MCQ

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)

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, $500,000,

July 1, 2013, $1,200,000,

and December 31, 2013, $1,000,000.

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)

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)

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 33,000 miles in 2013 and 31,000 miles in 2014. What is the depreciation expense for 2014? (Points : 7)

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)

9. Corresponds to CLO 3(a)
Titan Corporation acquired a patent on September 28, 2013. Titan paid cash of $65,000 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)

10. Corresponds to CLO 3(b)
Hodgson Company's December 31, 2014 balance sheet reports assets of $10,000,000 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 $11,000,000 to acquire Hodgson. What amount of goodwill should Motley record as a result of this purchase? (Points : 7)

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)

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)

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)

14. Corresponds to CLO 4(b)
When is a contingent liability recorded? (Points : 7)

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)

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)

17. Corresponds to CLO 5(a)
Generally accepted accounting principles require the following treatment of leases: (Points : 7)

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 $250,000 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 $1,840,023 at an effective interest rate of 6%. With respect to this capitalized lease, Martin should record for 2013: (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 4 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 $700,000. 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 8% per year. Colfax does not have knowledge of the 6% implicit rate used by Reynolds. The factor for the present value of an ordinary annuity of 1, for 4 periods at 8% is 3. 31213. The factor for the present value of an ordinary annuity of 1, for 4 periods at 6% is 3. 46511. What type of lease is this from Colfax Corporation's point of view? (Points : 7)

$100,000
$140,000
$300,000
$440,000

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)

23. Corresponds to CLO 6(c)
The fair value of Willow Company's common stock was $57 per share at December 31, 2013 and $64 per share at December 31, 2014. Willow acquired 10,000 shares of its own common stock at $60 per share on March 10, 2014, and sold 6,000 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)

25. Corresponds to CLO 7(a)
Farnsworth Inc. declared a $500,000 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)

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)

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)

Question 28. 28. Corresponds to CLO 7(d)
After several profitable years, Pear Corporation's stock price had increased by 20-fold. Management prefers the stock price to be within range of the majority of potential investors, and on June 30, 2013, split its stock 4-for-1. Prior to the split, Pear's stockholders' equity section showed: Common Stock, 1,000 shares at $100 par. After the split, Pear's stockholders' equity section showed: (Points : 7)