Deck 10: Investments in Noncurrent Operating Assets-Acquisition

Question 1

On-Call Service Corporation bought a building lot to construct a new corporate office building.An older home on the building lot was razed immediately so that the office building could be constructed.The cost of purchasing the older home should be

A)recorded as part of the cost of the land.
B)written off as a loss in the year of purchase.
C)written off as an extraordinary item in the year of purchase.
D)recorded as part of the cost of the new building.

Answer 1

A

Question 2

A donated plant asset for which the fair value has been determined,and for which incidental costs were incurred in acceptance of the asset,should be recorded at an amount equal to its

A)incidental costs incurred.
B)fair value and incidental costs incurred.
C)book value on books of donor and incidental costs incurred.
D)book value on books of donor.

Answer 2

B

Question 3

Which of the following principles best describes the current method of accounting for research and development costs?

A)Immediate recognition as an expense
B)Systematic and rational allocation
C)Income tax minimization
D)Associating cause and effect

Answer 3

A

Question 4

If the cost of ordinary repairs is capitalized as an addition to the building account during the current year,

A)net income for the current year will be understated.
B)stockholders' equity at the end of the current year will be understated.
C)total assets at the end of the current year will not be affected.
D)total liabilities at the end of the current year will not be affected.

Question 5

Shorecrest Company recently accepted a donation of land with a fair value of $250,000 from the city of Sutton in return for a promise to build a plant in Sutton.
The entry that Shorecrest should use to record this land is:

Question 6

If a company constructs a laboratory building to be used as a research and development facility,the cost of the laboratory building is matched against earnings as

A)research and development expense in the period(s) of construction.
B)depreciation deducted as part of research and development costs.
C)depreciation or immediate write-off depending on company policy.
D)an expense at such time as productive research and development has been obtained from the facility.

Question 7

An improvement made to a machine increased its fair market value and its production capacity by 25 percent without extending the machine's useful life.The cost of the improvement should be

A)expensed.
B)debited to Accumulated Depreciation.
C)capitalized in the machine account.
D)allocated between Accumulated Depreciation and the machine account.

Question 8

A company purchased land to be used as the site for the construction of a plant.Timber was cut from the building site so that construction of the plant could begin.The proceeds from the sale of the timber should be

A)classified as other income.
B)deducted from the cost of the land.
C)deducted from the cost of the plant.
D)netted against the costs to clear the land and expensed as incurred.

Question 9

Cirrus Inc.purchased certain plant assets under a deferred payment contract.The agreement was to pay $40,000 per year for ten years.The plant assets should be valued at

A)$400,000.
B)$400,000 plus imputed interest.
C)present value of $40,000 annuity for ten years at an imputed interest rate.
D)future value of $40,000 annuity for ten years at an imputed interest rate.

Question 10

Goodwill should be recorded in the accounting records only when

A)it is purchased from another company.
B)it can be established that a definite benefit or advantage has resulted to a firm from some item such as a good name, capable staff, or reputation.
C)it is acquired through the purchase of another business entity.
D)a firm reports above normal earnings for five or more consecutive years.

Question 11

Donated equipment for which the fair value has been determined should be recorded as a debit to the appropriate equipment account and a credit to

A)Other Income.
B)Retained Earnings.
C)Capital Stock.
D)Revenue or Gain.

Question 12

When a company replaces an old asphalt roof on its plant with a new fiberglass insulated roof,which of the following types of expenditure has occurred?

A)Ordinary repairs and maintenance
B)Addition
C)Rearrangement
D)Betterment

Question 13

Which of the following research and development related costs should be capitalized and amortized over current and future periods?

A)Labor and material costs incurred in building a prototype model.
B)Cost of testing equipment that will also be used in another separate research and development project scheduled to begin next year.
C)Administrative salaries allocated to research and development.
D)Research findings purchased from another company to aid a particular research project currently in process.

Question 14

The term "intangible assets" is used in accounting to denote

A)current or noncurrent property items without physical characteristics.
B)assets with lesser economic significance because of the nature of such assets.
C)such items as patents, copyrights, and claims against customers which can be valued on a monetary basis.
D)properties without physical characteristics that have long-term effects on a business enterprise.

