ACCT 301 Chapter Notes - Chapter 10: Intangible Asset
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7. Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,150,000 in 2018 for the mining site and spent an additional $630,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately 4 years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
Cash Outflow | Probability | |||||
1 | $ | 330,000 | 25 | % | ||
2 | 430,000 | 40 | % | |||
3 | 630,000 | 35 | % | |||
To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $150,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 10%.
Required:
1. Determine the cost of the copper mine.
2. Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment.
Determine the cost of the copper mine. (Do not round intermediate calculations. Round your answer to the nearest whole dollar.)
Cost of copper mine?
Prepare the journal entries to record the acquisition costs of the mine and the purchase of equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollars.)
8. In 2018, Bratten Fitness Company made the following cash purchases:
The exclusive right to manufacture and sell the X-Core workout machine from Symmetry Corporation for $203,000. Symmetry created the unique design for the machine. Bratten also paid an additional $11,500 in legal and filing fees to attorneys to complete the transaction.
An initial fee of $260,000 for a three-year agreement with Silverâs Gym to use its name for a new facility in the local area. Silverâs Gym has locations throughout the country. Bratten is required to pay an additional fee of $5,300 for each month it operates under the Silverâs Gym name, with payments beginning in March 2018. Bratten also purchased $403,000 of exercise equipment to be placed in the new facility.
The exclusive right to sell Healthy Choice, a book authored by Kent Patterson, for $22,000. The book includes healthy recipes, recommendations for dietary supplements, and natural remedies. Bratten plans to display the book at the check-in counter at its new facility, as well as make it available online.
Required:
Prepare a summary journal entry to record expenditures related to initial acquisitions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Can someone please provide the solutions. No explanation needed,just the answers so I can double check my work.
2. Firms with tangiblelong-term assets and less predictable cash flows, such as automanufacturers and steel companies, whose sales vary with changes ineconomic conditions, tend to use
a. | a more nearly equal mix of long-term debt and shareholdersâequity financing. |
b. | a greater amount of long-term debt [80%] than shareholdersâequity financing [20%]. |
c. | a smaller amount of long-term debt [20%] than shareholdersâequity financing [80%]. |
d. | a greater amount of long-term debt [80%] than assets [20%]. |
e. | a greater amount of shareholdersâ equity [80%] than assets[20%]. |
3. During Year 3,Carrington Company made the following expenditures relating toplant machinery and equipment:
· | Continuing, frequent, and low cost repairs | $46,000 |
· | Special long-term protection devices were attached to tenmachines | 11,000 |
· | A broken gear on a machine was replaced | 5,000 |
How much should be charged to repairs and maintenance in Year3?
a. | $46,000 |
b. | $51,000 |
c. | $57,000 |
d. | $41,000 |
e. | none of the above |
4. Which of the followingis/are not capitalized as an intangible asset?
a. | costs of an internally developed patent |
b. | legal costs to defend a patent successfully |
c. | goodwill acquired when a company purchases another company |
d. | costs to purchase a patent |
e. | none of the above |
5. Repairs and maintenancedo not include
a. | the costs of restoring an asset's service potential afterbreakdowns. |
b. | expenditures that increase the asset's life. |
c. | routine costs such as for cleaning and adjusting. |
d. | major tune-ups including labor and parts. |
e. | All of the above are not considered to be repairs ormaintenance. |
12. Sigma Company suffers a loss to itsbuilding in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-livedassets lost in the fire, and $20,000 represents improvements to thebuilding. Which of the following is the single journal entry thatSigma Company will make?
a. | Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
b. | Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
c. | Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000 Building . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 20,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 80,000 |
d. | Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 20,000 Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 80,000 Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
e. | Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000 Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 100,000 |
16. Firms treat expenditures as assetswhen they:
a. | have acquired rights to the future use of a resource as a resultof a past transaction or event. |
b. | can reliably measure the cost of the expected benefits at thetime of initial recognition. |
c. | can exercise the entityâs right to, or control of, thebenefit. |
d. | can obtain the future service potential and control othersâaccess to it. |
e. | all of the above |
Clarion Realty
Clarion Realty has decided to construct its own office building.The construction will be partially financed through a constructionloan and any remainder will be financed from internally generatedfunds. The internal accountants have collected the followinginformation concerning the construction.
Average Balance | Construction | Other | |
Year | Construction Account | Debt @ 6% | Debt @ 10% |
1 | $2,000,000 | $1,000,000 | $500,000 |
2 | $4,000,000 | $1,000,000 | $250,000 |
3 | $3,000,000 | $800,000 | $200,000 |
22. The amount, if any, of capitalizedinterest cost for Year 1 is
a. | $0 |
b. | $50,000 |
c. | $60,000 |
d. | $110,000 |
e. | $170,000 |
23. The amount, if any, of capitalizedinterest cost for Year 2 is
a. | $0 |
b. | $50,000 |
c. | $60,000 |
d. | $180,000 |
e. | $230,000 |
33. When a firm constructs its ownbuildings or equipment:
a. | it recognizes the labor, material, and overhead costs incurredas an asset. |
b. | U.S. GAAP and IFRS require firms to include, or capitalize,interest costs during construction in the cost of aself-constructed asset. |
c. | it recognizes the labor, material, and overhead costs incurredas a period expense. |
d. | U.S. GAAP and IFRS require firms to expense interest costsincurred during construction of a self-constructed asset. |
e. | both choices a and b are correct. |