# ACCT 551 ENTIRE COURSE

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ACCT 551 ENTIRE COURSE

ACCT 551 Week 1 Discussion

BE12-2 makes us learn that if any legal cost is incurred to defend an intangible assets  it should be added to the book value of intangible asset and depreciated over its remaining useful life.  Book Value is determined by subtracting amortization till the date of incurring legal cost from the purchase price.

BE12-3 provides us repeated practice to record amortization on intangible asset

The take away from BE12-7 is how to test goodwill for impairment. We test goodwill for impairment by comparing the Fair Value (FV) with the Carrying Value(CV) of the reporting unit.  If FV is less than CV then we proceed further to test goodwill for impairment.

BRIEF EXERCISE 12-7

Because the fair value of the division exceeds the carrying amount of the assets, goodwill is not considered to be impaired. No entry is necessary.

BE12-6.  This question helped us learn testing an intangible for impairment. This test involves two steps Recoverability test and Fair Value Test. In the Recoverability test we compare the Future Cash Flows and the Carrying Amount of the intangible. Here in this question the future cash flows of \$210,000 are less than the carrying value therefore there is an impairment. Now we apply the second test to find the amount of impairment loss by comparing the fair value (\$110,000) with the carrying value (300,000). The impairment loss here is \$190,000 ( 300,000-110,000). Please note that the intangible is now reported only at \$110,000

BE12-12.  Point to note in this question is that the Research and Development cost of \$96,000 is not added to the cost of intangible but only the legal expenses of n\$85,000 to defend the intangible is added.

EXERCISE 12-15

 (a) December 31, 2010 Loss on Impairment.............................. 15,000,000 Goodwill......................................... 15,000,000

The fair value of the reporting unit (\$335 million) is below its carrying value (\$350 million). Therefore, an impairment has occurred. To determine the impair-ment amount, we first find the implied goodwill. We then compare this implied fair value to the carrying value of the goodwill to determine the amount of the impairment to record.

ACCT 551 Week 1 Homework

E12-5 (Correct Intangible Assets Account) As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2014, are prepared. The controller for William J. Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.

E12-16 (Accounting for R&D Costs) Leontyne Price Company from time to time embarks on a research pro- gram when a special project seems to offer possibilities.

In 2013, the company expends \$325,000 on a research project, but by the end of 2013 it is impossible to determine whether any benefit will be derived from it.

(a) What account should be charged for the \$325,000, and how should it be shown in the financial statements?

(b) The project is completed in 2014, and a successful patent is obtained. The R&D costs to complete the project are \$110,000.

(c) In 2015, the company successfully defends the patent in extended litigation at a cost of \$47,200, thereby extending the patent life to December 31, 2022.

(d) Additional engineering and consulting costs incurred in 2015 required to advance the design of a product to the manufacturing stage total \$60,000.

ACCT 551 Week 2 Homework

E13-11 (Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2014 at \$6,000 each. During 2014, Crow spent \$20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

E13-12 (Premium Entries) No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2014, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at \$3.30 per box; 44,000 coupons were presented for redemption in 2014. It is estimated that 60% of the coupons will eventually be presented for redemption.

P13-9 (Premium Entries and Financial Statement Presentation) Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with \$2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is \$2.25. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2014 and 2015 are as follows. (All purchases and sales are for cash.)

ACCT 551 Week 3 Homework

P14-5 (Comprehensive Bond Problem) In each of the following independent cases the company closes its books on December 31.

P14-6 (Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are

P14-7 (Entries for Life Cycle of Bonds) On April 1, 2014, Seminole Company sold 15,000 of its 11% 15-year, \$1,000 face value bonds at 97.

ACCT 551 Week 4 Homework

 EXERCISE 15-2 Facts: Kathleen Battle Corporation was organized on January 1, 2014. It is authorized to issue 10,000 shares of 8%, \$100 par value preferred stock, and 500,000 shares of no-par common stock with a stated value of \$1 per share. The following transactions were completed during the first year. Prepare entries to record the transactions.

E15-5 (Lump-Sum Sales of Stock with Preferred Stock) Dave Matthew Inc. issues 500 shares of \$10 par value common stock and 100 shares of \$100 par value preferred stock for a lump sum of \$100,000.

EXERCISE 15-6 (15th edition)

Facts: Lindsey Hunter Corporation is authorized to issue 50,000 shares of \$5 par value C/S. During 2014, Lindsey Hunter took part in the following selected transactions.

