Question 3

A: Pharoah Company acquired a patent on an oil extraction technique on January 1, 2020 for $7100000. It was expected to have a 10 year life and no residual value. Pharoah uses straight-line amortization for patents. On December 31, 2021, the future cash flows expected from the patent were $780000 per year for the next eight years. The present value of these cash flows, discounted at Pharoahs market interest rate, is $4000000. At what amount should the patent be carried on the December 31, 2021 balance sheet?

$5680000.

$6240000.

$4000000.

$7100000.

B:

Pharoah Manufacturing Company acquired a patent on a manufacturing process on January 1, 2020 for $5200000. It was expected to have a 10 year life and no residual value. Pharoah uses straight-line amortization for patents. On December 31, 2021, the future cash flows expected from the patent were $440000 per year for the next eight years. The present value of these cash flows, discounted at Pharoahs market interest rate, is $2500000. At what amount should the patent be carried on the December 31, 2021 balance sheet? $2500000.

$5200000.

$4160000.

$3520000.

C

Marigold Corp. has $3060000 of short-term debt it expects to retire with proceeds from the sale of 85000 shares of common stock. There is no contractual agreement to retire the debt with the stock sale proceeds. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?

$3060000.

$935000.

$0, No contractual agreement to retire the debt with stock proceeds.

$2125000.

D:

Presented below is information available for Waterway Industries.

Current Assets
Cash		$	3600
Short-term investments			56400
Accounts receivable			62000
Inventory			102000
Prepaid expenses			32000
Total current assets		$	256000

Total current liabilities are $50000. The acid-test ratio for Waterway is:

5.12 to 1

4.48 to 1

2.44 to 1

1.20 to 1