1) On January 1, 2015, Morris Company sells land to Lopez Corporation for
$8,000,000, and immediately leases the land back. The following information relates to
this transaction:
1>The term of the noncancelable lease is 20 years and the title transfers to Morris
Company at the end of the lease term.
2>The land has a cost basis of $6,720,000 to Morris.
3>The lease agreement calls for equal rental payments of $754,459 at the beginning of
each year.
4>The land has a fair value of $8,000,000 on January 1, 2015 .
5>The incremental borrowing rate of Morris Company is 10%. Morris is aware that
Lopez Corporation set the annual rentals to ensure a rate of return of 8%.
6>Morris Company pays all executory costs which total $255,000 in 2015 .
7>Collectibility of the rentals is reasonably predictable, and there are no important
uncertainties surrounding the costs yet to be incurred by the lessor.
Instructions
(a)Prepare the journal entries for the entire year 2015 on the books of Morris Company
to reflect the above sale and lease transactions (include a partial amortization schedule
and round all amounts to the nearest dollar.)
(b)Prepare the journal entries for the entire year 2015 on the books of Lopez
Corporation to reflect the above purchase and lease transactions.
2) Sun Inc. factors $3,000,000 of its accounts receivables without recourse for a finance
charge of 5%. The finance company retains an amount equal to 10% of the accounts
receivable for possible adjustments. Sun estimates the fair value of the recourse liability
at $115,000. What would be recorded as a gain (loss) on the transfer of receivables?
a.Loss of $150,000
b.Gain of $265,000
c.Loss of $565,000
d.Loss of $115,000
3) Vernon Corporation offered detachable 5-year warrants to buy one share of common
stock (par value $5) at $20 (at a time when the stock was selling for $32). The price
paid for 6,000, $1,000 bonds with the warrants attached was $615,000. The market
price of the Vernon bonds without the warrants was $540,000, and the market price of
the warrants without the bonds was $60,000. What amount should be allocated to the
warrants?
a.$60,000
b.$61,500
c.$72,000
d.$75,000
4) Mann, Inc., which owes Doran Co. $800,000 in notes payable with accrued interest
of $72,000, is in financial difficulty. To settle the debt, Doran agrees to accept from
Mann equipment with a fair value of $760,000, an original cost of $1,120,000, and
accumulated depreciation of $260,000.
Instructions
(a)Compute the gain or loss to Mann on the settlement of the debt.
(b)Compute the gain or loss to Mann on the transfer of the equipment.
(c)Prepare the journal entry on Mann ‘s books to record the settlement of this debt.
(d)Prepare the journal entry on Doran’s books to record the settlement of the receivable.
5) a.market prices for identical assets
b.market prices for similar assets
c.unobservable inputs
d.historical cost of similar assets
6) Under the effective-interest method of bond discount or premium amortization, the
periodic interest expense is equal to
a.the stated (nominal) rate of interest multiplied by the face value of the bonds
b.the market rate of interest multiplied by the face value of the bonds
c.the stated rate multiplied by the beginning-of-period carrying amount of the bonds
d.the market rate multiplied by the beginning-of-period carrying amount of the bonds
7) Anna has $15,000 to invest. She requires $25,000 for a down payment for a house. If
she is able to invest at 6%, how many years will it be before she will accumulate the
desired balance?
a.6 years
b.7 years
c.8 years
d.9 years
8) Gains and losses identified as other comprehensive income have the same status as
traditional gains and losses under
a.both the one statement and two statement approaches
b.neither the one statement or two statement approaches
c.the one statement approach
d.the two statement approach
9) Jamison Company uses IFRS for its financial reporting. It produces machines that
sell globally. All sales are accompanied by a one-year warranty. At the end of the year,
the company has the following data:
3,000 units were sold during the year.
The trend over the past five years has been that 4% of the machines were defective in
some way and had to be repaired. Of this 4%, half required a full replacement at a cost
of $3,000 per unit and half were able to be repaired at an average cost of $300.
What is the expected value of the warranty cost provision?
a.$360,000
b.$198,000
c.$396,000
d.$180,000
10) The following facts relate to the Patton Co. postretirement benefits plan for 2015:
Service cost$180,000
Discount rate9%
APBO, January 1, 2015$1,500,000
EPBO, January 1, 2015$2,000,000
Benefit payments to employees$115,000
The amount of postretirement expense for 2015 is
a.$180,000
b.$315,000
c.$360,000
d.$430,000
11) Rich Corporation purchased a limited-life intangible asset for $300,000 on May 1,
2013 . It has a useful life of 10 years. What total amount of amortization expense should
have been recorded on the intangible asset by December 31, 2015?
a.$ -0-
b.$60,000
c.$80,000
d.$90,000
12) Floyd Company purchases Haeger Company for $1,600,000 cash on January 1,
2015 . The book value of Haeger Companys net assets, as reflected on its December 31,
2014 balance sheet is $1,240,000. An analysis by Floyd on December 31, 2012
indicates that the fair value of Haegers tangible assets exceeded the book value by
$120,000, and the fair value of identifiable intangible assets exceeded book value by
$90,000. How much goodwill should be recognized by Floyd Company when recording
the purchase of Haeger Company?
a.$ -0-
b.$360,000
c.$240,000
d.$150,000
13) Colson Inc. declared a $320,000 cash dividend. It currently has 12,000 shares of
7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on
its preferred stock. How much cash will Colson distribute to the common stockholders?
a.$152,000
b.$168,000
c.$236,000
d.None
14) On March 1, Mocl Co. began construction of a small building. The following
expenditures were incurred for construction:
March 1$ 225,000April 1$ 222,000
May 1540,000June 1810,000
July 1300,000
The building was completed and occupied on July 1 . To help pay for construction
$150,000 was borrowed on March 1 on a 12%, three-year note payable. The only other
debt outstanding during the year was a $1,500,000, 10% note issued two years ago.
Instructions
(a)Calculate the weighted-average accumulated expenditures.
(b)Calculate avoidable interest.
15) A company gives each of its 50 employees ( assume they were all employed
continuously through 2014 and 2015 ) 12 days of vacation a year if they are employed
at the end of the year. The vacation accumulates and may be taken starting January 1 of
the next year. The employees work 8 hours per day. In 2014, they made $21 per hour
and in 2015 they made $24 per hour. During 2015, they took an average of 9 days of
vacation each. The companys policy is to record the liability existing at the end of each
year at the wage rate for that year. What amount of vacation liability would be reflected
on the 2014 and 2015 balance sheets, respectively?
a.$100,800; $140,400
b.$115,200; $144,000
c.$100,800; $144,000
d.$115,200; $140,400