1.

Question :
Student Answer:

(TCO C) The cost of an intangible asset includes all of the following

except
purchase price.
legal fees.
other incidental expenses.

Instructor
Explanation:
Points Received:

All of these are included.

Chapter 12

5 of 5

Comments:
Question 2.Question :
Student Answer:

(TCO C) Wriglee, Inc. went to court this year and successfully defended
its patent from infringement by a competitor. The cost of this defense
should be charged to
patents, and amortized over the legal life of the patent.
legal fees, and amortized over 5 years or less.
expenses of the period.

Instructor
Explanation:
Points Received:

patents, and amortized over the remaining useful life of the patent.
Chapter 12

5 of 5

Comments:
Question 3.Question :
Student Answer:

(TCO C) Negative goodwill arises when the _____ of the net assets
acquired is higher than the purchase price of the assets.
useful life
carrying value
fair value

Instructor
Explanation:
Points Received:

excess earnings
Chapter 12

5 of 5

Comments:
Question 4.Question :

Student Answer:

(TCO C) ELO Corporation purchased a patent for $90,000 on September

1, 2008. It had a useful life of 10 years. On January 1, 2010, ELO spent
$22,000 to successfully defend the patent in a lawsuit. ELO feels that as
of that date, the remaining useful life is 5 years. What amount should be
reported for patent amortization expense for 2010?
$20,600

$20,000
$18,800
$15,600
Chapter 12, $90,000 [($90,000 / 10) X 1 1/3] = $78,000
Instructor
($78,000 + $22,000) / 5 = $20,000
Explanation:
Points Received:
5 of 5

Comments:
Question 5.Question :

Student Answer:

(TCO C) General Products Company bought Special Products Division in

2010 and appropriately recorded $500,000 of goodwill related to the
purchase. On December 31, 2011, the fair value of Special Products
Division is $4,000,000 and it is carried on General Products books for a
total of $3,400,000, including the goodwill. An analysis of Special
Products Divisions assets indicates that goodwill of $400,000 exists on
December 31, 2011. What goodwill impairment should be recognized by
General Products in 2011?
$0
$200,000
$50,000

$300,000
Chapter 12. Because $4,000,000 > $3,400,000, $0 impairment

Instructor
Explanation:
Points Received:

5 of 5

Comments:
Question 6.Question :
Student Answer:

(TCO D) An employee's net (or take-home) pay is determined by gross

earnings minus amounts for income tax withholdings and the employee's
portion of FICA taxes and unemployment taxes.
portion of FIT, SIT, and Medicare deductions.
portion of FICA taxes, unemployment taxes, and any voluntary
deductions.

Instructor
Explanation:
Points Received:

portion of FICA taxes and any voluntary deductions.

Chapter 13

5 of 5

Comments:
Question 7.Question :
Student Answer:

(TCO D) Which gives rise to the requirement to accrue a liability for the
cost of compensated absences?
Payment is probable.

Employee rights vest or accumulate.

The amount can be reasonably estimated.

Instructor
Explanation:
Points Received:

All of the above

Chapter 13

5 of 5

Comments:
Question 8.Question :
Student Answer:

(TCO D) Which of the following is not acceptable treatment for the

presentation of current liabilities?
Listing current liabilities in order of maturity
Listing current liabilities according to amount
Offsetting current liabilities against assets that are to be applied to
their liquidation

Instructor
Explanation:
Points Received:

Showing current liabilities immediately below current assets to obtain

a presentation of working capital
Chapter 13

5 of 5

Comments:
Question 9.Question :

Student Answer:

(TCO D) Jenkins Corporation has $2,500,000 of short-term debt it

expects to retire with proceeds from the sale of 75,000 shares of common
stock. If the stock is sold for $20 per share subsequent to the balance
sheet date, but before the balance sheet is issued, what amount of shortterm debt could be excluded from current liabilities?
$1,500,000.
$2,500,000.
$1,000,000.
$0

Chapter 13, 75,000 X $20 = $1,500,000.

Instructor
Explanation:
Points Received:
5 of 5

Comments:
Question 10.Question :

(TCO D) Tender 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 it may lose the case. The attorneys
estimated that there is a 40% chance of losing. Tender Foots attorney
estimated that if it loses, then the amount of any payment would be
$500,000. What is the required journal entry as a result of this litigation?