Question 15

According to SFAS No.34,"Capitalization of Interest Cost," interest should be capitalized for assets that are

A)in use or ready for their intended use in the earnings activities of the enterprise.
B)being constructed or otherwise being produced as discrete projects for an enterprise's own use.
C)not being used in the earnings activities of the enterprise and that are not undergoing the activities necessary to get them ready for use.
D)routinely produced on a repetitive basis for inventory but require an extended period of time for completion.

Question 16

When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant,the costs incurred to tear down the building should be

A)amortized over the estimated time period between the tearing down of the building and the completion of the plant.
B)expensed as incurred.
C)added to the cost of the plant.
D)added to the cost of the land.

Question 17

A company is constructing an asset for its own use.Construction began in 2013.The asset is being financed entirely with a specific new borrowing.Construction expenditures were made in 2013 and 2014 at the end of each quarter.The total amount of interest cost capitalized in 2014 should be determined by applying the interest rate on the specific new borrowing to the

A)total accumulated expenditures for the asset in 2014.
B)average accumulated expenditures for the asset in 2014.
C)average expenditures for the asset in 2014.
D)total expenditures for the asset in 2014.

Question 18

In a business combination,goodwill is defined as the excess of cost over the

A)net book value of assets acquired.
B)fair value of assets acquired.
C)book value of assets acquired less the liabilities assumed.
D)fair value of assets acquired less the liabilities assumed.

Question 19

An asset is being constructed for an enterprise's own use.The asset has been financed with a specific new borrowing.The interest cost incurred during the construction period as a result of expenditures for the asset is

A)a part of the historical cost of acquiring the asset to be written off over the estimated useful life of the asset.
B)interest expense in the construction period.
C)recorded as a deferred charge and amortized over the term of the borrowing.
D)a part of the historical cost of acquiring the asset to be written off over the term of the borrowing used to finance the construction of the asset.

Question 20

Which of the following intangible assets does NOT have the characteristic of exchangeability?

A)Patent
B)Copyright
C)Goodwill
D)Franchise

Question 21

A company made the following cash expenditures on a self-constructed building begun January 1 of the current year:

The building is still under construction at year-end.What is the amount of the average accumulated expenditures for the purpose of capitalizing interest?

A)$87,500
B)$92,500
C)$100,000
D)$200,000

Question 22

A machine with an original estimated useful life of ten years is moved to another location in the factory after it had been in service for three years.The efficiency of the machine is increased for its remaining useful life.The reinstallation costs should be capitalized if the remaining useful life of the machine is

Question 23

Place Company started construction of a new office building on January 1,2014,and moved into the finished building on July 1,2015.Of the building's $5,000,000 total cost,$4,000,000 was incurred in 2014 evenly throughout the year.Place's incremental borrowing rate was 12 percent throughout 2014,and the total amount of interest incurred by Place during 2014 was $204,000.What amount should Place report as capitalized interest at December 31,2014?

A)$480,000
B)$300,000
C)$240,000
D)$204,000

Question 24

Sonora Company borrowed $400,000 on a 10 percent note payable to finance a new warehouse Sonora is constructing for its own use.The only other debt on Sonora's books is a $600,000,12 percent mortgage payable on an office building.At the end of the current year,average accumulated expenditures on the new warehouse totaled $475,000.Sonora should capitalize interest for the current year in the amount of

A)$40,000.
B)$47,500.
C)$49,000.
D)$52,250.

Question 25

An expenditure subsequent to acquisition of assembly-line manufacturing equipment benefits future periods.The expenditure should be capitalized if it is a

Question 26

On June 30,2014,Diode Inc.purchased for cash at $50 per share all 150,000 shares of outstanding common stock of Moore Company.Moore's balance sheet at June 30,2014,showed net assets with a book value of $6,000,000.The fair value of Moore's property,plant,and equipment on June 30,2014,was $800,000 in excess of its book value.What amount,if any,will be recorded by Diode as goodwill on the date of purchase?

