FAR Chapters 8-12

A company enters into a three-year operating lease agreement effective January 1, year 1. The amounts due on the first day of each year are $25,000 in year 1, $30,000 in year 2, and $35,000 in year 3. What amount, if any, is the deferred rent liability on the first day of year 2? A. $0 B. $5,000 C. $60,000 D. $65,000

B. $5,000 average of 30k per year but only got 25 so far

A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange? A.$0 B.$30,000 C.$35,000 D.$5,000

B .$30,000

Howe Co. leased equipment to Kew Corp. on January 2, 20X2, for an eight-year period expiring December 31, 20X9. Equal payments under the lease are $600,000 and are due on January 2 of each year. The first payment was made on January 2, 20X2. The list-selling price of the equipment is $3,520,000 and its carrying cost on Howe's books is $2,800,000. The lease is appropriately accounted for as a sales-type lease. The present value of the lease payments at an imputed interest rate of 12% (Howe's incremental borrowing rate) is $3,300,000. What amount of profit on the sale should Howe report for the year ended December 31, 20X2? A. $0 B. $500,000 C. $720,000 D. $90,000

B. $500,000 With a sales price of $3,300,000 and a carrying value of $2,800,000, Howe will recognize a gain on sale of $500,000 in 20X2.

During 20X2, Fleet Co.'s trademark was licensed to Hitch Corp. for royalties of 10% of net sales of the trademarked items. Returns were estimated to be 1% of gross sales. On signing the licensing agreement, Hitch paid Fleet $75,000 as an advance against future royalty earnings. Gross sales of the trademarked items during the year were $600,000. What amount should Fleet report as royalty income for 20X2? A. $54,000 B. $59,400 C. $60,000 D. $75,000

B. $59,400

Gibbs Co. uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account A. Affects neither net income nor accounts receivable. B. Affects neither net income nor working capital. C. Decreases both net income and account receivable. D. Decreases both net income and working capital.

B. Affects neither net income nor working capital.

Bee Co. uses the direct write-off method to account for uncollectible accounts receivable. During an accounting period, Bee's cash collections from customers equal sales adjusted for the addition or deduction of the following amounts: A. Accounts written-off: Addition Increase in accounts receivable balance: Addition B. Accounts written-off: Addition Increase in accounts receivable balance: Deduction C. Accounts written-off: Deduction Increase in accounts receivable balance: Addition D. Accounts written-off: Deduction Increase in accounts receivable balance: Deduction

D. Accounts written-off: Deduction Increase in accounts receivable balance: Deduction

What is the net present value of the investment at 8% using the correct factor from below?

The net present value is the difference between the initial cash outlay and the present value of the future cash inflows. Present value of future cash inflows: $4,000 x 4.62288 = $18,491.52 Net present value: ($20,000) + $18,491.52 = ($1,508.48)

Last year, Katt Co. reduced the carrying amount of its long-lived assets used in operations from $120,000 to $100,000, in connection with its annual impairment review. During the current year, Katt determined that the fair value of the same assets had increased to $130,000. What amount should Katt record as restoration of previously recognized impairment loss in the current year's financial statements? A.$0 B.$10,000 C.$20,000 D.$30,000

A. $0

Tech Co. bought a trademark on January 2, two years ago. Tech accounted for the copyright as instructed under the provisions of FASB ASC Topic 350 - Intangibles - Goodwill and Other. The intangible was being amortized over its useful life of 40 years. The carrying value at the beginning of the year was $38,000. It was determined during the current year that the cash flow from the trademark will be generated indefinitely at the current level. What amount should Tech report as amortization expense for the current year? A. $0 B. $1,000 C. $38,000 D. $922

A. $0

Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year? A. $0 B. $120,000 C. $15,000 D. $40,000

A. $0 indefinite life intangibles are not amortized

On December 31, Year 1 Harper Co. finances the purchase of equipment by issuing a $15,000 non-interest-bearing note payable. The note will be paid off in 10 equal annual installments beginning on December 31, Year 2. The market rate of interest for notes of this type is 5%. Considering the information below, at what amount should Harper Co. record the equipment on its books as of December 31, Year 1? The present value of $1 at 5% for 10 periods 0.61391 The present value of an ordinary annuity of $1 at 5% for 10 periods 7.72173 The present value of an annuity due of $1 at 5% for 10 periods is 8.10782 A. $11,583 B. $12,162 C. $15,000 D. $9,209

A. $11,583 Have to multiply PV by annual payments of 1,500

X Company purchased a patent on January 3, 20X4 from Y Company for $145,000. An attorney drew up the contract between X & Y at a total cost of $15,000, which was split equally by the parties. The patent had a carrying value of $90,000 on Y's books. X expects to be able to benefit from the patent for 10 years, after which it is expected to be of little to no value. What will be the carrying value of the patent on X Company's December 31, 20X5 balance sheet? A. $122,000 B. $128,000 C. $152,500 D. $160,000

A. $122,000

On January 1, year 1, Alpha Co. signed an annual maintenance agreement with a software provider for $15,000 and the maintenance period begins on March 1, year 1. Alpha also incurred $5,000 of costs on January 1, year 1, related to software modification requests that will increase the functionality of the software. Alpha depreciates and amortizes its computer and software assets over five years using the straight-line method. What amount is the total expense that Alpha should recognize related to the maintenance agreement and the software modifications for the year ended December 31, year 1? A. $13,500 B. $16,000 C. $20,000 D. $5,000

A. $13,500 The $5,000 in software asset modifications should be capitalized and amortized, such that year 1 depreciation expense is $1,000 ($5,000 / 5 = $1,000). The annual maintenance agreement will be expensed for the portion of year 1 that it was in effect ($15,000 X (10/12) = $12,500. The total expense that Alpha should recognize related to the maintenance agreement and the software modifications for year 1 is $13,500 ($12,500 + $1,000 = $13,500).

