1. Able Corporation purchased land as a factory site and contracted with Ready Construction to construct a factory. Able made the following expenditures related to the acquisition of the land, building, and machinery to equip the factory:
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Purchase price of the land
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1,400,000
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Demolition and removal of old building
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60,000
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Clearing and grading the land before construction
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145,000
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Various closing costs in connection with acquiring the land
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32,000
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Architect's fee for the plans for the new building
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70,000
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Payments to LuLu for building construction
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3,350,000
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Machinery purchased
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855,000
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Freight charges on machinery
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31,000
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Trees, plants, and other landscaping
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47,000
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Installation of a sprinkler system for the landscaping
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3,000
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Cost to build special platforms and install wiring for the machinery
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11,000
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Cost of trial runs to ensure proper installation of the machinery
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6,000
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Fire and theft insurance on the factory for the first year of use
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24,000
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Fire and theft insurance on the factory for the first year of use 24,000
In addition to the above expenditures, Able purchased four forklifts from Fleet Street. In payment, Able paid $18,000 cash and signed an interest-bearing note requiring the payment of $50,000 at the end of one year. An interest rate of 8% properly reflects the time value of money for this type of loan.
Required:
Determine the acquisition costs of each of the assets Able acquired in the above transactions for land, building, machinery, land improvements, forklifts, and prepaid insurance. You must show the details of each category to receive credit.
2. UMUC Company purchased two buildings on four acres of land. The lump-sum purchase price was $1,000,000. According to independent appraisals, the fair values were $290,000 (building A) and $415,000 (building B) for the buildings and $315,000 for the land.
Required:
Determine the amounts of the buildings and the land that UMUC will record on its books related to the lump-sum purchase. You answer must be supported by calculations to receive credit.
3. Countywide Inc. owns equipment for which it paid $90 million. At the end of 2013, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Countywide's management determined that it should assess whether an impairment loss should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $40 million. Under these circumstances, Countywide:
A. Would record no impairment loss on the equipment.
B. Would record a $3 million impairment loss on the equipment.
C. Would record a $23 million impairment loss on the equipment.
D. None of the above is correct.
4. The following information is available for ABC Company's patents:
Cost $3,440,000
Carrying amount 1,720,000
Expected future net cash flows 1,600,000
Fair value 1,300,000
ABC would record a loss on impairment of
a. $ 120,000.
b. $ 420,000.
c. $ 1,720,000.
d. $ 1,840,000.
4. In 2015, DEF Corporation incurred research and development costs as follows:
Materials and equipment $ 110,000
Personnel 130,000
Indirect costs 150,000
$ 390,000
These costs relate to a product that will be marketed in 2016. It is estimated that these costs will be recouped by December 31, 2018. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2015?
a. $0.
b. $250,000.
c. $280,000.
d. $390,000.
5. GHI Co. incurred research and development costs in 2015 as follows:
Materials used in research and development projects $ 650,000
Equipment acquired that will have alternate future uses in future research
and development projects 3,000,000
Depreciation for 2015 on above equipment 500,000
Personnel costs of persons involved in research and development projects 750,000
Consulting fees paid to outsiders for research and development projects 300,000
Indirect costs reasonably allocable to research and development projects 225,000
$5,425,000
The amount of research and development costs charged to GHI's 2015 income statement should be
a. $1,700,000.
b. $2,000,000.
c. $2,425,000.
d. $4,700,000.
6. MNO Inc. incurred the following costs during the year ended December 31, 2015:
Laboratory research aimed at discovery of new knowledge $230,000
Costs of testing prototype and design modifications 75,000
Quality control during commercial production, including routine testing of products 270,000
Construction of research facilities having an estimated useful life of
6 years but no alternative future use 360,000
The total amount to be classified and expensed as research and development in 2015 is
a. $635,000.
b. $935,000.
c. $665,000.
d. $365,000.
7. Purchased goodwill should
a. be written off as soon as possible against retained earnings.
b. be written off as soon as possible as an extraordinary item.
c. be written off by systematic charges as a regular operating expense over the period benefited.
d. not be amortized.
8. The intangible asset goodwill may be
a. capitalized only when purchased.
b. capitalized either when purchased or created internally.
c. capitalized only when created internally.
d. written off directly to retained earnings.
9. When the purchaser in a business combination pays less then the fair value of the identifiable net assets, such a situation is referred to as
a. goodwill purchase.
b. bargain purchase.
c. residual purchase.
d. blanket purchase.
10. A loss on impairment of an intangible asset is the difference between the asset's
a. carrying amount and the expected future net cash flows.
b. carrying amount and its fair value.
c. fair value and the expected future net cash flows.
d. book value and its fair value.
11. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?
a. Indefinite life intangibles other than goodwill.
b. Indefinite life intangibles.
c. Goodwill.
d. Limited life intangibles.
12. Landover Company incurred research and development costs of $100,000 and legal fees of $30,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Landover record as Patent Amortization Expense in the first year?
a. $ -0-.
b. $ 3,000.
c. $ 6,500.
d. $13,000.
13. XYZ Company's 12/31/15 balance sheet reports assets of $9,000,000 and liabilities of $3,750,000. All of XYZ's assets' book values approximate their fair value, except for land, which has a fair value that is $600,000 greater than its book value. On 12/31/15, JZ Corporation paid $9,150,000 to acquire XYZ. What amount of goodwill should JZ record as a result of this purchase?
a. $ -0-
b. $ 150,000
c. $3,300,000
d. $3,900,000