A)$0
B)$700,000
C)$800,000
D)$1,500,000

Question 27

Osborne Company acquired three machines for $200,000 in a package deal.The three assets together had a book value of $160,000 on the seller's books.An appraisal costing the purchaser $2,000 indicated that the three machines had the following market values (book values are given in parentheses):
Machine 1: $60,000 ($40,000)Machine 2: $80,000 ($50,000)Machine 3: $100,000 ($70,000)The three assets should be individually recorded at a cost of (rounded to the nearest dollar)

Question 28

On February 12,Oceans Company purchased a tract of land as a factory site for $190,000.An existing building on the property was razed and construction was begun on a new factory building in March of the same year.Additional data are available as follows:

The recorded cost of the completed factory building should be

A)$1,165,000
B)$1,220,000
C)$1,027,500
D)$1,082,500

Question 29

Bluesy Company acquired land and paid for it in full by issuing $700,000 of its 10 percent bonds payable and 40,000 shares of its common stock,par $10.The stock was selling at $21 per share and the bonds were trading at 102.What amount should Bluesy record as the cost of the land?

A)$1,100,000
B)$1,540,000
C)$1,554,000
D)$1,604,000

Question 30

Diamond,Inc.purchased a machine under a deferred payment contract on December 31,2013.Under the terms of the contract,Diamond is required to make eight annual payments of $140,000 each beginning December 31,2014.The appropriate interest rate is 8 percent.The purchase price of the machine is

A)$1,389,190.
B)$1,120,000.
C)$868,900.
D)$804,530.

Question 31

Broham Manufacturing Company purchased a machine on January 2,2014.The invoice price of the machine was $40,000,and the vendor offered a 2 percent discount for payment within ten days.The following additional costs were incurred in connection with the machine:

If the invoice is paid within the discount period,Broham should record the acquisition cost of the machine at

A)$41,650.
B)$41,100.
C)$40,400.
D)$39,200.

Question 32

On October 1,Azuma,Inc.exchanged 8,000 shares of its $25 par value common stock for a parcel of land to be held for a future plant site.Azuma's common stock had a fair market value of $80 per share on the exchange date.Azuma received $36,000 from the sale of scrap when an existing building on the site was razed.The land should be carried at

A)$200,000.
B)$236,000.
C)$604,000.
D)$640,000.

Question 33

On July 31,2014,Mason Company purchased for $4,000,000 cash all of the outstanding common stock of Turquoise Company when Turquoise's balance sheet showed net assets of $3,200,000.Turquoise's assets and liabilities had fair values different from the book values as follows:

As a result of the transaction,what amount will be shown as goodwill in the July 31,2014,consolidated balance sheet of Mason Company and its wholly owned subsidiary,Turquoise Company?

A)$350,000
B)$250,000
C)$750,000
D)$800,000

Question 34

Song Company started construction on a building on January 1 of this year and completed construction on December 31 of the same year.Song had only two interest notes outstanding during the year,and both of these notes were outstanding for all 12 months of the year.The following information is available:

What amount of interest should Song capitalize for the current year?

A)$15,000
B)$18,000
C)$22,500
D)$27,900

Question 35

The third year of a construction project began with a $30,000 balance in Construction in Progress.Included in that figure is $6,000 of interest capitalized in the first two years.Construction expenditures during the third year were $80,000 which were incurred evenly throughout the entire year.The company has had over $300,000 in interest-bearing debt outstanding the third year,at a weighted average rate of 9 percent.How much interest for the third year is capitalized?

A)$3,600
B)$6,300
C)$9,360
D)$9,900

Question 36

Which of the following is true?

A)The Financial Accounting Standards Board has never permitted the disclosure of the fair values of noncurrent operating assets in the notes to financial statements.
B)The SEC currently requires the disclosure of the fair values of noncurrent operating assets in the notes to financial statements of companies that are registered with the SEC.
C)The Financial Accounting Standards Board currently requires the disclosure of the fair values of noncurrent operating assets in the notes to the financial statements.
D)Disclosure of the fair values of noncurrent operating assets in the notes to the financial statements is currently encouraged but not required by the Financial Accounting Standards Board.

Question 37

Which of the following concepts is often given as justification not to value noncurrent operating assets at their current values?

A)The revenue principle
B)Verifiability
C)Relevance
D)Predictive value

Question 38

The general ledger of the Flybird Corporation as of December 31 includes the following accounts:

In the preparation of Flybird's balance sheet as of December 31,what should be reported as total intangible assets?

