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1. On October 1, 20X1, a company purchased a piece of land by agreeing to pay the seller $450,000 in two years. If the company had borrowed the money from a bank to pay the seller immediately, management estimates the bank would have required interest of 9%. Calculate the amount of interest expense the company would record for its year ending December 31, 20X1 (rounded to the nearest dollar).

Multiple Choice

• $40,500.

• $9,289.

• $10,125.

• $8,522.

2. During 20X1, the Balboa Software Company incurred development costs of $2,000,000 related to a new software project. Of this amount, $400,000 was incurred after technological feasibility was achieved. The project was completed in the middle of the year and the product was available for release to customers on July 1. Revenues from the sale of the new software in 20X1 were $500,000 and the company anticipated future additional revenues of $4,500,000. The economic life of the software is estimated at four years. What amount of the software development costs would be capitalized in 20X1 (ignore amortization)?

Multiple Choice

• $2,000,000

• $1,600,000

• $400,000

• $0

3. On August 25, a privately owned company exchanged 10,000 shares of its private common stock for land. There is no readily available estimate of the stocks fair value but the land has a current appraised value of $240,000. The seller originally bought the land for $200,000 two years ago. The journal entry the buyer records for acquisition of the land includes:

Multiple Choice

• A credit to common stock of $200,000.

• A credit to gain of $40,000.

• A debit to equipment for $240,000.

• All of these answer choices are correct.

4. Which of the following best justifies the FASBs approach to reporting research and development costs?

Multiple Choice

• Most companies spend minor amounts on research and developments so those costs are expensed for practical expediency.

• The amounts and timing of future benefits related to research and development costs are difficult to determine so those costs are expensed immediately.

• Some companies prefer to capitalize research and development to report higher profitability so the FASB allows capitalization for those that voluntarily choose to do so.

• Companies are allowed to capitalize research and development costs when it is probable those costs will lead to future benefits.