1. 1. On July 5 a fire destroyed the entire inventory of Kinard Music Mart. The following information is available from its accounting records:

   Inventory January 1	$211,000
   Purchases Jan 1 - July 5	$500,000
   Sales Jan 1 - July 5	$900,000
   Normal gross margin	30%

   Required: Compute the estimated cost of inventory lost in the fire.

   		$81,000
   		$630,000
   		$711,000
   		$441,000

   2. Wendell Corporation exchanged an old truck and $25,500 cash for a new truck. The old truck had a book value of $6,000 (original cost of $25,000 less $19,000 in accumulated depreciation) and a fair value of $7,700. Required: 1. What is the gain/loss from this exchange assuming that the exchange has commercial substance. 2. What is the gain/loss from this exchange assuming that the exchange lacks commercial substance.

   		Has commercial substance = $1,700 gain Lacks commercial substance = 0
   		Has commercial substance = $1,700 loss Lacks commercial substance = 0
   		Has commercial substance = 0 Lacks commercial substance = $1,700 gain
   		Has commercial substance = $1,700 gain Lacks commercial substance = $1,700 loss

   1. 3. Mad Hatter Enterprises purchased new equipment for $365,000, terms f.o.b. shipping point. Other costs connected with the purchase were as follows:

      State sales tax	$29,200
      Freight costs	$5,600
      Insurance while in transit	$800
      Insurance after equipment placed in service	$1,200
      Installation costs	$2,000
      Insurance for the first year of operation	$2,400
      Testing	$700

      Required: Determine the capitalized cost of the equipment.

      		$365,000
      		$402,500
      		$406,900
      		$403,300

      1. 4. On January 1, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is expected to last 10 years and has a residual value of $6,000. During its 10-year life, the equipment is expected to produce 500,000 units of product. In year one 25,000 units were produced. In year two 84,000 units were produced. What is the amount of depreciation for year one and year two and the book value of the drill press at December 31, year one and year two, assuming the straight-line method is used:

         		First year depreciation = $3,600 Second year depreciation = $3,600 First year book value = $32,400 Second year book value = $28,800
         		First year depreciation = $3,000 Second year depreciation = $3,000 First year book value = $36,000 Second year book value = $33,000
         		First year depreciation = $3,000 Second year depreciation = $3,000 First year book value = $33,000 Second year book value = $30,000
         		First year depreciation = $3,600 Second year depreciation = $7,200 First year book value = $32,400 Second year book value = $28,800

      7. On September 30, Morgan, Inc. acquired all of the outstanding common stock of Pathways, Inc., for $100 million. In addition to tangible assets, Morgan recorded the following assets as a result of the acquisition: Morgan's policy is to amortize intangible assets using the straight-line method, no residual value, and a six-year useful life.

      Patent - $6 million Developed Technology - $3 million In process research and development - $2 million Goodwill - $7 million Required: What is the total amount of expenses related to these items that would appear in Morgan's income statement in the year of acquisition? Morgan's year end is December 31.

      		$750,000
      		$3 million
      		$1.5 million
      		$375,000