1. Issued 5,000 shares of stock at \$45 per share, less costs related to the issuance of the stock totaling \$7,000.
2. Issued 1,000 shares of stock for land appraised at \$50,000. The stock is actively traded on a national exchange at approximately \$46 per share on the date of issuance.
3. Issued 1,000 shares of stock for land appraised at \$50,000. The stock is actively traded on a national exchange at approximately \$46 per share on the date of issuance.

ACCT 551 Week 5 Homework Assignment

E15-15 (Dividend Entries) The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2013.

(a) A 5% stock dividend is declared and distributed at a time when the market price per share is \$39.

(b) The par value of the common stock is reduced to \$2 with a 5-for-1 stock split.

E15-16 (Computation of Retained Earnings) The following information has been taken from the ledger accounts of Isaac Stern Corporation.

-25

ACCT 551 Week 6 Homework Assignment

E16-6 (Conversion of Bonds)

On January 1, 2014, Gottlieb Corporation issued \$4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each \$1,000 debenture can be converted into eight shares of Gottlieb Corporation \$100 par value common stock after December 31, 2015.

E16-7 (Issuance of Bonds with Warrants)

Illiad Inc. has decided to raise additional capital by issuing \$170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each \$100 bond sold. The value of the bonds without the warrants is considered to be \$136,000, and the value of the warrants in the market is \$24,000. The bonds sold in the market at issuance for \$152,000.

E16-12

(Issuance, Exercise, and Termination of Stock Options)

On January 1, 2013, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols’ \$5 par value common stock at a price of \$20 per share. The options were exercisable within a 2-year period beginning January 1, 2015, if the grantee is still employed by the company at the time of the exercise. On the grant date, Nichols’ stock was trading at \$25 per share, and a fair value option-pricing model determines total compensation to be \$400,000.

E16-22(EPS with Convertible Bonds, Various Situations)

In 2013, Chirac Enterprises issued, at par, 60 \$1,000, 8% bonds, each convertible into 100 shares of common stock. Chirac had revenues of \$17,500 and expenses other than interest and taxes of \$8,400 for 2014. (Assume that the tax rate is 40%.) Throughout 2014, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed.

ACCT 551 Week 7 Homework Assignment

E17-7 (Trading Securities Entries) On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.

E17-9 (Available-for-Sale Securities Entries and Financial Statement Presentation) At December 31, 2013, the available-for-sale equity portfolio for Steffi Graf, Inc. is as follows.

E17-15 (Equity Investments—Trading) Kenseth Company has the following securities in its trading port- folio of securities on December 31, 2013.

ACCT 551 Course Project

ACCT 551 Final Exam

Question 1. 1. (TCO C) Which characteristic is not possessed by intangible assets? (Points : 5)

Physical existence

Short-lived

Result in future benefits

Expensed over current and/or future years

Question 2. 2.   (TCO C) One factor that is not considered in determining the useful life of an intangible asset is (Points : 5)

salvage value.

provisions for renewal or extension.

legal life.

expected actions of competitors.

Question 3. 3.   (TCO C) Intangible assets are reported on the balance sheet (Points : 5)

with an accumulated depreciation account.

in the property, plant, and equipment section.

separately from other assets.

None of the above

Question 4. 4. (TCO D) Which of the following is a current liability? (Points : 5)

A long-term debt maturing currently, which is to be paid with cash in a sinking fund

A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue

A long-term debt maturing currently, which is to be converted into common stock

A long-term debt maturing currently, which is to be paid with current assets

Question 5. 5. (TCO D) A contingent liability (Points : 5)

definitely exists as a liability but its amount and due date are indeterminable.

is accrued even though not reasonably estimated.

is not disclosed in the financial statements.

is the result of a loss contingency.

Question 6. 6. (TCO D) Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach? (Points : 5)

Estimated liability under warranties

Warranty expense

Unearned warranty revenue

Warranty revenue

Question 7. 7. (TCO D) The term used for bonds that are unsecured regarding principal is (Points : 5)

junk bonds.

debenture bonds.

in-debenture bonds.

callable bonds.

Question 8. 8.  (TCO D) On July 1, 2009, Noble, Inc. issued 9% bonds in the face amount of \$5,000,000, which mature on July 1, 2015. The bonds were issued for \$4,695,000 to yield 10%, resulting in a bond discount of \$305,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2011, Noble's unamortized bond discount should be (Points : 5)

\$264,050.

\$255,000.

\$244,000.

