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Quiz 1 Part 3

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31.

Jeric Company purchased a machine on December 2, 2015 at an invoice price of 4,500,000 with
terms 2/10 n/30. On December 10, 2015, Jeric paid the required amount of the machine. On
December 2, 2015, Jeric paid 80,000 for delivery of the machine and on December 31, 2015, it
paid 310,000 installations and testing of the machine. The machine was ready for use on January
1, 2016. It was estimated that the machine would have a useful life of 5 years and a residual
value of 800,000. Engineering estimates indicated that the useful life in productive units was
200,000. Units actually produced during the first two years were 30,000 in 2016 and 48,000 in
2017. Jeric decided to use productive output method of depreciation. What is the depreciation
of the machine for 2017?
 1560000
 720000
 960000
 600000
Solution:
4500000 x 98% = 4410000 + 80000 + 310k – 800k = 4 million
4 million / 200k units = 20 x 48k = 960k
32. Hall Co. incurred research and development costs in 2017 as follows. Assume economic viability
has not been achieved. The amount of research and development costs charged to Hall’s 2017
income statement should be?
 Materials used in research and development projects 450000
 Equipment acquired that will have alternate future uses in future research and
development projects 3,000,000
 Depreciation of 2015 on above equipment 300,000
 Personnel costs of persons involved in research and development projects 750,000
 Consulting fees paid to outsiders for research and development projects 300,000
 Indirect costs reasonably allocable to research and development projects 225,000

 1500000
 1900000
 2025000
 4500000
Solution:
Add all cost and expenses except equipment = 2025000
33. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s 5 par
value ordinary shares and 75,000 cash. When the patent was initially issued to Maxi Co., Mini
Corp.’s shares were selling at 7.50 per share. When Mini Corp. acquired the patent, its shares
were selling for $9 a share. Mini Corp. should record the patent at what amount?
 87500
 93750
 97500
 75000
Solution: 75k + (2500 x 9) = 97500
34. Buck Enterprises acquired a patent from Wolly Research Corporation on 1/1/17 for 4 million.
The patent will be used for 5 years even though its legal life is 20 years. Bully Corporation as
made a commitment to purchase the patent from Buck for 200,000 at the end of five years.
Compute Buck’s patent amortization for 2017, straight line method:
 380000
 400000
 760000
 800000
Solution:
4 million – 200k = 3800000 / 5 years = 760k
35. During 2017, Vic Co had the following transactions. Vic has determined that it is appropriate to
amortize these intangibles on the straight-line basis over the maximum period permitted by
GAAP taking a full year’s amortization in the year of acquisition. Calculate the total expense to
be recognized in 2017 income statement resulting from the foregoing intangible assets:
 On Jan 2, Vic purchased the net assets of Amp Cp for 360000. The fair value of
Amp’s identifiable net assets was 172000. Vic believes that due to popularity of
Amp’s consumer products, the life is unlimited
 On Feb 1, Vic purchased a franchise to operate a ferry service from the state
government for 60000 and an annual fee of 1% of ferry revenues. The franchise
expires after 5 years. Vic received 20,000 of ferry revenue in 2017
 On April 5, Vic was granted a patent that had been applied for by Amp. During 2017,
Vic incurred legal costs of 51000 to register the patent and an additional 85000 to
successfully prosecute a patent infringement suit against competition. Patents life is
10 years
 102300
 111700
 25600
 35200
Solution:
60000 / 5 years = 12k
20000 x 1% = 200
51000/10 years = 5100
Expense 85000
= 102300
36. Judy incorporated embarked on a new venture in Northern Luzon in 2017. It expects to glean
2000000 ounces of a precious ore from its holdings there, over several years. Relevant data
follow:
Cost of Mineral rights 500000
Exploration cost (1/3 successful) 1,500,000
Extraction cost 2000000
Ore extracted 500000 oz
Ore sold 300000 oz
What is the depletion for 2017 using the successful efforts method of accounting for exploration
costs?

 350000
 300000
 250000
 150000
37. On May 31, 2017, the Portland Co. acquired the rights to a coal mine containing estimated
reserves of 1000000 tons of coal. The company estimated that 12,500 tons of coal would be
extracted and sold each month. Cost allocable to coal was 3500000. Also on May 31, the
company purchased an equipment to be used in the production costing 95000 which has an
estimated useful life of 10 years. The equipment was expected to become obsolete after all the
coal deposits had been extracted from the mine and only 5000 selling price of the equipment
could be expected. Production was in full blast since June 1, 2017. What would be the depletion
expense for the year ended December 31, 2017?
 525000
 262500
 153125
 306250
38. Dakong Company purchased a machine in Jan 2, 2014 for 500000. The machine has an
estimated useful life of 8 years and a salvage value of 50000. Depreciation was computed by the
200% declining balance method. During December 2017, Dakong determined that there had
been a significant decrease in market value of its machine. What is the impairment loss?
Expected undiscounted net future cash inflows.. 160000
Expected discounted.. 120000 (value in use)
FV less cost of disposal 130000
 80938
 38203
 28203
 Nil
39. On January 1, 2017, Minnesota Corp. Began construction of homes for those families that were
hit by the tsunami. The construction is expected to take 3.5 years. It is being financed by
issuance of bonds for 7 million at 12% per annum. The bonds were issued at the beginning of
the construction. The bonds carry a 1.5% issuance cost. The project is also financed by issuance
of 3 million share capital with a 14% cost of capital. The borrowing costs to be capitalized in
2017 is
 870000
 840000
 1290000
 1260000
40. 400000 (60-50)/10
41. 150000
42. A
43. 2200
44. B
45. A 696000

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