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Contemporary Issues In Financial Reporting A User Oriented Approach 1st Edition Paul Rosenfield - Solutions
Star Corporation purchases Trek Inc. for $71,660,000. Star Corporation is gaining the following assets and liabilities:Prepare the journal entry for Star to record the purchase of Trek. Inventory Land Value on Trek's Books Current Market Value $456,000 $1,050,000 $456,000 $50,000,000
Yolanda Company created a product for which it was able to obtain a patent. Yolanda sold the patent to Christiana Inc. for $20,780,000 at the beginning of 20X4. Christiana paid an additional $200,000 in legal fees to properly record the patent. At the beginning of 20X4, Christiana determined that
At the beginning of the year, Jaguar Corporation purchased a license from Angel Corporation that gives Jaguar the right to use a process Angel created. The purchase price of the license was $1,500,000, including legal fees. Jaguar will be able to use the process for five years under the license
What is the present value of receiving $15,000 per year for the next six years at an interest rate of 7 percent, assuming payments are made at the beginning of the period (annuity due)?a. $76,503b. $90,000c. $59,971d. $9,995
Krypton Corporation offers Earth Company $800,000 for a patent held by Earth Company. The patent is currently on Earth Company’s books in the amount of $14,000, the legal costs of registering the patent in the first place. Krypton had appraisers examine the patent before making an offer to
Which of the following concerning the research and development costs is true?a. According to U.S. GAAP, research and development costs must be expensed as incurred.b. Current U.S. GAAP reporting for research and development costs violates the matching principle.c. International Financial Reporting
What is the present value of receiving $4,800,000 at the end of six years assuming an interest rate of 5 percent?a. $3,581,834b. $6,432,459c. $5,040,000d. $4,571,429
Kremlin Company pays $2,900,000 for the common stock of Reticular Corporation. Reticular has assets on the balance sheet with a book value of$1,500,000 and a fair value of $2,500,000. What is goodwill in this purchase?a. $1,400,000b. $1,000,000c. $400,000d. $0
Mitchell Inc. developed a product, spending $4,900,000 in research to do so. Mitchell applied for and received a patent for the product in January,spending $34,800 in legal and filing fees. The patent is valid for seventeen years. What would be the book value of the patent at the end of Year 1?a.
Which of the following would not be subject to amortization?a. Goodwillb. Patentc. Copyrightd. Trademark
____ Intangibles purchased from another company are reported at the amount paid for them less any amortization.
____ It is assumed that payments made on a long-term basis include interest.
____ Research and development costs that help develop successful programs can be capitalized.
____ An intangible asset is a right that helps the owner generate revenues.
____ When one company acquires another, the acquiring company should continue to report any intangible assets of the purchased company at the same cost used by the purchased company.
____ If an intangible asset is successfully defended from a legal challenge, legal costs may be capitalized to the asset account.
____ Once a company records goodwill, it will be on the company’s books forever because it is not amortized.
____ Amortization of intangibles is usually done over the asset’s legal life.
____ A patent is an example of an intangible asset.
____ Typically, intangible assets are shown at their fair value.
What is an annuity?
What is present value?
Payments made over an extended period of time should be divided into what two items?
What should companies do with goodwill each reporting period?
Is goodwill amortized like other intangibles?
What is “goodwill”?
When should a parent (acquiring) company record the intangibles of a subsidiary on its balance sheet?
What are the two reasons intangible assets are reported at more than historical cost plus filing and legal costs?
Why are intangibles, like trademarks, not recorded at their market value, which can greatly exceed historical cost?
Under what circumstances could the cost to defend an intangible asset in court be capitalized to the asset account?
How does a company typically determine the useful life of an intangible?
What is amortization?
How does an intangible asset differ from property and equipment?
At what value are intangible assets typically reported?
Give three examples of intangible assets.
Define “intangible asset.”
