PRE QUIZ CHAPTER 3

1. Which of the following would not be a correct form of an adjusting entry?

- A debit to an asset and a credit to a liability

2. A prepaid expense can be described as an amount

- Paid and not currently matched with revenues

3. Waterway Industries paid or collected during 2020 the following items:

Insurance premiums paid $31200

Interest collected 70400
Salaries paid 281200

The following balances have been excerpted from Waterway's balance sheets:

December 31,
December 31, 2019
2020
Prepaid insurance $2780 $2900
Interest receivable 7260 5540
Salaries and wages payable
24100 21200

The insurance expense on the income statement for 2020 was

- 31200+(2780-2900)=31320

4. Sheridan Company paid or collected during 2020 the following items:

Insurance premiums paid $30000

Interest collected 69100
Salaries paid 281700
The following balances have been excerpted from Sheridan's balance sheets:

December 31, 2020 December 31, 2019

Prepaid insurance $2480 $3000
Interest receivable 7220 5200
Salaries and wages payable
25100 21100

Salaries and wages expense on the income statement for 2020 was
 - 281700-21100+25100=285700

5. Waterway Industries received $21400 on April 1, 2020 for one year's rent in advance and
recorded the transaction with a credit to a nominal account. The December 31, 2020
adjusting entry is

=3/12*21400=5350 debit rent revenue and credit unearned rent revenue, 5350

6. Concord Corporation paid or collected during 2020 the following items:

Insurance premiums paid $29900

Interest collected 69500
Salaries paid 280700

The following balances have been excerpted from Concord's balance sheets:

December 31, 2020 December 31, 2019

Prepaid insurance $2540 $3120
Interest receivable 7380 5680
Salaries and wages payable
24400 21800

The interest revenue on the income statement for 2020 was

=69500-5680+7380=71200

7. Year-end net assets would be overstated and current expenses would be

understated as a result of failure to record which of the following adjusting entries?
- ALL OF THESE ANSWER CHOICES ARE CORRECT

8. AN UNEARNED RENT REVENUE CAN BE DESCRIBES AS AN AMOUNT

- Collected and not currently matched with expenses

9. Which of the following statements best describes the purpose of closing entries?
- To reduce the balances of revenue and expenses accounts to zero so that they may be
used to accumulate the revenues and expenses of the next period.

10. Included in Waterway Industries balance sheet at June 30, 2021 is a 10% , $4050000
note payable. The note is dated October 1, 2019 and is payable in three equal annual
payments of $2025000 plus interest. The first interest and principal payment was
made on October 1, 2020. In waterway’s June 30 2021 balance sheet, what amount
should be reported as accrued interest payable for this note?

- 4050000*9/12*10%=$303750
QUIZ CHAPTER 3

1. Which type of account is always debited during the closing process?

- Revenue

2. If ending accounts receivable exceeds the beginning account receivable

- Cash collections during the year are less than the amount of revenue recognized

3. Sheffield Corp. recorded journal entries for the issuance of common stock for
$209500, the payment of $73000 on accounts payable, and the payment of salaries
expense for $103500. What net effect do these entries have on stockholders equity?
- 209500-103500=106000

4. If the balances in both accounts receivable and accounts payable have decreased
during the year the decrease in the accounts receivable balance would result in an
increase in cash for the period while the decrease in the accounts payable balance
would result in a decrease in cash for the period. If the balances in both accounts
receivable and accounts payable decrease during the year
- The decrease in the accounts receivable balance would result in an increase in cash for
the period.

5. If the balances in both accounts receivable and accounts payable have increased
during the year the increase in the accounts receivable balance would result in a
decrease in cash for the period while the increase in the accounts payable balance
would result in an increase in cash for the period.

Under accrual basis accounting, if the balances in both accounts receivable and accounts
payable increase during the year

- the increase in the accounts receivable balance would result in a decrease in cash for the
period while the increase in the accounts payable balance would result in an increase in
cash for the period.

6. Which of the following statements is true about the accrual basis of accounting?
- Revenues are recognized in the period the performance obligation is satisfied, regardless
of the time period the cash is received.

7. Oriole Company received cash of $65400 on August 1, 2020 for one year’s rent in
advance and recorded the transaction with a credit to rent revenue. The December
31, 2020 adjusting entry is
- 7/12*$65400=$38150. Debit rent reveue and credit unearned rent revenue, $38150
 8. Sales salaries paid during 2020 were $87,000. Advances to salesmen were $1,200 on
January 1, 2020, and $820 on December 31, 2020. Sales salaries accrued were $1,500
on January 1, 2020, and $2,000 on December 31, 2020. Calculate the sales salaries
on an accrual basis for 2020.
- 87000+1200-820-1500+2000=87880

9. The records for Blossom Inc. showed the following for 2020:

Jan. 1 Dec. 31
Accrued expenses $1,200 $1,900
Prepaid expenses 600 820

Cash paid during the year for expenses, $42,850

Calculate the amount of expense that should be reported on the income statement.
- 42850-1200+1900+600-820=43330

10. The records for Sandhill Company showed the following for 2020:

Jan. 1 Dec. 31
Unearned revenue $1,300 $2,200
Accrued revenue 1,200 940

Cash collected during the year for revenue, $77,000

Calculate the amount of revenue that should be reported on the income statement.
- 77000+1300-2200-1200+940=75840
Pre-Quiz Chapter 4

1. In calculating earnings per share, companies deduct preferred dividends from net
income if:
- The dividends are declared.
-
2. Which of the following earnings per share figures must be disclosed on the face of
the income statement?
- EPS for income from continuing operations

3. 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

4. In 2020, Sheridan Company reported net income of $498000. It declared and paid
preferred stock dividends of $195000 and common stock dividends of $51000.
During 2020, Sheridan had a weighted average of 300000 common shares
outstanding. Compute Sheridan's 2020 earnings per share.
- ($498000 – $195000) ÷ 300000 sh. = $1.01.

