Pangasinan State University- Edit Course Financial Accounting Acctg2 PDF

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Intangible AssetsIntangible AssetsReviewerReviewerIntangible AssetsIntangible Assets Penk Penk Company Company reported the reported the following assets following assets at at year-end:year-end: Financial Financial asset asset held held for for trading trading 1,000,0001,000, Goodwil Goodwil 1,500,...

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

Reviewer Intangible Assets 1. Penk Company reported the following assets at year-end: Financial asset held for trading 1,000,000 Goodwil 1,500,000 Prepaid Insurance 50,000 Patent Customer List

2,500,000 500,000

What Whatamount amountshould shouldbe bereported reportedas astotal totalintangible intangibleassets assetsat atyear-end? year-end? a. 4,000,000 b. 5,500,000 c. 4,500,000 d. 3,000,000 2. Reyd Company has bought the entity from previous owners through a leveraged leveraged m m buy-in buy-in(MBI). (MBI).The Thecompany companyincurred incurredaatotal totaltransaction transactioncost costrelated relatedtotothe theMBI MBIininthe th P5,000,000 P5,000,000which whichwas wasbroken brokeninto intothe thefollowing followingspecific specificcosts: costs:P1,000,000 P1,000,000related related ofofown ownequity equityinstrument, instrument,P1,500,000 P1,500,000related relatedtotothe theissue issueofofdebt debtinstrument instrumentand andP2 P2 the theconsultants consultantsand andlawyers lawyersfees. fees.The Themanagement managementproposes proposestotocapitalize capitalizethe theP5 P5 intangible asset. What Whatamount amountshould shouldthe thecompany companyrecognize recognizeas asan anintangible intangibleasset? asset? a. None b. 2,500,000 c. 4,000,000 d. 5,000,000 3. Bloo Bloo Company Company exchanges exchanges the the rights to distribute a product in Brisbane Brisbane which which hav amount amountofofP2,000,000 P2,000,000for forcash cashofofP1,000,000 P1,000,000and andthe theright righttotodistribute distributethe thesame sam Canberra, Canberra,with withaafair fairvalue valueofofP1,400,000. P1,400,000.The Theexchange exchangeisisconsidered consideredhaving havingthe th commercial commercial substance. substance. At the time of exchange, exchange, the the intangible intangible assets should be be initially recorded by by Bloo Co a. 1,000,000 b. 1,400,000 c. 2,000,000 d. 2,400,000 4. Bayolet Bayolet Company Company incurred incurred P1,600,000 P1,600,000of research and development costs costs to to develo for forwhich whichaapatent patentwas wasgranted grantedatatthe thebeginning beginningofofthe thecurrent currentyear. year.Legal Legalfees feesand and associated associated with with registration registration ofof the the parent parent totalled totalled P300,000. P300,000. At At year-end, year-end, the the P450,000 P450,000for forlegal legalfees feesin inaasuccessful successfuldefense defenseof ofthe thepatent. patent.

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

5. Indeygo Indeygo Company Company acquired acquired aa patent patentfor a drug with with aa remaining remaining legal and anduseful useful life on on January January 1,1, 2018 2018 for for P5,400,000. P5,400,000. On On January January 1,1, 2020, 2020, aa new new patent patent isis rece rec improved improvedversion versionofofthe thesame samedrug. drug.The Thenew newpatent patenthas hasaalegal legaland anduseful usefullife lifeofoftwe tw What What is is the the amortization amortization expense expense for for 2020? 2020? a. 900,000 b. 200,000 c. 180,000 d. 300,000

