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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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