Student Answer:

Debit Litigation Expense for $500,000 and credit Litigation Liability for
$500,000.
No journal entry is required.
Debit Litigation Expense for $200,000 and credit Litigation Liability for
$200,000.
Debit Litigation Expense for $300,000 and credit Litigation Liability for
$300,000 (

)
Instructor
Explanation:
Points Received:

Chapter 13, likelihood of loss is only possible, not probable

5 of 5

Comments:
Question 11.Question :
Student Answer:

(TCO D) Reich, Inc. issued bonds with a maturity amount of $200,000

and a maturity 10 years from date of issue. If the bonds were issued at a
premium, this indicates that
the effective yield or market rate of interest exceeded the stated
(nominal) rate.
the nominal rate of interest exceeded the market rate.
the market and nominal rates coincided.

Instructor
Explanation:
Points Received:

no necessary relationship exists between the two rates.

Chapter 14

5 of 5

Comments:
Question 12.Question :
Student Answer:

(TCO D) If bonds are issued between interest dates, the entry on the
books of the issuing corporation could include a
debit to Interest Payable.
credit to Interest Receivable.
credit to Interest Expense.

Instructor
Explanation:
Points Received:

credit to Unearned Interest.

Chapter 14

5 of 5

Comments:
Question 13.Question :

(TCO D) On January 1, 2010, Ellison Co. issued 8-year bonds with a face
value of $1,000,000 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 as follows:

Present value of 1 for eight periods at 6%

Present value of 1 for eight periods at 8%
Present value of 1 for 16 periods at 3%
Present value of 1 for 16 periods at 4%
Present value of annuity for eight periods at 6%
Present value of annuity for eight periods at 8%
Present value of annuity for 16 periods at 3%
Present value of annuity for 16 periods at 4%

.627
.540
.623
.534
6.210
5.747
12.561
11.652

The issue price of the bonds is

Student Answer:

$883,560.
$884,820.
$889,560.

Instructor
Explanation:
Points Received:

$999,600.
Chapter 14, $534,000 + $349,560 = $883,560

5 of 5

Comments:
Question 14.Question :

Student Answer:

(TCO D) A company issues $5,000,000, 7.8%, 20-year bonds to yield 8%

on January 1, 2010. Interest is paid on June 30 and December 31. The
proceeds from the bonds are $4,901,036. Using effective-interest
amortization, how much interest expense will be recognized in 2010?
$195,000
$390,000
$392,124
$392,083

Chapter 14, ($4,901,036 X .04) + ($4,902,077 X .04) = $392,124

Instructor
Explanation:
Points Received:
0 of 5

Comments:
Question 15.Question :

Student Answer:

(TCO D) On January 1, Martinez Inc. issued $3,000,000, 11% bonds for

$3,195,000. The market rate of interest for these bonds is 10%. Interest is
payable annually on December 31. Martinez uses the effective-interest
method of amortizing bond premium. At the end of the first year, Martinez
should report unamortized bond premium of
$185,130.
$184,500.
$173,550.

$165,000.
Chapter 14, ($3,000,000 X .11) ($3,195,000 X .10) = $10,500
Instructor
($3,195,000 $3,000,000) $10,500 = $184,500
Explanation:
Points Received:
5 of 5

Comments:
1. Question :

Student Answer:

Instructor
Explanation:

(TCO C) Intangible assets may be internally generated or purchased from

another party. In either case, the cost that should be included in the initial
valuation of the asset is an issue.
Instructions:
- Identify the typical costs included in the cash purchase of an intangible
asset.
- Discuss how to determine the cost of an intangible asset acquired in a
noncash transaction.
- Describe how to determine the cost of several intangible assets acquired
in a basket purchase. Provide a numerical example involving intangibles
being acquired for a total price of $120,000.

