Week 3 Quiz All Questions Details given below (Please Check)   Question 1  During 2004, Yvo Corp. installed a production assembly line to manufacture furniture. In 2005, Yvo purchased a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly line, but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project: What amount of the above expenditures should be capitalized in 2005? Question 2 �  On January 2, 2005, Well Co. purchased 10% of Rea, Inc.’s outstanding common shares for $400,000. Well is the largest single shareholder in Rea, and Well’s officers are a majority on Rea’s board of directors. Rea reported net income of $500,000 for 2005, and paid dividends of $150,000. In its December 31, 2005, balance sheet, what amount should Well report as investment in Rea? Question 3  On December 31, 2004, Roth Co. issued a $10,000 face value note payable to Wake Co. in exchange for services rendered to Roth. The note, made at usual trade terms, is due in nine months and bears interest, payable at maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of $1 due in nine months at 8% is .944. At what amount should the note payable be reported in Roth’s December 31, 2004 balance sheet? Question 4  Rye Co. purchased a machine with a four-year estimated useful life and an estimated 10% salvage value for $80,000 on January 1, 2003. In its income statement, what would Rye report as the depreciation expense for 2005 using the double declining balance method? Question 5  Turtle Co. purchased equipment on January 2, 2002, for $50,000. The equipment had an estimated five-year service life. Turtle’s policy for five-year assets is to use the 200% double declining depreciation method for the first two years of the asset’s life, and then switch to the straight-line depreciation method. In its December 31, 2004 balance sheet, what amount should Turtle report as accumulated depreciation for equipment? Question 6  During 2005, Jase Co. incurred research and development costs of $136,000 in its laboratories relating to a patent that was granted on July 1, 2005. Costs of registering the patent equaled $34,000. The patent’s legal life is 17 years, and its estimated economic life is 10 years. In its December 31, 2005, balance sheet, what amount should Jase report as patent, net of accumulated amortization? Question 7  Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following: Weir’s depreciation expense for 2005 and 2004 was $55,000 and $50,000, respectively. What amount was debited to accumulated depreciation during 2005 because of property, plant, and equipment retirements? Question 8  On January 2, 2004, Judd Co. bought a trademark from Krug Co. for $500,000. Judd retained an independent consultant, who estimated the trademark’s remaining life to be unlimited because the trademark will be renewed indefinitely. Its unamortized cost on Krug’s accounting records was $380,000. At the time of sale, Krug estimated the useful life of the trademark to be 50 years. In Judd’s December 31, 2004 balance sheet, what amount should be reported as accumulated amortization? Question 9  Cart Co. purchased an office building and the land on which it is located for $750,000 cash and an existing $250,000 mortgage. For realty tax purposes, the property is assessed at $960,000, 60% of which is allocated to the building. At what amount should Cart record the building? Question 10  Up Company owns 60% of SideCo, and Down Company owns the other 40% of SideCo. Up Company and Down Company are competitors in the same market. Which one of the following sets reflects the most likely level of influence each company has over SideCo? Question 11  On July 1, 2005, Casa Development Co. purchased a tract of land for $1,200,000. Casa incurred additional costs of $300,000 during the remainder of 2005 in preparing the land for sale. The tract was subdivided into residential lots as follows: Using the relative sales value method, what amount of costs should be allocated to the Class A lots? Question 12  On January 2 of the current year, Cruises, Inc. borrowed $3 million at a rate of 10% for three years and began construction of a cruise ship. The note states that annual payments of principal and interest in the amount of $1.3 million are due every December 31. Cruises used all proceeds as a down payment for construction of a new cruise ship that is to be delivered two years after the start of construction. What should Cruise report as interest expense related to the note in its income statement for the second year? Question 13  Puff Co. acquired 40% of Straw, Inc.’s voting common stock on January 2, 2005, for $400,000. The carrying amount of Straw’s net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by $100,000. The equipment has a five year life. Goodwill, if any, is expected to have a useful life of 10 years. During 2005, Straw reported net income of $150,000. What amount of income from this investment should Puff report in its 2005 income statement? Question 14     The discount resulting from the determination of a note payable’s present value should be reported on the balance sheet as a(an) Question 15  Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be Question 16     Park Co. uses the equity method to account for its January 1, 2004, purchase of Tun Inc.’s common stock. On January 1, 2004, the fair values of Tun’s FIFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park’s reported equity in Tun’s 2004 earnings? Question 17  On July 1, 2005, Pell Co. purchased Green Corp. ten-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds mature on June 30, 2013 and pay interest semi-annually on June 30 and December 31. Pell has the intent and ability to hold the bonds until maturity. Using the interest method, Pell recorded bond discount amortization of $1,800 for the six months ended December 31, 2005. For this held-to-maturity investment, Pell should report 2005 revenue of Question 18     Jersey, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Jersey sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in a Question 19  On January 1, 2005, Mega Corp. acquired 10% of the outstanding voting stock of Penny, Inc.On January 2, 2006, Mega gained the ability to exercise significant influence over financial and operating control of Penny by acquiring an additional 20% of Penny’s outstanding stock. The two purchases were made at prices proportionate to the value assigned to Penny’s net assets, which equaled their carrying amounts. For the years ended December 31, 2005 and 2006, Penny reported the following: In 2006, what amounts should Mega report as current year investment income and as an adjustment, before income taxes, to 2005 investment income? Question 20  In November and December 2005, Dorr Co., a newly organized magazine publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2006 issue. Dorr elected to include the entire $72,000 in its 2005 income tax return. What amount should Dorr report in its 2005 income statement for subscriptions revenue?

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