Ccomprehensiveexam c

8/18/2019 Ccomprehensiveexam c

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COMPREHENSIVE EXAMINATION C

PART 3

(Chapters 10–14)

Probe! C"I — Multiple Choice — Tangible and Intangible Assets.

Choose the best answer for each of the following questions and enter thedentifying letter in the space provided.

____ 1. hen the su!"of"the"years#"digits !ethod is used$ depreciation e%penfor a given asset willa. decline by a constant a!ount each year. b. be the sa!e each year.c. decrease rapidly and then slowly over the life of the asset.d. vary fro! year to year in relation to changes in output.

____ &. 'erry Corporation acquired land$ buildings$ and equip!ent fro! ban(rupt co!pany at a lu!p"su! price of )**+$+++. At the ti!e acquisition 'erry paid )*+$+++ to have the assets appraised. Tappraisal disclosed the following values,

-and )&+$+++/uildings &*0$+++quip!ent 02$+++

hat cost should be assigned to the land$ buildings$ and equip!erespectively3a. )2++$+++$ )&+$+++$ and )4+$+++. b. )&5*$+++$ )&&+$+++$ and )**$+++.

c. )++$+++$ )&2+$+++$ and )0+$+++.d. )&++$+++$ )&++$+++$ and )&++$+++.

____ . In accordance with 6AA'$ the !a%i!u! period over which a patent c be a!orti7ed isa. &+ years. b. &4 years.


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Comprehensive Exam C

c. 2+ years.d. *+ years.

____ 2. 'urchased goodwill representsa. e%cess of price paid over fair value of net assets obtained in

co!bination. b. e%cess of price paid over the boo( value of the net assets obtained

a co!bination.c. the difference in the aggregate a!ount of the !ar(et prices of t

stoc( of the co!bining co!panies.d. a tangible asset.

8se the following data to answer questions * through 9,

:avis Co!pany purchased a new piece of equip!ent on ;uly 1$ &+1& at a coof )1$+4+$+++. The equip!ent has an esti!ated useful life of * years and esti!ated salvage value of )9+$+++. The current year end is 1&


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c. )90$+++.d. )2&$+++.

____ 4. If :avis e%pensed the total cost of the equip!ent at 5a. )1+4$+++. b. )11*$*++.c. )1+$*++.d. )194$+++.

8se the following data for questions 1+ through 15. ach question ndependent of the other questions.

?awyer Corporation has a !achine =Machine A> that it acquired on 1


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@n 1&


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d. )&41$59.

_12.6iven the assu!ption in 1& above except that the fair values of Machinesand / are )*+2$+++ and )2*+$+++$ respectively$ at what a!ount will /row

record Machine A3a. )25$2++. b. )*+2$+++.c. )2*+$+++.d. )291$2++.

____1*. Beturn to the original proble!. Assu!e that ?awyer is a dealer selli

new !achines and that /rown is a !anufacturer. Assu!e that te%change has co!!ercial substance. or this transaction$ at wha!ount will ?awyer record the truc(3a. )0+$+++. b. )291$2++.c. )212$+++.d. )25$2++.

____10. 6iven the assu!ptions in 1* above$ at what a!ount will /rown recoMachine A3a. )0+$+++. b. )212$+++.c. )2+*$+++.d. )02$*++.

____15. 6iven the assu!ptions in 1* above except that the selling prices and f!ar(et values of A and / are )*+2$+++ and )2*+$+++$ respectively$what a!ount will /rown record Machine A3a. )25$2++. b. )2+*$+++.c. )*+2$+++.d. )2*+$+++.


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or the following two questions$ indicate the nature of the account or accouno be debited when recording each transaction.

____14. A replace!ent$ which e%tended the life but did not increase the qualof units produced by the asset$ cost )1*$+++.a. Asset=s> only. b. Accu!ulated a!orti7ation$ or depletion or depreciation only.c. %pense only.d. Asset=s> and e%pense.

____19. ;i! :olan and Matt ?tine$ !aintenance repair!en$ spent five days unloading and setting up a new )+$+++ precision !achine in the plaTheir wages earned in this five"day period totaled )4++.a. Asset=s> only. b. Accu!ulated a!orti7ation$ depletion$ or depreciation only.c. %pense only.d. Asset=s> and e%pense.

____&+. 'roperty$ plant$ and equip!ent are conventionally presented in t balance sheet ata. replace!ent cost less accu!ulated depreciation. b. historical cost less salvage value.c. original cost less accu!ulated depreciation.d. acquisition cost less net boo( value thereof.

____&1. As generally used in accounting$ what is depreciation3a. It is a process of asset valuation for balance sheet purposes. b. It applies only to long"lived intangible assets.c. It is used to indicate a decline in !ar(et value of a long"lived asset.d. It is an accounting process which allocates long"lived asset cost

accounting periods.

