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ACC 422 Week 3 CPA Solutions



ACC 422 Week 3 CPA Solutions Alta Co. spent $400,000 during the current year developing a new idea for a product that was patented during the year. The legal cost of applying for a patent license was $40,000. Also, $50,000 was spent to successfully defend the rights of the patent against a competitor. The patent has a life of 20 years. Under U.S. GAAP, what amount should Alta capitalize related to the patent? $ 40,000 $ 50,000 $ 90,000 $490,000 In 2005, Ball Labs incurred the following costs: Direct costs of doing contract research and development work for the government to be reimbursed by governmental unit $400,000 Research and development costs not included above were: Depreciation $300,000 Salaries 700,000 Indirect costs appropriately allocated 200,000 Materials 180,000 What was Ball’s total research and development expense in 2005? $1,080,000 $1,380,000 $1,580,000 $1,780,000 South Co. purchased a machine that was installed and placed in service on January 1, 2004 at a cost of $240,000. Salvage value was estimated at $40,000. The machine is being depreciated over 10 years by the double declining balance method. For the year ended December 31, 2005, what amount should South report as depreciation expense? $48,000 $38,400 $32,000 $21,600 A manufacturing firm purchased used equipment for $135,000. The original owners estimated that the residual value of the equipment was $10,000. The carrying amount of the equipment was $120,000 when ownership transferred. The new owners estimate that the expected remaining useful life of the equipment was 10 years, with a salvage value of $15,000. What amount represents the depreciable base used by the new owners? $105,000 $110,000 $120,000 $125,000 After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct? It is prohibited. It is required when the reversal is considered permanent. It must be disclosed in the notes to the financial statements. It is encouraged, but not required. Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year? $0 $15,000 $40,000 $120,000 Hull Co. bought a trademark from Roe Corp. on January 1, 2005, for $224,000. Hull retained an independent consultant who estimated the trademark’s remaining useful life to be 20 years. The trademark most likely will not be renewed. Its unamortized cost on Roe’s accounting records was $112,000. In Hull’s December 31, 2005 Balance Sheet, what amount should be reported as accumulated amortization? $11,200 $0 $5,600 $2,800 A firm began a mineral exploitation venture during the current year by spending (1) $40 million for the mineral rights; (2) $100 million exploring for the minerals, one-fourth of which were successful; and (3) $60 million to develop the site. Management estimated that 20 million tons of ore would ultimately be removed from the property. Wages and other extraction costs for the current year amounted to $10 million. In total, 2 million tons of ore were removed from the deposit in the current year. The entire production for the period was sold. Compute cost of goods sold under the successful efforts method. $30 million $12.5 million $10 million $22.5 million Spiro Corp. uses the sum-of-the-years’ digits method to depreciate equipment purchased in January 2003 for $20,000. The estimated salvage value of the equipment is $2,000, and the estimated useful life is


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