On January 1, 20X0, Moul Mining Co. (Lessee), entered into a 5-year lease for drilling equipment. Moul accounted for the acquisition as a finance lease for $120,000, which includes a $5,000 purchase option. At the end of the lease, Moul expects to exercise the purchase option. Moul estimates that the equipment's fair value will be $10,000 at the end of its 8-year life. Moul regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 20X0, what amount would Moul recognize as amortization expense on the leased asset? A. $13,750 B. $15,000 C. $23,000 D. $24,000

A. $13,750 Is amortized over its useful life of 8 years since it is finance lease

On September 29, 20X5, Wall Co. paid $860,000 for all the issued and outstanding common stock of Hart Corp. On that date, the carrying amounts of Hart's recorded assets and liabilities were $800,000 and $180,000, respectively. Hart's recorded assets and liabilities had fair values of $840,000 and $140,000, respectively. In Wall's September 30, 20X5, balance sheet, what amount should be reported as goodwill? A. $160,000 B. $180,000 C. $20,000 D. $240,000

A. $160,000 Purchase price - FMV

During the year, there had been significant decreases in the fair market value of Roger Co's manufacturing equipment. The following information regarding the costs associated with the equipment was gathered: Original cost of the equipment $700,000 Accumulated depreciation $400,000 Expected net future cash inflows (present value) related to the continued use and eventual disposal of the equipment $275,000 Fair value of the equipment $225,000 Under IFRS, how much impairment loss should be reported on Roger Co's income statement for the year? A.$25,000 B.$475,000 C.$50,000 D.$75,000

A. $25,000

In a transaction that lacked commercial substance, Castor Company traded computer equipment with Pollux Company. Castor Company's computer had a carrying value of $34,000. In exchange, Castor Company received Pollux Company's computer, which had a fair value of $39,000, and $12,000 in cash. As a result of the exchange, what will Castor Company record as the computer acquired? A.$26,000 B.$29,000 C.$39,000 D.$51,000

A. $26,000

On January 2, 20X2, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori accounted for the acquisition as a finance lease for $240,000, which includes a $10,000 purchase option. At the end of the lease, Nori expects to exercise the purchase option. Nori estimates that the equipment's fair value will be $20,000 at the end of its 8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended December 31, 20X2, what amount should Nori recognize as amortization expense on the leased asset? A. $27,500 B. $30,000 C. $46,000 D. $48,000

A. $27,500 Since the lease contains a purchase option which Nori expects to exercise, the equipment will be amortized over its useful life of 8 years. The amount to amortize will be the capitalized amount of $240,000 minus the salvage value of $20,000 for a amortizable basis of $220,000. Amortization in 20X2 will be $220,000/8 years or $27,500.

On January 2, 20X2, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest bearing note due January 2, 20X5. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type at January 2, 20X2, was 10%. The present value of 1 at 10% for three periods is 0.75. In Emme's 20X2 income statement, what amount should be reported as interest income? A. $45,000 B. $50,000 C. $60,000 D. $9,000

A. $45,000 The market rate of 10% would be applied to the noninterest-bearing note, such that it would be recorded at its present value of $600,000 x .75 = $450,000. Interest in the first year will be $450,000 x 10%, or $45,000.

On January 2, 20X2, Gant Co. purchased a franchise with a useful life of five years for $60,000 and an annual fee of 1% of franchise revenues. Franchise revenues were $20,000 during 20X2. Gant projects future revenues of $40,000 in 20X3 and $60,000 per year for the following three years. Gant uses the straight-line method of amortization. What amount should Gant report as intangible asset-franchise, net of related amortization in its December 31, 20X2, balance sheet? A. $48,000 B. $48,160 C. $49,920 D. $56,000

A. $48,000

On September 1, 20X1, Hall Corp. redeemed $500,000 of its 12%, 15-year bonds. Related unamortized bond premium and issue costs at that date were $8,000 and $10,000, respectively. What amount should Hall use to determine gain or loss on redemption? A. $498,000 B. $502,000 C. $508,000 D. $518,000

A. $498,000

On September 1, 20X1, Hall Corp. redeemed $500,000 of its 12%, 15-year bonds. Related unamortized bond premium and issue costs at that date were $8,000 and $10,000, respectively. What amount should Hall use to determine gain or loss on redemption? A. $498,000 B. $502,000 C. $508,000 D. $518,000

A. $498,000 the carrying value of the bonds would be the face of $500,000 plus the premium of $8,000 and minus the bond issue costs of $10,000 for a net amount of $498,000

Under the revaluation model allowed under IFRS for the accounting for identifiable intangible assets: A. Assets are periodically revalued and adjusted to their fair values and are amortized in between revaluation dates. B. Assets are periodically revalued and adjusted to their fair values and are not amortized between revaluation dates. C. Assets are revalued and adjusted to their fair values annually and are amortized between revaluation dates. D.Assets are revalued and adjusted to their fair values annually and are not amortized between revaluation datesUnder the revaluation model allowed under IFRS for the accounting for identifiable intangible assets:

A. Assets are periodically revalued and adjusted to their fair values and are amortized in between revaluation dates.

Restorations of carrying value for long-lived assets are permitted if an asset's fair value increases subsequent to recording an impairment loss for which of the following? A.Assets held for disposal. B.Assets held for use and assets held for disposal. C.Assets held for use. D.Neither assets held for use nor assets held for disposal

A. Assets held for disposal.

Jole Co. lent $10,000 to a major supplier in exchange for a non interest bearing note due in three years and a contract to purchase a fixed amount of merchandise from the supplier at a 10% discount from prevailing market prices over the next three years. The market rate for a note of this type is 10%. On issuing the note, Jole should record A. Both discount on note receivable and deferred charge. B. Deferred charge only. C. Discount on note receivable only. D.Neither discount on note receivable nor deferred charge.