a.) Intangible asset purchased by cash from another company are

recorded at cost. Costs includes all acquisition costs plus
expenditures to make the intangible asset ready for its intended use.
Purchase price, legal fees, and other incidental expenses are typical
costs included in cash purchase an intangible assets. b) Companies
that acquire intangible asset in a non-cash transaction like exchange
for stock or other assets, the cost of the intangible is the fair value
of the consideration given or the fair value of the intangible
received, whichever is more clearly evident. c) In case of a basket
purchase where company buys several intangibles or a combination
or intangibles and tangibles, the company usually allocate the cost
on the basis of fair values. The accounting treatment for purchased
of intangibles is parallels that for purchased tangible assets. For
example the company purchased an intangible asset with a total
price of $120,000, this includes internet domains that has a fair
market value of $20,000 and a customer database that has a limited
life of five years and the fair market value is $100,000.
(Chapter 12)
- The typical costs included in the purchase of an intangible asset are
purchase price, legal fees, and other incidental expenses.
- In a noncash acquisition of an intangible asset, the initial cost of the
intangible is either the fair market value of the consideration given or the fair
market value of the intangible received, whichever is more clearly evident.
- When several intangible assets are acquired in a basket purchase, the cost
of the individual assets is based on their relative fair market values. An
example is below.
Asset FMV %
Allocation
Patent A $ 60,000 60 60% x $120,000 = $ 72,000
Patent B 40,000 40

40% x $120,000 = 48,000

Totals $100,000 100
$120,000

Points Received:

30 of 30

Comments:
Question 2.Question :
Student Answer:

Instructor
Explanation:

Points Received:

(TCO C) Under what circumstances is it appropriate to record goodwill in

the accounts? How should goodwill, properly recorded on the books, be
written off in accordance with generally accepted accounting principles?

Goodwill is recorded in the accounts only under the circumstances

that is is acquired through a purchase of another business or
combination of businesses. According to Generally Accepted
Accounting Principle under these circumstances where goodwill is
acquired through a purchase by another business that it is
recognized as having indefinite life and should not be amortized but
should be tested for impairment on at least an annual basis.
Chapter 12, Goodwill is recorded only when it is acquired through a business
combination. Goodwill acquired in a business combination is considered to
have an indefinite life and therefore should not be amortized, but should be
tested for impairment on at least an annual basis.

15 of 15

Comments:
Question 3.Question :

(TCO D) Irving Music Shop gives its customers coupons redeemable for a
poster plus a Dixie Chicks CD. One coupon is issued for each dollar of
sales. On the surrender of 100 coupons and $5.00 cash, the poster and
CD are given to the customer. It is estimated that 80% of the coupons will
be presented for redemption. Sales for the first period were $700,000,
and the coupons redeemed totaled 340,000. Sales for the second period
were $840,000, and the coupons redeemed totaled 850,000. Irving Music
Shop bought 20,000 posters at $2.00/poster and 20,000 CDs at
$6.00/CD.
Instructions: Prepare the following entries for the two periods, assuming
all the coupons expected to be redeemed from the first period were
redeemed by the end of the second period.
Entry
(a) To record coupons redeemed
(b) To record estimated liability

Student Answer:

Period 1

Period 2

Entry Period 1 Period 2 (a) To record coupons redeemed dr cr dr cr

Estimated liability for premiums 6,600 (700,000*80%)340,000/100)*$3 Premium Expense (340,000/100)($8-$5) 10,200
18,900 Cash (340,000/100)*$5 17,000 42,500 Inventory of
Premium Posters and CDs 27,200 68,000 (b) To record estimated
liability Premium expense 6,600 1,260 Estimated liability for
Premiums 6,600 1,260 Period 2 Computation Period 1 Inventory of
Posters ($340,000/100)*$2................6,800 Inventory of

CDs($340,000/100)*$6....................20,400 Total inventory 27,200

(b) To record estimated liability (($700,000*80%)-$340,000)/100)
* ($6+$2-$5) = $6,600 Period 2 (a) To record coupons redeemed
Premium expense ($850,000/100)($8-$5) - 6,600 = 18,900
Inventory for Posters ($850,000/100)*$2................17,000 Inventory
for CDs ($850,000/100)*$6....................51,000 Total
inventory......................................................68,000 (b) Estimated
liability ((840,000*80%=672,000 - 850,000)/100 * $3) +6,600 =
$1,260
Instructor
Explanation:

