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Penn Foster 06101002_Financial Accounting_Part 9_Answer

Penn Foster 06101002_Financial Accounting_Part 9_Answer

Penn Foster 06101002_Financial Accounting_Part 9_Answer

Penn Foster 06101002_Financial Accounting_Part 9_Answer

Penn Foster 06101002_Financial Accounting_Part 9_Answer

Penn Foster 06101002_Financial Accounting_Part 9_Answer

Penn Foster 06101002
Financial Accounting (Part 9)

Questions 1–20: Select the one best answer to each question.

Question 1 is based on the following information:
On June 15, 20X1, the Foose Machine Shop purchased a new machine for its workshop.
List price of the machine $15,300
Transportation cost 275
Cash discount taken 306
Installation cost of new machine 544
Test runs on new machine prior to use 450

REQUIRED: Calculate the cost at which the new machine should be valued in the Asset account, using the form provided at the back of this unit. Then answer the following question. DO NOT send the work form to us.

1. The machine purchased by the Foose Machine Shop would be valued in the asset account for
A. $14,994.
B. $15,300.
C. $16,263.
D. $16,569.

Questions 2–4 are based on the following information:
On January 1, 20X1, the Kane Manufacturing Company purchased new equipment costing $200,000. The useful life of this Equipment is estimated at ten years, and its salvage value is estimated to be $20,000.

REQUIRED: Using the form provided at the back of this unit, calculate (1) the annual depreciation charge, (2) the accumulated depreciation, and (3) the carrying value of the equipment at the end of each year of the first five years of the asset’s life, according to each of the following methods:
a. Straight-line method
b. Declining-balance method
c. Sum-of-the-years’-digits method
Then answer questions 2–4. DO NOT send the work form to us.

2. The carrying value of the equipment at the end of five years, using the straight-line method of depreciation, is
A. $18,000.
B. $90,000.
C. $110,000.
D. $182,000.

3. Using the declining-balance method of depreciation, the accumulated depreciation at the end of four years amounts to
A. $134,464.
B. $118,080.
C. $97,600.
D. $72,000.

4. When using the sum-of-the-years’-digits method of calculating depreciation, the carrying value at the end of five years is
A. $137,818.19.
B. $130,909.09.
C. $88,727.27.
D. $69,090.91.

Questions 5 and 6 are based on the following information:
A machine costing $37,500, with an expected salvage value of $1,500, is traded in after six years of its expected ten-year life. The new machine has a fair market value of $45,000 and is obtained for the old asset and $35,000, which is paid in cash. Assume that the old machine is depreciated under the straight-line method of depreciation.

REQUIRED: Using the form provided at the back of this unit, calculate the gain or loss of the machine under the financial accounting guidelines and the income tax method. Then answer questions 5 and 6. DO NOT send your calculations to us.

5. The annual depreciation for the old machine is
A. $1,500.
B. $3,600.
C. $3,750.
D. $5,900.

6. Under financial accounting guidelines, when the old machine is traded in, the company would record a
A. recognized gain of $5,900.
B. recognized loss of $5,900.
C. nonrecognized gain of $15,900.
D. nonrecognized loss of $15,900.

Question 7 is based on the following information:
The Goldstein Company purchased a mine for $650,000 in June 20X1. It’s estimated that the property will have a residual value of $75,000 after all the ore has been extracted. The total ore content of the mine is estimated to be 1,250,000 tons.

REQUIRED: Calculate the cost per ton of the ore for the Goldstein Company mine. Then answer the following question. DO NOT send your calculations to us.

7. In year 20X2, 225,000 tons of ore were removed from the mine. The amount of depletion expense for the year would be
A. $92,250.
B. $101,250.
C. $103,500.
D. $112,500.

Question 8 is based on the following information:
The Graham Corporation is negotiating to purchase the Peckham Corporation. Both companies have agreed that goodwill exists and should be a part of the purchase price. During the past five years, the Peckham Corporation has had the following net assets and reported net income.
Reported Year Net Assets Net Income
20X1 425,000 64,000
20X2 475,000 67,000
20X3 505,000 79,000
20X4 543,000 82,000
20X5 592,000 88,000
The companies have agreed that Peckham’s goodwill is equal to the average annual excess net income of the past five years multiplied by a agreed-upon number of 3. The average net assets for the past five years are to be used in computing the amount of goodwill. There’s an average rate of return of 12% in Peckham’s type of business.

REQUIRED: Using the above information, calculate the goodwill for the Peckham Corporation. Then answer the following question. DO NOT send your calculations to us.

8. The goodwill attributable to the Peckham Corporation is
A. $14,880.
B. $45,120.
C. $60,960.
D. $81,120.

Questions 9–11 are based on the following information:
The Dwyer Corporation incurred costs of $114,000 in purchasing a process which it eventually had patented. The patent was issued on July 1, 20X1. To secure the patent, an additional $6,000 had been spent on legal fees. On June 30, 20X3, a patent infringement suit was successfully defended at a cost of $10,000. The legal cost of $10,000 is amortized over the remaining life of the patent (which, for this case, is 17 years).