A. Both discount on note receivable and deferred charge.

When debt is issued at a premium, interest expense over the term of debt equals the cash interest paid? A. Minus premium B. Minus premium minus par value C. Plus premium D. Plus premium plus par value

A. Minus premium

Hexaco Corp. exchanged a piece of land that was being held for investment purposes for an oil rig that it will use in its drilling operations. The land had a carrying value of $230,000 and a fair value of $250,000 on the date of the exchange. The oil rig received in exchange had a fair value of $200,000 and, as a result, Hexaco received an additional $50,000 in cash in the transaction. How much gain, if any, will Hexaco recognize on the exchange? A.$0 B.$20,000 C.$4,000 D.$50,000

B. $20,000

On December 31, 20X3, Moon, Inc. authorized Luna Co. to operate as a franchisee for an initial franchise fee of $100,000. Luna paid $40,000 on signing the agreement and signed an interest-free note to pay the balance in three annual installments of $20,000 each, beginning December 31, 20X4. On December 31, 20X3, the present value of the note, appropriately discounted, is $48,000. Services for the initial fee will be performed in 20X4. In its December 31, 20X3, balance sheet, what amount should Moon report as unearned franchise fees? A. $ 48,000 B. $ 88,000 C. $0 D. $100,000

B. $ 88,000 Under franchise agreements, revenue should be recognized when the franchisor has substantially performed all material services and conditions, and collectability from the franchisee is reasonably assured. Since all services have not yet been performed by Moon, Inc. no revenue can be recognized, and any cash received must be reported as unearned franchise fees.

On June 1 of the current year, Cross Corp. issued $300,000 of 8% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cross report? A. $12,000 B. $14,000 C. $6,000 D. $8,000

B. $14,000

During the current year ended December 31, Metal, Inc. incurred the following costs: Laboratory research aimed at discovery of new knowledge $75,000Design of tools, jigs, molds, and dies involving new technology $22,000Quality control during commercial production, including routine testing $35,000Equipment acquired two years ago, having an estimated useful life offive years with no salvage value, used in various R & D projects $150,000Research and development services performed by Stone Co. for Metal, Inc. $23,000Research and development services performed by Metal, Inc. for Clay Co. $32,000 What amount of research and development expenses should Metal report in its current-year income statement? A. $120,000 B. $150,000 C. $187,000 D. $217,000

B. $150,000

On December 31, 20X1, Wright Corp. placed cash of $875,000 in an irrevocable trust that meets the necessary defeasance requirements. The trust's assets are to be used solely for satisfying obligations on Wright's 6%, $1,100,000, 30-year bond payable. Wright has not been legally released from its obligations under the bond agreement, but any additional liability is considered remote. On December 31, 20X1, the bond's carrying amount was $1,050,000, and its present value was $800,000. Disregarding income taxes, what amount of gain (loss) should Wright report in its 20X1 income statement? A. $(75,000) B. $175,000 C. $225,000 D. $250,000

B. $175,000

Conn Corp. owns an office building and normally charges tenants $30 per square foot per year for office space. Because the occupancy rate is low, Conn agreed to lease 10,000 square feet to Hanson Co. at $12 per square foot for the first year of a three-year operating lease. Rent for remaining years will be at the $30 rate. Hanson moved into the building on January 1, 20X2, and paid the first year's rent in advance. What amount of rental revenue should Conn report from Hanson in its income statement for the year ended September 30, 20X2? A. $120,000 B. $180,000 C. $240,000 D. $90,000

B. $180,000 Since the lease is an operating lease, the rents will be recognized uniformly over the 3-year term.

On June 1 of the current year, a company entered into a real estate lease agreement for a new building. The lease is an operating lease and is fully executed on that day. According to the terms of the lease, payments of $28,900 per month are scheduled to begin on October 1 of the current year and to continue each month thereafter for 56 months. The lease term spans five years. The company has a calendar year end. What amount is the company's lease expense for the current calendar year? A. $161,838 B. $188,813 C. $202,300 D. $86,700

B. $188,813 Dividing the total rent by the total number of months gives the uniform monthly rent expense of $26,973.33 ((28,900 X 56) / 60 = 26,973.33). The company's lease expense for the current calendar year is $188,813 because the lease has been in effect for seven months (26,973.33 X 7 = 188,813).

On July 1, 20X1, Lee Co. sold goods in exchange for a $200,000, 8-month, noninterest-bearing note receivable. At the time of the sale, the note's market rate of interest was 12%. What amount did Lee receive when it discounted the note at 10% on September 1, 20X1? A. $188,000 B. $190,000 C. $193,800 D. $194,000

B. $190,000 The amount received from discounting a note receivable is based on the maturity value of the loan, or $200,000 since the note is noninterest-bearing. As of 9/1/X1, 2 months have elapsed since the original issuance of the note on 7/1/X1, so there is 6 months remaining of the 8 month term. The discount will be the $200,000 maturity value of the note times the discount rate of 10% times the 6 months remaining (6/12 because 10% is an annual interest rate), or $10,000. As a result, the proceeds from the discounting will be $200,000 - $10,000 = $190,000.

On December 1, 20X1, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan. Pod received proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,450, beginning January 1, 20X2. The repayments yield an effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of $194,000. What amount of accrued interest receivable should Tigg include in its December 31, 20X1, balance sheet? A.$0 B. $2,000 C. $2,166 D. $4,450

B. $2,000 Tigg's accrued interest receivable balance at December 31, 20X1 is equal to the $200,000 face of the note times the stated interest rate of 12% times the time elapsed since the last interest payment (one month or 1/12 of a year), or $2,000.

