1. Corresponds to CLO 1(a)
On January 15, 2013, Talbot Corporation purchased a parcel of land as a factory site for $425,000. An old building on the property was demolished, and construction began on a new building which was completed on November 31, 2013. Salvaged materials resulting from the demolition were sold for $12,000. Costs incurred during this period included: Demolition of old building, $35,000, Architect’s fees, $15,000, Legal fees for title investigation and purchase contract, $7,000, and Construction costs, $980,000. Talbot should record the cost of the land and new building, respectively, as (Points : 7)
$425,000 and $980,000
$455,000 and $995,000
$460,000 and $995,000
$460,000 and $983,000
Question 2.2. Corresponds to CLO 1(b)
Which of the following costs should be fully expensed in the period in which the expenditure is made? (Points : 7)
An outlay made to increase the efficiency of an existing plant asset.
An outlay made to maintain an existing asset in operating condition.
An outlay made to extend the useful life of an existing asset.
None of the above costs should be fully expensed immediately; all should be capitalized.
Question 3.3. Corresponds to CLO 1(c)
On January 2, 2013, Apple Valley Produce began construction of a new processing plant. The plant was expected to be finished and ready for use on September 30, 2014. Expenditures for construction during 2013 were as follows: January 2, 2013, $600,000, July 1, 2013, $800,000, and December 31, 2013, $900,000. To fund this project, on January 2, 2013, Apple Valley borrowed $1,800,000 on a construction loan at 10% interest. This loan was outstanding during the construction period. The company also had $5,000,000 in 9% bonds outstanding in 2013. The interest capitalized for 2013 should be: (Points : 7)
Question 4.4. Corresponds to CLO 1(d)
On March 1, 2004, Tucker Corporation purchased a new machine for $355,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $19,000. The company has recorded monthly depreciation using the straight-line method. On July 1, 2013, the machine was sold for $45,000. What gain should be recognized from the sale of the machine? (Points : 7)
Question 5.5. Corresponds to CLO 2(a)
On July 2, 2013, Peak Power Corporation purchased machinery for $80,000. Salvage value was estimated to be $5,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Peak Power should record depreciation expense on this machinery for 2014 of (Points : 7)
Question 6.6. Corresponds to CLO 2(b)
At the beginning of 2013, Brennan Corporation purchased a delivery truck for $80,000. The truck was estimated to have a useful life of 150,000 miles and a salvage value of $5,000. It was driven 29,000 miles in 2013 and 33,000 miles in 2014. What is the depreciation expense for 2014? (Points : 7)
Question 7.7. Corresponds to CLO 2(c)
Volmer Corporation owns machinery with a book value of $400,000. It is estimated that the machinery will generate future cash flows of $375,000. The machinery has a fair value of $325,000. Volmer should recognize a loss on impairment of (Points : 7)
Question 8.8. Corresponds to CLO 2(d)
Plymouth Mining Corporation acquired, for $5,500,000, a tract of land containing an extractable natural resource. Geological surveys estimate that the recoverable reserves will be 1,000,000 tons. Plymouth is required by its purchase contract to restore the land at an estimated cost of $750,000. The land is expected to have a value of $1,250,000 after restoration. Plymouth maintains no inventories of extracted materials. What is the amount of depletion per ton? (Points : 7)
Question 9.9. Corresponds to CLO 3(a)
Titan Corporation acquired a patent on September 28, 2013. Titan paid cash of $63,000 to the seller. Legal fees of $2,000 were paid related to the acquisition. At what amount should Titan record the patent on its books? (Points : 7)
Question 10.10. Corresponds to CLO 3(b)
