EXAM 3 SOLUTIONS WINTER 04

EXAM 3 SOLUTIONS WINTER 04 - Management 1A Winter 2004...

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Management 1A Winter 2004 Danny S. Litt Exam 3 Solutions Name: ________________ PROBLEM POINTS SCORE 1 10 2 10 3 10 4 10 5 10 6 10 7 10 8 10 9 10 10 10 TOTAL 100
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Management 1A Winter 2004 Problem 1 (a) A company purchased a patent on January 1, 2002, for $1,000,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 30, 2002, the company paid legal costs of $135,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2002. (b) Downey Company purchased a franchise from Tastee Food Company for $400,000 on January 1, 2002. The franchise is for an indefinite time period and gives Downey Company the exclusive rights to sell Tastee Wings in a particular territory. Prepare the journal entry to record the acquisition of the franchise and any necessary adjusting entry at year end on December 31, 2002. The franchise is expected to have value for a period of 20 years. (c) Dryer Company incurred research and development costs of $200,000 in 2002 in developing a new product. Prepare the necessary journal entries during 2002 to record these events and any adjustments at year end on December 31, 2002. Page 2
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Management 1A Winter 2004 Problem 2 Hunt Company purchased factory equipment with an invoice price of $90,000. Other costs incurred were freight costs, $2,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700; oil lubricants and supplies to be used with equipment, $500; fire insurance policy covering equipment, $1,400. The equipment is estimated to have a $5,000 salvage value at the end of its 8-year useful service life. Requirements: (a) Compute the acquisition cost of the equipment. Identify each element of cost clearly. (b) If the double-declining-balance method of depreciation was used, the constant percentage applied to a declining book value would be ____________. Page 3
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Management 1A Winter 2004 Problem 3 Tanner Company purchased equipment on January 1, 2001 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life. Requirements: Answer the following independent questions. a. Compute the amount of depreciation expense for the year ended December 31, 2001, using the straight-line method of depreciation. b. If 16,000 units of product are produced in 2001 and 24,000 units are produced in 2002, what is the book value of the equipment at December 31, 2002? The company uses the units-of-activity depreciation method. c. If the company uses the double-declining-balance method of depreciation, what is the balance
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This test prep was uploaded on 04/22/2008 for the course MATH 32A taught by Professor Gangliu during the Winter '08 term at UCLA.

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EXAM 3 SOLUTIONS WINTER 04 - Management 1A Winter 2004...

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