On June 30, Partyplace, a popular spot for receptions and other events, purchased a used limousine and used Hummer from a car dealership as a basket purchase. They received a good deal because they bought the vehicles together, paying only $75,000 for both. The market values were$45,000 for the
On April 1, 20X1, Chang and Chang Inc. invested in a new machine to manufacture soccer balls. The machine is expected to manufacture 1,400,000 balls over its life of three years and then it will be scrapped. The machine cost $50,000 including normal and necessary costs of setting it up.Chang will
Markov Corporation owns forests that are harvested and sold to papermaking companies. Markov purchases a new tract of forest on January 1, 20X6, for $360,000. Its experts estimate that 4,000 tons of wood can be harvested from the forest and sold. After that, the land will be worth about $20,000 (of
Janus Corporation was unable to find a store suitable for its business, so it decided to build one. It was able to secure debt financing from the Southeast Bank in the amount of $4,000,000 at an interest rate of 5 percent. During 20X8, Janus spent $2,500,000 on construction, but did not complete
Fairfield Inc. invested in a plant to manufacture j phones, thinking these would be the next “big thing” and compete with the current maker of the iPhone. Unfortunately, things did not work out so well for the j phone.Complete the following steps to determine if Fairfield will need to record an
Gameplay Company operates in mall locations and sells videogame equipment and games. The company purchased furniture and fixtures to use in one of its stores for $440,000 in January of 20X5. The furniture and fixtures were being depreciated using the straight-line method over ten years with a
Springfield Corporation purchases a new machine on March 3, 20X4 for$35,600 in cash. It pays an additional $3,400 to transport and set up the machine. Springfield’s accountant determines that the equipment has no residual value and that the useful life is five years. It is expected to generate
Maxwell Corporation wishes to sell a building it has owned for five years. It was purchased for $430,000. Maxwell performed additional modifications to the building, which totaled $45,000. On the proposed date of sale, the accumulated depreciation on the building totaled $75,000. The proposed sales
On January 3, 20X1, Jewels Inc. purchases a South American mine found to be rich in amethyst for $560,000. Once all the amethyst has been removed, the land is estimated to be worth only $100,000. Experts predict that the mine contains 4,000 pounds of amethyst. Jewels plans on completing the
At the beginning of the year, the Kelvin Company owned equipment that appeared on its balance sheet as such:Equipment $7,000,000 Accumulated Depreciation ($2,000,000)The equipment was purchased two years ago and assigned a useful life of six years and a salvage value of $1,000,000. During the first
Kite Corporation wishes to trade equipment it owns for a vehicle owned by the Runner Corporation. Kite’s equipment has a book value of $4,000 and a fair value of $4,500. Runner’s vehicle has a book value and fair value of$5,100. Kite agrees to pay Runner $600 in cash in addition to giving up
See the information in number 1 above. Assume the Redbirds decide to use the double-declining balance depreciation method instead. What would Year 1 depreciation expense be?a. $6,420b. $6,676c. $6,240d. $6,536
On January 1, the Rhode Island Redbirds organization purchased new workout equipment for its athletes. The equipment had a cost of $15,600, transportation costs of $450, and set up costs of $290. The Redbirds spent$350 training their trainers and athletes on its proper use. The useful life of the
____ Both assets used to generate revenue from operations and assets held as investment property are reported as PP&E on the balance sheet.
____ The purchase price of an asset is capitalized, but costs like transportation and set up of the asset should be expensed as incurred.
____ Accumulated depreciation is a contra-asset account.
____ The only acceptable method of depreciation is straight-line.
____ Companies are allowed to capitalize interest while they are constructing an asset because the asset is not available to generate revenues yet.
____ It does not matter how a company divides a basket purchase since all the assets will be depreciated anyway.
____ If an expenditure increases the useful life of an asset, it should be capitalized, not expensed.
____ If PP&E is found to be permanently impaired, a loss must be recorded.
____ PP&E is a long-term asset.
____ Almost all property, plant, and equipment (PP&E) is depreciated, which means that its cost is spread over its useful life.
When can a company capitalize interest?
How is an impairment loss on PP&E determined?
What are land improvements?
When should a subsequent expenditure associated with currently owned property and equipment be capitalized?
How are the values attributed to the different assets determined in a basket purchase?
What is a basket purchase?
What is depletion?
How does the units-of-production method differ from straight-line?
What is accelerated depreciation and how is its use justified?
What is the half-year convention?
How does a company determine the gain or loss on the sale of PP&E?
Which method of depreciation allocates an equal amount to each period the asset is used?
Define “residual value.”
Define “useful life.”
How does a company determine the historical cost of a property and equipment?
Why would land be classified as an investment rather than PP&E?
Why is land not depreciated?
