ACC 318 Final Study Set

Thompson Company incurred research and development costs of $100,000 and legal fees of $40,000 to develop a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year?

$ 4,000

The following information is available for Barkley Company's patents:Cost $3,440,000Carrying amount 1,920,000Expected future net cash flows 1,600,000Fair value 1,300,000Barkley would record a loss on impairment of

$ 620,000. Carrying Amount (1,920,000) - Fair Value (1,300,000) = 620,000

sum-of-the-years'-digits method

(Cost - Salvage Value) * (Remaining Useful Life of The Asset / Sum of Years Digits) ex. if it was over 5 years you would say the sum of years is 5+4+3+2+1 = 15

Jeff Corporation purchased a limited-life intangible asset for $375,000 on May 1, 2019. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2021?

$100,000 Limited Life (375,000) / Useful Life 10 Years = 37,500 per year 37,500 * 2 full years + (37,500*8/12 years) = $100,000

Gross billings for merchandise sold by Lang Company to its customers last year amounted to $12,720,000; sales returns and allowances were $370,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Lang Company were

$12,175,000. Gross Sales - Sales Returns and Allowances - Discounts

Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $300 per unit sold and reported a liability for estimated warranty costs $10.4 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year?

$16,400,000.

The following information was extracted from the 2020 financial statements of Max Company:Income from continuing operations before income tax $705,000Selling and administrative expenses 480,000Income from continuing operations (after tax) 495,000Gross profit 1,350,000The amount reported for other expenses and losses is

$165,000 Gross Profit - Income from continuing operations before tax - selling and administrative expenses

Hall Co. incurred research and development costs in 2021 as follows:Materials used in research and development projects $ 950,000Equipment acquired that will have alternate future uses in future research and development projects 3,000,000Depreciation for 2021 on above equipment 500,000Personnel costs of persons involved in research and development projects 750,000Consulting fees paid to outsiders for research and development projects 300,000Indirect costs reasonably allocable to research and development projects 225,000$5,725,000The amount of research and development costs charged to Hall's 2021 income statement should be

$2,725,000. Due to the nature of the items in the list you can simply take the final result of 5,725,000 - Equipment acquired (3,000,000) = 2,725,000

Contreras Corporation acquired a patent on May 1, 2020. Contreras paid cash of $35,000 to the seller. Legal fees of $1,500 were paid related to the acquisition. What amount should be debited to the patent account?

$36,500 Cash (35,000) + Legal Fees for Acquisition (1,500)

Venible newspapers sold 6,000 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31?

$375,000. 6000 annual subs sold * $150 = 900,000 * (5/12 from Jan. to the end of may (don't count June))

A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2021. Historically, 10% of customers mail in the rebate form. During 2021, 3,750,000 packages of light bulbs are sold, and 200,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2021 financial statements dated December 31?

$375,000; $175,000

Moorman Corporation reports the following information:Correction of understatement of depreciation expensein prior years, net of tax $ 1,290,000Dividends declared 960,000Net income 3,000,000Retained earnings, 1/1/20, as reported 6,000,000Moorman should report retained earnings, 12/31/20, at

$4,710,000.

The general ledger of Vance Corporation as of December 31, 2021, includes the following accounts:Copyrights $ 50,000Deposits with advertising agency (will be used to promote goodwill) 27,000Discount on bonds payable 70,000Excess of cost over fair value of identifiable net assets ofAcquired subsidiary 480,000Trademarks 90,000In the preparation of Vance's balance sheet as of December 31, 2021, what should be reported as total intangible assets?

$620,000. Excess Cost over fair value (480,000) + Copyrights (50,000) + Trademarks (90,000) = 620,000

Crispy Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from Crispy Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 800,000 boxes of Frosted Flakes and customers redeemed 352,000 boxtops receiving 88,000 bowls. If the bowls cost Crispy Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2021?

$64,000

Riley Co. incurred the following costs during 2021:Significant modification to the formulation of a chemical product $160,000Trouble-shooting in connection with breakdowns during commercial production 150,000Cost of exploration of new formulas 200,000Seasonal or other periodic design changes to existing products 185,000Laboratory research aimed at discovery of new technology 355,000In its income statement for the year ended December 31, 2021, Riley should report research and development expense of

$865,000. Add everything in the problem together except the seasonal changes to existing products to get 865,000

During 2020, Lopez Corporation disposed of Pine Division, a major component of its business. Lopez realized a gain of $3,000,000, net of taxes, on the sale of Pine's assets. Pine's operating losses, net of taxes, were $3,500,000 in 2020. How should these facts be reported in Lopez's income statement for 2020?Total Amount to be Included inIncome from Results ofContinuing Operations Discontinued Operations

0 500,000 loss

Which of the following is true about accounts payable?1. Accounts payable are also called trade accounts payable.2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used.3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used.

