ACTP 5007 Review problems week 1 (13e) (rev)

ACTP 5007 Review problems week 1 (13e) (rev) - CHAPTER 12...

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Exercise 12-13  (Accounting for Goodwill) On July, 2010, Brandon Corporation purchased Mills Company by paying $250,000 cash and issuing a $150,000 note payable. At July 1, 2010, the balance sheet of Mills Company was as follows: Cash $50,000  Accounts Payable $200,000  Receivables $90,000  Stockholders' equity 235,000 Inventory 100,000 $435,000  Land 40,000 Buildings (net) 75,000 Equipment (net) 70,000 Trademarks 10,000 $435,000  The recroded amounts all approximate current values except for land (fair value of $80,000),  inventory (fair value of $125,000), and trademarks (fair value of $15,000) Instructions (a)  Prepare the July 1 entry for Brandon Corporation to record the purchase. Cash 50,000 Receivables 90,000 Inventory 125,000 Land 80,000 Buildings 75,000 Equipment 70,000 Trademarks 15,000 Goodwill 95,000*         Accounts Payable 200,000        Notes Payable   150,000        Cash 250,000 *$400,000 – [$235,000 + $40,000 + $25,000 + $5,000]  Note that the building and equipment would be recorded at the 7/1/10 cost to Brandon; accumulated depreciation accounts would not be recorded. (b)  Prepare the December 31 entry for Brandon Corporation to record amortization of       intangibles. The trademark has an estimated useful life of 4 years with a residual       value of $3,000.        Trademark Amortization Expense 1,500                   Trademarks ([$15,000 – $3,000] X 1/4 X 6/12) 1,500
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Exercise 12-16 (Accounting for R&D Costs) Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2009, the company expends $325,000 on a research project, but by the end of 2009 it is impossible to determine whether any benefit will be derived from it. Instructions a)  What account should be charged for the $325,000, and how should it be  shown in the financial statements? In accordance with FASB Statement No. 2, the $325,000 is a research and development costs that should be charged to R&D Expense and, if not separately disclosed in the income state- ment, the total cost of R&D should be separately disclosed in the notes to the financial statements.  b) The project is completed in 2010, and a successful patent is obtained.  The R&D  costs to complete the project are $130,000.  The administrative and legal expenses  incurred in obtaining patent number 472-1001-84 in 2010 total $24,000. The  patent has an expected useful life of 5 years.  Record these costs in journal entry form.  Also, record patent amortization (full year) in 2010. Research and Development Expense 130,000       Cash, Accts. Payable, etc 130,000    (To record research and development costs)  Patents  24,000       Cash, Accts. Payable, etc 24,000    (To record legal and administrative costs incurred      to obtain patent  #472-1001-84)      Patent Amortization Expense  4,800        Patents 4,800
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