A direct relationship between research and

uncertainty regarding the amount and timing of future benefits.
A direct relationship between research and development costs
and future revenues generally cannot be demonstrated.
3. Corporate headquarters' costs allocated to research and
development would be classified as general and administrative
expenses in the period incurred, because they are not clearly
related to research and development activities.
4. On Clonal's statement of cash flows, the legal expenses incurred
in defending the patent should be reported under investing
activities in the period paid.
C12-4 (AICPA adapted solution)
1. In a purchase transaction, assets are recorded at their acquisition
price, which becomes the cost basis to the acquiring corporation.
The book values of the assets for Felzar Company are irrelevant.
2. When a price is paid for a group of assets, the total price must be
allocated to the individual assets. Because we know neither the total
fair value of the tangible and other intangible assets acquired from
Felzar Company nor the price to be paid by the Rothman
Corporation, we cannot determine whether Rothman Corporation
has any goodwill to record. The total price to be paid by the
Rothman Corporation is indefinite but it may be estimated by
discounting the expected receipts (1% of net sales) at the end of
each of the next 5 years and adding the initial $450,000 cash
payment. If the estimated purchase price exceeds the sum of the
estimated fair values of the tangible and other assets purchased, then
the excess may be recorded as goodwill.
P13-2

1. a. Cash received
(1) Interest-bearing: $60,000
(2) Noninterest-bearing: $60,000 x 0.88 = $52,800
b. Effective interest rate
(1) Interest-bearing: 12%
$ 7,200
(2) Noninterest-bearing: = 13.64%
$52,800
c. Interest expense for 2010
(1) Interest-bearing: $60,000 x 0.12 x 2/12 = $1,200
(2) Noninterest-bearing: $ 7,200 x 2/12 = $1,200
2. Interest
-
bearing
Noninterest-bearing
201
0
No
v.
De
c.
201
1
Oct
.
1
31
31
31
Cash
Discount on Notes
Payable
Notes Payable
Interest Expense
Discount on Notes
Payable
Interest Payable
Interest Expense
Interest Payable
Discount on Note
Payable
Cash
Notes Payable
Cash
60,00
0
–
1,200
6,000
1,200
60,00
0
60,00
0
--
1,200
--
7,200
60,00
0
52,800
7,200
1,200
6,000
–
60,000
60,000
1,200
–
6,000
60,000

P13-5
1. Cash ($1,665,400 x 1.05) 1,748,670
Sales 1,665,400
Sales Taxes Payable 83,270
Accounts Receivable ($2,820,500 x 1.05) 2,961,525
Sales 2,820,500
Sales Taxes Payable 141,025
Sales Taxes Payable 168,220
Cash 168,220
2. MAULDIN COMPANY
Partial Balance Sheet
December 31, 2010
Current Liabilities
Sales taxes payable $ 56,075
P13-6
1. F.I.C.A. Wages Unemployment
Tax Wages
Johnson
Long
Morse
Stewart
Sharpe
Ledbetter
Totals
$ 27,000
18,000
100,000*
28,000
26,000
20,000
$219,000
$
7,00
0
7,
00
0
7,
00
0
7,
00
0
7,
00

0
7,
000
$42,
000
*The maximum amount subject to FICA tax

P13-6 (continued)
1. (continued)
State unemployment tax
$42,000 x 0.054 = $ 2,268
Federal unemployment tax
$42,000 x 0.008 = 336
F.I.C.A.