

Which intangible assets are amortized?
		Limited-Life		Indefinite-Life
	a.	      Yes		               Yes
	b.	      Yes		               No
        c.	      No			       Yes
	d.	      No			        No

Answer 90

Limited-Life Indefinite-Life

b. Yes No

Question 91

The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser’s patented products should be

Answer 91

amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

Question 92

Broadway Corporation was granted a patent on a product on January 1, 2001. To protect its patent, the corporation purchased on January 1, 2012 a patent on a competing product which was originally issued on January 10, 2008. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be

Answer 92

amortized over a maximum period of 9 years.

Question 93

Wriglee, Inc. went to court this year and successfully defended its patent from infringe-ment by a competitor. The cost of this defense should be charged to

Answer 93

patents and amortized over the remaining useful life of the patent.

Question 94

Which of the following is not an intangible asset?

a. Trade name
b. Research and development costs
c. Franchise
d. Copyrights

Answer 94

Research and development costs

Question 95

Which of the following intangible assets should not be amortized?

a. Copyrights
b. Customer lists
c. Perpetual franchises
d. All of these intangible assets should be amortized.

Answer 95

Perpetual franchises

Question 96

When a patent is amortized, the credit is usually made to

Answer 96

the Patent account.

Question 97

When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be allowed to be capitalized?

a. Attorney fees.
b. Consulting fees.
c. Research and development fees.
d. Design costs.

Answer 97

Research and development fees

Question 98

In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as:

Answer 98

goodwill

Question 99

Goodwill may be recorded when:

Answer 99

one company acquires another in a business combination.

Question 100

When a new company is acquired, which of these intangible assets, unrecorded on the acquired company’s books, might be recorded in addition to goodwill?

a. A brand name.
b. A patent.
c. A customer list.
d. All of the above.

Answer 100

All of the above

Question 101

Which of the following intangible assets could not be sold by a business to raise needed cash for a capital project?

a. Patent.
b. Copyright.
c. Goodwill.
d. Brand Name.

Answer 101

Goodwill

Question 102

The reason goodwill is sometimes referred to as a master valuation account is because

Answer 102

it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business.

Question 103

Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. Proper accounting treatment by Easton is to report the excess amount as

Answer 103

a gain

Question 104

Thompson Company incurred research and development costs of $100,000 and legal fees of $20,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year?

Answer 104

$2,000

Question 105

ELO Corporation purchased a patent for $180,000 on September 1, 2010. It had a useful life of 10 years. On January 1, 2012, ELO spent $44,000 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 2012?

Answer 105

$40,000

Question 106

Danks Corporation purchased a patent for $900,000 on September 1, 2010. It had a useful life of 10 years. On January 1, 2012, Danks spent $220,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2012?

Answer 106

$200,000

Question 107

The general ledger of Vance Corporation as of December 31, 2012, includes the following accounts:

• Copyrights $ 30,000
• Deposits with advertising agency (will be used to promote goodwill) 27,000
• Discount on bonds payable 70,000
• Excess of cost over fair value of identifiable net assets of Acquired subsidiary 440,000
• Trademarks 90,000

In the preparation of Vance’s balance sheet as of December 31, 2012, what should be reported as total intangible assets?

Answer 107

$560,000

Question 108

In January, 2008, Findley Corporation purchased a patent for a new consumer product for $960,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2013 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2013, assuming amortization is recorded at the end of each year?

Answer 108

$480,000

Question 109

Day Company purchased a patent on January 1, 2012 for $600,000. The patent had a remaining useful life of 10 years at that date. In January of 2013, Day successfully defends the patent at a cost of $270,000, extending the patent’s life to 12/31/24. What amount of amortization expense would Kerr record in 2013?

Answer 109

$67,500

Question 110

On January 2, 2012, Klein Co. bought a trademark from Royce, Inc. for $1,200,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce’s books was $900,000. In Klein’s 2012 income statement, what amount should be reported as amortization expense?

Answer 110

$120,000

Question 111

A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2011 for $2,100,000. The company uses straight-line amortization for patents. On January 2, 2013, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recorded in 2013 is

Answer 111

$70,000

Question 112

Blue Sky Company’s 12/31/12 balance sheet reports assets of $7,500,000 and liabilities of $3,000,000. All of Blue Sky’s assets’ book values approximate their fair value, except for land, which has a fair value that is $450,000 greater than its book value. On 12/31/12, Horace Wimp Corporation paid $7,650,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?

Answer 112

$2,700,000

Question 113

Dotel Company’s 12/31/12 balance sheet reports assets of $12,000,000 and liabilities of $5,000,000. All of Dotel’s assets’ book values approximate their fair value, except for land, which has a fair value that is $800,000 greater than its book value. On 12/31/12, Egbert Corporation paid $12,200,000 to acquire Dotel. What amount of goodwill should Egbert record as a result of this purchase?

Answer 113

$4,400,000