ACCT 551 Midterm Exam Set 1 Updated
Question 1. (TCO C) The major problem of accounting for intangibles is determining
fair market value.
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
In the preparation of Vance’s balance sheet as of December 31, 2011, what should be reported as total intangible assets?
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?
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
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
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?
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?
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
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.
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.
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
- 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.