Probe! C"II — Assign!ent of Costs.

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Match the following cost ite!s with these appropriate accounts,

a. -and c. -and I!prove!ents b. /uildings d. @ther

____ 1. Interest cost incurred during building construction.

____ &. /ac( ta%es on purchased plot of land to be used for building site.

____ . Assess!ent by city for drainage syste!.

____ 2. /uilding per!its.

____ *. -andscaping shrubs planted after building has been constructed.

____ 0. :e!olition costs of building on land bought for plant site.

____ 5. Interest cost incurred after co!pletion of building construction.

____ 4. Becording fees for land.

____ 9. Architect#s fees.

____1+. 6rading and filling building site.

____11. 'ar(ing lots.

____1&. ences.

Probe! C"III — Besearch and :evelop!ent.

Identify =in accordance with FASB Statement No. 2> each of the followingactivities as,

a. Besearch and develop!ent b. Dot research and develop!ent

____ 1. Testing in search for$ or evaluation of$ product or process alternatives.

____ &. Cost of !ar(eting research to pro!ote new product.

____ . Adaptation of an e%isting capability to a particular require!ent or

custo!er#s need.


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____ 2. :esign$ construction$ and testing of pre"production prototypes and!odels.

____ *. Boutine$ on"going efforts to refine$ enrich$ or i!prove the qualities

an e%isting product.____ 0. ngineering activity required to advance the design of a product to t

!anufacturing stage.

____ 5. ?earching for applications of new research findings.

____ 4. -aboratory research ai!ed at discovery of new (nowledge.

____ 9. Conceptual for!ulation and design of possible product or process

alternatives.____1+. Trouble"shooting brea("downs during production.

____11. 'eriodic design changes to e%isting products.

____1&. Euality control during co!!ercial production including routineesting.

____1. Costs of testing prototype and design !odifications.

____12. ngineering follow"through in an early phase of production.

____1*. :esign$ construction$ and operation of a pilot plant not useful co!!ercial production.

Probe! C"IV — %change of Assets.

Assu!e that the following cases are independent and rely on the following

data. Ma(e entries on the boo(s of both co!panies.;ensen Co. Merton Co.

quip!ent =cost> )9++$+++ )1$0*+$+++Accu!ulated depreciation &9+$+++ 9++$+++air value of equip!ent 5++$+++ 5++$+++

1. ;ensen Co. and Merton Co. traded the above equip!ent. The e%change hco!!ercial substance.

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;ensen Co.#s /oo(s, Merton Co.#s /oo(s,

&. ;ensen Co. and Merton Co. traded the above equip!ent. The e%change lac

co!!ercial substance.


Assu!e that the following cases are independent and rely on the followidata. Ma(e entries on the boo(s of both co!panies.

;ensen Co. Merton Co.

quip!ent =cost> )9++$+++ )1$0*+$+++Accu!ulated depreciation &9+$+++ 1$+*+$+++air value of equip!ent *0+$+++ 5++$+++Cash received =paid> =12+$+++> 12+$+++

. ;ensen Co. and Merton Co. traded the above equip!ent. The e%change h

co!!ercial substance.;ensen Co.#s /oo(s, Merton Co.#s /oo(s,

2. ;ensen Co. and Merton Co. traded the above equip!ent. The e%change lacco!!ercial substance.


Probe! C"V — -ong"Ter! :ebt.

1. @n March 1$ &++9$ Fanson Corporation sold )5$+++$+++ of its 4G$ 1+"ye bonds for )0$5+$*++ including accrued interest. The bonds were dat;anuary 1$ &++9. Interest is paid se!iannually on ;anuary 1 and ;uly 1. @April 1$ &+1$ Fanson purchased 1


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plus accrued interest and canceled the!. Fanson uses the straight"li!ethod for a!orti7ation of bond pre!iu!s and discounts.

=a> hat was the a!ount of the gain or loss on retire!ent of the bonds

=b> 'repare the Hournal entry needed at April 1$ &+1 to record retire!eof the bonds. Assu!e that interest and pre!iu! or discount a!orti7atihave been recorded through ;anuary 1$ &+1. Becord interest aa!orti7ation on only the bonds retired.

=c> 'repare the Hournal entry needed at ;uly 1$ &+1 to record interest a

pre!iu! or discount a!orti7ation.

&. @n ;anuary 1 of the current year$ eller Corporation issued )$+++$+++ 1+G debenture bonds on a basis to yield 9G$ receiving )$12$*4+. Interis payable annually on :ece!ber 1 and the bonds !ature in 0 years. T

effective"interest !ethod is used.

