Read the question in Exam 3 then answer them in the Answer sheet:

• PartI.choosethecorrectanswerinquestions1to16.
• PartII.determinetheeffectsofeachtransactionfrom17to31bychoosingAforincrease,Bfordecrease,andCfornoeffect.ontheanswersheet.
• Part III. Please read the problem carefully then do the computations, SHOW ALL WORK and EXPLAIN the result.
• (Make sure all answers are Correct!)

Disregard pages 7 and 8 on Exam 3.

Professor Gramlich ACCTG 330 - Financial Reporting I Retake answer sheet for exam 3, Fall 2016 Student Name____PLACE YOUR NAME HERE!!_____ Student ID#____ PLACE YOUR ID # HERE!!________ I. Multiple choice (48 points) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. II. Effects of transactions (30 points) 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. III. Goodwill and impairment problem (22 points) (a) Compute the amount of goodwill recognized, if any, on May 31, 2017. (b) Determine the impairment loss, if any, to be recorded on December 31, 2017. (c) Assume that the fair value of the Xpert Skateboarding division is $1,850,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2017. Professor Gramlich ACCTG 330 - Financial Reporting I Exam 3, Fall 2016 Student Name______________________ Student ID#_______________________ Overall instructions: You may use one 8.5\" x 11\" piece of paper with notes on both sides and a calculator (one without extended memory or the ability to communicate with another machine or person). Clarification questions and/or assumptions should be clearly written and referenced to the appropriate exam question (and indicated on the front page with a large *). You have 75 minutes to complete the exam. I. Multiple choice (48 points) - Darken the circle corresponding to the best answer to each of these questions. 1. Darren Company becomes aware of a lawsuit filed against Darren after the date of the financial statements, but before they are issued. The suit pertains to an event that occurred during the accounting period. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated and a. the Darren Company admits guilt. b. the court will decide the case within one year. c. Darren Company will fight the case in court. d. an unfavorable outcome is highly probable. 2. On June 15, 2017 Santos Corporation accepted delivery of merchandise which it purchased on account. As of June 30 Santos had not recorded the transaction or included the merchandise in its inventory. The effect of this error on its balance sheet for June 30, 2017 would be a. assets and stockholders' equity were overstated but liabilities were not affected. b. stockholders' equity was the only item affected by the omission. c. assets and liabilities were understated but stockholders' equity was not affected. d. assets and stockholders' equity were understated but liabilities were not affected. 3. When the sum-of-the-years'-digits method is used, depreciation expense for a given asset will a. decline by a constant amount each year. b. be the same each year. c. decrease rapidly and then slowly over the life of the asset. d. vary from year to year in relation to changes in output. 4. Property, plant, and equipment is usually presented in the balance sheet at a. replacement cost less accumulated depreciation. b. historical cost less salvage value. c. original cost less accumulated depreciation. d. acquisition cost less net book value thereof. 1 5. Emanuel Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $550,000. At the time of acquisition Emanuel paid $20,000 to have the assets appraised. The appraisal disclosed the following values: Land Buildings Equipment $320,000 256,000 64,000 What cost should be assigned to the land, buildings, and equipment, respectively? a. $320,000, $256,000, and $64,000. b. $275,000, $220,000, and $55,000. c. $285,000, $228,000, and $57,000. d. $190,000, $190,000, and $190,000. 6. Purchased goodwill represents a. excess of price paid over fair value of net identifiable assets obtained in a combination. b. excess of price paid over the book value of the net identifiable assets obtained in a combination. c. the difference in the aggregate amount of the market prices of the stock of the combining companies. d. a tangible asset. Use the following data to answer questions 7 and 8: Sweetheart Company purchased a new piece of equipment on July 1, 2017 at a cost of $2,100,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $150,000. The current year end is 12/31/18. Sweetheart records depreciation to the nearest month. 7. What is double-declining-balance depreciation for 2018? a. $672,000. b. $690,000. c. $660,000. d. $720,000. 8. If, at the end of 2018, Sweetheart Company decides the equipment still has five more years of life beyond 12/31/18, with a salvage value of $150,000, what is straight-line depreciation for 2019? (Assume straight-line used in all years.) a. $273,000. c. $251,000. b. $192,500. d. $281,000. 