Chapter 13
Entry
1
Period 2
(a) Estimated liability for premiums

Period

6,600
Premium expense [(340,000 / 100) X ($8.00 $5)] 10,200
18,900
Cash (340,000 / 100) x $5
17,000
42,500
Inventory of premium posters and CDs
27,200
68,000
(b) Premium expense
6,600
1,260
Estimate liability for premiums
1,260
[(700,000 X .80) 340,000] / 100 X $3.00

Points Received:

6,600

30 of 30

Comments:
Question 4.Question :

(TCO D) On January 1, 2011, Piper Co. issued 10-year bonds with a face
value of $1,000,000 and a stated interest rate of 10%, payable
semiannually on June 30 and December 31. The bonds were sold to yield
12%. Table values are:
Present value of 1 for 10 periods at
10%
.386
Present value of 1 for 10 periods at
12%
.322
Present value of 1 for 20 periods at 5%
.377
Present value of 1 for 20 periods at 6%
.312
Present value of annuity for 10 periods at 10%
6.145
Present value of annuity for 10 periods at 12%
5.650
Present value of annuity for 20 periods at 5%
12.462
Present value of annuity for 20 periods at 6%
11.470
Instructions:

- Calculate the issue price of the bonds.

- Without prejudice to your solution in Part (a), assume that the issue
price was $884,000. Prepare the amortization table for 2011, assuming
that amortization is recorded on interest payment dates.

Student Answer:

Instructor
Explanation:

(a) Issue Price of the bonds = $312,000+$573,500 = $885,500

$1,000,000*.312 = $312,000 ($1,000,000*10%*6/12)*11.470=
$573,500 (b) Amortization table for 2011 1/1/11 Carrying
Amount........................$884,000 6/30/11 Interest
Expense($884,000*.12)/2........53,040 6/30/11Cash interest
amortized ($1,000,000*.05)....50,000 6/30/11 Discount 53,04050,000..........................3,040 6/30 Carrying amount $884,0003,040.................880,960 12/31/11 Interest Expense
(880,960*.12)/2.....52,858 12/31/11 Cash
Amortized1,000,000*.05........50,000 12/31/11 Discount 52,85850,000.......2,858 12/31/11 Carrying Amount 880,960-2,858
......878,102 Date Interest Expense Cash Amortized Discount
Carrying Amount 1/1/11 $884,000 6/30/11 $53,040 50,000 $3,040
880,960 12/31/11 52,858 50,000 2,858 878,102
Chapter 14
.312 X $1,000,000
11,470 X $50,000
573,500

$312,000

=
$885,500
Carrying

Amortization

Date
Amount
1/1/11

Cash

Expense

6/30/11
12/31/11

$50,000 $53,040 3,040

50,000
53,222

$884,000
887,040
3,222

890,262

Points Received:

25 of 30

Comments:
Question 5.Question :

(TCO D) Prepare journal entries to record the following retirement. (Show

computations and round to the nearest dollar). The December 31, 2010
balance sheet of Wolfe Co. included the following items:
7.5% bonds payable due December 31, 2018 $1,200,000
Unamortized discount on bonds payable
48,000
The bonds were issued on December 31, 2008 at 95, with interest
payable on June 30 and December 31. (Use straight-line amortization)
On April 1, 2011, Wolfe retired $240,000 of these bonds at 101
plus accrued interest.

Student Answer:

Interest Expense......................................4,800 Cash

($240,000*7.5%*3/12).....................................4,500 Discount on
Bonds Payable ($48,000*1/5*1/8*3/12)......300 Bonds
Payable....................................240,000 Loss on Redemption of

Bonds.................11,700
Cash.................................................................242,400 Discount on
Bonds Payable (($48,000*1/5)-300).......9,300
Instructor
Explanation:

Chapter 14

3/12)
3/12)

Interest expense
Cash ($240,000 X 7.5% X
4,500
Discount on bonds payable ($48,000 X 1/5 X
300

Bonds payable
240,000
Loss on redemption of bonds
Discount on bonds payable [(1/5 X $48,000)
$300]
9,300
Cash
242,400

Points Received:

20 of 20

4,800

11,700