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DEVRY ACCT 553 Midterm Exam.pdf

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(TCO C) Sisco Co. purchased a patent from Thornton Co. for $180,000 on July 1, 2008.
Expenditures of $68,000 for successful litigation in defense of the patent were paid
on July 1, 2011. Sisco estimates that the useful life of the patent will be 20 years from
the date of acquisition.
Prepare a computation of the carrying value of the patent at December 31, 2011.
(TCO C) Fred’s Company is considering the write-off of a limited life intangible asset
because of its lack of profitability. Explain to the management of Fred’s how to
determine whether a writeoff is permitted.


(TCO D) Edwards Co. includes one coupon in each bag of dog food it sells. In
return for four coupons, customers receive a dog toy that the company purchases for
$1.20 each. Edwards’s experience indicates that 60 percent of the coupons will be
redeemed. During 2010, 100,000 bags of dog food were sold, 12,000 toys were
purchased, and 40,000 coupons were redeemed. During 2011, 120,000 bags of dog
food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Determine the premium expense to be reported in the income statement and the
estimated liability for premiums on the balance sheet for 2010 and 2011.

(TCO D) Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1,
2010 and received cash totaling $5,323,577. The bonds pay interest semiannually on
May 1 and November 1. The maturity date on these bonds is November 1, 2018. The
firm uses the effective-interest method of amortizing discounts and premiums. The
bonds were sold to yield an effective-interest rate of 10%.
Calculate the total dollar amount of discount or premium amortization during the
first year (5/1/10 through 4/30/11) these bonds were outstanding. (Show
computations and round to the nearest dollar.)
(TCO D) Hurst, Incorporated sold its 8% bonds with a maturity value of
$3,000,000 on August 1, 2009 for $2,946,000. At the time of the sale, the bonds had
five years until they reached maturity. Interest on the bonds is payable semiannually
on August 1 and February 1. The bonds are callable at 104 at any time after August 1,
2011. By October 1, 2011, the market rate of interest has declined and the market
price of Hurst’s bonds has risen to a price of 101. The firm decides to refund the