5. The following information was extracted from the accounts of Pharoah Company at
December 31, 2020:

CR(DR)
Total reported income since incorporation $4790000
Total cash dividends paid (2480000)
Unrealized holding loss on available-for-sale
(367000)
securities
Total stock dividends distributed (595000)
Prior period adjustment, recorded January 1, 2020 225000

What should be the balance of retained earnings at December 31, 2020?

- $4790000 – $2480000 – $595000 + $225000 = $1940000.

6. For the year ended December 31, 2020, Cullumber Company reported the following:
Net income $307000
Preferred dividends declared 48100
Common dividend declared 10100
Unrealized holding loss, net of tax 5900
Retained earnings, beginning balance 380000
Common stock 200000
Accumulated Other Comprehensive Income,
Beginning Balance 25200

What would Cullumber report as the ending balance of Retained Earnings?

- $380000 + $307000 - $48100 – $10100 = $628800.

7. A correction of an error in prior periods' income will be reported.

In the income statement Net of tax

No Yes
8. At Carla Vista Co., events and transactions
during 2020 included the following. The tax
rate for all items is 20%.

(1) Depreciation for 2018 was found to be

understated by $120500.
(2) A strike by the employees of a supplier
resulted in a loss of $100800.
(3) The inventory at December 31, 2018 was
overstated by $169800.
(4) A disposal of a component of the business
resulted in a $1985000 loss.

The effect of these events and transactions on

2020 net income net of tax would be

- ($100800 × 0.80) + ($1985000 × 0.80)

= $1668640

9. Crane Company reports the following

information:

Correction of understatement of
depreciation expense
 in prior years, net of tax $
1300000
Dividends declared 968000
Net income 3165000
Retained earnings, 1/1/20, as reported 5970000

Crane should report retained earnings, 12/31/20, at

- $5970000 – $1300000 + $3165000 –

$968000 = $6867000.

Quiz Chapter 4

1. During 2020, Cullumber Company disposed of Maria Division, a major component of its
business. Cullumber realized a gain of $2910000, net of taxes, on the sale of Maria's
assets. Maria's operating losses, net of taxes, were $3470000 in 2020. How should these
facts be reported in Cullumber's income statement for 2020?

Total Amount to be Included in

Income from Results of
Continuing Operations Discontinued Operations

-3470000-2910000=560000

2. Blossom Company has a tax rate of 35 percent and income before non-operating items of
$1390000. It also has the following items (gross amounts).

Unusual loss $221000

Discontinued operations loss 604000
Gain on disposal of equipment 46000
Change in accounting principle
increasing prior year's income 316000

What is the amount of income tax expense Blossom would report on its income statement?

- ($1390000 – $221000 + $46000) × 0.35 = $425250.

 3. For the year ended December 31, 2020, Cullumber Company reported the following:

Net income $300000

Preferred dividends declared 51400
Common dividend declared 9200
Unrealized holding loss, net of tax 5400
Retained earnings 390000
Common stock 208000
Accumulated Other Comprehensive Income,
Beginning Balance 25800

What would Cullumber report as its ending balance of Accumulated Other Comprehensive
Income?

- $25800 – $5400 = $20400.

4. The major elements of the income statement are

- Revenues, expenses, gain, and losses

5. A change in accounting principle requires that the cumulative effect of the change
for prior periods be shown as an adjustment to:
- Beginning retained earnings of the earliest period presented

6. Which of the following items would be reported net of tax on the face of the income
statement?
- Discontinued operations

7. If plant assets of a manufacturing company are sold at a gain of $1740000 with related
taxes of $542000, and the gain is not considered unusual or infrequent, the income
statement for the period would disclose these effects as

- a gain of $1740000 and an increase in income tax expense of $542000.

8. Crane Company reports the following information:

Correction of understatement of depreciation expense

in prior years, net of tax $ 1296000
Dividends declared 964000
Net income 2800000
Retained earnings, 1/1/20, as reported 5990000
Crane should report retained earnings, 1/1/20, as adjusted at

- $5990000 – $1296000 = $4694000.

9. Cullumber Company's trial balance of income statement accounts only for the year ended
December 31, 2020 included the following:

Debit Credit
Sales revenue $288000
Cost of goods sold $179000
Administrative expenses 40700
Loss on disposal of equipment 17000
Sales commission expense
15000

Interest revenue 10100

Freight-out 5800
Loss from discontinued operations 24600
Bad debt expense 6200

Other information:
Cullumber's income tax rate is 30%. Finished goods inventory:

January 1, 2020 $158300

December 31, 2020 138000

On Cullumber's multiple-step income statement for 2020, Income from continuing operations is

- $288000 – $179000 – $40700 – $17000 – $15000 – $5800 – $6200 + $10100 – ($34400

× 0.30) = $24080.