\$215,000.

a2009–2010

\$4,695,000 + [(\$4,695,000 × .1) – (\$5,000,000 × .09)] = \$4,714,500.

2010–2011:

\$4,714,500 + (\$471,450 – \$450,000) = \$4,735,950 \$5,000,000 – \$4,735,950 = \$264,050

Question 9. 9.  (TCO E) Total stockholders' equity represents (Points : 5)

a claim to specific assets contributed by the owners.

the maximum amount that can be borrowed by the enterprise.

a claim against a portion of the total assets of an enterprise.

only the amount of earnings that have been retained in the business.

Question 10. 10. (TCO F) Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a (Points : 5)

property dividend.

stock dividend.

liquidating dividend.

cash dividend.

Page 2

Question 1. 1. (TCO C) If intangible assets are acquired for stock, how is the cost of the intangible determined? (Points : 20)

Question 2. 2. (TCO D) Total payroll of Watson Co. was \$920,000, of which \$160,000 represented amounts paid in excess of \$100,000 to certain employees. The amount paid to employees in excess of \$7,000 was \$720,000. Income taxes withheld were \$225,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the FICA tax is 7.65% on an employee’s wages to \$100,000 and 1.45% in excess of \$100,000.

(a) Prepare the journal entry for the wages and salaries paid.

(b) Prepare the entry to record the employer payroll taxes. (Points : 30)

Question 3. 3. (TCO D) On January 1, 2010, Solis Co. issued its 10% bonds in the face amount of \$3,000,000, which mature on January 1, 2020. The bonds were issued for \$3,405,000 to yield 8%, resulting in bond premium of \$405,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2010, Solis's adjusted unamortized bond premium is what amount? Please show computations. (Points : 35)

Question 4. 4.

(TCO E) The original sale of the 450 par-value common shares of Gray Company was recorded as follows:

Record the treasury stock transactions (given below) under the cost method.

Transactions:

(a)   Bought 300 shares of common stock as treasury shares at \$62

(b)   Sold 80 shares of treasury stock at \$60

(c)   Sold four treasury shares at \$68

(Points : 30)

Question 5. 5. (TCO F) In each of the following independent cases, it is assumed that the corporation has \$400,000 of 6% preferred stock and \$1,600,000 of common stock outstanding, each having a par value of \$10. No dividends have been declared for 2009 and 2010.

(a) As of 12/31/11, it is desired to distribute \$250,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative and nonparticipating?

(b) As of 12/31/11, it is desired to distribute \$400,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative and participating up to 11% in total?

(c) On 12/31/11, the preferred stockholders received a \$120,000 dividend on their stock, which is cumulative and fully participating. How much money was distributed in total for dividends during 2011? (Points : 30)

Question 6. 6. (TCO A) At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had \$10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was \$3,000,000. Assuming the income tax rate was 30%, what would be the diluted earnings per share for the year ended December 31, 2011 (rounded to the nearest penny)? Show all computations. (Points : 25)

Question 7. 7.

(TCO B) The following information pertains to Fox Inc.’s portfolio of marketable securities for the Year ended Dec 31, Year 1 and Dec 31, Year 2.

Cost Fair Value at

Record the journal entries for the following marketable securities transactions based on the information given in the table.

1. Mark to market journal entry for the  Smith Co security at 12/31 Year 1
2. Mark to market journal entry for the  Jones Co security at 12/31 Year 1
3. Mark to market journal entry for the  Williams Co security at 12/31 Year 1
4. Mark to market journal entry for the  Gores  Co security at 12/31 Year 1
5. Mark to market journal entry for the  Smith Co security at 12/31 Year 2
6. Mark to market journal entry for the  Jones  Co security at 12/31 Year 2
7. Mark to market journal entry for the  Williams Co security at 12/31 Year 2
8. Mark to market journal entry for the  Gores  Co security at 12/31 Year 2
9. Journal entry to record  purchase of Martin Co. Investment
10. Journal entry to record the impairment of Martin Co. Investment

(Points : 30)

Question 1. (TCO C) Which characteristic is not possessed by intangible assets?

Physical existence

Short-lived

Result in future benefits

Expensed over current and/or future years

Question 2. (TCO C) Which intangible assets are amortized?

Limited Life       Indefinite Life

Question  3. (TCO C) Which of the following is often reported as an extraordinary item?

Amortization expense

Impairment losses for intangible assets other than goodwill

Impairment losses on goodwill

None of the above

Question  4. (TCO D) Which of the following is a current liability?