Finch Co. reported a total asset retirement obligation of $257,000 in last year's financial statements. This year, Finch acquired assets subject to unconditional retirement obligations measured at undiscounted cash flow estimates of $110,000 and discounted cash flow estimates of $68,000. Finch paid $87,000 toward the settlement of previously recorded asset retirement obligations and recorded an accretion expense of $26,000. What amount should Finch report for the asset retirement obligation in this year's balance sheet? A.$238,000 B.$264,000 C.$280,000 D.$306,000

B. $264,000 The $257,000 beginning balance of the asset retirement obligation (ARO) will be increased by accretion, which is comparable to interest, of $26,000, increasing the ARO to $283,000. It will be further increased by the $68,000 present value of the AROs associated with the new assets, increasing the ARO to $351,000. It will be reduced by payments of $87,000, resulting in an ending balance of $264,000.

X Company acquired three machines at the beginning of 20X2, all of which will be used by its engineering department in performing research and development activities. The three machine consist of: Computer equipment costing $320,000 that will be used for general research and development activities. The computer has a 5-year useful life with no salvage value. Storage equipment costing $240,000 to contain a highly volatile substance that is being used in a specific research project. The storage equipment has a useful life of 5 years with no salvage value. The research project is expected to require 3 years to complete after which the equipment will have no alternative use to the company. A machine costing $180,000 that will be used for a specific research project that is expected to require one year. At the end of the year, the equipment, which has a 5-year useful life and no salvage value, will be used in the Company's manufacturing operations. How much will X Company report as research and development expense on its 20X2 income statement? A. $148,000 B. $340,000 C.$484,000 D. 740,000

B. $340,000

On December 31, 20X0, Byte Co. had capitalized software costs of $600,000 with an economic life of four years. Sales for 20X1 were 10% of expected total sales of the software. At December 31, 20X1, the software had a net realizable value of $480,000. In its December 31, 20X1 balance sheet, what amount should Byte report as net capitalized cost of computer software? A. $432,000 B. $450,000 C. $480,000 D. $540,000

B. $450,000 use higher of straight line or expected sales method

On August 1, 20X1, Vann Corp.'s $500,000, one year, noninterest-bearing note due July 31, 20X2, was discounted at Homestead Bank at 10.8%. Vann uses the straight-line method of amortizing bond discount. What amount should Vann report for notes payable in its December 31, 20X1, balance sheet? A. $446,000 B. $468,500 C. $477,500 D. $500,000

B. $468,500

On January 2, 20X4, West Co. issued 9% bonds in the amount of $500,000, which mature on January 2, 20X24. The bonds were issued for $469,500 to yield 10%. Interest is payable annually on December 31. West uses the interest method of amortizing bond discount. In its June 30, 20X4, balance sheet, what amount should West report as bonds payable? A. $469,500 B. $470,475 C. $471,025 D. $500,000

B. $470,475

Under FASB ASC 350 (SFAS 142), goodwill should be tested periodically for impairment A. At the industry segment level. B. At the operating segment level or one level below. C. At the subsidiary level. D. For the entity as a whole.

B. At the operating segment level or one level below.

On December 31, 20X1, Jet Co. received two $10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The note from Hart Corp., made under customary trade terms, is due in nine months and the note from Maxx, Inc. is due in five years. The market interest rate for similar notes on December 31, 20X1, was 8%. The compound interest factors to convert future values into present values at 8% follow: Present value of $1 due in nine months: .944 Present value of $1 due in five years: .680 At what amounts should these two notes receivable be reported in Jet's December 31, 20X1, balance sheet? A. Hart: $10,000 Maxx: $6,800 B. Hart: $10,000 Maxx: $7,820 C. Hart: $9,440 Maxx: $6,800 D. Hart: $9,652 Maxx: $7,820

B. Hart: $10,000 Maxx: $7,820 Have to add back interest

If a premium on a bonds payable transaction is not amortized, what are the effects on interest expense and total stockholders' equity? Interest expense Total Stockholders' equity A. Overstated Overstated B. Overstated Understated C. Understated Understated D. Understated Overstated

B. Overstated, Understated

Amble, Inc. exchanged a truck with a carrying amount of $12,000 and a fair value of $20,000 for a truck and $5,000 cash in a transaction that lacked commercial substance. The fair value of the truck received was $15,000. At what amount should Amble record the truck received in the exchange? A.$12,000 B.$15,000 C.$7,000 D.$9,000

B.$15,000 is monetary transaction since cash > 20%

On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cassandra report? A. $10,000 B. $14,000 C. $16,000 D. $4,000

C. $16,000

A company obtained a $300,000 loan with a 10% interest rate on January 1, year 1, to finance the construction of an office building for its own use. Building construction began on January 1, year 1, and the project was not completed as of December 31, year 1. The following payments were made in year 1 related to the construction project: January 1 Purchased land for $120,000 September 1 Progress payment to contractor for $150,000 What amount of interest should be capitalized for the year ended December 31, year 1? A.$13,500 B.$15,000 C.$17,000 D.$30,000

C. $17,000 Have to prorate september payment to 4/12

On June 30, 20X5 Castille Corp. purchases, for $600,000, land upon which a building and a dilapidated shed are situated. Castille plans to use the building as-is for operations but immediately razes the shed at a cost of $5,000 minus scrap recovery of $1,000. A recent tax appraisal of the property allocated $100,000 to the land and $400,000 to the building. In the entry to record the acquisition of the property, at what amount will Castille debit Land? A.$100,000 B.$120,000 C.$120,800 D.$124,000