10. In 2020, Pharoah Company reported a discontinued operations loss of $1250000, net of
tax. It declared and paid preferred stock dividends of $125000 and common stock
dividends of $365000. During 2020, Pharoah had a weighted average of 500000 common
shares outstanding. As a result of the discontinued operations loss, net of tax, the earnings
per share would decrease by

- $1250000 ÷ 500000 sh. = $2.50.

PRE QUIZ CHAPTER 9

1. Net Relizable value is

- Selling price less costs to complete, sell, and transport

2. Recording inventory at net realizable value is permitted, even if it is above cost,

when there are no significant costs of disposal involved and
- There is a controlled market with a quoted price applicable to all quantites

3. During the prior fiscal year, Ivanhoe Corp. signed a long-term noncancellable
purchase commitment with its primary supplier to purchase $1.80 million of raw
materials. Ivanhoe paid the $1.80 million to acquire the raw materials when the raw
materials were only worth $1.50 million. Assume that the purchase commitment was
properly recorded. What is the journal entry to record the purchase?

- $1.80 million – $1.50 million = $300000.

- Debit Inventory for $1500000, debit Estimated Liability on Purchase Commitments for
$300000 and credit Cash for $1800000.

4. The following information is available for October for Crane Company. (Round answers
to 0 decimal places, e.g. 5,275.)

Beginning inventory $280000

Net purchases 960000
Net sales 1920000
Percentage markup on cost 66.67%

A fire destroyed Crane’s October 31 inventory, leaving undamaged inventory with a cost of
$18000. Using the gross profit method, the estimated ending inventory destroyed by fire is
- ($280000 + $960000) – ($1920000 ÷ 5/3) – $18000 = $70000.

5. On January 1, 2020, the merchandise inventory of Sunland, Inc. was $1900000.

During 2020 Sunland purchased $3794000 of merchandise and recorded sales of
$4600000. The gross profit rate on these sales was 20%. What is the merchandise
inventory of Sunland at December 31, 2020?
- COGS = $4600000 × 0.80 = $3680000
$1900000 + $3794000 – $3680000 = $2014000.
-
 6. On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail
store. The following data are available:

Sales, January 1 through April 15 $588000

Inventory, January 1 96000
Purchases, January 1 through April
490000
15
Markup on cost 20%

The amount of the inventory loss is estimated to be

$96000 + $490000-($588000/1.20)
=$96000.

7. On March 15, a fire destroyed Blossom Company's entire retail inventory. The inventory
on hand as of January 1 totaled $5300000. From January 1 through the time of the fire,
the company made purchases of $1432000, incurred freight-in of $182000, and had sales
of $3540000. Assuming the rate of gross profit to selling price is 20%, what is the
approximate value of the inventory that was destroyed?
- $5300000 + $1432000 + $182000 – [$3540000 × (1 – 0.20)] = $4082000.

8. Sheridan Inc. uses the conventional retail method to determine its ending inventory at
cost. Assume the beginning inventory at cost (retail) were $398500 ($599000), purchases
during the current year at cost (retail) were $3508000($5293600), freight-in on these
purchases totaled $164500, sales during the current year totaled $4766000, and net
markups were $419000. What is the ending inventory value at cost? Hint: Round
intermediate calculation to 3 decimal places, e.g. 0.635 and final answer to 0 decimal
places.

- $599000 + $5293600 + $419000 – $4766000 = $1545600;

($398500 + $3508000 + $164500) ÷ ($599000 + $5293600 + $419000) = 0.645;
$1545600 × 0.645 = $996912.

9. The following data concerning the conventional retail inventory method are taken from
the financial records of CraneCompany.

Cost Retail
$
Beginning inventory $ 276000
205000
Purchases 896000 1250000
Freight-in 23300 —
Net markups — 79700
Net markdowns — 57100
Sales — 1374000

The ending inventory at retail should be

- $276000 + $1250000 + $79700 – $57100 – $1374000 = $174600.

10. The following data concerning the retail inventory method are taken from the financial
records of Welch Company.

Cost Retail
Beginning inventory $ 196,000 $ 280,000
Purchases 896,000 1,280,000
Freight-in 24,000 —
Net markups — 80,000
Net markdowns — 56,000
Sales — 1,344,000

Assuming that the LIFO inventory method were used in conjunction with the data and that the
inventory at retail had increased during the period, then the computation of retail in the cost-to-
retail ratio would
- include both markups and markdowns and exclude beginning inventory.
 QUIZ 9

1. Which method(s) may be used to record a loss due to a price decline in the value
of inventory?
- Both the cost of goods sold method and the loss method

2. Why might inventory be reported at sales prices (net realizable value or market
price) rather than cost?
When there is a controlled market with a quoted price applicable to all quantities and
when there are no significant costs of disposal
3. The following information is available for October for Sunland Company. (Round answers to
0 decimal places, e.g. 5,275.)

Beginning inventory $460000

Net purchases 1320000
Net sales 2640000
Percentage markup on cost 66.67%

A fire destroyed Sunland’s October 31 inventory, leaving undamaged inventory with a cost of
$27000. Using the gross profit method, the estimated ending inventory destroyed by fire is
- ($460000 + $1320000) – ($2640000 ÷ (5/3)) – $27000 = $169000.