6. Yilow Yilow Company Company purchased purchased Patent Patent A A for P600,000 P600,000 and Patent B for P900,000. P900,000. Yilo Yilo indirect indirectcosts costsofofP75,000 P75,000for forPatent PatentAAand andP105,000 P105,000for forPatent PatentB. B.Both Bothpatents patentswere wer inin legal legal actions. actions. Yilow Yilow paid paid P300,000 P300,000 inin legal legal fees fees inin successful successful defense defense ofof Pa P P450,000 P450,000in inlegal legalfees feesin inan anunsuccessful unsuccessfuldefense defenseof ofPatent PatentB. B. What What amount amount should should Yilow Yilow capitalize capitalize for for patents? patents? a. 675,000 b. 975,000 c. 1,680,000 d. 2,430,000’ 2,430,000’ 7. Stars Stars Corporation Corporation incurred incurred P198,900 P198,900 of ofresearch research and and development development costs to develo for forwhich whichaapatent patentwas wasgranted grantedon onJanuary January2,2,2011. 2011.Legal Legalfees feesand andother othercosts costsass ass registration registration of the patent totalled P44,200. On January 2, 2014, Stars paid paid P62,4 fees feesininaasuccessful successfuldefense defenseofofthe thepatent. patent.The Thepatent patenthas hasaauseful usefuleconomic economiclife lifeofof2 What Whatamount amountshould shouldStars Starsrecord recordas asamortization amortizationexpense expensefor for2014? 2014? a. 2,210 b. 5,200 c. 7,800 d. 19,500 8. On January 1, 2016, 2016, Shiver Shiver Company Company bought bought aa trademark from Hot Company for The The entity entity retained retained an an independent independent consultant consultant who who estimated estimated the trademark’s trademark’ indefinite. indefinite. The The carrying carrying amount amount ofofthe thetrademark trademark was was P1,500,000 P1,500,000 on onthe the thebooks books ofofHo H On OnDecember December31, 31,2016, 2016,what whatisisthe thecarrying carryingamount amountof ofthe thetrademark? trademark? a. 3,000,000 b. 1,500,000 c. 2,850,000 d. 0 9

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

c. 585,000 d. 600,000 10. 10.On OnJanuary January1,1,2010, 2010,Better BetterCompany Companybought boughtaatrademark trademarkfor forP400,000, P400,000,having havingaa useful usefullife life ofof16 16years. years.After After16 16years, years,revenues revenuesexpected expectedfrom fromthis thisintangible intangiblewill wil January January2014, 2014,Better Betterpaid paidP60,000 P60,000for forlegal legalfees feesininaasuccessful successfuldefense defenseofofthe thetrade trad What Whatamount amountofofexpense expenseshould shouldBetter BetterCompany Companyrecognize recognizeand andcharge chargeagainst againstinc in 2014? a. 15,000 b. 25,000 c. 30,000 d. 85,000 11. 11.At Atthe thebeginning beginningofofthe thecurrent currentyear, year,Judd JuddCompany Companybought boughtaatrademark trademarkfor forP50 P5 entity entity retained retainedan an independent independent consultant consultantwho who determined determinedthe the remaining remaining useful usefulli years. years.The Theunamortized unamortizedcosts costsof ofthe thetrademark trademarkwas wasP380,000. P380,000. What Whatamount amountshould shouldbe bereported reportedas asamortization amortizationof oftrademark trademarkfor forthe thecurrent currentyear? year? a. 10,000 b. 12,500 c. 9,500 d. 7,600 12. 12.On OnJanuary January1,1,2016, 2016,Hart HartCompany Companysigned signedan anagreement agreementtotooperate operateas asaafranch franc Company Companyfor foran an initial initialfranchise franchise fee feeofofP12,000,000. P12,000,000.On Onthe thesame same date, date,Hart Hart Co Co P4,000,000 P4,000,000 and and agreed agreed toto pay pay the the balance balance inin four four equal equal annual annual payments payments ofof beginning beginning January January 1, 1, 2017. 2017. What What is is the the acquisition acquisition cost cost of of the the franchise? franchise? a. 13,520,000 b. 12,000,000 c. 9,820,000 d. 8,720,000 13. 13.P100,000. On OnJanuary January 2,2,additional 2011, 2011,Sardines Sardines Company Company purchased purchased aafranchise franchise with with aauseful usefulmust life life ofofbt P100,000. An An additional franchise franchise fee feeofof3% 3% ofoffranchise franchise operation operation revenues revenues must year yeartotothe thefranchisor. franchisor.Revenues Revenuesfrom fromfranchise franchiseoperations operationsamount amounttotoP800,000 P800,000duri dur InInits itsDecember December31, 31,2011 2011statement statementofoffinancial financialposition, position,what whatamount amountshould shouldSard Sa as as intangible intangible asset-franchise? asset-franchise? a. 70,000 b. 87,600 c. 90,000 d 100 000