C. $120,800

Young Corp. purchased equipment by making a down payment of $4,000 and issuing a note payable for $18,000. A payment of $6,000 is to be made at the end of each year for three years. The applicable rate of interest is 8%. The present value of an ordinary annuity factor for three years at 8% is 2.58, and the present value for the future amount of a single sum of one dollar for three years at 8% is .735. Shipping charges for the equipment were $2,000, and installation charges were $3,500. What is the capitalized cost of the equipment? A.$19,480 B.$21,480 C.$24,980 D.$27,500

C. $24,980

On July 1, 20X3, X Company purchased a machine by paying a $20,000 down payment and signing a noninterest bearing note for $360,000, calling for payments of $6,000 per month for the next 5 years. X also paid an additional $10,000 for delivery and installation. The equipment could have been purchased for $310,000 on the date of acquisition. The equipment has a 10 year useful life with no salvage value and will be depreciated on a straight-line basis. What will be the amount of depreciation recognized in 20X4? A.$16,000 B.$19,500 C.$32,000 D.$39,000

C. $32,000

On January 1, a company issued a $50,000 face value, 8% five-year bond for $46,139 that will yield 10%. Interest is payable on June 30 and December 31. What is the bond carrying amount on December 31 of the current year? A. $46,139 B. $46,446 C. $46,768 D. $47,106

C. $46,768 difference between effective and stated rate is added to CV, have to do each interest period

On January 1 ten years ago, Andrew Co. created a subsidiary for buying an oil tanker depot at a cost of $1,500,000. Andrew expected to operate the depot for 10 years, at which time Andrew is legally required to dismantle the depot and remove underground storage tanks. It was estimated that it would cost $150,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. However, the actual cost to demolish and dismantle the depot and remove the tanks in the tenth year is $155,000. What amount of expense should Andrew recognize in its financial statements in year 10? A.$150,000 expense. B.$155,000 expense. C.$5,000 expense. D.None, recognized in prior years

C. $5,000 expense.

Farm Co. leased equipment to Union Co. on July 1, 20X4, and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year was received and recorded on July 3, 20X4. Farm had purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its 20X4 income statement? A. $0 B. $5,500 C. $5,750 D. $6,750

C. $5,750 At the inception of the lease, Farm recognized a net lease receivable of $135,000. At that time, the initial payment of $20,000 was received all of which would have been applied to principal, reducing it to $115,000. As of 12/31/X4, interest would have accrued for the six-month period from 7/1/X4 to 12/31/X4. At 10%, interest would be $115,000 x 10% x 6/12 or $5,750.

Baker Co. has a franchise restaurant business. On January 15 of the current year, Baker charged an investor a franchise fee of $65,000 for the right to operate as a franchisee of one of Baker's restaurants. A cash payment of $25,000 towards the fee was required to be paid to Baker during the current year. Four subsequent annual payments of $10,000 with a present value of $34,000 at the current market interest rate represent the balance of the fee which is expected to be collected in full. The initial cash payment is nonrefundable and no future services are required by Baker. What amount should Baker report as franchise revenue during the current year? A. $0 B. $25,000 C. $59,000 D. $65,000

C. $59,000

On May 1, 20X2, Bolt Corp. issued 11% bonds in the face amount of $1,000,000 that mature on May 1, 20X12. The bonds were issued to yield 10%, resulting in bond premium of $62,000. Bolt uses the effective interest method of amortizing bond premium. Interest is payable semiannually on November 1 and May 1. In its October 31, 20X2, balance sheet, what amount should Bolt report as unamortized bond premium? A. $58,590 B. $58,900 C. $60,100 D. $62,000

C. $60,100

In its December 31, 20X8 balance sheet, Fleet Co. reported accounts receivable of $100,000 before allowance for uncollectible accounts of $10,000. Credit sales during 20X9 were $611,000, and collections from customers, excluding recoveries, totaled $591,000. During 20X9, accounts receivable of $45,000 were written off and $17,000 were recovered. Fleet estimated that $15,000 of the accounts receivable at December 31, 20X10, were uncollectible. In its December 31, 20X9 balance sheet, what amount should Fleet report as accounts receivable before allowance for uncollectible accounts? A. $58,000 B. $67,000 C. $75,000 D. $82,000

C. $75,000 The answer is $75,000 ($100,000 + $611,000 - $591,000 - $45,000). Note that the $17,000 recovery of accounts previously written off will not affect the balance of A/R because the net effect of the recovery entries is zero.

On March 1, 20X7, Somar Co. issued 20-year bonds at a discount. By September 1, 20X12, the bonds were quoted at 106 when Somar exercised its right to retire the bonds at 105. How should Somar report the bond retirement on its 20X12 income statement? A. A gain in continuing operations. B. A gain in discontinued operations. C. A loss in continuing operations. D. A loss in discontinued operations

C. A loss in continuing operations. They would have been issued at 99 or less since they were discount bonds

Which of the following statements describes the proper accounting for losses when nonmonetary assets are exchanged for other nonmonetary assets? A.A loss can occur only when assets are sold or disposed of in a monetary transaction. B.A loss is deferred so that the asset received in the exchange is properly valued. C.A loss is recognized immediately, because assets received should not be valued at more than their cash equivalent price. D.A loss, if any, which is unrelated to the determination of the amount of the asset received should be recorded.

C. A loss is recognized immediately, because assets received should not be valued at more than their cash equivalent price.