4. During the current fiscal year, Sandhill Corp. signed a long-term noncancellable purchase
commitment with its primary supplier. Sandhill agreed to purchase $1.92 million of raw
materials during the next fiscal year under this contract. At the end of the current fiscal year, the
raw material to be purchased under this contract had a market value of $1.56 million. What is the
journal entry at the end of the current fiscal year?
- $1.92 million – $1.56 million = $360000.
- Debit Unrealized Holding Gain or Loss for $360000 and credit Estimated Liability on Purchase
Commitment for $360000.

5. On October 31, a fire destroyed Crane Inc.'s entire retail inventory. The inventory on hand as
of January 1 totaled $2660000. From January 1 through the time of the fire, the company made
purchases of $624000 and had sales of $1392000. Assuming the rate of gross profit to selling
price is 25%, what is the approximate value of the inventory that was destroyed?
- ($2660000 + $624000) – [$1392000 × (1 – 0.25)] = $2240000.
6. Sheridan uses the conventional retail method to determine its ending inventory at cost.
Assume the beginning inventory at cost (retail) were $383000 ($587000), purchases during the
current year at cost (retail) were $1915000 ($3160000), freight-in on these purchases totaled
$122000, sales during the current year totaled $2860000, and net markups (markdowns) were
$65000 ($101000). What is the ending inventory value at cost? Hint: Round intermediate
calculation to 3 decimal places, e.g. 0.635 and final answer to 0 decimal places.
- $587000 + $3160000 + $65000 – $2860000 – $101000 = $851000;
($383000 + $1915000 + $122000) ÷ ($587000 + $3160000 + $65000) = 0.635;
$851000 × 0.635 = $540385.

7. Wildhorse Sales Company uses the retail inventory method to value its merchandise
inventory. The
following information is available for the current year:

Cost Retail
Beginning
$ 39000 $ 54000
inventory
Purchases 280000 350000
Freight-in 3400 —
Net markups — 9400
Net markdowns — 14500
Employee discounts — 1000
Sales revenue — 295000

If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail

ratio?

Cost: $39000 + $280000 + $3400 = $322400.

Retail: $54000 + $350000 + $9400 = $413400.

8. The following data concerning the retail inventory method are taken from the financial records
of Crane Company.

Cost Retail
$
Beginning inventory $ 277000
193000
Purchases 887000 1180000
Freight-in 23300 —
Net markups — 80900
Net markdowns — 55300
Sales — 1384000
Assuming no change in the price level if the LIFO inventory method were used in conjunction
with the data, the ending inventory at cost would be
- (193000/277000)*98600=68700

9. A markup of 16% on cost is equivalent to what markup on selling price?

(0.16/1+0.16)=0.138

10. For 2020, cost of goods available for sale for Blossom Corporation was $4300000. The gross
profit rate on sales was 20%. Sales for the year were $3800000. What was the amount of the
ending inventory?
- $4300000 – ($3800000 × 0.80) = $1260000.
PRE-QUIZ 10
1. On February 1, 2020, Marigold Corp. purchased a parcel of land as a factory site for $327000.
An old building on the property was demolished, and construction began on a new building
which was completed on November 1, 2020. Costs incurred during this period are listed below:

Demolition of old building $ 19300

Architect's fees 36400
Legal fees for title investigation and purchase contract 5500
Construction costs 1402000
(Salvaged materials resulting from demolition were sold for $11700.)

Marigold should record the cost of the land and new building, respectively, as
- Land: $327000 + $19300 + $5500 – $11700 = $340100.
Building: $36400 + $1402000 = $1438400.

2. Sheridan Company is constructing a building. Construction began in 2020 and the building was
completed 12/31/20. Sheridan made payments to the construction company of $3084000 on
7/1, $6396000 on 9/1, and $5900000 on 12/31. Weighted-average accumulated expenditures
were
- ($3084000 × 6/12) + ($6396000 × 4/12) = $3674000.

3. Marigold Corp. is constructing a building. Construction began on January 1 and was completed
on December 31. Expenditures were $6490000 on March 1, $5260000 on June 1, and
$8650000 on December 31. Marigold Corp. borrowed $3210000 on January 1 on a 5-year,
10% note to help finance construction of the building. In addition, the company had
outstanding all year a 8%, 3-year, $6380000 note payable and an 9%, 4-year, $12850000
note payable.
What is the weighted-average interest rate used for interest capitalization purposes?
- [($6380000 × 0.08) + ($12850000 × 0.09)] ÷ ($6380000 + $12850000) = 8.67%.

4. Vaughn Manufacturing is constructing a building. Construction began on January 1 and was

completed on December 31. Expenditures were $6450000 on March 1, $5320000 on June 1,
and $8650000 on December 31. Vaughn Manufacturing borrowed $3150000 on January 1 on a
5-year, 12% note to help finance construction of the building. In addition, the company had
outstanding all year a 10%, 3-year, $6440000 note payable and an 11%, 4-year, $12550000
note payable.

What is the avoidable interest for Vaughn Manufacturing?

- $3150000 × 12% = $378000;
($6450000 × 10/12) + ($5320000 × 7/12) = $8478333;
[($8478333 – $3150000) × 10.66%] + $378000 = $946000.
 5. Swifty Corporation is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $6400000 on March 1, $5250000 on June 1,
and $8250000 on December 31. Swifty Corporationborrowed $3210000 on January 1 on a 5-
year, 12% note to help finance construction of the building. In addition, the company had
outstanding all year a 10%, 3-year, $6390000 note payable and an 11%, 4-year,
$12950000 note payable.