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

What Whatamount amountshould shouldbe berecorded recordedas asamortization amortizationof offranchise franchisefor forthe thecurrent currentyear? year? a. 40,800 b. 40,000 c. 51,000 d. 17,000 15. Char Char Company Company acquired acquired a copyright that now now has a remaining legal legal life of 40 40 copyright copyright initially initially had had aa 30-year 30-year useful useful life. life. An An analysis analysis ofof market market trend trend and and con con indicated indicated that that the the copyrighted copyrighted material materialwill will generate generate positive positive cash cash flows flows for forappro appr years. What Whatisisthe theremaining remaininguseful usefullife lifeover overwhich whichthe theentity entitycan canamortize amortizethe thecopyright? copyright? a. 25 b. 30 c. 40 d. 0 16. 16.Struck StruckCompany Companyincurred incurredP1,500,000 P1,500,000(400,000 (400,000inin2014 2014and and1,100,000 1,100,000inin2015) 2015)to computer computer software software product. product. P500,000 P500,000 ofof this this aount aount was was expended expended before before te feasibility feasibilitywas wasestablished establishedinin early early 215. 215. The Theproduct product will will earn earnfuture future revenues revenuesofof over over its its 5-year 5-year life life as as follows: follows: 2015– 2015–P1,000,000; P1,000,000; 2016– 2016–P1,000,000; P1,000,000; 2017– 2017–P800 P800, P800,000 and 2019– 2019–P400,000. P400,000. What Whatportion portionofofthe theP1,500,000 P1,500,000computer computersoftware softwarecosts costsshould shouldbe beexpensed expensedinin201 20 a. 250,000 b. 300,000 c. 350,000 d. 1,100,000 17. 17.Ward WardCompany Companyincurred incurredthe thefollowing followingresearch researchand anddevelopment developmentcosts costsininthe thecurren curren Equipment acquired for use in various R&D projects 975,000 Depreciation on the above equipment 135,000 Materials used 200,000 Compensation costs of personnel 500,000 Outside consulting fees 150,000 Indirect costs appropriately allocated

250,000

What Whattotal totalamount amountofofresearch researchand anddevelopment developmentcosts costsshould shouldbe berecognized recognizedas asexpe exp current year? a. 850,000 b. 1,085,000 c. 1,235,000 d. 1,825,000 18 18 CC

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22 201 201

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

a. b. c. d.

75,000 275,000 375,000 500,000

19. 19.Ball BallCompany Companyincurred incurredthe thefollowing followingresearch researchand anddevelopment developmentcosts costsduring duringthe thecurr cu Direct Direct cost cost of of doing doing contract contract research researchand anddevelopment development work work for forthe the government government to to be be reimbursed reimbursed by by the thegovernment government 400,000 Depreciation 300,000 Salaries 7 Indirect costs appropriately allocated 200,000 Materials used 180,000 What Whattotal totalamount amountof ofR&D R&Dcosts costsshould shouldbe bereported reportedas asexpense expenseininthe thecurrent currentyear? year? a. 1,080,000 b. 1,380,000 c. 1,580,000 d. 1,780,000 20. 20.Marlin MarlinCorporation Corporationincurred incurredthe thefollowing followingcosts costsduring duringthe theyear yearended endedDecember December31, 31 Routine, Routine, on-going on-going efforts efforts to to refine, refine, enrich enrich and and improve improve upon upon the the qualities qualities of of an an existing existing product product 125,000 Design, Design, construction, construction, and and testing testing of of pre-production pre-production prototypes and models 1 Quality Quality control control during during commercial commercial production production including routine testing of products 15 Laboratory research aimed at discovery of new knowledge 180,000 How Howmuch muchdid didMarlin MarlinCorporation Corporationincur incurinin2014 2014as asresearch researchand anddevelopment developmentcosts? costs a. 235,000 b. 275,000 c. 290,000 d. 330,000 21. 21.Octopus OctopusCorporation Corporationincurred incurredthe thefollowing followingcosts costsduring duringthe theyear yearended endedDecember December33 Laboratory research aimed at discovery of new knowledge 150,000 Radical modification modification to the formulation formulation of a chemical product 12 R&D R&D costs costs reimbursable reimbursable under under aacontract to to perform perform R&D R&D for Wings Inc., 350,000 Testing for evaluation of new products 25 What Whatisisthe thetotal totalamount amountthe thecompany companyhas hasincurred incurredthat thatcan canbe beidentified identifiedininthe there r development stage?