=a> hat is the interest e%pense for the first year3

=b> hat is the interest e%pense for the second year3

. @n @ctober 1$ &+1&$ Doller Co!pany issued )2$+++$+++ par value$ 1+G$ 1year bonds dated ;uly 1$ &+1&$ with interest payable se!iannually on ;anua

1 and ;uly 1. The bonds are issued at )2$*2&$+++ =to yield 4G> plus accruinterest. The effective interest !ethod is used.

=a> 'repare the Hournal entry at the date the bonds are issued.

=b> 'repare the adHusting entry at :ece!ber 1$ &+1&$ the end of thefiscal year.

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=c> 'repare the entry for the interest pay!ent on ;anuary 1$ &+1.

Probe! C"VI — :epreciation Methods.

A high"speed !ultiple"bit drill press costing )5&+$+++ has an esti!ated salvagvalue of )0+$+++ and a life of ten years. hat is the annual depreciation foreach of the first two full years under the following depreciation !ethods3

1. :ouble"declining"balance !ethod,

a. ear one$ )______________.

b. ear two$ )______________.

&. 8nits of production =activity> !ethod =lifeti!e output is esti!ated at 11+$+unitsJ the press produced 1&$+++ units in year one and 14$+++ in year two>,

a. ear one$ )______________.

b. ear two$ )______________.

. ?u!"of"the"years#"digits !ethod,

a. ear one$ )______________.

b. ear two$ )______________.

2. ?traight"line depreciation !ethod,

a. ear one$ )______________.

b. ear two$ )______________.

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Probe! C"VII — Current -iabilities.Moon Co!pany includes 1 coupon in each bo% of soap powder that it pac(s$ coupons being redee!able for a pre!iu! consisting of a (itchen utensil. In&+1&$ Moon Co!pany purchased 14$+++ pre!iu!s at )1.++ each and sold

*2+$+++ bo%es of soap powder K )2.++ per bo%. /ased on past e%perience$ itesti!ated that 0+G of the coupons will be redee!ed. :uring &+1&$ 122$+++coupons were presented for rede!ption.

:uring &+1$ &9$+++ pre!iu!s were purchased at )1.1+. The co!pany so1$&++$+++ bo%es of soap at )2.++ and 29*$+++ coupons were presented frede!ption.

I#str$%t&o#s

'repare all the entries that would be !ade relative to sales of soap powder ao the pre!iu! plan in both &+1& and &+1. Assu!e a I@ inventory flow.

'Probe! C"VIII — Accounting for Troubled :ebt Bestructurings.@n :ece!ber 1$ &+1&$ ederal /an( enters into a debt restructuring

agree!ent with Carson Co!pany which is e%periencing financial difficulties.The ban( restructures a )$+++$+++ note receivable by,

1. Beducing the principal obligation fro! )2$+++$+++ to )$&++$+++.&. %tending the !aturity date fro! 1&


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So$t&o#s Co!prehe#s&e E*a!at&o# C

Probe! C"I — ?olution.

1. a 5. b 1. d 19. a&. c 4. c 12. d &+. c. a 9. b 1* a &1. d2. a 1+. b 10. b

*. c 11. a 15. c0. b 1&. b 14. b

?olutions to selected co!putational Multiple Choice questions.

0. =)99+$+++ L *


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Probe! C"III — ?olution.

1. a 0. a 11. b&. b 5. a 1&. b. b 4. a 1. a2. a 9. a 12. b*. b 1+. b 1*. a

Probe! C"IV — ?olution.

1. ;ensen Co.#s /oo(s Merton Co.#s /oo(s

quip!ent 5++$+++ quip!ent 5++$+++Accu!. :epreciation&9+$+++ Accu!. :epreciation9++$+++6ain on :isposal 9+$+++ -oss on :isposal*+$+++quip!ent 9++$+++ quip!ent 1$0*+$+++

&. quip!ent 01+$+++ ?a!e as 1.Accu!. :epreciation&9+$+++

quip!ent 9++$+++

. quip!ent 5++$+++ quip!ent *0+$+++Accu!. :epreciation&9+$+++ Accu!. :epreciation1$+*+$+++-oss on :isposal*+$+++ Cash 12+$+++

quip!ent 9++$+++ 6ain on :isposal 1++$+++Cash 12+$+++ quip!ent 1$0*+$+++

2. ?a!e as . quip!ent 24+$+++Accu!. :epreciation1$+*+$+++Cash 12+$+++

6ain on :isposal &+$+++quip!ent 1$0*+$+++

P)12+$+++ Q =)12+$+++ )*0+$+++> L)1++$+++ N )&+$+++ gainR

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Probe! C"V — ?olution.