What is the actual interest for Swifty Corporation?

- ($3210000 × 0.12) + ($6390000 × 0.10) + ($12950000 × 0.11) = $2448700.

6. Sunland Company is constructing a building. Construction began on January 1 and was

completed on December 31. Expenditures were $6480000 on March 1, $5260000 on June
1, and $8950000 on December 31. Sunland Company borrowed $3200000 on January 1
on a 5-year, 12% note to help finance construction of the building. In addition, the
company had outstanding all year a 10%, 3-year, $6380000 note payable and an 11%, 4-
year, $12750000 note payable.

What amount of interest should be charged to expense?

Capitalization Weighted Average
Expenditure Period Accumulated Expenditure
10/1
March 1 $6480000 $5400000
2
June 1 5260000 7/12 3068333
December 31 8950000 0 0
$2069000
$8468333
0

Weighted average interest:

Principal Interest
×
$6380000 $638000
0.10
×
12750000 1402500
0.11
$1913000
$2040500
0

Total interest $2040500

Total = $1913000 = 10.67
principal 0

($3200000 × 0.12) + ($6380000 × 0.10) + ($12750000 × 0.11) = $2424500;

[($8468333 – $3200000) × 10.67%] + $3200000 × 0.12 = $946131.
$2424500 – $946131 = $1478369.

7. Below is the information relative to an exchange of assets by Coronado Industries. The

exchange lacks commercial substance.

Old Equipment
Book Value Fair Cash Paid
 Value
Case I $443000 $520000 $97500
Case II $306000 $277500 $35400

Which of the following would be correct for Coronado to record in Case I?

- 443000 + $97500 = $540500.

Record Equipment
Record a gain (loss) of:
at:
540500 0

8. Below is the information relative to an exchange of assets by Concord Corporation. The

exchange lacks commercial substance.

Old Equipment
Fair
Book Value Cash Paid
Value
Case I $463000 $503000 $93000
Case II $278000 $253000 $41900

Which of the following would be correct for Concord to record in Case II?
$253000 + $41900 = $294900;
$253000 – $278000 = $25000 loss.

9. Coronado Industries purchased the assets of Wildhorse Co. at an auction for $5725000. An
independent appraisal of the fair value of the assets is listed below:

Land $1875000
Building 3000000
Equipmen
2200000
t
Trucks 3250000

Assuming that specific identification costs are impracticable and that Coronado allocates the purchase
price on the basis of the relative fair values, what amount would be allocated to the Trucks?
- [$3250000 ÷ ($1875000 + $3000000 + $2200000 + $3250000)] × $5725000 = $$a2.

10. Sandhill Co. traded machinery with a book value of $540000 and a fair value of $1010000.
It received in exchange from Oriole Company a machine with a fair value of $909000 and
cash of $101000. Oriole’s machine has a book value of $959500. What amount of gain
should Sandhill recognize on the exchange (assuming lack of commercial substance)
- ($1010000 – $540000) × [$101000 ÷ ($101000 + $909000)] = $47000.
QUIZ 10
1. Which of the following is not a major characteristic of a plant asset?
- Acquired for resale

2. The cost of land typically includes the purchase price and all of the following costs except
- Private driveways and parking lots

3. Which of the following is not a condition that must be satisfied before interest capitalization
can begin on a qualifying asset?
- The interest rate is equal to or greater than the company's cost of capital.

4. Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the
exchange. The exchange is not expected to cause a material change in the future cash flows
for either entity. If a gain on the disposal of the old asset is indicated, the gain will
-effectively reduce the amount to be recorded as the cost of the new asset.

5. On February 1, 2020, Concord Corporation purchased a parcel of land as a factory site for $312000.
An old building on the property was demolished, and construction began on a new building which was
completed on November 1, 2020. Costs incurred during this period are listed below:

Demolition of old building $ 20600

Architect's fees 35200
Legal fees for title investigation and purchase contract 4900
Construction costs 1406000
(Salvaged materials resulting from demolition were sold for $8100.)

Concord should record the cost of the land and new building, respectively, as
Land: $312000 + $20600 + $4900 – $8100 = $329400.
Building: $35200 + $1406000 = $1441200.

6. Concord Corporation purchased equipment for $44800. Sales tax on the purchase was $2688.
Other costs incurred were freight charges of $672, repairs of $392 for damage during
installation, and installation costs of $748. What is the cost of the equipment?

-$44800 + $2688 + $672 + $748 = $48908.

7. On March 1, 2020, Sunland Company purchased land for an office site by paying
$2796000 cash. Sunland began construction on the office building on March 1. The following
expenditures were incurred for construction:

Date Expenditures
March 1, 2020 $1836000
April 1, 2020 2544000
May 1, 2020 3912000
June 1, 2020 4092000

The office was completed and ready for occupancy on July 1. To help pay for construction, and
purchase of land $3120000 was borrowed on March 1, 2020 on a 8%, 3-year note payable. Other
than the construction note, the only debt outstanding during 2020 was a $1420000, 11%, 6-year note
payable dated January 1, 2020.

The weighted-average accumulated expenditures on the construction project during 2020 were

-($4632000 × 4/12) + ($2544000 × 3/12) + ($3912000 × 2/12) + ($4092000 × 1/12)

= $3173000.

