Question
6)On June 1, 2015, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2016. Expenditures on the
6)On June 1, 2015, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2016. Expenditures on the project were as follows ($ in millions):
July 1, 2015 | 54 |
October 1, 2015 | 22 |
February 1, 2016 | 30 |
April 1, 2016 | 21 |
September 1, 2016 | 20 |
October 1, 2016 | 6 |
On July 1, 2015, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2016. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2015 and 2016. The company's fiscal year-end is December 31. What is the amount of interest that Crocus should capitalize in 2015, using the specific interest method?
$1.95 million.
$2.96 million.
$1.90 million.
None of these answer choices are correct.
7)Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were:
Book Value | Fair Value | |
Current assets (net) | $130,000 | $125,000 |
Property, plant, equip. (net) | 600,000 | 750,000 |
Liabilities | 150,000 | 175,000 |
Lake would record goodwill of:
$0.
$250,000.
$445,000.
$75,000.
8)Research and development (R&D) costs:
Must be capitalized and amortized.
None of these answer choices are correct.
May be expensed or capitalized, at the option of the reporting entity.
Generally pertain to activities that occur prior to the start of production.
9)Assets acquired under multi-year deferred payment contracts are:
Valued at their fair value on the date of the final payment.
Valued at the present value of the payments required by the contract.
None of these answer choices are correct.
Valued at the sum of the payments required by the contract.
10)Below is information relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.
Old Equipment | Cash | ||
Book Value | Fair Value | Received | |
Case A | $75,000 | $80,000 | $12,000 |
Case B | $60,000 | $56,000 | $10,000 |
In Case A, Pensacola would record the new equipment at:
$68,000.
$63,750.
$80,000.
$67,250.
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