A)$68,000
B)$328,000
C)$368,000
D)$380,000

Question 39

The Morris Corporation acquired land,buildings,and equipment from a bankrupt company at a lump-sum price of $180,000.At the time of acquisition,Morris paid $12,000 to have the assets appraised.The appraisal disclosed the following values:

What cost should be assigned to the land,buildings,and equipment,respectively?

A)$64,000, $64,000, and $64,000
B)$90,000, $60,000, and $30,000
C)$96,000, $64,000, and $32,000
D)$120,000, $80,000, and $40,000

Question 40

Bluesy Company purchased land with a current market value of $240,000.Its book value in the accounts of the seller was $130,500.In exchange for the land,Bluesy issued 20,000 shares of its common stock,par $10,with an estimated market value of $14 per share.Bluesy stock is not traded on an established stock exchange.What amount should Bluesy record as the cost of the land?

A)$130,500
B)$200,000
C)$240,000
D)$280,000

Question 41

Which of the following most accurately describes the position taken by current generally accepted accounting principles?

A)Both pooling of interests and the purchase method are still permitted under certain circumstances.
B)The valuation basis to be applied is the acquisition method under which the fair value of consideration transferred includes any contingent consideration, but excludes direct combination costs..
C)The valuation basis to be applied is the cost method under which the valuation basis is the fair value of the assets and liabilities acquired including direct combination costs, but excluding contingent consideration.
D)The purchase method requires a business acquisition transaction to be structured to meet twelve very specific criteria required by generally accepted accounting principles.

Question 42

A copyright is an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

A)Marketing-related
B)Customer-related
C)Artistic-related
D)Contract-based

Question 43

Acquired in-process research and development should be

A)capitalized when acquired but not amortized.
B)capitalized when acquired and amortized over a period not to exceed 40 years.
C)capitalized when acquired and amortized based on the number of units of product or services sold each period.
D)expensed when acquired.

Question 44

A trademark is an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

A)Marketing-related
B)Customer-related
C)Artistic-related
D)Contract-based

Question 45

According to the most current FASB standards,intangible assets acquired in a basket purchase which represents the acquisition of an entire business should be

A)valued by recording separately traded and contract based intangible assets at their individual fair values with any unallocated purchase price being recognized as goodwill.
B)valued by allocating the total purchase price according to the relative fair values only of intangible assets that are separately tradable or contract based.
C)valued by allocating the total purchase price according to the relative fair values of all assets acquired, regardless of whether the assets are separately tradable or contract based.
D)valued by recording separately traded and contract based intangible assets at their individual fair values with any unallocated purchase price being expensed in the year of acquisition.

Question 46

Which of the following ordinarily would be treated as a revenue expenditure rather than a capital expenditure?

A)Repair and maintenance on buildings
B)The replacement of a major component of a building
C)An addition to an existing building
D)Rearrangement costs that are identifiable, material, and are expected to provide discernable future benefits

Question 47

On September 10,Gravelly Company incurred the following costs for one of its printing presses:

Neither the attachment nor the renovation increased the estimated useful life of the press.However,the renovation resulted in significantly increased productivity.What amount of the costs should be capitalized?

A)$198,000
B)$110,000
C)$90,000
D)$88,000

Question 48

Tundra Co.incurred research and development costs in 2014 as follows:

The total research and development costs charged in Tundra's 2014 income statement should be

A)$425,000.
B)$542,500.
C)$617,500.
D)$925,000.

Question 49

On April 30,2014,Brother,Inc.purchased for $30 per share all 200,000 of Cousin Corp.'s outstanding common stock.On this date Cousin's balance sheet showed net assets of $5,000,000.Additionally,the fair value of Cousin's identifiable assets on this date was $400,000 in excess of their carrying amount.On Brother's April 30,2014,consolidated balance sheet,what amount should be reported as goodwill?

A)$350,000
B)$400,000
C)$600,000
D)$1,000,000

Question 50

During the year just ended,Salt Company made the following expenditures relating to its plant building:

How much should be charged to repair and maintenance expense during the year just ended?