8. On March 1, 2020, Bramble Corp. purchased land for an office site by paying $2700000 cash.
Bramble began construction on the office building on March 1. The following expenditures
were incurred for construction:

Date Expenditures
March 1, 2020 $1880000
April 1, 2020 2560000
May 1, 2020 4580000
June 1, 2020 4840000

The office was completed and ready for occupancy on July 1. To help pay for construction, and
purchase of land $3660000 was borrowed on March 1, 2020 on a 9%, 3-year note payable. Other
than the construction note, the only debt outstanding during 2020 was a $1480000, 12%, 6-year note
payable dated January 1, 2020.

The actual interest cost incurred during 2020 was

-($3660000 × 9% × 10/12) + ($1480000 × 12%) = $452100.

9. On January 1, 2020, Swifty Corporation purchased land for an office site by paying $2670000
cash. Swifty began construction on the office building on January 1. The following
expenditures were incurred for construction:

Date Expenditures
January 1, 2020 $ 1890000
April 1, 2020 2490000
May 1, 2020 4540000
June 1, 2020 4720000

The office was completed and ready for occupancy on July 1. To help pay for construction, and
purchase of land $3600000 was borrowed on January 1, 2020 on a 9%, 3-year note payable. Other
than the construction note, the only debt outstanding during 2020 was a $1470000, 12%, 6-year note
payable dated January 1, 2020.

Assume the weighted-average accumulated expenditures for the construction project are $4360000.
The amount of interest cost to be capitalized during 2020 is

- [($3600000 × 0.09) + ($760000 × 0.12)] = $415200.

10.Crane Company traded machinery with a book value of $1099880 and a fair value of
$1774000. It received in exchange from Wildhorse Co. a machine with a fair value of $1665000
and cash of $185000. Wildhorse’s machine has a book value of $1798200. What amount of gain
should Crane recognize on the exchange (assuming lack of commercial substance)?

($1774000 – $1099880) × [$185000 ÷ ($185000 + $1665000)] = $67412.

Pre quiz 11

1. On July 1, 2020, Marigold Corporation purchased factory equipment for $295000. Salvage
value was estimated to be $8200. The equipment will be depreciated over five years using the
double-declining balance method. Counting the year of acquisition as one-half
year, Marigold should record depreciation expense for 2021 on this equipment of

-[$295000 – ($295000 × 0.2)] × 0.4 = $94400.

2. On January 1, 2014, Concord Corporation purchased equipment at a cost of $396000. The

equipment was estimated to have a salvage value of $9000 and it is being depreciated over
eight years under the sum-of-the-years'-digits method. What should be the charge for
depreciation of this equipment for the year ended December 31, 2021

($396000 – $9000) × 1/36 = $10750.

3. Sheridan Company, which has a calendar year accounting period, purchased a new machine
for $84600 on April 1, 2016. At that time Sheridan expected to use the machine for nine years
and then sell it for $8460. The machine was sold for $47000 on Sept. 30, 2021. Assuming
straight-line depreciation, no depreciation in the year of acquisition, and a full year of
depreciation in the year of retirement, the gain to be recognized at the time of sale would be
- $84600 – [($84600 – $8460) ÷ 9 × 5] = $42300 (BV)
$47000 – $42300 = $4700 (gain).

4. A schedule of machinery owned by Swifty Corporation is presented below:

Estimated Estimated
Total Cost Salvage Value Life in Years
Machine X $670000 $54000 14
Machine Y 850000 122000 10
Machine Z 300000 66000 6
 Swifty computes depreciation by the composite method.
The composite life (in years) for these assets is

($616000 + $728000 + $234000) ÷ $155800 = 10.1.

5. Concord Corporation purchased a depreciable asset for $618000 on January 1, 2018. The
estimated salvage value is $60000, and the estimated useful life is 9 years. The straight-line
method is used for depreciation. In 2021, Concordchanged its estimates to a total useful life of
5 years with a salvage value of $97000. What is 2021 depreciation expense?

- $618000 – [($618000 – $60000) × 3/9] = $432000

($432000 – $97000) ÷ (5 – 3) = $167500.

6. Vaughn Manufacturing owns the following assets:

Asset Cost Salvage Estimated Useful

Life
A $410000 $43000 10 years
B 226000 20000 5 years
C 495000 21000 12 years

[($410000 – $43000) ÷ 10] + [($226000 – $20000) ÷ 5] + [($495000 – $21000) ÷ 12] = $117400;

$117400 ÷ ($410000 + $226000 + $495000) = 10.4%.

7. Concord Corporation owns machinery with a book value of $751000. It is estimated that the
machinery will generate future cash flows of $711000. The machinery has a fair value of
$561000. Concord should recognize a loss on impairment of

- $711000 < $751000; $561000 – $751000 = ($190000).

8. Sunland Company purchased a tooling machine on January 3, 2014 for $870000. The machine
was being depreciated on the straight-line method over an estimated useful life of 10 years,
with no salvage value. At the beginning of 2021, the company paid $213000 to overhaul the
machine. As a result of this improvement, the company estimated that the useful life of the
machine would be extended an additional 5 years (15 years total). What should be the
depreciation expense recorded for the machine in 2021?
- [($870000 ÷ 10) × 7] – $213000 = $396000 new (AD)
$870000 – $396000 = $474000; $474000 ÷ 8 = $59250 per year.

