Exam 1 Multiple Choice Flashcards
Allen Company acquired a patent on March 2, 2026, paying $75,000 in cash. Legal fees of $2,000 were also paid related to the acquisition. At what amount should the Patent be recorded?
75,000 + 2,000 = 77,000
$77,000
Ambriz Company purchased a trademark from Diaz, Inc. for $500,000 on January 3, 2026. The remaining legal life of the trademark is 8 years. Craig Consulting LLC, an independent research company, estimated that the remaining useful life of the trademark was 5 years. At the time of sale, the trademark’s unamortized cost on Diaz’s books was $400,000. What amount should be reported as amortization expense for the trademark in Ambriz’s 2026 income statement?
500,000 / 5 = 100,000
$100,000
Amrhein Company 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 remaining useful life of the patent.
On January 1, 2026, Ballard Company purchased a copyright for $2,500,000, having an estimated useful life of 16 years. In January 2030, Ballard paid $375,000 for legal fees in a successful defense of the copyright. If the straight-line method is used, copyright amortization expense for the year ended December 31, 2030, should be…?
2,500,000 / 16 = 156,250
375,000 / 12 = 31,250
156,250 + 31,250 = 187,500
$187,500
Belvin Company acquired a patent on an oil extraction technique on January 1, 2025 for $4,200,000. It was expected to have a 10-year life and no residual value. Belvin uses straight-line amortization for patents. On December 31, 2026, the future cash flows expected from the patent were $600,000 per year for the next eight years. The fair value of the patent is $2,200,000. At what amount should the patent be carried on the December 31, 2026 balance sheet?
4,200,000 / 10 = 420,000
600,000 x 8 = 4,800,000
CV = 4,200,000 - (420,000 x 2) = 3,360,000
4,800,000 (cash flows) > 3,360,000 (CV)
No impairment
$3,360,000
What is the difference between the fair value of the net assets and the purchase price of the acquired business?
Goodwill.
Casper Corporation acquired Ghost Products on January 1, 2025 for $8,000,000 and recorded goodwill of $3,700,000 as a result of that purchase. At December 31, 2026, Ghost Products had a fair value of $6,800,000. The identifiable net assets of the Ghost (including goodwill) had a carrying value of $7,300,000 at that time. Casper’s 2026 income statement will report an impairment loss on goodwill of…?
6,800,000 (FV) < 7,300,000 (CV)
Impaired
7,300,000 - 6,800,000 = 500,000
$500,000
Which of the following transactions does not give rise to unearned revenue?
- The selling of train tickets for use in the next month.
- The collecting of security deposits from the students to whom it rents.
- The selling of gift cards for services.
- The selling of season basketball tickets to alumni.
The collecting of security deposits from the students to whom it rents.
Dulaney Boutique made cash sales during January of $150,000, which includes the 6% sales tax levied by the state and city. What amount would be recorded as a revenue?
150,000 / 1.06 = 141,509
$141,509
People magazine sold 5,000 annual subscriptions at $100 each on June 1. How much unearned revenue will be reported on the December 31 Balance Sheet?
1/1 to 6/1 - 5 months (earned)
6/1 - 12/31 - 7 months (unearned)
5,000 x 100 = 500,000
(500,000 / 12) x 5 = 208,333
$208,333
Emerson Company signed a one-year, 12% note for $400,000 on April 1, 2025. How much interest is accrued for the adjusting entry on December 31, 2025?
400,000 x 12% x (9 / 12) = 36,000
$36,000
Fairfield Company has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be…?
The minimum of the range.
Escue Tire Company 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 reasonably possible that they may lose the case. The attorneys estimated that the amount of any payment would be $800,000. What is the required amount of Loss on Lawsuit to be recorded?
$0 (only record loss if profitable)
Which of the following is the only proper way to report some gain contingencies?
- As an accrued amount
- As deferred revenue
- As an account receivable with additional disclosure explaining the nature of the contingency
- As a disclosure only
As a disclosure only.
In January 1, 2025, Freeman Company sold 8% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,428 to yield 6%. The effective-interest method is used for this problem.
Find the interest expense reported for 2025 as well as the carrying value of the bonds for 12/31/25.
8% / 2 = 4%
6% / 2 = 3%
6/30:
2,000,000 x 4% = 80,000
2,154,428 x 3% = 64,633
80,000 - 64,633 = 15,367
2,154,428 - 15,367 = 2,139,061
12/31:
2,000,000 x 4% = 80,000
2,154,428 x x 3% = 64,172
80,000 - 64,172 = 15,828
2,154,428 - 15,828 = 2,123,233
Carrying value: $2,123,233
Interest expense: 64,633 + 64,172 = $128,805
On January 1, Garcia Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Garcia uses the effective-interest method of amortizing bond discount. At the end of the first year, Garcia should report unamortized bond discount of…?
5,000,000 - 4,695,000 = 305,000
5,000,000 x 9% = 450,000
4,695,000 x 10% = 469,500
305,000 - (469,500 - 450,000) = 305,000
305,000 - 19,500 = 285,500
$285,500
Bond interest paid is equal to the…?
Face amount of the bonds multiplied by the stated interest rate.
If bonds are sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will…?
Exceed what it would have been had the effective-interest method of amortization been used.
Hinton, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from the date of issue. If the bonds were issued at a premium, this indicates that…?
The nominal rate of interest exceeded the market rate.
