On January 1, 2002, Will Company began construction of a new building for its own use. It wascompleted and put to productive use on December 31, 2002. Will has a December 31 year-end.Construction Costs IncurredDate AmountJan. 1, 2002 $200,000May 1, 2002 360,000Aug 1, 2002 480,000Dec 1, 2002 120,000.

On January 1, 2002 Will borrowed $500,000 at 12% to help finance the construction, signing aone-year construction loan. In addition, Will had the following long-term debt outstandingthroughout 2002.5% bonds (maturing in 2012) $400,0008% bonds (maturing in 2011) $800,000

Compute avoidable interest for 2002:

a) $39,000b) $43,400c) $70,500d) $42,250e) $73,5003.

Horn Co. and Block Co. exchanged nonmonetary assets in a transaction that did not havecommercial substance for either party. Horn paid cash to Block that was equal to 15% of the fairvalue of the exchange. For both Horn and Block, the fair value of the asset exchanged exceededthe book value. A realized gain on the exchange should be recognized by

a) both Horn and Blockb) Horn, but not Blockc) Block, but not Hornd) neither Horn nor Block.

Hagen Co. exchanged a truck with a carrying amount of $12,000 and a fair value of $20,000 for atruck and $5,000 cash. The fair value of the truck received was $15,000. The exchange was notconsidered to have commercial substance. At what amount should Hagen record the truckreceived in the exchange?

a) $7,000b) $9,000c) $12,000d) $15,000e) $20,000

A machine cost $72,000, has annual depreciation of $12,000, and has accumulated depreciation of$54,000 on December 31, 2003. On April 1, 2004, when the machine has a market value of $16,500, it isexchanged for a new machine with a fair value of $81,000 and the proper amount of cash is paid.

5. If the exchange lacked commercial substance, the gain to be recorded is:

a) $0b) $1,500 gainc) $3,000 gaind) $9,000 gaine) $1,195 gain

6. If the exchange lacked commercial substance, the new machine should be recorded at :

a) $64,500b) $73,500c) $79,500d) $81,000e) $65,000

7. If the exchange has commercial substance, the new machine should be recorded at:

a) $64,500b) $73,500c) $79,500d) $81,000e) $65,000

8. Sears Corporation, which has a calendar year accounting period, purchases a new machine for$40,000 on April 1, 2002. At that time, Sears expected to use the machine for nine years andthen sell it for $4,000. The machine was sold for $22,000 on September 30, 2007. Assumingstraight-line depreciation, no depreciation in the year of acquisition and a full year of depreciationin the year of retirement, the gain to be recognized at the time of sale would be:

a) $2,000b) $5,000c) $3,000d) $4,000e) $0

9. In January 2012, Colonial Company purchased equipment for $120,000 to be used in itsmanufacturing operations. The equipment was estimated to have a useful life of 8 years, withsalvage value estimated at $12,000. Colonial considered various methods of depreciation andselected the sum-of-the-years-digits method. On December 31, 2013, the related allowance foraccumulated depreciation should have a balance

:a) $18,000 less than under the straight-line method b) $15,000 less than under the double-declining-balance method c) $18,000 greater than under the straight-line method d) $27,000 greater than under the double declining-balance method e) $5,625 less than under the double declining-balance method

10. Rye Co. purchased a machine with a four-year estimated useful life and an estimated 10%salvage value for $80,000 on January 1, 2002. In its income statement, what would Rye reportas the depreciation expense for 2004 using the double-declining-balance method?

a) $ 9,000b) $10,000c) $18,000d) $20,000

11. On January 1, 2007, Flax Co. purchased a machine for $528,000 and depreciated it by straightlinemethod using an estimated useful life of eight years with no salvage value. On January 1,2010, Flax determined that the machine had a useful life of six years from the date of acquisitionand will have a salvage value of $48,000. An accounting change was made in 2010 to reflectthese additional data. The accumulated depreciation for this machine should have a balance atDecember 31, 2010, of:

a) $292,000b) $308,000c) $320,000d) $352,000e) $204,000

12. During 2004, Bolton Corporation acquired a mineral mine for $3,000,000 of which $400,000 wasestimated to be the value of the land after the mineral has been removed. Geological surveyshave indicated that 10 million units of the mineral could be extracted. During 2004, 1,600,000units were extracted and sold. What was the amount of depletion for 2004?

a) $600,000b) $416,000c) $480,000d) $520,000e) $544,000

13. Turner Companys 12/31/08 balance sheet reports assets of $6,000,000 and liabilities of$2,500,000. All of Turners assets book values approximate their fair value, except for land,which has a fair value that is $400,000 greater than its book value. On 12/31/08, BenedictCorporation paid $6,100,000 to acquire Turner. What amount of goodwill should Benedict recordas a result of this purchase?

a) $ 0b) $ 100,000c) $2,200,000d) $1,000,000e) $2,600,000

On May 31, 2007, Porter Company paid $3,200,000 to acquire all of the common stock of EatonCorporation, which became a division of Porter. Eaton reported the following balance sheet at the time ofthe acquisition:Current assets $800,000 Current liabilities $600,000Noncurrent assets 2,700,000 Long-term liabilities 500,000Stockholders equity 2,400,000Total assets $3,500,000 Total liabilities and stockholders equity $3,500,000It was determined at the date of the purchase that the fair value of the identifiable net assets of Eaton was$2,700,000. At December 31, 2007, Eaton reports the following balance sheet information:DR (CR)Current assets $600,000Noncurrent assets (including goodwill recognized in purchase) 2,400,000Current liabilities (700,000)Long-term liabilities (500,000)Stockholders Equity (1,800,000)The recorded amount for Eatons net assets (excluding goodwill) is the same as fair value, except forproperty, plant, and equipment, which has a fair value of $200,000 above the carrying value.

Assume the 12/31/07 fair value of the Eaton division is $1,700,000.

14. On 5/31/07, Porter Company recorded Goodwill of:

a) $325,000b) $400,000c) $500,000d) $200,000e) $800,000

15. On 12/31/07, the recorded Loss due to Impairment is:

a) $0b) $100,000c) $300,000d) $415,000e) $200,000

16. Poppers Corporation owns machinery with a book value of $155,000. The machinery has a fairvalue of $145,000. It is estimated that the machinery will generate future undiscounted net cashflows of $156,000. Poppers should recognize a loss on impairment of

:a) noneb) $11,000c) $ 1,000d) $10,000e) $ 4,500