Hodgson Company’s December 31, 2014 balance sheet reports assets of $8,500,000 and liabilities of $4,500,000. All of Hodgson’s book values approximate their fair value, except for land, which has a fair value that is $500,000 greater than its book value. On December 31, 3014, Motley Corporation paid $10,500,000 to acquire Hodgson. What amount of goodwill should Motley record as a result of this purchase? (Points : 7)
Question 11.11. Corresponds to CLO 3(c)
Innovative Technologies, Inc. incurred research and development costs of $160,000 and legal fees of $36,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Innovative Technologies record as Patent Amortization Expense in the first year? (Points : 7)
Question 12.12. Corresponds to CLO 3(d)
Stewart Company acquired Meyer Manufacturing on January 1, 2013 for $6,800,000 and recorded goodwill of $1,800,000 as a result of that purchase. At December 31, 2013, Meyer Manufacturing Division had a fair value of $4,600,000. The net identifiable assets of the Division, excluding goodwill, had a fair value of $3,200,000 at that time. What amount of loss on impairment of goodwill should Stewart record in 2013? (Points : 7)
Question 13.13. Corresponds to CLO 4(a)
Lillian Properties leased a building to Hopping Industries for a ten year term at an annual rental of $250,000. The lease began January 1, 2013, at which time Lillian received $1,000,000 covering the first two years’ rent of $500,000 and a security deposit of $500,000. The deposit will not be returned to Hopping upon expiration of the lease, but will be applied to payment of rent for the last two years of the lease. What portion of the $1,000,000 should be shown as current and long-term liabilities, respectively, in Lillian’s December 31, 2013 balance sheet?
(Answers shown with Current Liabilities listed first, Long-term Liabilities listed second. ) (Points : 7)
$ -0- $1,000,000
Question 14.14. Corresponds to CLO 4(b)
Which of the following is the proper way to report a gain contingency? (Points : 7)
As deferred revenue.
As an accrued amount.
As an account receivable with additional disclosure explaining the nature of the contingency.
As a disclosure only.
Question 15.15. Corresponds to CLO 4(c)
On January 1, 2014, Huntington Corporation issued eight year bonds with a face value of $6,000,000 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:
What is the issue price of the bonds?
(Points : 7)
Question 16.16. Corresponds to CLO 4(d)
On December 31, 2013, the 11% bonds payable of Goodly Corporationhad a carrying amount of $2,040,000. The bonds, which had a face value of $2,000,000 were issued at a premium to yield 10%. Goodly uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On July 1, 2014, several years before their maturity, Goodly retired the bonds at 103. The interest payment on June 30, 2014 was made as scheduled. The loss on retirement, ignoring taxes, is (Points : 7)
Question 17.17. Corresponds to CLO 5(a)
The current FASB viewpoint on accounting for leases is best described as: (Points : 7)
All leases should be capitalized.
Leases should never be capitalized.
All long-term leases should be capitalized.
Leases similar to installment purchases should be capitalized.
Question 18.18. Corresponds to CLO 5(b)
On January 1, 2013, Martin Corporation signed a ten-year noncancelable lease for machinery. The terms of the lease called for Martin to make annual payments of $350,000 at the end of each year for ten years with title to pass to Martin at the end of this period. The machinery has an estimated useful life of 20 years and no salvage value. Martin uses the straight-line method of depreciation for all of its fixed assets. Martin accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $1,977,577 at an effective interest rate of 12%. With respect to this capitalized lease, Martin should record for 2013: (Points : 7)
Depreciation expense of $197,758 and interest expense of $420,000.
Depreciation expense of $197,758 and interest expense of $237,309.
Depreciation expense of 98,879 and interest expense of $237,309.
Lease expense of $350,000.