A long-term debt maturing currently, which is to be paid with cash in a sinking fund

A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue

A long-term debt maturing currently, which is to be converted into common stock

A long-term debt maturing currently, which is to be paid with current assets

Question  5. (TCO D) Jeff Beck is a farmer who owns land that borders on the right-of-way of the Northern Railroad. On August 10, 2010, due to the admitted negligence of the railroad, hay on the farm was set on fire and burned. Beck had had a dispute with the railroad for several years concerning the ownership of a small parcel of land. The representative of the railroad has offered to assign any rights the railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Beck appears inclined to accept the railroad's offer. The railroad's 2010 financial statements should include the following related to the incident:

recognition of a loss and creation of a liability for the value of the land.

recognition of a loss only.

creation of a liability only.

disclosure in note form only.

Question 6.  (TCO D) Which of the following best describes the cash-basis method of accounting for warranty costs?

Expensed based on estimate in year of sale

Expensed when liability is accrued

Expensed when warranty claims are certain

Expensed when incurred

Question 7. (TCO D) The term used for bonds that are unsecured regarding principal is

junk bonds.

debenture bonds.

in-debenture bonds.

callable bonds.

Question  8. (TCO D) On November 1, Year 1, Dixon Corporation issued \$800,000 of its 10-year, 8% term bonds dated October 1, Year 1. The bonds were sold to yield 10%, with total proceeds of \$700,000 plus accrued interest. Interest is paid every April 1 and October 1.  What amount should Dixon report for interest payable in its December 31, Year 1 balance sheet?

\$17,500

\$16,000

\$11,667

\$10,667

Question  9. (TCO E) A primary source of stockholders' equity is

income retained by the corporation.

appropriated retained earnings.

contributions by stockholders.

both income retained by the corporation and contributions by stockholders.

Question 10.  (TCO F) Which of the following statements about property dividends is not true?

A property dividend is usually in the form of securities of other companies.

A property dividend is also called a dividend in kind.

The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

All of the above

1. (TCO C) Redstone Company spent \$190,000 developing a new process, \$45,000 in legal fees to obtain a patent, and \$91,000 to market the process that was patented. How should these costs be accounted for in the year they are incurred?
2. (TCO D) Total payroll of Watson Co. was \$920,000, of which \$160,000 represented amounts paid in excess of \$100,000 to certain employees. The amount paid to employees in excess of \$7,000 was \$720,000. Income taxes withheld were \$225,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the FICA tax is 7.65% on an employee’s wages to \$100,000 and 1.45% in excess of \$100,000.

(a) Prepare the journal entry for the wages and salaries paid.

(b) Prepare the entry to record the employer payroll taxes.

1. (TCO D) Hurst, Incorporated sold its 8% bonds with a maturity value of \$3,000,000 on August 1, 2009 for \$2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst's bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase \$500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds' call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations.

1. (TCO E) Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of \$72,000 cash.

Instructions:

(a) Give the entry for the issuance, assuming the par value of the common was \$5 and the market value \$30, and the par value of the preferred was \$40 and the market value \$50. (Each valuation is on a per-share basis and there are ready markets for each stock.)

(b) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market value, and the common stock has a market value of \$25 per share.

1. (TCO F) Describe the journal entry for a stock dividend on common stock (which has a par value)

1. (TCO A) At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had \$10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was \$3,000,000. Assuming the income tax rate was 30%, what would be the diluted earnings per share for the year ended December 31, 2011

1. (TCO B) Agee Corp. acquired a 25% interest in Trent Co. on January 1, 2010, for \$500,000. At that time, Trent had 1,000,000 shares of its \$1 par common stock issued and outstanding. During 2010, Trent paid cash dividends of \$160,000 and thereafter declared and issued a 5% common stock dividend when the market value was \$2 per share. Trent's net income for 2010 was \$360,000. What is the balance in Agee’s investment account at the end of 2010?

ACCT 551 Midterm Exam

Question 1. (TCO C) The major problem of accounting for intangibles is determining

fair market value.

separability.

salvage value.

useful life.

Question  2. (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.

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

Question  3. (TCO C) Purchased goodwill should

be written off as soon as possible against retained earnings.

be written off as soon as possible as an extraordinary item.

be written off by systematic charges as a regular operating expense over the period benefited.

not be amortized.