A)$160,000
B)$216,000
C)$256,000
D)$328,000

Question 51

Broadcast rights are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

A)Contract-based
B)Customer-related
C)Artistic-related
D)Marketing-related

Question 52

Order backlogs are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

A)Marketing-related
B)Customer-related
C)Artistic-related
D)Contract-based

Question 53

According to the most current FASB standards,intangible assets acquired in a basket purchase that does not represent the acquisition of an entire business should be

A)valued by allocating the total purchase price according to the relative fair values of all assets acquired, regardless of whether the assets are separately tradable or contract based.
B)valued by allocating the total purchase price according to the relative fair values only of intangible assets that are separately tradable or contract based.
C)valued by recording separately traded and contract based intangible assets at their individual fair values with any unallocated purchase price being recognized as goodwill.
D)valued by recording separately traded and contract based intangible assets at their individual fair values with any unallocated purchase price being expensed in the year of acquisition.

Question 54

Trade secrets are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

A)Marketing-related
B)Customer-related
C)Artistic-related
D)Technology-based

Question 55

In a "basket" or "lump-sum" purchase of assets,which of the following best describes the process by which the historical cost of the various assets acquired should be determined?

A)Allocation of the total cost to the individual assets on the basis of the historical cost of the individual assets to their original owner.
B)Allocation of the total cost to the individual assets on the basis of the fair market value of the individual assets at the time of the "basket" purchase.
C)Recording of the individual assets at their current value with recognition of a gain or loss for the difference between the price paid for the assets and the current value of the individual assets.
D)Recording of the individual assets at their original historical cost to the seller with a gain or loss recognized as the difference between the total of the original historical cost figures and the price paid in the basket purchase.

Question 56

Which of the following is correct?

A)The fair value of internally generated intangible assets should be estimated and recorded on the books of the entity that developed the assets even in the absence of a business acquisition.
B)The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity.
C)Managers may value their own companies and recognize goodwill in the company accounts even though an entity has not been acquired in a business acquisition.
D)Goodwill should be recognized in the accounts whenever the value of the firm increases based on current market prices of the firm's common stock.

Question 57

Selected information from the 2014 and 2013 financial statements of Pitney Corporation is presented below.

Pitney had cash sales of $750 and credit sales of $615 during 2014.Cost of goods sold for 2014 was $819.Pitney's fixed asset turnover for 2014 is

A)2.97.
B)4.86.
C)2.53.
D)5.53.

Question 58

During 2014,Robby,Inc.incurred the following costs:

In its income statement for the year ended December 31,2014,Robby should report research and development expense of

A)$462,500.
B)$312,500.
C)$150,000.
D)$125,000.

Question 59

Which of the following most accurately describes the position taken by generally accepted accounting principles regarding the accounting for the costs of drilling dry wells in the oil and gas industry?

A)Only the successful efforts method may be used.
B)Only the full cost method may be used.
C)Both the successful efforts and full-cost methods may be used.
D)Neither the successful efforts method nor the full cost method may be used pending the development by the Securities and Exchange Commission of its own approach to accounting for the costs of drilling dry wells.

Question 60

Which of the following is true regarding the traditional approach to estimating the fair value of an intangible asset?

A)The traditional approach requires the use of the risk-free rate of interest.
B)The traditional approach requires the use of various possible outcomes and their probability of occurrence.
C)The traditional approach requires the use of judgment in determining a risk-adjusted rate of interest.
D)The traditional approach requires the assumption that cash flows occur at the beginning of each period (an annuity due).

Question 61

On February 1,2013,Forwards Corporation purchased a parcel of land as a factory site for $455,000.An old building on the property was demolished and construction begun on a new warehouse that was completed April 15,2014.Costs incurred on the construction project are listed below.

Determine the cost of the land and new building.