IFRS allows an entity to recognize an intangible asset if it is an identifiable intangible that lacks physical substance. In order to be considered identifiable: A. Arise from contractual or legal rights. B. Be both separable and arise from contractual or legal rights. C. Be either separable and arise from contractual or legal rights. D. Be separable

C. Be either separable and arise from contractual or legal rights.

Conlon Co. is the plaintiff in a patent-infringement case. Conlon has a high probability of a favorable outcome, and can reasonably estimate the amount of the settlement. What is the proper accounting treatment of the patent infringement case? A. A gain contingency for the estimated probable settlement B. A gain contingency for the minimum estimated amount of the settlement. C. Disclosure in the notes only. D. No reporting is required at this time

C. Disclosure in the notes only.

On January 3, 20X4, Salas Company leased a piece of equipment that cost Salas $23,500, to Merlin's Haberdashery over a 6-year period, which is equal to the useful life of the equipment. The lease calls for annual payments of $6,000, beginning on January 3, 20X4. The rate implicit in the lease, which is not known to the lessee, is 7%. The lessee's incremental borrowing rate is 8%. The present value of an annuity in advance of $1 per period for 6 periods is: - 5.100 at 7% - 4.993 at 8% How much will Salas recognize on its 20X4 income statement as gain on sale of equipment and as interest income? A.Gain on sale of $6,458 and interest income of $1,917 B. Gain on sale of $6,458 and interest income of $2,397 C. Gain on sale of $7,100 and interest income of $1,722 D. Gain on sale of $7,100 and interest income of $2,142

C. Gain on sale of $7,100 and interest income of $1,722 recorded by the lessor using the rate implicit in the lease of 7%, resulting in a sales price of $30,600 ($6,000 x 5.100) and profit of $7,100 ($30,600 - $23,500). The net receivable of $30,600 is immediately reduced to $24,600 by the initial $6,000 payment. Interest in 20X4 will be $1,722 ($24,600 x 7%).

Which of the following describe the terms of convertible debt securities? I. An interest rate that is generally lower than nonconvertible debt. II. An initial conversion price that is less than the market value of the common stock at time of issuance. III. A feature to subordinate the security to nonconvertible debt. A. I and II only B. I and III only C. I only D. III only

C. I only

A six-year capital lease entered into on December 31, 20X4, specified equal annual lease payments due on December 31 of each year. The first annual lease payment, paid on December 31, 20X4, consists of which of the following? I. Interest expense II. Lease liability A. Both I and II B. I only C. II only D. Neither I nor II

C. II only No interest to pay yet

Under IFRS, which of the following statements about intangible assets is correct? A. Intangible assets with indefinite lives must be amortized annually. B. Intangible assets within a class may be measured differently using either the cost model or the revaluation model. C. Internally generated goodwill cannot be recognized as an asset. D. Research and development costs are capitalized as incurred

C. Internally generated goodwill cannot be recognized as an asset.

A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is correct regarding the old building, except: A.It will be classified as a current asset. B.It will be reclassified as an asset held for sale. C.It will be valued at historical cost. D.It will no longer be depreciated.

C. It will be valued at historical cost.

A depreciable asset has an estimated 15% salvage value. Under which of the following methods, properly applied, would the accumulated depreciation equal the original cost at the end of the asset's estimated useful life? A.Both straight-line and double-declining balance. B.Double-declining balance, not straight-line. C.Neither straight-line nor double-declining balance. D.Straight-line, not doubled-declining balance.

C. Neither straight-line nor double-declining balance.

During the year, Hauser Co. wrote off a customer's account receivable. Hauser used the allowance method for uncollectable accounts. What impact would the write-off have on net income and total assets? A. Decrease in both net income and total assets. B. Decrease in net income, no effect on total assets. C. No effect on either net income or total assets. D. No effect on net income, decrease in total assets

C. No effect on either net income or total assets.

Isle Co. owned a copy machine that cost $5,000 and had accumulated depreciation of $2,000. Isle exchanged the copy machine for a computer that cost $4,000. Isle's future cash flows are not expected to change significantly as a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the asset? A.$1,000 gain in the income statement; $3,000 asset in the balance sheet. B.$1,000 gain in the income statement; $4,000 asset in the balance sheet. C.No gain or loss in the income statement; $3,000 asset in the balance sheet. D.No gain or loss in the income statement; $4,000 asset in the balance sheet.

C. No gain or loss in the income statement; $3,000 asset in the balance sheet.

Newt Co. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a (an) A.Extraordinary gain, net of taxes. B.Gain from discontinued operations, net of income taxes. C.Part of continuing operations. D.Reduction of the cost of the new warehouse

C. Part of continuing operations.

A European company that prepares its financial statements in accordance with IFRS was maintaining its headquarters in a palatial building in a rural area. At the beginning of the current period, they learned that the building was, in fact, a palace that has historical significance. They immediately vacated the building and decided to hold it as investment property. On January 1 of the current period, the building, which had an estimated remaining life of 40 years, had a carrying value of 1,200,000 Euros and a fair value of 1,500,000 Euros. If the company applies the fair value method and uses straight-line depreciation, what amounts, if any will the company report in profit or loss in the current period? A.A gain of 300,000 Euros and depreciation expense of 30,000 Euros. B.A gain of 300,000 Euros and depreciation expense of 37,500 Euros. C.A gain of 300,000 Euros. D.Depreciation expense of 30,000 euros.

C.A gain of 300,000 Euros.