1. =a> ace a!ount of bonds )5$+++$+++Total selling price )0$5+$*++-ess accrued interest =)5$+++$+++ L .+4 L 2++$+++Carrying value at


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&. =a> irst year interest e%pense,

)$12$*4+ L .+9 N )&4&$11&

=b> ?econd year interest e%pense,

)++$+++ O )&4&$11& N )15$444 're!iu! a!orti7ation =irst year>.

)$12$*4+ O )15$444 N )$110$09& /oo( value of bonds at the beginning of the second year.

)$110$09& L .+9 N )&4+$*+& Interest e%pense.

. =a> Cash .....................................................2$02&$+++/onds 'ayable ................................... 2$+++$+++'re!iu! on /onds 'ayable .............. *2&$+++Interest 'ayable ................................. 1++$+++

=b> Interest %pense ................................ 9+$42+'re!iu! on /onds 'ayable ...................... 9$10+

Interest 'ayable ................................. 1++$+++

=Interest e%pense, )2$*2&$+++ L .+4 L

=c> Interest 'ayable .................................&++$+++Cash ................................................... &++$+++

Probe! C"VI "— ?olution.

1. a. )122$+++ b. )11*$&++

&. a. )5&$+++ b. )1+4$+++

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. a. )1&+$+++ b. )1+4$+++

2. a. )00$+++ b. )00$+++

Probe! C"VII — ?olution.&+1&

're!iu! Inventory =&+1&> ................................ 14$+++Cash =or Accounts 'ayable> ...................... 14$+++

=14$+++ L )1.++>

Cash =or Accounts Beceivable> .........................&$10+$+++?ales Bevenve............................................ &$10+$+++

=*2+$+++ L )2.++>

're!iu! %pense ............................................. 5$&++'re!iu! Inventory =&+1&> ........................ 5$&++

=122$+++ Q &+ N 5$&++L )1.++ N )5$&++>

're!iu! %pense ............................................. 9$+++'re!iu! -iability ..................................... 9$+++

*2+$+++ L .0+ N &2$+++ coupons&2$+++ O 122$+++ N 14+$+++ Q &+ N 9$+++ pre!iu!s9$+++ L )1.++ N )9$+++>

&+1're!iu! Inventory =&+1> ................................ 1$9++

Cash =or Accounts 'ayable> ...................... 1$9++=&9$+++ L )1.1+>

Cash =or Accounts Beceivable> .........................2$4++$+++?ales Bevenve............................................ 2$4++$+++

=1$&++$+++ L )2.++>

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're!iu! -iability ............................................... 9$+++'re!iu! Inventory =&+1&> .......................... 9$+++

=9$+++ L )1.++ N )9$+++J balance of &+1& coupons redee!ed>

're!iu! %pense ...............................................15$12*'re!iu! Inventory =&+1&> .......................... 1$4++

14$+++ O 5$&++ O 9$+++ N 1$4++ L )1.++ N )1$4++R're!iu! Inventory =&+1> .......................... 1*$2*

P29*$+++ Q &+ N &2$5*+ O =1$4++ 9$+++> N 1$9*+ L )1.1+N )1*$2*R

're!iu! %pense ...............................................&&$&5*'re!iu! -iability ....................................... &&$&5*

PTotal &+1 coupons esti!ated to be redee!ed, 1$&++$+++ L.0+ N 5&+$++

Coupons redee!ed in &+1 29*$+++Coupons redee!ed in &+1 attributable to &+1& =14+$+++> 1*$+++Coupons esti!ated to be redee!ed subsequent

to &+1 2+*$+++

sti!ated liability 2+*$+++ Q &+ N &+$&*+ L )1.1+> )&&$&5*R

Probe! C"VII — ?olution.The transaction between Carson Co!pany and ederal /an( represents a

Stroubled debt restructuring$S wherein there is a continuation of the debt with!odification of ter!s. /ecause the total future cash flows after restructuring o)$550$+++ are less than the total prerestructure carrying a!ount of )2$+++$++he debtor !ust record a gain and the creditor !ust record a loss due to the

restructuring of the debt.

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Carson Co!pany would record the debt restructure as follows on :ece!ber &+1&,

Dote 'ayable......................................................&&2$+++

6ain on Bestructured :ebt......................... &&2$+++

P)2$+++$+++ O =)$&++$+++ )19&$+++ )19&$+++ )19&$+++>R

/ecause the new effective interest rate is +G$ all of the future cash flows reduhe principal balance$ and no interest e%pense would be recogni7ed by t

debtor throughout the re!ainder of the note.

ederal /an( would calculate its loss based upon the e%pected future caflows discounted at the historical effective rate of the loan. The loss restructuring is written off against the allowance account and the noreceivable is reduced.

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