Quiz Chpts 12 & 13, Fall 2010
Acct 350
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1. The Ross Company made the following expenditures for research and development early in 2004: $20,000 for
materials; $30,000 for contract services; $40,000 for employee salaries; and $300,000 for a building with an
expected life of 20 years to be used for current and future research projects. Ross uses straight-line
depreciation. The company allocated $5,000 in overhead to research and development. What is Ross' research
and development expense for 2004?
a. $330,000
b. $105,000
c. $115,000
d. $110,000
2. The Applet Company registered a patent on January 1, 2004. Bandana Company purchased the patent from
Bandana for $300,000 on January 1, 2009, and began to amortize the patent over its remaining legal life. In
early 2010, Bandana determined that the patent's economic benefits would last only until the end of 2013.
What amount should Bandana record for patent amortization in 2010?
a. $15,000
b. $20,000
c. $40,000
d. $70,000
3. In January 2004, the Kiss Corporation purchased a patent for $192,000 from Hug Company that had a
remaining legal life of 14 years. Kiss estimated that the remaining economic life would be eight years. In
January 2008, the company incurred $30,000 in legal costs to defend the patent from an infringement. Kiss’s
lawyers were successful and the remaining years of benefit from the patent were estimated to be six years.
The patent amortization expense for 2008 is
a. $16,000
b. $21,000
c. $22,200
d. $27,857
4. The Fall Mountain Company began business early in 2006, when Fall Mountain paid an initial fee of $60,000
to purchase a franchise. In forming the company, Fall Mountain also spent $4,000 on legal fees and $2,500 on
accounting fees. During the year, Fall Mountain spent $6,000 on product development and paid $10,000 in
continuing franchise fees. What amount should Fall Mountain capitalize for intangible assets in 2006?
a. $ 0
b. $60,000
c. $64,000
d. $77,500
5. The Avalanche Company was formed in early 2008. At the time of formation, Avalanche spent the following
amounts: accounting fees, $5,000; legal fees, $20,000; stock certificate costs, $5,000; initial franchise fee,
$20,000; initial lease payment, $7,000; promotional fees, $3,000. Avalanche intends to capitalize and
amortize intangibles over the maximum allowable period in accordance with generally accepted accounting
principles. Based on this strategy, what is Avalanche’'s expense associated with organization costs in 2008?
a. $10,000
b. $12,000
c. $33,000
d. $40,000
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6. Rod Corporation is considering the purchase of the Dennis Corporation. Dennis's recorded book value of its
net assets is $380,000, but the current market value of these net assets is $490,000. In addition, the market
value of an unrecorded identifiable intangible asset of the company is $60,000. The estimated annual income
of Dennis is $66,000, and this income is to be discounted in perpetuity at 10% in determining the purchase
price. If Rod acquires Dennis, how much purchased goodwill will be involved in the purchase price?
a. $ 60,000
b. $110,000
c. $170,000
d. $280,000
7. The Frank Company records its trade accounts payable net of any cash discounts. At the end of 2004, Frank
had a balance of $200,000 in its trade accounts payable account before any adjustments related to the
following items:
1.
Goods shipped to Frank FOB shipping point were in transit on December 31. The
invoice price of the goods was $60,000, with a 2% discount allowed for prompt
payment.
2.
Goods shipped to Frank FOB destination on December 29 arrived on January 2,
2005. The invoice price of the goods was $6,000, with a 3% discount allowed for
payment within 20 days.
3.
On December 10, Frank had recorded a shipment received. The recorded invoice
price was $21,560, net, with a 2% discount allowed for payment within 14 days. At
the end of the year, payment had not been made.
At what amount should Frank report trade accounts payable on its December 31, 2004, balance sheet?
a. $258,800
b. $259,240
c. $264,620
d. $265,060
8. Ron Casper, a branch manager, is allowed a bonus of 10% of income after bonus and tax. If the tax rate is
30% and income before bonus and tax is $200,000, what is Mr. Casper's bonus?
a. $13,084
b. $14,000
c. $14,433
d. $20,000
9. Smilely Company provides a bonus compensation plan under which key employees receive bonuses equal to
20% of Smilely's income after deducting income taxes but before deducting the bonus. If income before
income tax and the bonus is $300,000 and the income tax rate is 30%, the bonuses should total:
a. $36,842
b. $40,000
c. $44,681
d. $60,000
____ 10. Diamond Business Machines introduced a new machine on January 1, 2004. The machine carried a two-year
warranty against defects. The estimated warranty costs related to dollar sales were 3% in the year of sale and
5% in the year after sale. Additional information follows:
Year
2004
2005
Sales
$40,000
60,000
Actual Warranty
Expenditures
$
600
2,200
If the expense warranty accrual method is used, what amount relating to warranties should be reflected on the
December 31, 2005, balance sheet?
a. $4,800
b. $5,000
c. $5,200
d. $7,400um
____ 11. The Oklahoma Company includes a premium in each box of its cereal. For five premiums plus $1.50,
customers are entitled to a plastic doll that costs Oklahoma $4. Oklahoma expects 40% of the premiums to be
redeemed. In 2004, Oklahoma sold 600,000 boxes of cereal and distributed 20,000 dolls. What is Oklahoma's
estimated liability for unredeemed premiums on December 31, 2004?
a. $ 30,000
b. $ 70,000
c. $ 80,000
d. $160,000
____ 12. The Value Plus Company is affected by the following contingencies at the end of 2004:
1.
2.
3.
4.
Value Plus' legal counsel has concluded that it is probable that the company will be
required to pay damages of $600,000 in a lawsuit.
Expropriation of Value Plus' foreign assets, valued at $4,000,000, appears reasonably
possible.
Value Plus' controller estimates that $40,000 of the company's receivables are likely
to be uncollectible, and will require Value Plus to honor the amounts.
It appears remotely possible that a major customer will be unable to repay a note to
Value Plus for $200,000.
What total amount should Value Plus accrue for loss contingencies in 2004?
a. $ 640,000
b. $4,600,000
c. $4,640,000
d. $4,840,000
quiz 12 13
Answer Section
MULTIPLE CHOICE
1.
D
2.
D
3.
B
4.
B
5.
C
6.
B
7.
B
8.
A
9.
C
10.
C
11.
B
12.
A