Yola Co. and Zaro Co. are fuel oil distributors. To facilitate the delivery of oil to their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically moving the oil. Yola paid Zaro $30,000 to compensate for a difference in the grade of oil. On the date of the exchange, cost and market values of the oil were as follows: Yola Co. Zaro Co. Cost $100,000 $126,000 Market values $120,000 $150,000 In Zaro's income statement, what amount of gain should be reported from the exchange of the oil assuming the transaction lacked commercial substance? A.$0 B.$24,000 C.$30,000 D.$4,800

D. $4,800

On October 1, 20X0, Brock, Inc. issued 200 of its 10%, $1,000 bonds at 101 plus accrued interest. The bonds are dated July 1, 20X0, and mature on July 1, 20X10. Interest is payable semiannually on January 1 and July 1. At the time of issuance, Brock received cash of A. $197,000 B. $202,000 C. $205,000 D. $207,000

D. $207,000 Have to add accrued interest to purchase amount

At December 31, year 1, Gasp Co.'s allowance for uncollectible accounts had a credit balance of $30,000. During year 2, Gasp wrote off uncollectible accounts of $45,000. At December 31, year 2, an aging of the accounts receivable indicated that $50,000 of the December 31, year 2, receivables may be uncollectible. What amount of allowance for uncollectible accounts should Gasp report in its December 31, year 2, balance sheet? A. $20,000 B. $25,000 C. $35,000 D. $50,000

D. $50,000

On June 30, 20X13, Adonis Co. had outstanding 4%, $4,000,000 face value bonds, originally issued at 98, maturing on June 30, 20X18. Interest was payable semiannually every June 30 and December 31. Adonis did not elect the fair value option for reporting its financial liabilities. On June 30, 20X13, after amortization was recorded for the period, the unamortized bond discount and bond issue costs were $40,000 and $30,000 respectively. On that date, Adonis acquired all its outstanding bonds on the open market at 97 and retired them. At June 30, 20X13, what amount should Adonis recognize as gain before income taxes on redemption of bonds? A. $10,000 B. $110,000 C. $130,000 D. $50,000

D. $50,000 the bonds had a carrying value equal to their face value of $4,000,000, minus the unamortized discount of $40,000, reduced by unamortized bond issue costs of $30,000 to give a net amount of $3,930,000 (see journal entry below). Compared to the amount paid of $3,880,000, there is a gain on retirement, before tax, of $50,000.

On July 1, year 1, Kay Corp. sold equipment to Mando Co. for $100,000. Kay accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of $50,000 plus accrued interest on December 31, year 1 and year 2. On July 1, year 2, Kay discounted the note at a bank at an interest rate of 12%. Kay's proceeds from the discounted note were A. $48,400 B. $49,350 C. $50,350 D. $51,700

D. $51,700 As of July 1, year 2, the first payment and the first year's interest would have been received. As a result, the remaining principal balance was $50,000. The bank will receive payment on the note at December 31, year 2, consisting of the principal balance plus interest for 1 year at 10%, or $5,000, for a total of $55,000. The discount will be $55,000 x 12%, the discount rate, x 6/12, the portion of a year until the bank is paid, resulting in a discount of $3,300. As a result, proceeds from the discounted note will be $55,000 - $3,300 or $51,700.

On July 31, 20X3, Dome Co. issued $1,000,000 of 10%, 15-year bonds at par and used a portion of the proceeds to call its 600 outstanding 11%, $1,000 face value bonds, due on July 31, 20X13, at 102. On that date, unamortized bond premium relating to the 11% bonds was $65,000. In its 20X3 income statement, what amount should Dome report as gain or loss, before income taxes, from retirement of bonds? A. $(65,000) loss. B. $(77,000) loss. C. $0 D. $53,000 gain

D. $53,000 gain The carrying value of the retired bonds was the face of $600,000 plus unamortized premium of $65,000 for a total of $665,000. Since they were retired at 102, the amount required to retire the bonds was $612,000 resulting in a gain, before taxes, of $53,000.

On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of accrued bond interest payable should Cassandra report? A. $10,000 B. $16,000 C. $4,000 D. $6,000

D. $6,000 24,000 x 3/12

Yellow Co. spent $12,000,000 during the current year developing its new software package. Of this amount, $4,000,000 was spent before it was at the application development stage and the package was only to be used internally. The package was completed during the year and is expected to have a four-year useful life. Yellow has a policy of taking a full-year's amortization in the first year. After the development stage, $50,000 was spent on training employees to use the program. What amount should Yellow report as an expense for the current year? A. $1,600,000 B. $2,000,000 C. $6,012,500 D. $6,050,000

D. $6,050,000 The correct formula is 4,000,000 + 50,000 + (12,000,000 - 4,000,000 / 4) = $6,050,000.

On July 1, 20X4, Eagle Corp. issued 600 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 20X4 and mature on April 1, 20X24. Interest is payable semiannually on April 1 and October 1. What amount did Eagle receive from the bond issuance? A. $579,000 B. $594,000 C. $600,000 D. $609,000

D. $609,000 The proceeds from the issuance of the bonds would include 99% of the face or $594,000 plus interest accruing from the last interest payment date to 7/1/X4. Since the bonds are dated 4/1/X4, 3 months has elapsed indicating interest of $600,000 x 10% x 3/12 or $15,000.

On December 1, 20X0, Tell Co. leased office space for five years at a monthly rental of $60,000. On the same date, Tell paid the lessor the following amounts: First month's rent $60,000Last month's rent $60,000Security deposit (refundable at lease expiration) $80,000Installation of new walls and offices $360,000 Tell's 20X0 expense relating to utilization of the office space should be A. $120,000 B. $140,000 C. $60,000 D. $66,000

D. $66,000 The $60,000 paid as last month's rent will be reported as an asset, prepaid rent, and the deposit of $80,000 will be reported as an asset, deposits. The new walls and offices costing $360,000 will be capitalized as leasehold improvements and amortized over the 5-year term of the lease. Amortization will be $72,000 per year or $6,000 per month. As a result, Tell will report expenses in 20X0 of $60,000 in rent and $6,000 in amortization for a total of $66,000.

