1. KELLER ACCT 551 Midterm Exam Set 2 NEW
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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
2. 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
3. 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?
4. 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
5. 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:
6. - 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.
7. - 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.
