Question
1. DG Company acquired all of the outstanding common stock of AB Company for $76,000,000. The book values and fair values of AB Company assets
1. DG Company acquired all of the outstanding common stock of AB Company for $76,000,000. The book values and fair values of AB Company assets and liabilities are as follows: |
| Book Value | Fair Value |
Current assets | $30,000,000 | $28,000,000 |
Property, plant and equipment | 29,000,000 | 49,000,000 |
Other assets | 4,500,000 | $ 6,500,000 |
Current liabilities | 3,500,000 | 3,500,000 |
Long-term liabilities | 6,500,000 | 9,000,000 |
The amount DG Company records as goodwill is: |
| $5,000,000 | ||
| $73,500,000 | ||
| $9,500,000 | ||
| $2,500,000 | ||
| QMG purchases a new machine and makes the following expenditures in the current period. |
| |
|
|
Purchase price of machine | $ 72,000 |
Sales tax | 5,200 |
Shipment of machine | 1,230 |
Shipping insurance for machine | 130 |
Installation of the machine | 1,300 |
Utility bill for the first month of use | 730 |
Insurance on the machine for the first year | 330 |
Yearly routine maintenance | 1,250 |
Repair costs for a broken fan belt on the machine | 130 |
Replace machine motor with a new turbo motor that will last 3 years longer than original motor | 9,300 |
Add a muffler to the machine that makes it run quieter | 530 |
2.QMG should record the cost of the machine at: |
| $92,130 | ||
| $90,020 | ||
| $89,690 | ||
| $89,160
| ||
| 3. COF Company purchases new high tech manufacturing equipment for $106,000 on January 1 of the current year. COF Company estimates a residual value of $13,000 and a five year service life. COF Company uses straight line depreciation. |
| |
The book value at the end of year 4 is |
| $93,000 | ||
| $74,400 | ||
| $31,600 | ||
| $13,000 | ||
| 4. Sandwich Express acquires franchise rights to market Real Life Hero Sandwiches for $290,000. The franchise agreement is for 10 years. If Sandwich Express uses straight line amortization, the yearly amortization expense is |
| |
| $39,000 | ||
| $24,000 | ||
| $34,000 | ||
| $29,000 | ||
| 5. On January 1 of year 1, SBL Company purchases a patent for $245,000. The remaining legal life of the patent is 20 years but SBL Company estimates the useful life of the patent to be 5 years. On December 31 of the current year, SBL Company pays $59,000 in attorney fees at the end of a successful defense of a patent infringement suit. The useful life of the patent remains the same. SBL Companys year-end is December 31. The amount of amortization expense in year two is |
| |
| $63,750 | ||
| $73,750 | ||
| $43,750 | ||
| $53,750 | ||
| 6. OCP Company purchased a machine on January 1 of year 1 and sells the machine at the end of year 2. OCP Company uses straight-line-depreciation. Other relevant information is |
| |
|
| |
Original cost of the machine | $ | 70,000 |
Estimated residual value | $ | 20,000 |
Estimated service life |
| 5 |
Sales price at the end of year 2 | $ | 67,000 |
The gain or loss on the sale of the machine is:
| $3,000 gain $17,000 loss |
| $47,000 loss |
| $17,000 gain |
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