Sapphire Hotel Corporation recently purchased Diamond Hotel and the land on which it is located with the plan to tear down the Diamond Hotel and build a new luxury hotel on the site. The cost of the Diamond Hotel should be

Question 1 options:

a) 

capitalized as part of the cost of the land.

b) 

capitalized as part of the cost of the new hotel.

c) 

written off as a loss in the year the hotel is torn down.

d) 

depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.

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Question 2 (6.67 points)

Cedarwood Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will

Question 2 options:

a) 

be reported in the Other Revenues and Gains section of the income statement.

b) 

be credited directly to the owner’s capital account.

c) 

effectively reduce the amount to be recorded as the cost of the new asset.

d) 

effectively increase the amount to be recorded as the cost of the new asset.

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Question 3 (6.66 points)

Crystal Co. purchased land as a factory site for $1,350,000. Crystal paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect’s fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. Interest costs during construction were $255,000.

The cost of the land that should be recorded by Crystal Co. is

Question 3 options:

a) 

$1,484,820.

b) 

 $1,470,720.

c) 

$1,480,320.

d) 

$1,494,420.

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Question 4 (6.67 points)

During self-construction of an asset by Broadmoor Company, the following were among the costs incurred:

Fixed overhead for the year: $1,000,000

Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production: $90,000

Variable overhead attributable to self-construction: $50,000

What amount of overhead should be included in the cost of the self-constructed asset?

Question 4 options:

a) 

$50,000

b) 

$140,000

c) 

$90,000

d) 

$  -0-

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Question 5 (6.66 points)

Kirby Corporation constructed a building at a cost of $30,000,000. Weighted-average accumulated expenditures were $12,000,000, actual interest was $1,200,000, and avoidable interest was $600,000. If the salvage value is $2,400,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is

Question 5 options:

a) 

$705,000.

b) 

$735,000.

c) 

$765,000.

d) 

$1,005,000.

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Question 6 (6.67 points)

Michael Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the

Question 6 options:

a) 

cash proceeds received and original cost of the truck.

b) 

original cost of the truck less the cash proceeds.

c) 

original cost of the truck.

d) 

cash proceeds received.

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Question 7 (6.66 points)

Dwayne Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should

Question 7 options:

a) 

include a credit to the equipment account.

b) 

include a credit to the equipment accumulated depreciation account.

c) 

not be made if the equipment is still being used.

d) 

recognize an unusual loss for the period.

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Question 8 (6.67 points)

Clontz Company purchased a depreciable asset for $360,000. The estimated salvage value is $33,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

Question 8 options:

a) 

$36,000

b) 

$327,000

c) 

$360,000

d) 

$33,000

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Question 9 (6.66 points)

Star Company purchased a depreciable asset for $700,000 on April 1, 2015. The estimated salvage value is $70,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2018 when the asset is sold?

Question 9 options:

a) 

$388,500

b) 

$294,000

c) 

$252,000

d) 

$346,500

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Question 10 (6.67 points)

In January, 2017, Excel Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2017, 600,000 tons were removed and 480,000 tons were sold. What is the amount of depletion that Excel should expense for 2017?

Question 10 options:

a) 

$1,152,000

b) 

$1,440,000

c) 

$2,016,000

d) 

$1,512,000

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Question 11 (6.67 points)

Jasmine Corporation was granted a patent on a product on January 1, 2007. To protect its patent, the corporation purchased on January 1, 2018 a patent on a competing product which was originally issued on January 10, 2014. Because of its unique plant, Jasmine Corporation does not feel the competing patent can be used in producing the product. The cost of the competing patent should be

Question 11 options:

a) 

amortized over a minimum period of 9 years.

b) 

amortized over a minimum period of 20 years.

c) 

expensed in 2018.

d) 

amortized over a minimum period of 16 years.

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Question 12 (6.67 points)

Paden Company and Powell Company were combined in a purchase transaction. Paden was able to acquire Powell at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of acquiring Paden. Paden will report the excess amount as

Question 12 options:

a) 

a gain.

b) 

paid-in capital.

c) 

part of current income in the year of combination.

d) 

a deferred credit and amortize it.

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Question 13 (6.67 points)

Blue Corp. acquires a patent from Teddy Co. in exchange for 2,500 shares of Blue Corp.’s $5 par value common stock and $90,000 cash. When the patent was initially issued to Teddy Co., Blue Corp.’s stock was selling at $7.50 per share. When Blue Corp. acquired the patent, its stock was selling for $9 a share. Blue Corp. should record the patent at what amount?

Question 13 options:

$90,000

$108,750

$112,500

$102,500

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Question 14 (6.67 points)

Ava Corporation purchased a patent for $405,000 on September 1, 2016. It had a useful life of 10 years. On January 1, 2018, Ava spent $99,000 to successfully defend the patent in a lawsuit. Ava feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2018?

Question 14 options:

a) 

$84,600.

b) 

$92,700.

c) 

$90,000.

d) 

$70,200.

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Question 15 (6.67 points)

Liam Company purchases Max Company for $2,400,000 cash on January 1, 2018. The book value of Max Company’s net assets, as reflected on its December 31, 2017 balance sheet is $1,860,000. An analysis by Liam on December 31, 2017 indicates that the fair value of Max’s tangible assets exceeded the book value by $180,000, and the fair value of identifiable intangible assets exceeded book value by $135,000. How much goodwill should be recognized by Liam Company when recording the purchase of Max Company?

Question 15 options:

a) 

$540,000

b) 

$  -0-

c) 

$360,000

d) 

$225,000

 

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