Rue Co.'s allowance for uncollectible accounts had a credit balance of $12,000 at December 31, 20X2. During 20X3, Rue wrote-off uncollectible accounts of $48,000. The aging of accounts receivable indicated that a $50,000 allowance for uncollectible accounts was required at December 31, 20X3. What amount of uncollectible accounts expense should Rue report for 20X3? A. $48,000 B. $50,000 C. $60,000 D. $86,000

D. $86,000 Need to make a t account

During 20X1, X Company manufactured equipment for its own use at a total cost of $2,400,000. The project required the entire year to complete and all costs were incurred uniformly throughout the year. At the beginning of the period, X was able to borrow $1,500,000 at 6% specifically for the purchase of materials and the manufacture of the equipment. The entire debt, with interest was repaid on December 31, 20X1, replaced with a long-term loan. Throughout 20X1, X Company had additional debt of $1,000,000 with a weighted average interest rate of 7%. If X Company capitalizes to the equipment the maximum amount of interest allowable under GAAP, how much will X report as interest expense in 20X1? A.$153,000 B.$160,000 C.$70,000 D.$88,000

D. $88,000 The maximum amount of interest that may be capitalized under GAAP is based on the weighted average cumulative expenditures for the year. Since the equipment required a full year to manufacture and costs of $2,400,000 were incurred uniformly throughout the year, the weighted average costs incurred would be ($0 + $2,400,000)/2 or $1,200,000. Capitalized interest will first be on debt specific to the asset. Since the $1,500,000 borrowed exceeds weighted average expenditures, capitalized interest will be $1,200,000 x 6% or $72,000. The remaining interest on the $1,500,000 loan, consisting of $1,500,000 x 6% - $72,000 or $18,000, and the interest on the other debt, $1,000,000 x 7% or $70,000, or $88,000, will be recognized as expense.

On July 1, 20X9, Gee, Inc. leased a delivery truck from Marr Corp. under a 3-year operating lease. Total rent for the term of the lease will be $36,000, payable as follows: 12 months at $ 500 = $ 6,000 12 months at $ 750 = 9,000 12 months at $1,750 = 21,000 All payments were made when due. In Marr's June 30, 20X11, balance sheet, the accrued rent receivable should be reported as A. $0 B. $12,000 C. $21,000 D. $9,000

D. $9,000 As of 6/30/X11, $24,000 in rent was earned but only $15,000 had been received. Marr would report rent receivable of $9,000

Amble, Inc. exchanged a truck with a carrying amount of $12,000 and a fair value of $20,000 for a truck and $4,000 cash in a transaction that lacked commercial substance. The fair value of the truck received was $16,000. At what amount should Amble record the truck received in the exchange? A.$12,000 B.$15,000 C.$7,000 D.$9,600

D. $9,600 New 9,600 Cash 4,000 Old 12,000 Gain 1,600 (8,000 x 20% = 1,600)

Regarding property, plant and equipment, GAAP require companies to disclose which of the following in the notes to their financial statements? I. An estimate of the amount by which the fair value of assets reported at historical cost exceeds their reported amount. II. A general description of the method or methods used in computing depreciation. III. Major repairs or replacements of long-lived assets anticipated in the upcoming operating cycle. A.I and III only B.I, II, and III C.II and III only D.II only

D. II only

Milton Co. pledged some of its accounts receivable to Good Neighbor Financing Corporation in return for a loan. Which of the following statements is correct? A. Good Neighbor Financing cannot take title to the receivables if Milton does not repay the loan. Title can only be taken if the receivables are factored. B. Good Neighbor Financing will assume the responsibility of collecting the receivables. C. Good Neighbor Financing will take title to the receivables, and will return title to Milton after the loan is paid. D. Milton will retain control of the receivables

D. Milton will retain control of the receivables

When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account that was previously written off affect accounts receivable and the allowance for uncollectible accounts? A. Increase in accounts receivable, decrease in allowance for uncollectible accounts. B. Increase in accounts receivable, no effect on allowance for uncollectible accounts. C. No effect on accounts receivable, decrease in allowance for uncollectible accounts. D. No effect on accounts receivable, increase in allowance for uncollectible accounts.

D. No effect on accounts receivable, increase in allowance for uncollectible accounts.

A company recorded a decommissioning liability and recognized the amount recorded as part of the cost of the related property. After the property was fully depreciated, the decommissioning liability was reviewed and adjusted. How should this change in the decommissioning liability be recognized under IFRS? A. The change in the decommissioning liability is not recognized until it is settled. B.The change in the liability is recognized as a change in the carrying amount of the property if the liability increases but is otherwise recognized in profit or loss. C.The change in the liability is recognized in other comprehensive income. D.The change in the liability is recognized in profit or loss

D. The change in the liability is recognized in profit or loss

A transaction was reported as a nonmonetary exchange of assets. Under which of the following circumstances should the exchange be measured based on the reported amount of the nonmonetary asset surrendered? A.When the entity's future cash flows are expected to change as a result of the exchange. B.When the timing of future cash flows of the asset received differs significantly from the configuration of the future cash flows of the asset transferred. C.When the transaction has commercial substance D.When the transaction lacks commercial substance.

D. When the transaction lacks commercial substance.

On January 1, Feld traded a delivery truck and paid $10,000 cash for a tow truck owned by Baker. The delivery truck had an original cost of $140,000, accumulated depreciation of $80,000, and an estimated fair value of $90,000. Feld estimated the fair value of Baker's tow truck to be $100,000. The transaction had commercial substance. What amount of gain should be recognized by Feld? A.$0 B.$10,000 C.$3,000 D.$30,000

D.$30,000 Feld will recognize all gains and losses and record the new asset at fair market value. In the journal entry for this transaction, Feld will: debit the new truck for $100,000 (FMV given up plus cash paid); debit accumulated depreciation from the old truck of $80,000; credit the old truck for $140,000 (the original cost); credit cash for $10,000; and credit a gain of $30,000