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

22. 22.Research Researchand anddevelopment developmentcosts costsfor forHeadway HeadwayCorporation Corporationfor forthe theyear yearended endedDe D 2014: Project ProjectA: A:Expected Expectedtotal totalrevenues revenuesP7,000,000, P7,000,000,starting startingininearly early2013. 2013.Expected Expectedtot to be beP5,000,000. P5,000,000.Costs Costsincurred incurredto todate, date,all allin in2014 2014are areP2,200,000. P2,200,000. Project Project B: B: Expected Expected total total revenues revenues P6,000,000. P6,000,000. Costs Costs incurred incurred toto date date are are Expected Expectedtotal totalcosts costsare areP4,500,000. P4,500,000.The Thecommencement commencementofofcommercial commercialsales salesisisun u to toproblems problemsin inraising raisingfunds fundsto tocover coverthe thefinal finaldevelopment developmentcosts. costs. Project ProjectC: C:Expected Expectedtotal totalrevenues, revenues,P3,500,000 P3,500,000with withP1,000,000 P1,000,000ofofrevenue revenuealread alrea 2014. 2014.Total Totaldevelopment developmentcosts costsincurred, incurred,all allin in2014, 2014,were wereP3,800,000. P3,800,000. Research Researchprojects: projects:Total Totalcosts costsspent spentin in2014 2014were wereP1,500,000. P1,500,000. 22.1 22.1What Whatamount amountofofdevelopment developmentcosts costsshould shouldHeadway HeadwayCompany Companycapitalize capitalizeinin201 20 a. 2,200,000 b. 5,700,000 c. 6,000,000 d. 7,500,000 22.2 22.2Of Ofthe thetotal totalactual actualcost costincurred incurredinin2014, 2014,how howmuch muchshould shouldbe berecognized recognizedou o expense? a. 1,500,000 b. 2,200,000 c. 3,500,000 d. 5,000,000 22.3 22.3What Whattotal totalamount amountshould shouldbe becharged chargedagainst againstincome incomeinin2014 2014related relatedtotothe there r development costs? a. 1,500,000 b. 5,000,000 c. 5,300,000 d. 6,300,000

23. 23.On OnJanuary January2,2,2014, 2014,Firearm FirearmCorp. Corp.Signed Signedan aneight-year eight-yearlease leaseofofoffice officespace. space.Fire Fire option optiontotorenew renewthe thelease leasefor foran anadditional additionalfour-year four-yearperiod periodon onor orbefore beforeJanuary January2,2,2 January January 2013, 2013, Firearms Firearms has has incurred incurred the the following following costs: costs:  P1,200,000 for general general improvements improvements to the leased premises with estimate of ten years.  P500,000 for office furniture and equipment with estimated useful life of ten y At AtDecember December31, 31,2014, 2014,Firearms Firearmsintention intentionas astotoexercise exerciseofofthe therenewal renewaloption optionare are full fullyear’s year’samortization amortizationofofleasehold leaseholdimprovements improvementsisistaken takenfor forcalendar calendaryear year2014. 2014. 

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Financial Financial Accounting Accounting and and Reporting Reporting Intangible Assets

24. 24.At Atthe thebeginning beginningofofthe thecurrent currentyear, year,Ex ExCompany Companyacquired acquiredaa5-year 5-yearlease leaseon onland land from from another another entity entity atat an an annual annual rental rental ofof P1,200,000. P1,200,000. On On the the same same date, date, the the P2,400,000 P2,400,000reprensenting reprensentingrental rentalfor forthe thefirst firstyear yearand andan anadvance advancerental rentalfor forone oneyea yea applied applied for for the the last last year year ofof the the lease lease contract. contract. Moreover, Moreover, the the entity entity paid paid P2,00 P2,0 signing signingofofthe thecontract contracttotoobtain obtainright righttotothe thelease. lease.Improvement Improvementand andalteration alterationwe w the the building building at at aa cost cost of of P500,000. P500,000. 24.1 24.1 What What is is the the rent rent expense expense for for the the current current year? year? a. 1,200,000 b. 2,400,000 c. 3,600,000 d. 1,800,000 24.2 24.2What What isisthe theamortization amortizationof ofleasehold leaseholdfor forthe thecurrent currentyear? year? a. 500,000 b. 400,000 c. 200,000 d. 0 24.3 24.3What Whatisisthe thedepreciation depreciationof ofleasehold leaseholdimprovement improvementfor forthe thecurrent currentyear? year? a. 900,000 500,000 b. c. 100,000 d. 0 25. 25.On OnJanuary January1,1,2015, 2015,Bay BayCompany Companyacquired acquiredaaland landlease leasefor for21 21years yearswith withno nooptio opti The Thelease leaserequired requiredthe thelessee lesseetotoconstruct constructaabuilding buildingininlieu lieuofofrent. rent.The Thebuilding buildingco c January January1,1,2016, 2016,atataacost costofofP8,400,000, P8,400,000,isisdepreciated depreciatedusing usingthe thestraight straightline lineme me end endofofthe thelease, lease,the thebuilding’s building’sestimated estimatedfair fairvalue valueisisP4,200,000. P4,200,000.The Theuseful usefullife lifeofo is 25 years. What Whatisisthe thecarrying carryingamount amountof ofthe thebuilding buildingon onDecember December31, 31,2016? 2016? a. 7,980,000 b. 8,064,000 c. 8,232,000 8,190,000 d....