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ACCT 551 Course Project (Notes to Financial Statement) (2
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ACCT 551 Course Project (Notes to Financial Statement) (2 Project)
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ACCT 551 Final Exam Set 1
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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.
3. (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.
4. (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.
5. (TCO F) Describe the journal entry for a stock dividend on common
stock (which has a par value)
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
7. (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?
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ACCT 551 Final Exam Set 2
Tutorial Purchased: 4 Times, Rating: A
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)
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ACCT 551 Midterm Exam Set 1
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:

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 identifable net asset of
acquired subsidiary 390,000
Trademarks
90,000
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.
Liability for $200,000.
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
.322
.377
.312
Present value of annuity for 10 periods at 10%
6.145
5.650
12.462
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.
===============================================
ACCT 551 Midterm Exam Set 2

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.
===============================================

ACCT 551 Week 1 Discussion BE12-2, BE12-3, BE12-7,
BE12-6, BE 12-12, Ex 12-15
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
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, E12-16

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 program 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, E13-12, P13-9
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, P14-6, P14-7
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 E15-2, E15-5, E15-6
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.
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.
===============================================
ACCT 551 Week 5 Homework E15-15, E15-16

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.
===============================================
ACCT 551 Week 6 Homework E16-6, E16-7, E16-12, E16-22

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 E17-7, E17-9, E17-15

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 portfolio of securities on December
31, 2013.
===============================================

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