REQUIRED: Using the information just given, answer questions 9–11. DO NOT send your calculations to us.

9. The amortization expense applicable to the patent for 20X2 would be
A. $7,058.82.
B. $6,705.88.
C. $3,529.41.
D. $352.94.

10. What would be the amortization expense applicable to the patent and the infringement for 20X3? (Hint: Infringement applies only to one-half of 20X3.)
A. $686.27
B. $7,058.82
C. $7,392.15
D. $7,725.49

11. The general journal entry required to record the purchase cost of the patent on July 1, 20X1, would be
A. Patents 114,000
Cash 114,000
B. Cash 6,000
Patents 6,000
C. Patents 120,000
Cash 120,000
D. Cash 120,000
Patents 120,000

Questions 12 and 13 are based on the following information:
The following investments were made by the Farrence Company.
a. Purchased a $1,000, 5%, 10-year bond at 102
b. Purchased a $5,000, 6½%, 10-year bond at 98
Assume that both investments were made on the date the bonds were originally issued, and that the bonds were held to maturity.

REQUIRED: Compute the total return on the investment for each bond and the amount of interest income to be reported annually on each investment on the form provided at the back of this unit. Then answer questions 12 and 13. DO NOT send the work form to us.

12. Total income earned by the Farrence Company for the bond in B is
A. $500.
B. $3,250.
C. $3,350.
D. $4,900.

13. The amount of interest income to be reported annually for the bond in A is
A. $48.
B. $50.
C. $335.
D. $480.

14. The Adams Company purchased as a long-term investment 5 bonds with a face value of $1,000 each at 97. The entry to record this transaction would be
A. Cash 5,000
Investments—Bonds 4,850
Gain on Sale of Securities 150
B. Investments—Bonds 4,850
Cash 4,850
C. Investments—Bonds 4,850
Gain on Sale of Securities 150
Cash 5,000
D. Cash 4,850
Investments—Bonds 4,850

Questions 15 and 16 are based on the following information:
Ace Hardware purchases 100, $1,000 face value bonds from AT&T which pay 6% semiannually. Ace pays $90,000 for the bonds, which mature in 10 years.

15. An acceptable journal entry to record the purchase is
A. Investments — Bonds 90,000
Cash 90,000
B. Investments — Bonds 100,000
Cash 100,000
C. Investments — Bonds 90,000
Discount on Bonds 10,000
Cash 100,000
D. Investments — Bonds 80,000
Premium on Bonds 10,000
Cash 90,000

16. After one year, the carrying value of the Bonds as shown on the Balance Sheet is
A. $100,000.
B. $91,000.
C. $90,000.
D. $89,000.

Questions 17–20 are based on the following information:
As part of a hostile takeover attempt, Carl Icahn, Inc. purchased 15% of TWA’s outstanding common stock amounting to 200,000 shares. In response to Icahn’s actions, TWA restructured and became profitable once again. Consequently, Icahn decided not to purchase any additional shares and to continue to keep its ownership in TWA at 15% for the long term. Icahn purchased the shares on the open market at an average price of $55/share. In addition to this, brokerage fees amounting to $400,000 were incurred in the purchase. For the first year after the purchase, TWA reported net income of $30,000 in the wake of fierce price competition. Dividends were paid according to TWA’s policy—70% of the net income reported for the year will be paid to the stockholders as dividends.

17. Assuming Icahn’s purchase entitles its president to sit on the board of directors (and exert significant influence), an invitation that will certainly be accepted, what will be the balance of the account Investment in Long-Term Stock TWA at the end of the first year?
A. $11,000,000
B. $11,400,000
C. $11,401,350
D. $11,404,500

18. If instead of paying out 70% of net income as dividends TWA’s top management decided to retain all net income (and therefore pay no dividends), what would be the balance in the Investment account at the end of the first year?
A. $11,000,000
B. $11,400,000
C. $11,401,350
D. $11,404,500

19. If Icahn accounted for the 15% investment in TWA under the cost method, what would be the general ledger entry to record the stock purchase?
A. Long-Term Investment — TWA $11,400,000
Cash $11,400,000
B. Long-Term Investment — TWA $11,000,000
Cash $11,000,000
C. Long-Term Investment — TWA $ 1,650,000
Cash $ 1,650,000
D. Long-Term Investment — TWA $11,000,000
Brokerage Fee Expense $ 400,000
Cash $11,400,000

20. At the end of the first year, what would be the balance of the Long-Term Investment —TWA account if the cost method were applied?
A. $11,401,350
B. $11,400,000
C. $11,000,000
D. $0

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Penn Foster 2