Question 62

Dan Company recently acquired two items of equipment.The transactions are described below:
June 10:
Acquired a press at an invoice price of $6,500,subject to a 2% cash discount which was taken.Costs of freight and insurance during shipment were $205.Installation costs were $350.
November 12:
Acquired a welding machine at an invoice price of $4,000,subject to a 4% cash discount which was NOT taken.Additional welding supplies were acquired at a total cost of $300.
The increase in the equipment account as a result of the above transactions would be

A)$10,525
B)$10,720
C)$10,925
D)$11,225

Question 63

During 2014,Brent Industries,Inc.constructed a new manufacturing facility at a cost of $12,000,000.The weighted average accumulated expenditures for 2014 were calculated to be $5,400,000.The company had the following debt outstanding at December 31,2014:
(a)10 percent,five-year note to finance construction of the manufacturing facility,dated January 1,2014,$3,600,000.
(b)12 percent,20-year bonds issued at par on April 30,2013,$8,400,000.
(c)8 percent,six-year note payable,dated March 1,2013,$1,800,000.
Determine the amount of interest to be capitalized by Brent Industries for 2014.

Question 64

Which of the following best describes the proper treatment of cash discounts on acquired machinery?

A)The historical cost of the machinery should be the invoice price; the discount should be ignored.
B)The historical cost of the machinery should be the net-of-discount amount, regardless of whether the discount is actually taken.
C)The historical cost of the machinery should be the net-of-discount amount only if the discount is actually taken.
D)The historical cost of the machinery should be the invoice price plus the amount of the discount which is treated a interest capitalized on the purchase.

Question 65

Which of the following is true regarding International Accounting Standard No.23 (IAS 23),"Borrowing Costs," and FASB Statement of Financial Accounting Standards No.34 (SFAS No.34),"Capitalization of Interest Cost"?

A)IAS 23 requires the capitalization of borrowing costs less the amount of investment income generated by borrowed construction funds temporarily invested.
B)SFAS No.34 requires the capitalization of borrowing costs less the amount of investment income generated by borrowed construction funds temporarily invested.
C)IAS 23 requires that all interest should be expensed.
D)Both IAS 23 and SFAS No. 34 require the capitalization of borrowing costs with no adjustment for the amount of investment income generated by borrowed

Question 66

The cost of a building to be used in the operations of a business should usually include all of the following except

A)cost of renovation to prepare the building for its intended use.
B)costs of building permits related to expansion of the building begun after acquisition.
C)property taxes related to periods prior to acquisition that are assumed by the buyer.
D)costs incurred to have existing buildings removed to make room for the construction of new buildings.

Question 67

Allure Company made the following cash expenditures during the year:
(a)Paid $100,000 for interest capitalized as part of a self-construction project.
(b)Paid $225,000 for interest that was expensed during the year.
(c)Paid $300,000 for R&D expenditures that were immediately expensed.
(d)Paid $400,000 to acquire new machinery.
Indicate where in the statement of cash flows each of the preceding items would be reflected.Allure uses the indirect method of reporting cash flow from operations.

Question 68

You have just been promoted to the position of senior accountant with the public accounting firm of Ohm and Dylan.Your first audit client as senior accountant is to be the United Manufacturing Company.You have had a considerable amount of experience both in planning and conducting the audit procedures for current asset accounts such as cash,receivables,and inventory.This is your first experience,however,in planning the audit of the property,plant,and equipment accounts.Compare the nature of current assets with property,plant,and equipment,and describe how any differences might affect your audit generally.

Question 69

On March 1,2014,the Hauk Company paid $400,000 for all the issued and outstanding stock of Bodo Corporation in a transaction properly accounted for as a purchase.The market values of the assets and liabilities of Bodo Corporation on March 1,2014,are as follows:

Make the journal entry necessary for Hauk to record the purchase.

Question 70

The cost of land to be used in the operations of a business should include all of the following except

A)commissions related to the acquisition of the land.
B)excavation in preparation for the construction of a new building on the land.
C)property taxes to the date of acquisition assumed by the purchaser.
D)the cost of surveys of the land.

Question 71

You are the auditor of Donaldson Corporation,a newly organized company that manufactures plastic cups using an extrusion process.One of the promoters of the company was formerly involved in an enterprise that used the extrusion process and has agreed to contribute an extrusion machine to the new company in return for shares of stock of Donaldson Corporation.What concerns would you have as the auditor of Donaldson Corporation regarding this transaction?

Question 72

Which of the following best describes the approach prescribed in IAS 38,"Intangible Assets"?