9. As generally used in accounting, what is depreciation? a. It is a process of asset valuation for balance sheet purposes. b. It applies only to long-lived intangible assets. c. It is used to indicate a decline in market value of a long-lived asset. d. It is an accounting process which allocates long-lived asset cost to accounting periods. 2 10. Assets that qualify for interest cost capitalization include a. assets under construction for a company's own use. b. assets that are ready for their intended use in the earnings of the company. c. assets that are not currently being used because of excess capacity. d. All of these assets qualify for interest cost capitalization. 11. Samantha Company purchased equipment for $36,000. Sales tax on the purchase was $2,400. Other costs incurred were freight charges of $600, repairs of $350 for damage during installation, and installation costs of $675. What is the cost of the equipment? a. $36,000 b. $38,400 c. $39,675 d. $40,725 12. Sonia Corporation constructed a building at a cost of $20,000,000. Weightedaverage accumulated expenditures were $8,000,000, actual interest was $800,000, and avoidable interest was $400,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is a. $470,000. b. $490,000. c. $510,000. d. $670,000. 13. The term "depreciable base," or "depreciation base," as it is used in accounting, refers to a. the total amount to be charged (debited) to expense over an asset's useful life. b. the cost of the asset less the related depreciation recorded to date. c. the estimated market value of the asset at the end of its useful life. d. the acquisition cost of the asset. 14. Kasper Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $4,920,000 on June 1, and $6,000,000 on December 31. Kasper Company borrowed $2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable. What are the weighted-average accumulated expenditures? a. $6,520,000 b. $6,310,000 c. $14,760,000 d. $6,870,000 15. Companies should test indefinite life intangible assets at least annually for a. recoverability. b. amortization. c. impairment. d. estimated useful life. 3 16. Hanne Inc. borrowed $400,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? a. $0. b. $48,000. c. $32,000. d. $36,000. Part II - Effects of transactions (30 points) On the bubble answer sheet, place the letter corresponding to the best answer for each of the following questions. Each question asks for the current period effect of an error on a financial statement element or ratio. Working capital is current assets minus current liabilities. Darken the letter A for \"increase,\" B for \"decrease,\" and C for \"no effect.\" Total Assets Financial statement element or measure Current Shareholder Net Cash from Assets Equity Income Operations A. Record depreciation expense on equipment. 17. 18. 19. 20. 21. B. Record goodwill impairment. 22. 23. 24. 25. 26. C. Buy equipment by giving cash and a long-term note payable. 27. 28. 29. 30. 31. 4 Part III - Goodwill and impairment problem (22 points) On May 31, 2017, Googel Company paid $3,500,000 to acquire all of the common stock of Xpert Skateboarding Corporation, which became a division of Googel. Xpert Skateboarding reported the following balance sheet at the time of the acquisition: Current assets Noncurrent assets $ 900,000 2,700,000 Total assets $3,600,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity $ 600,000 500,000 2,500,000 $3,600,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Xpert Skateboarding was $2,800,000. At December 31, 2017, Xpert Skateboarding reports the following balance sheet information: Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets $ 800,000 2,400,000 (700,000) (500,000) $2,000,000 At December 31, 2017, it is determined that the fair value of the Xpert Skateboarding division is $2,200,000. Also, the recorded amount for Xpert Skateboarding's net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value of $100,000 above the carrying value. Instructions - Show work and explain logic for partial credit. (a) Compute the amount of goodwill recognized, if any, on May 31, 2017. 5 (b) Determine the impairment loss, if any, to be recorded on December 31, 2017. (c) Assume that the fair value of the Xpert Skateboarding division is $1,850,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2017. 6 Professor Gramlich ACCTG 330 - Financial Reporting I Suggested solution to exam 3, Fall 2016 I. Multiple choice (48 points) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. II. Effects of transactions (30 points) 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 7 III. Goodwill and impairment problem (22 points) (a) Compute the amount of goodwill recognized, if any, on May 31, 2017. (b) Determine the impairment loss, if any, to be recorded on December 31, 2017. (c) Assume that the fair value of the Xpert Skateboarding division is $1,850,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2017. 8