ACC 385 – Intermediate Accounting I Homework 4Chapter 10, 11, 12
1. Explain the difference between tangible and intangible long-lived, revenueproducing assets.
2. Beaverton Lumber purchased milling equipment for $35,000. In addition to
the purchase price, Beaverton made the following expenditures: freight,
$1,500; installation, $3,000; testing, $2,000; personal property tax on the
equipment for the first year, $500. What is the initial cost of the equipment?
3. On March 17, Advanced Technologies purchased a patent related to laser
surgery techniques. The purchase price of the patent is $1,200,000. The patent
is expected to benefit the company for the next five years. The company had
the following additional costs: $20,000 in legal fees associated with the
purchase and filing of the patent, $35,000 to advertise its new laser surgery
techniques, and $45,000 to train employees. None of these additional costs
were included in the purchase price or paid to the seller. What is the recorded
cost of the patent?
4. Pro-tech Software acquired all of the outstanding stock of Reliable Software
for $14 million. The book value of Reliable’s net assets (assets minus
liabilities) was $8.3 million. The fair values of Reliable’s assets and liabilities
equaled their book values with the exception of certain intangible assets
whose fair values exceeded book values by $2.5 million. Calculate the amount
paid for goodwill.
5. Calaveras Tire exchanged equipment for two pickup trucks. The book value
and fair value of the equipment given up were $20,000 (original cost of
$65,000 less accumulated depreciation of $45,000) and $17,000, respectively.
Assume Calaveras paid $8,000 in cash and the exchange has commercial
substance. (1) At what amount will Calaveras value the pickup trucks? (2)
How much gain or loss will the company recognize on the exchange?
6. In February 2024, Culverson Company began developing a new software
package to be sold to customers. The software allows people to enter health
information and daily eating and exercise habits to track their health status.
The project was completed in November 2024 at a cost of $800,000. Of this
amount, $300,000 was spent before technological feasibility was established.
Culverson expects a useful life of two years for the new product and total
revenues of $1,500,000. Determine the amount that Culverson should
capitalize as software development costs in 2024.
7. On January 1, 2024, Canseco Plumbing Fixtures purchased equipment for
$30,000. Residual value at the end of an estimated four-year service life is
expected to be $2,000. The company expects the equipment to operate for
10,000 hours. Calculate depreciation expense for 2024 and 2025 using each
of the following depreciation methods: (1) straight line, (2) double-declining
balance, and (3) units-of-production using hours operated. The equipment
operated for 2,200 and 3,000 hours in 2024 and 2025, respectively.
8. Lawler Clothing sold manufacturing equipment for $16,000. Lawler
originally purchased the equipment for $80,000, and depreciation through the
date of sale totaled $71,000. What was the gain or loss on the sale of the
equipment reported in the income statement?
9. Funseth Farms Inc. purchased a tractor in 2021 at a cost of $30,000. The
tractor was sold for $3,000 in 2024. Depreciation recorded through the
disposal date totaled $26,000. (1) Prepare the journal entry to record the sale.
(2) Now assume the tractor was sold for $10,000; prepare the journal entry to
record the sale.
10.Fitzgerald Oil and Gas incurred costs of $8.25 million for the acquisition and
development of a natural gas deposit. The company expects to extract 3
million cubic feet of natural gas during a four-year period. Natural gas
extracted during years 1 and 2 were 700,000 and 800,000 cubic feet,
respectively. What was the depletion for year 1 and for year 2?
11.On June 28, Lexicon Corporation acquired 100% of the common stock of Gulf
& Eastern. The purchase price allocation included the following items: $4
million, patent; $3 million, developed technology; $2 million, indefinite-life
trademark; $5 million, goodwill. Lexicon’s policy is to amortize intangible
assets using the straight-line method, no residual value, and a five-year useful
life. What is the total amount of expenses (ignoring taxes) that would appear
in Lexicon’s income statement for the year ended December 31 related to
these items?
12.Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on
July 1, 2024, as a long-term investment. Management has the positive intent
and ability to hold the bonds until maturity. The market interest rate (yield)
was 4% for bonds of similar risk and maturity. Lance Brothers paid $600,000
for the investment in bonds and will receive interest semiannually on June 30
and December 31. Prepare the journal entries (a) to record Lance Brothers’
investment in the bonds on July 1, 2024 and (b) to record interest on December
31, 2024, at the effective (market) rate.
13.S&L Financial buys and sells securities expecting to earn profits on short-term
differences in price. Assume that on December 27, 2024, S&L purchased
Coca-Cola bonds at par for $875,000 and sold the bonds on January 3, 2025,
for $880,000. At December 31, the bonds had a fair value of $873,000. What
pretax amounts did S&L include in its 2024 and 2025 net income as a result
of this investment (ignoring interest)?
14.S&L Financial buys and sells securities which it classifies as available-forsale. Assume that on December 27, 2024, S&L purchased Coca-Cola bonds at
par for $875,000 and sold the bonds on January 3, 2025, for $880,000. At
December 31, the bonds had a fair value of $873,000, and S&L has the intent
and ability to hold the investment until fair value recovers. What pretax
amounts did S&L include in its 2024 and 2025 net income as a result of this
investment?
15.For the Coca-Cola bonds described in question 14, prepare journal entries to
record (a) any unrealized gains or losses occurring in 2024 and (b) the sale of
the bonds in 2025, including recognition of any unrealized gains in 2025 prior
to sale and reclassification of amounts out of OCI.
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