1

double declining balance method

1. ( 2 * (Cost - Salvage))/ years needed to depreciate 2. Simply add the amount of depreciation to the salvage and subtract the answer from cost.

Arreaga Corp. has a tax rate of 20 percent and income before non-operating items of $1,392,000. It also has the following items (gross amounts).Unusual loss $222,000Discontinued operations loss 606,000Gain on disposal of equipment 48,000Change in accounting principle increasing prior year's income 318,000What is the amount of income tax expense Arreaga would report on its income statement?

243,600 (Income before taxes (1,392,000) + Gain on Disposal (48,000) - Unusual Loss (222,000))*.2

What is a contingency?

An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

Qualpoint pays a weekly payroll of $255,000 that includes federal taxes withheld of $38,100, FICA taxes withheld of $23,670, and 401(k) withholdings of $27,000. What is the effect on assets and liabilities from this transaction?

Assets decrease $166,230 and liabilities increase $88,770.

Bargain Surplus made cash sales during the month of October of $375,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

Credit Sales Taxes Payable for $22,500.

Xtra Processes is involved with innovative approaches to finding energy reserves. Xtra recently built a facility to extract natural gas at a cost of $12 million. However, Xtra is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $17 million (the present value of which is $6.5 million). What is the journal entry required to record the asset retirement obligation?

Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000.

Qualpoint provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time each to be taken in the following year. If the average weekly salary for these employees is $960, what is the required journal entry?

Debit Salaries and Wages Expense for $124,800 and credit Salaries and Wages Payable for $124,800.

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement.

Net sales

Gross Sales - Sales Returns and Allowances - Sales Discounts

Which of the following is not considered a part of the definition of a liability?

Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

Which of the following best exemplifies a contingency that is reported in the notes to the financial statements?

Loss from a lawsuit settled out of court prior to the end of the fiscal year

Sandy Shoes 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 they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $800,000. What is the required journal entry as a result of this litigation?

No journal entry is required.

Which of the following costs incurred internally to create an intangible asset is generally expensed?

Research and development costs

Beginning retained earnings, as adjusted

Retained earnings (prior period) + net income - dividends

Which of the following is an example of managing earnings down?

Revising the estimated life of equipment from 10 years to 8 years.

Which of the following is a current asset?

Trade installment receivables normally collectible in 18 months.

Which of the following is included in comprehensive income?

Unrealized gains on available-for-sale debt securities.

Which of the following would represent the least likely use of an income statement prepared for a business enterprise?

Use by customers to determine a company's ability to provide needed goods and services.

When is a contingent liability recorded?

When the future events are probable to occur and the amount can be reasonably estimated.

Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as

a prior period adjustment.

Excluding a short-term obligation from current liabilities can be done when

all of these answers are correct.

Premium on bonds payable is

an adjunct account.

When a portion of inventories has been pledged as security on a loan,

the fact should be disclosed but the amount of current assets should not be affected.

The cost of successfully defending a patent suit should be

capitalized and amortized over the remaining estimated useful life of the patent.

The interest rate written in the terms of the bond indenture is known as the

coupon rate, nominal rate, or stated rate.

Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Greeson used a "Discount of Note Payable" account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made on December 31, 2020 will include a

debit to Interest Expense for $5,200.

The balance sheet contributes to financial reporting by providing a basis for all of the following except

determining the increase in cash due to operations.

Costs incurred internally to create intangibles are

expensed as incurred

Bond interest paid is equal to the

face amount of the bonds multiplied by the stated interest rate.

Earnings per share data are required on the face of the

income statement.

Goodwill

is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.

Earnings per share

net income - preferred dividends / weighted average common shares outstanding

Gross profit

net revenue - cost of goods sold

The net assets of a business are equal to

none of these answer choices are correct.

Income from operations

revenue - cost of goods sold - operating expenses

One factor that is not considered in determining the useful life of an intangible asset is

salvage value.

Of the following items, the only one which should not be classified as a current liability is

short-term obligations expected to be refinanced on a long-term basis.

For Mortenson Company, the following information is available:Cost of goods sold $390,000Dividend revenue 15,000Income tax expense 36,000Operating expenses 138,000Sales revenue 600,000In Mortenson's multiple-step income statement, gross profit

should be reported at $210,000.

Goodwill impairment loss is

the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.

If the issue price of a bond is more than its face value,

the effective-interest rate is greater than the stated rate of the bond.