22.
Present Value of
$1 Discount Rate
Present Value of
an Annuity of $1
Discount Rate
Periods
8%
10%
8%
10%
5
0.6806
0.6209
3.9927
3.7908
7
0.5835
0.5132
5.2064
4.8684
9
0.5002
0.4241
6.2469
5.7590
The present value of an obligation of $8,000 payable in 7 years at 8% is:
23.
Present Value of
$1 Discount Rate
Present Value of
an Annuity of $1
Discount Rate
Periods
8%
10%
8%
10%
5
0.6806
0.6209
3.9927
3.7908
7
0.5835
0.5132
5.2064
4.8684
9
0.5002
0.4241
6.2469
5.7590
A particular common stock has an annual cash dividend of $4 per share and is predicted to
have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%,
a fair market price for the stock today is:
24.
Present Value of
$1 Discount Rate
Present Value of
an Annuity of $1
Discount Rate
Periods
8%
10%
8%
10%
5
0.6806
0.6209
3.9927
3.7908
7
0.5835
0.5132
5.2064
4.8684
9
0.5002
0.4241
6.2469
5.7590
Psyche Company wants to acquire Trim Company. Trim’s ROI has been above average for
its industry; net income has averaged $140,000 a year more than the industry average.
These “excess” earnings are expected to continue at this amount for 5 years. Assuming a
discount rate of 8%, how much goodwill will arise from Psyches’ purchase of Trim?
25.
Leasehold is an example of which of the following types of assets?
26.
The principal challenge to calculating depletion is estimating:
27.
Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights
are all subject to:
Topic: Intangible Assets
28.
When a depreciable asset is sold:
29.
Goodwill is an asset that arises because the present value of an acquired company’s
estimated future earnings, discounted at the acquiring firm’s ROI:
30.
The intangible asset goodwill:
31.
Accounting for natural resources:
32.
Which of the following is
not
a term that describes part of the accounting for noncurrent
assets?
33.
Many companies use accelerated depreciation for tax purposes because:
34.
Which of the following statements concerning repair and maintenance expenditures is
true?
35.
Which of the following statements concerning the accounting for leases is
not
true?
Essay Questions
36.
Joe’s Garage, Inc., purchased a used vehicle lift, brake tester, and wheel aligning
equipment for a lump-sum price of $16,000 from a bankrupt competitor. Appraised values
were as follows: vehicle lift, $20,000; brake tester, $4,000; and wheel aligner, $6,000.
Required:
What cost should be recorded for the wheel aligner?
37.
Lone Star Sales & Service acquired a new machine that cost $84,000 in early 2016. The
machine is expected to have a five-year useful life and is estimated to have a salvage
value of $14,000 at the end of its life. (Round your final answers to the nearest dollar.)
(a.) Using the straight-line depreciation method, calculate the depreciation expense to be
recognized in the second year of the machine’s life and calculate the accumulated
depreciation after the third year of the machine’s life.
(b.) Using the double-declining-balance depreciation method, calculate the depreciation
expense for the third year of the machine’s life and the net book value of the machine at
this point in time.
38.
Lessee, Inc., acquired the use of a machine by agreeing to pay the manufacturer of the
machine $20,000 per year for 5 years. At the time the lease was signed, the interest rate
for a 5-year loan was 8%.
Required:
(a.) Use the appropriate factor from Table 6-5 to calculate the amount that Lessee, Inc.
could have paid at the beginning of the lease to buy the machine outright.
(b.) What causes the difference between the amount you calculated in part (a.) and the
total of $100,000 ($20,000 per year for 5 years) that Lessee, Inc. will pay under the terms
of the lease?
(c.) What is the appropriate amount of cost to be reported in Lessee, Inc’s balance sheet
(at the time the lease was signed) with respect to this asset?
39.
Goodwill results from the purchase of one firm by another for a price that is greater than
the fair value of the net assets acquired. On January 1, 2017, Blue Grass Co. purchased
Red Grass Co. for $2,400,000 when the net assets were valued at $2,000,000. Goodwill will
be tested annually for impairment. Assume that after the first year there was an
impairment of $30,000.
Required:
(a.) Compute the value of goodwill to be recorded on the books of Blue Grass Company
upon the purchase of the business.
(b.) What is impairment and how is the first year’s impairment recorded in the books?