A)Expense all research and development costs.
B)Capitalize all research and development costs.
C)Expense all research costs and capitalize all development costs.
D)Capitalize all research costs and expense all development costs.

Question 73

Everheat Company is an oil and gas exploration firm.During 2014,Everheat engaged in five different exploration projects.The costs associated with these projects are as follows:

Only Projects 2 and 5 were successful.As of the end of the year,production had not yet started at either of these two sites.
Assuming that all exploration costs were paid for in cash,make the journal entry to record the expenditures for the year using
(1)the successful efforts method.
(2)the full cost method.

Question 74

On May 1,2014,Abiuso Corporation purchased for $790,000 a tract of land on which a warehouse and office building were located.The following data were collected concerning the property:

Determine the appropriate amounts that Abiuso should record for the land,warehouse,and office building.

Question 75

Solara Company entered into a contract with Hammer Construction Company to construct a building.Construction began in 2014 and was completed in 2015.As of January 1,2015,Solara had made total progress payments to Hammer of $50,000.In addition,interest capitalized on the building during 2014 was $2,500.Solara made additional payments on June 30,2015,and December 31,2015.Solara had issued $80,000 of 9% bonds to finance part of the construction.The average interest on Solara's additional debt was 11% for 2015.
How much interest should be capitalized by Solara for 2015?

A)$6,750
B)$6,975
C)$13,500
D)$13,725

Question 76

One of the most critical steps in recording the acquisition of assets is the determination of the cost assigned to the asset.Data related to assets acquired by Mindset Manufacturing Company are as follows:
(1)Machine A was purchased at a list price of $102,000; terms 2/10,net 30.The machine invoice was paid after the discount period.Transportation charges were $1,270; installation costs were $920; and the cost of a trial run was $960.Normal repairs and maintenance for the first year were $410.
(2)Machine B could be purchased for five annual payments of $6,332 or $29,400 in cash.Mindset elected to purchase Machine B under the installment plan.Other related acquisition costs totaled $175.
(3)On May 12,2014,Alberta Company offered to sell land to Mindset for $62,000; the offer was rejected.On June 29,2,125 shares of Mindset common stock were issued in exchange for the land.The par value of the stock was $20 per share; the market value of the stock was $32 per share at the time of purchase.Mindset's management was confident the land would be worth at least $64,000 to the company.
(4)The company purchased equipment under a deferred payment contract-- $40,000 down payment and 30 semiannual payments of $5,000.(Assume a 12 percent interest rate.)Determine the acquisition cost for each of the assets.

Question 77

Grabber Industries purchased the net assets of Easy Company for $1,300,000,comprised of $1,200,000 of cash and a contingent performance condition of $100,000.A schedule of the net assets of Easy Company,as recorded on Easy Company's books at the time of the acquisition,is as follows:


The following schedule shows the differences between the recorded costs and market values of the assets of Easy Company at the date of the acquisition:

Prepare the journal entry to record this acquisition using the acquisition method prescribed by SFAS 141R,,"Business Combinations."

Question 78

The Maker Company exchanged 25,000 shares of its own $50 par value common stock for a turret lathe from Turner Company.The market value of the Maker Company stock was $68 per share at the date of exchange.The equipment had a carrying value of $1,625,000.
Record the exchange on the books of Maker Company in general journal form.

Question 79

Assets constructed for a firm's own use present the problem of whether to capitalize interest on the funds invested during the time required to prepare the assets for their intended use.Current generally accepted accounting principles as specified by the FASB in Statement No.34 require the capitalization of interest on borrowed capital,but not to exceed the total interest paid by the firm.
Evaluate the appropriateness of the approach currently required in the professional pronouncements now in effect.

Question 80

Ericton Enterprises Inc.developed a new machine for manufacturing baseballs.Because the machine is considered very valuable,the company had it patented.The following expenditures were incurred in developing and patenting the machine.

Ericton elected to amortize the patent over its legal life.At the beginning of the second year,Ericton Enterprises paid $24,000 to successfully defend the patent in an infringement suit.At the beginning of the fourth year Ericton determined that the remaining estimated useful life of the patent was five years.
Record the above transactions in general journal form for Ericton Enterprises Inc.for the first five years of the life of the patent.Include any amortization or depreciation for each period.