9. In March, 2020, Marigold Corp. purchased a coal mine for $8060000. Removable coal is
estimated at 1500000 tons. Marigold is required to restore the land at an estimated cost of
$920000, and the land should have a value of $850000. The company incurred $2030000 of
development costs preparing the mine for production. During 2020, 360000 tons were
removed and 270000 tons were sold. The total amount of depletion that Marigold should
record for 2020 is

[($8060000 + $920000 – $850000 + $2030000) ÷ 1500000] × 360000 = $2438400.

10. Sheridan Company acquires a coal mine at a cost of $1560000. Intangible development costs
total $367000. After extraction has occurred, Sheridan must restore the property (estimated
fair value of the obligation is $172000), after which it can be sold for
$510000. Sheridan estimates that 6000 tons of coal can be extracted. If 900 tons are
extracted the first year, which of the following would be included in the journal entry to record
depletion?
 ($1560000 + $367000 + $172000 – $510000) ÷ 6000 = $264.83;
900 × $264.83 = $238347 dr. to Inventory.

QUIZ 11

1. On July 1, 2020, Waterway Corporation purchased factory equipment for $291000. Salvage
value was estimated to be $8000. The equipment will be depreciated over five years using the
double-declining balance method. Counting the year of acquisition as one-half
year, Waterway should record depreciation expense for 2021 on this equipment of

$291000 – ($291000 × 0.2)] × 0.4 = $93120.

2. On January 1, 2014, Waterway Industries purchased equipment at a cost of $391000. The

equipment was estimated to have a salvage value of $13000 and it is being depreciated over
eight years under the sum-of-the-years'-digits method. What should be the charge for
depreciation of this equipment for the year ended December 31, 2021?

($391000 – $13000) × 1/36 = $10500.

3. Swifty Corporation, which has a calendar year accounting period, purchased a new machine
for $81900 on April 1, 2016. At that time Swifty expected to use the machine for nine years
and then sell it for $8190. The machine was sold for $46000 on Sept. 30, 2021. Assuming
straight-line depreciation, no depreciation in the year of acquisition, and a full year of
depreciation in the year of retirement, the gain to be recognized at the time of sale would be

$81900 – [($81900 – $8190) ÷ 9 × 5] = $40950 (BV)

$46000 – $40950 = $5050 (gain).

4. A schedule of machinery owned by Sheffield Corp. is presented below:

Estimated Estimated
Total Cost Salvage Value Life in Years
Machine X $600000 $40000 14
Machine Y 790000 62000 10
Machine Z 350000 104000 6

Sheffield computes depreciation by the composite method.

The composite life (in years) for these assets is

($560000 + $728000 + $246000) ÷ $153800 = 10.0.

5. Concord Corporation purchased a depreciable asset for $618000 on January 1, 2018. The
estimated salvage value is $60000, and the estimated useful life is 9 years. The straight-line
method is used for depreciation. In 2021, Concordchanged its estimates to a total useful life of
5 years with a salvage value of $97000. What is 2021 depreciation expense?

$618000 – [($618000 – $60000) × 3/9] = $432000

($432000 – $97000) ÷ (5 – 3) = $167500.

6. Sheridan Company owns the following assets:

Asset Cost Salvage Estimated Useful

Life
A $422000 $44000 10 years
B 229000 24000 5 years
C 494000 23000 12 years

What is the composite depreciation rate of Sheridan's assets?

[($422000 – $44000) ÷ 10] + [($229000 – $24000) ÷ 5] + [($494000 – $23000) ÷ 12] = $118050;
$118050 ÷ ($422000 + $229000 + $494000) = 10.3%.

7. Sheffield Corp. owns machinery with a book value of $758000. It is estimated that the
machinery will generate future cash flows of $709000. The machinery has a fair value of
$567000. Sheffield should recognize a loss on impairment of

$709000 < $758000; $567000 – $758000 = ($191000).

8. Marigold Corp. purchased a tooling machine on January 3, 2014 for $950000. The machine
was being depreciated on the straight-line method over an estimated useful life of 10 years,
with no salvage value. At the beginning of 2021, the company paid $203000 to overhaul the
machine. As a result of this improvement, the company estimated that the useful life of the
machine would be extended an additional 5 years (15 years total). What should be the
depreciation expense recorded for the machine in 2021?

[($950000 ÷ 10) × 7] – $203000 = $462000 new (AD)

$950000 – $462000 = $488000; $488000 ÷ 8 = $61000 per year.

9. In March, 2020, Bramble Corp. purchased a coal mine for $7980000. Removable coal is
estimated at 1500000 tons. Bramble is required to restore the land at an estimated cost of
$990000, and the land should have a value of $850000. The company incurred $2020000 of
development costs preparing the mine for production. During 2020, 360000 tons were
removed and 290000 tons were sold. The total amount of depletion that Bramble should
record for 2020 is

[($7980000 + $990000 – $850000 + $2020000) ÷ 1500000] × 360000 = $2433600.

10. Crane Company acquires a coal mine at a cost of $1530000. Intangible development costs
total $360000. After extraction has occurred, Crane must restore the property (estimated fair
value of the obligation is $180000), after which it can be sold for $508000. Crane estimates
 that 6000 tons of coal can be extracted. If 900 tons are extracted the first year, which of the
following would be included in the journal entry to record depletion? (Round intermediate
calculations to 2 decimal places, e.g. 20.25 and final answer to nearest dollar
amount, e.g. 102456.)