Why is property and equipment not reported at its fair value?
Define “book value.”
What type of account is accumulated depreciation?
What is accumulated depreciation?
At what value is property, plant, and equipment (PP&E) typically reported on the balance sheet?
In Chapter 4 "How Does an Organization Accumulate and Organize the Information Necessary to Prepare Financial Statements? " and Chapter 7 "In a Set of Financial Statements, What Information Is Conveyed about Receivables?", we met Heather Miller, who started her own business, Sew Cool. The financial
Highlander Corporation sells swords for decorative purposes. It would like to know the difference in cost of goods sold and ending inventory if it uses the weighted average method or the moving average method. Please find below information to help determine these amounts for the second quarter.a.
Rollrbladz Inc. is trying to decide between a periodic or perpetual LIFO system. Management would like to see the effect of each on cost of goods sold and ending inventory for the year. Below is information concerning purchases and sales of its specialty line of rollerblades:a. Determine
The Furn Store sells home furnishings, including bean bag chairs. Furn currently uses the periodic FIFO method of inventory costing, but is considering implementing a perpetual system. It will cost a good deal of money to start and maintain, so Furn would like to see the difference, if any, between
Assume the same facts as in problem 6 above, but that Paula’s Parkas uses the moving average method.a. Determine Paula’s Parkas cost of goods sold and ending inventory for January.b. Determine Parka’s gross profit for January.
Assume the same facts as in problem 6 above, but that Paula’s Parkas uses the perpetual LIFO method.a. Determine Paula’s Parkas cost of goods sold and ending inventory for January.b. Determine Parka’s gross profit for January.
Paula’s Parkas sells NorthPlace jackets. At the beginning of the year, Paula’s had twenty jackets in stock, each costing $35 and selling for $60. The following table details the purchases and sales made during January:Assume that Paula’s Parkas uses the perpetual FIFO method.a. Determine
Ulysses Company uses LIFO costing. It reported beginning inventory of$20,000,000 and ending inventory of $24,500,000. If current costs were used to value inventory, beginning inventory would have been $23,000,000 and ending inventory would have been $26,700,000. Cost of goods sold using LIFO
Using your answers to problems 1–3, determine the following:a. Which of the methods yields the lowest cost of goods sold for SuperDuper?b. Which of the methods yields the highest ending inventory for SuperDuper?
Assume the same facts as problem 1 above, except that SuperDuper has decided to use averaging. Determine SuperDuper’s cost of goods sold using averaging.
Assume the same facts as problem 1 above, except that SuperDuper is more concerned with minimizing taxes and uses LIFO. Determine SuperDuper’s cost of goods sold using LIFO.
SuperDuper Company sells top-of-the-line skateboards. SuperDuper is concerned about maintaining high earnings and has chosen to use the periodic FIFO method of inventory costing. At the beginning of the year, SuperDuper had 5,000 skateboards in inventory, each costing $20. In April, SuperDuper
Traylor Corporation began the year with three items in beginning inventory, each costing $4. During the year Traylor purchased five more items at a cost of $5 each and two more items at a cost of $6.50 each. Traylor sold eight items for $9 each. If Traylor uses LIFO, what would be Traylor’s gross
During the year, Hostel Company had net sales of $4,300,000 and cost of goods sold of $2,800,000. Beginning inventory was $230,000 and ending inventory was $390,000. Which of the following would be Hostel’s inventory turnover for the year?a. 9.03 timesb. 7.18 timesc. 4.84 timesd. 13.87 times
Which is not a reason a company would choose to use LIFO for financial reporting?a. The company wishes to use LIFO for tax purposes.b. The company wants net income to be as high as possible.c. The company would like to match the most current costs with revenues.d. LIFO best matches the physical
Milby Corporation purchased three hats to sell during the year. The first, purchased in February, cost $5. The second, purchased in April, cost $6. The third, purchased in July, cost $8. If Milby sells two hats during the year and uses the FIFO method, what would cost of goods sold be for the
Which of the following provides the best matching of revenues and expenses?a. Specific Identificationb. FIFOc. LIFOd. Averaging
____ LIFO liquidation may artificially inflate net income TRUE OR FALSE
____ Gross profit percentage can help users determine how long it takes companies to sell inventory after they purchase it. TRUE OR FALSE
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