Question

Dougherty Corporation purchased a new delivery van for use in its dry cleaning business. As part of the purchase of the van the following costs were incurred: Acquisition cost 30,000, Sales tax 1,800, Title transfer 250, and two year service contract 1,600. What would be the capitalized cost of the van in Dougherty’s financial statements?

$30,000

$32,050

$30,250

$33,650

When is goodwill recognized and reported as an intangible asset in a company’s balance sheet?

The market value of a firm’s stock exceeds the fair value of its net identifiable assets.

The company acquires another business and pays an amount in excess of the fair value of the net identifiable assets of the acquired firm.

When the company reports both sales and net income growth exceeding 8% in 5 consecutive years.

Any of the above, at the discretion of the firm’s management.

Barton Inc, a U.S. corporation, includes buildings on its 12/31/2018 balance sheet with a “book value” of $54,000,000 (cost of $72,000,000, and accumulated depreciation of $18,000,000). This indicates

The buildings’ fair market value is $72,000,000 at the balance sheet date

$18,000,000 of depreciation expense was recognized on buildings in 2018

The undepreciated cost of the buildings is $54,000,000 at the balance sheet date

The buildings’ fair market value is lower on 12/31/18 than it was on 12/31/17

Brantley Company sells electronic fish finders with a one-year warranty. At 12/31/17 the estimated warranty liability on Brantley’s balance sheet showed a balance of $11,600. During 2018, Brantley sold $960,000 fish finders and estimates that warranty costs will be 2.5% of sales. Also, during 2017, Brantley    performed warranty repairs of $22,800. What amount of warranty expense would Brantley recognize on their 2017 income statement?

$24,000

$12,800

$34,000

$22,800

On September 1, Clogged Gutters Inc. borrows $180,000 from Second National Bank on a 6 month, $180,000, 4% note. What adjusting entry must Clogged Gutters make on December 31 before financial statements are prepared?

Interest Payable                        900                       Interest Expense                                   900

Interest Expense                       3,600                 Interest Payable                                    3,600

Interest Expense                          900                 Interest Payable                                       900

Interest Expense                          900                 Notes Payable                                 900

Answer 1

1

Capitalized cost of the van=Acquisition cost+Sales tax +Title transfer

Capitalized cost of the van= 30000+1800+250 = $32,050

Option 2 is correct

2

The company acquires another business and pays an amount in excess of the fair value of the net identifiable assets of the acquired firm.

Option 2 is correct

3

This indicates the undepreciated cost of the buildings is $54,000,000 at the balance sheet date

Option 3 is correct

4

Warranty expense in 2017 income statement = 960000*2.50%= $24000

Option 1 is correct

5

Interest expense = 180000*4%*4/12= $2400

Interest Expense                       2,400                 Interest Payable                                    2,400

Note: The options given for Question 5 do not match with the correct answer.

The possible reason might be interest rate has been wrongly stated

In case interest rate of 6% in assumed, the entry will be:

Interest Expense                       3,600                 Interest Payable                                    3,600

Option 2 is correct assuming interest rate of 6%

Option 1 and Option 4 have incorrect journal entries