Question 19.19. Corresponds to CLO 5(c)
On December 31, 2014, Pacific Rail Corporation leased a train car from Southern Transportation Company for a ten year period expiring December 30, 2024. Equal annual payments of $120,000 are due on December 31 of each year, beginning with December 31, 2014. The lease is properly classified as a capital lease on Pacific Rail’s books. The present value at December 31, 2013 of the ten lease payments over the lease term discounted at 8% is $869,627. Assuming the first payment is made on time, the amount that should be reported by Pacific Rail Corporation as the lease liability on its December 31, 2014 balance sheet is (Points : 7)
Question 20.20. Corresponds to CLO 5(d)
Colfax Corporation enters into an agreement with Reynolds Rentals on January 1, 2014 for the purpose of leasing a machine to be used in its manufacturing operations. The term of the noncancelable lease is 5 years with no renewal option. Payments of $200,000 are due on December 31 of each year. The fair value of the machine on January 1, 2014, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon termination of the lease. Colfax Corporation’s incremental borrowing rate is 10% per year. Colfax does not have knowledge of the 8% implicit rate used by Reynolds. The factor for the present value of an ordinary annuity of 1, for 5 periods at 10% is 3. 79079. The factor for the present value of an ordinary annuity of 1, for 5 periods at 8% is 3. 99271. What type of lease is this from Colfax Corporation’s point of view? (Points : 7)
Question 21.21. Corresponds to CLO 6(a)
Roberts Corporation has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2013, the first year of the corporation’s existence:
Sold 10,000 shares of common stock for $14 per share
Issued 20,000 shares of common stock in exchange for legal services valued at $300,000
At the end of Roberts’ first year, total paid-in capital amounted to (Points : 7)
Question 22.22. Corresponds to CLO 6(b)
On June 15, Handel Corporation reacquired 10,000 shares of its $10 par value common stock for $19 per share. Handel uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit (Points : 7)
Common Stock for $100,000
Common Stock for $100,000 and Paid-in Capital in Excess of Par for $90,000
Treasury Stock for $190,000
Treasury Stock for $100,000
Question 23.23. Corresponds to CLO 6(c)
The fair value of Willow Company’s common stock was $57 per share at December 31, 2013 and $63 per share at December 31, 2014. Willow acquired 7,000 shares of its own common stock at $60 per share on March 10, 2014, and sold 5,000 of these shares at $65 per share on September 25, 2014. Willow Company uses the cost method to account for treasury stock. The journal entry to record the sale of the treasury stock should credit (Points : 7)
Treasury Stock for $300,000 and Retained Earnings for $25,000
Treasury Stock for $285,000 and Retained Earnings for $40,000
Treasury Stock for $300,000and Paid-in Capital from Treasury Stock for $25,000
Treasury Stock for $325,000
Question 24.24. Corresponds to CLO 6(d)
Under GAAP, preferred stock with which of the following features should be reported as a liability on the balance sheet: (Points : 7)
Question 25.25. Corresponds to CLO 7(a)
Farnsworth Inc. declared a $450,000 cash dividend. It currently has 10,000 shares of 8%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Farnsworth distribute to the common stockholders? (Points : 7)
Question 26.26. Corresponds to CLO 7(b)
Weston Corporation owned 80,000 shares of Brandt Corporation, purchased in 2008 for $320,000. On December 20, 2013, Weston declared a property dividend of all of its Brandt Corporation shares on the basis of one share of Brandt for every 10 shares of Weston common stock held by its shareholders. The property dividend was distributed on January 10, 2014. On the declaration date, the aggregate market price of the Brandt Corporation shares held by Weston was $610,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings (property dividends declared) of (Points : 7)
Question 27.27. Corresponds to CLO 7(c)
Harping Corporation declared an $800,000 dividend, $200,000 of which was liquidating. How would this distribution affect Retained Earnings and Additional Paid-in Capital, respectively?
(Answer is shown with Retained Earning listed first, Additional Paid-in Capital listed second. ) (Points : 7)
No effect $800,000 Decrease
$800,000 Decrease No effect
$600,000 Decrease $200,000 Decrease
Noeffect No effect
Question 28.28. Corresponds to CLO 7(d)
After several profitable years, Pear Corporation’s stock price had increased by 10-fold. Management prefers the stock price to be within range of the majority of potential investors, and on June 30, 2013, split its stock 2-for-1. Prior to the split, Pear’s stockholders’ equity section showed: Common Stock, 2,000 shares at $100 par. After the split, Pear’s stockholders’ equity section showed: (Points : 7)
Common stock, 4,000 shares at $50 par
Common stock, 2,000 shares at $200 par
Common stock, 1,000 shares at $200 par
Common stock, 4,000 shares at $100 par