($1530000 + $360000 + $180000 – $508000) ÷ 6000 = $260.33;

900 × $260.33 = $234297 dr. to Inventory.

PRE QUIZ 12

1. Which of the following costs incurred internally to create an intangible asset is generally
expensed?
Research and development costs
2. Which intangible assets are amortized?

Limited life yes and indefinite life no

3. Goodwill may be recorded when

One company acquires another in a business combination

4. Which of the following is not reported as part of income from continuing operations?

Goodwill

5. Pharoah Corporation purchased a patent for $393000 on September 1, 2019. It had a useful
life of 10 years. On January 1, 2021, Pharoah spent $96600 to successfully defend the patent
in a lawsuit. Pharoah feels that as of that date, the remaining useful life is 5 years. What
amount should be reported for patent amortization expense for 2021?

$393000 – [($393000 ÷ 10) × 1 1/3] = $340600.

($340600 + $96600) ÷ 5 = $87440.

6. In January, 2016, Ivanhoe Corporation purchased a patent for a new consumer product for
$966000. At the time of purchase, the patent was valid for 15 years. Due to the competitive
 nature of the product, however, the patent was estimated to have a useful life of only 10
years. During 2021 the product was determined to be obsolete due to a competitors new
product. What amount should Ivanhoe charge to expense during 2021, assuming amortization
is recorded at the end of each year?

($966000 ÷ 10) × 5 = $483000.

7. On January 2, 2020, Crane Co. bought a trademark from Cullumber, Inc. for $1880000. An
independent research company estimated that the remaining useful life of the trademark was
10 years. Its unamortized cost on Cullumber’s books was $1380000. In Crane’s 2020 income
statement, what amount should be reported as amortization expense?

$1880000 ÷ 10 = $188000.

8. Crane Company’s 12/31/21 balance sheet reports assets of $12550000 and liabilities of
$5110000. All of Crane’s assets’ book values approximate their fair value, except for land,
which has a fair value that is $910000 greater than its book value. On 12/31/21, Egbert
Corporation paid $12713000 to acquire Crane. What amount of goodwill should Egbert record
as a result of this purchase?

($12550000 + $910000) – $5110000 = $8350000.

$12713000 – $8350000 = $4363000.

9. Blossom Company purchases Crane Company for $4100000 cash on January 1, 2021. The
book value of Crane Company's net assets reported on its December 31, 2020 financial
statement was $3500000. An analysis indicated that the fair value of Crane's tangible assets
exceeded the book value by $580000, and the fair value of identifiable intangible assets
exceeded book value by $310000. What amount of gain or goodwill is recognized by Blossom?

$3500000 + $580000 + $310000 = $4390000; $4390000 – $4100000 = $290000.gain

10. The following information is available for Crane Company’s patents:

Cost $3990000
Carrying amount 2470000
Expected future net cash flows 2139000
Fair value 1575000

Crane would record a loss on impairment of

$2470000 – $1575000 = $895000.

 QUIZ 12

1. Cullumber Corporation purchased a patent for $406500 on September 1, 2019. It had a useful
life of 10 years. On January 1, 2021, Cullumber spent $99300 to successfully defend the
patent in a lawsuit. Cullumber feels that as of that date, the remaining useful life is 5 years.
What amount should be reported for patent amortization expense for 2021?

$406500 – [($406500 ÷ 10) × 1 1/3] = $352300.

($352300 + $99300) ÷ 5 = $90320.

2. In January, 2016, Oriole Corporation purchased a patent for a new consumer product for
$969000. At the time of purchase, the patent was valid for 15 years. Due to the competitive
nature of the product, however, the patent was estimated to have a useful life of only 10
years. During 2021 the product was determined to be obsolete due to a competitors new
product. What amount should Oriole charge to expense during 2021, assuming amortization is
recorded at the end of each year?

($969000 ÷ 10) × 5 = $484500.

3. On January 2, 2020, Sheridan Co. bought a trademark from Sunland, Inc. for $1930000.
An independent research company estimated that the remaining useful life of the
trademark was 10 years. Its unamortized cost on Sunland’s books was $1430000. In
Sheridan’s 2020 income statement, what amount should be reported as amortization
expense?

$1930000 ÷ 10 = $193000.
 4. The following information is available for Ivanhoe Company’s patents:

Cost $3540000
Carrying amount 2020000
Expected future net cash flows 1698000
Fair value 1350000

Ivanhoe would record a loss on impairment of

$2020000 – $1350000 = $670000.

5. Which of the following intangible assets should not be amortized?

PERPETUAL FRANCHISES
6. Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have
been impaired and should be reduced or written off on its balance sheet. The impairment
test(s) to be used is (are):

RECOVERABILITY TEST NO AND FAIRVALUE TEST YES

7. The carrying amount of an intangible is

the asset's acquisition cost less the total related amortization recorded to date.

8. On May 5, 2021, Crane Corp. exchanged 2500 shares of its $25 par value treasury
common stock for a patent owned by Cullumber Co. The treasury shares were acquired in
2020 for $78000. At May 5, 2021, Crane's common stock was quoted at $38 per share,
and the patent had a carrying value of $103000 on Cullumber's books. Crane should
record the patent at

2500× $38 = $95000.