Question 4. (TCO C) The general ledger of Vance Corporation as of December 31, 2011, includes the following accounts:

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 identifable net asset of

acquired subsidiary                                                                   390,000

In the preparation of Vance's balance sheet as of December 31, 2011, what should be reported as total intangible assets?

\$480,000.

\$507,000.

\$510,000.

\$537,000.

Question 5. (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

Question 6. (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.

portion of FICA taxes and any voluntary deductions.

Question 7. (TCO D) Which of the following taxes does not represent a payroll deduction a company may incur?

Federal income taxes

FICA taxes

State unemployment taxes

State income taxes

Question 8. (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

Showing current liabilities immediately below current assets to obtain a presentation of working capital

Question 9. (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 that allows Irey to borrow up to \$1,500,000 at 1% above the prime rate for 3 years. On February 2, 2011, Irey borrowed \$1,200,000 from County Bank and used \$500,000 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 issued on March 5, 2011 is

\$0.

\$300,000.

\$500,000.

\$800,000.

Question  10. (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?

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. (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

exceed what it would have been had the effective-interest method of amortization been used.

be less than what it would have been had the effective-interest method of amortization been used.

be the same as it would have been had the effective-interest method of amortization been used.

be less than the stated (nominal) rate of interest.

Question 12. (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.

credit to Unearned Interest.

Question. 13. (TCO D) Feller Company issues \$20,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

\$19,400,000

\$20,450,000

\$19,700,000

\$19,100,000

Question. 14. (TCO D) A company issues \$20,000,000, 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 \$19,604,145. What is the interest expense for 2011, using straight-line amortization?

\$1,540,207

\$1,560,000

\$1,569,192

\$1,579,793

Question  15. (TCO D) On January 1, Patterson, Inc. issued \$5,000,000, 9% bonds for \$4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of

\$274,500

\$285,500

\$258,050

\$255,000

Question 1. (TCO C) Barkley Corp. obtained a trade name in January 2009, incurring legal costs of \$15,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2010, incurring \$4,900 in legal fees. At the beginning of 2011, based on new marketing research, Barkley determines that the fair value of the trade name is \$12,000. Estimated total future cash flows from the trade name are \$13,000 on January 4, 2011.

Instructions:

Prepare the necessary journal entries for the years ending December 31, 2009, 2010, and 2011. Show all computations.

Question  2. (TCO C) It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. Discuss the accounting arguments against this treatment.

Question  3. (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. Edward’s experience indicates that 60% 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.

Question  4. (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  5. (TCO D) Hurst, Inc. sold its 8% bonds with a maturity value of \$3,000,000 on August 1, 2009 for \$2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst’s bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase \$500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds’ call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations

Question 1. (TCO C) The major problem of accounting for intangibles is determining

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

Question 3. Question : (TCO C) A loss on impairment of an intangible asset is the difference between the asset’s

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?

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’s assets indicates that goodwill of \$400,000 exists on December 31, 2011. What goodwill impairment should be recognized by General Products in 2011?

Question 6. Question : (TCO D) Which of these is not included in an employer's payroll tax expense?

Question 7. Question : (TCO D) Which of the following taxes does not represent a payroll deduction a company may incur?

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

Question 9. 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 that allows Irey to borrow up to \$1,500,000 at 1% above the prime rate for 3 years. On February 2, 2011, Irey borrowed \$1,200,000 from County Bank and used \$500,000 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 issued on March 5, 2011 is

Question 10. Question : (TCO D) Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2009, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2009 may first be taken on January 1, 2010. Information relative to these employees is as follows:

Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2011?

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

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

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

Question 14. Question : (TCO D) A company issues \$20,000,000, 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 \$19,604,145. What is the interest expense for 2011, using straight-line amortization?

Question 15. Question : (TCO D) On October 1, 2010, Bartley Corporation issued 5%, 10-year bonds with a face value of \$500,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.

The entry to record the issuance of the bonds would include a

(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 2. Question : (TCO C) Recently, a group of university students decided to incorporate for the purposes of selling a process to recycle the waste product from manufacturing cheese. Some of the initial costs involved were legal fees and office expenses incurred in starting the business, state incorporation fees, and stamp taxes. One student wishes to charge these costs against revenue in the current period. Another student wishes to defer these costs and amortize them in the future. Which student is correct and why?

Question 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. Edward’s experience indicates that 60% 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.

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:

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 5. Question : (TCO D) Hurst, Inc. sold its 8% bonds with a maturity value of \$3,000,000 on August 1, 2009 for \$2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst’s bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase \$500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds’ call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations.