Question Details

ACCT 551
MIDTERM
 1.	Question :	(TCO C) The cost of an intangible asset includes all of the following except

 	Student Answer:		 purchase price.

 			 legal fees.

 			 other incidental expenses.

 		 	 All of these are included. 

 	


 	Points Received:	5 of 5 
 	Comments:	



Question 2.	Question :	(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 

 	Student Answer:		 patents, and amortized over the legal life of the patent.

 			 legal fees, and amortized over 5 years or less.

 			 expenses of the period.

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

 	
Question 3.	Question :	(TCO C) Negative goodwill arises when the _____ of the net assets acquired is higher than the purchase price of the assets. 

 	Student Answer:		 useful life

 			 carrying value

 		 	 fair value

 			 excess earnings 

 	
Question 4.	Question :	(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? 

 	Student Answer:		 $20,600

 		 	 $20,000

 			 $18,800

 			 $15,600



Question 5.	Question :	(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- assets indicates that goodwill of $400,000 exists on December 31, 2011. What goodwill impairment should be recognized by General Products in 2011? 

 	Student Answer:	 	 $0

 			 $200,000

 			 $50,000

 			 $300,000



Question 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 

 	Student Answer:		 portion of FICA taxes and unemployment taxes.

 			 portion of FIT, SIT, and Medicare deductions.

 			 portion of FICA taxes, unemployment taxes, and any voluntary deductions.
 		 	 portion of FICA taxes and any voluntary deductions. 

 	
Question 7.	Question :	(TCO D) Which gives rise to the requirement to accrue a liability for the cost of compensated absences? 

 	Student Answer:		 Payment is probable.

 			 Employee rights vest or accumulate.

 			 The amount can be reasonably estimated.

 		 	 All of the above


Question 8.	Question :	(TCO D) Which of the following is not acceptable treatment for the presentation of current liabilities? 

 	Student Answer:		 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
 			 Showing current liabilities immediately below current assets to obtain a presentation of working capital 
 
Question 9.	Question :	(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 short-term debt could be excluded from current liabilities?

 	Student Answer:	 	 $1,500,000.

 			 $2,500,000.

 			 $1,000,000.

 			 $0

 	



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- 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 ( 
 
 ) 
 	



Question 11.	Question :	(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 

 	Student Answer:		 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.

 			 no necessary relationship exists between the two rates. 

 	


Question 12.	Question :	(TCO D) If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a 

 	Student Answer:		 debit to Interest Payable.

 			 credit to Interest Receivable.

 		 	 credit to Interest Expense.

 			 credit to Unearned Interest. 

 	


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%                      .627
Present value of 1 for eight periods at 8%                      .540
Present value of 1 for 16 periods at 3%                          .623
Present value of 1 for 16 periods at 4%                          .534
Present value of annuity for eight periods at 6%             6.210
Present value of annuity for eight periods at 8%             5.747
Present value of annuity for 16 periods at 3%                 12.561
Present value of annuity for 16 periods at 4%                 11.652

The issue price of the bonds is 

 	Student Answer:	 	 $883,560.

 			 $884,820.

 			 $889,560.

 			 $999,600. 

 


Question 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 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? 

 	Student Answer:		 $195,000

 			 $390,000

 		 	 $392,124

 		 	 $392,083 

 	


Question 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 

 	Student Answer:		 $185,130.

 		 	 $184,500.

 			 $173,550.

 			 $165,000. 

 	

Question :
(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.
Question :
(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?
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
Period 1
Period 2
(a) To record coupons redeemed
 
 
(b) To record estimated liability
 
 

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.
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.