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1)Assume that X incurs $180,000 in legal costs on March 1, 2017, to successfully defend a patent
1)Assume that X incurs $180,000 in legal costs on March 1, 2017, to successfully defend a patent. The patent’s useful life is 12 years, amortized on a straight-line basis. The adjusting entry on December 31, 2017 is ------
Select one:
a. Dr. Amortization expense $12,500 and Cr. Patent or Accumulated Amortization $12,500.
b. Dr. Depreciation expense $16,000 and Cr. Patent or Accumulated Amortization $16,000.
c. Dr. Depreciation expense $180,000 and Cr. Patent or Accumulated Amortization $180,000.
d. Dr. Depreciation expense $120,000 and Cr. Patent or Accumulated Amortization $120,000.
Clear my choice
Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.
Select one:
a. True.
b. False.
2)On January 1, 2020 X company borrowed 3-year $10,000, 10% interest bearing notes from Arab bank. The interest is payable on December 31. The market interest rate is 0.12. the cash will be received from Arab Bank is ----------------
Select one:
a. $9,000.
b. $10,000.
c. $9,520.
d. $11,000.
Clear my choice
Partial depreciation is used when the company purchase asset at the beginning of fiscal year.
Select one:
a. False
b. True
Expert Solution
1)The legal costs to defend a patent are amortized over the useful life of the patent. Amortization per year is $180,000/12 = $15,000 per year. In 2017 amortization will be charged for 10 months from March 1, 2017 to December 31, 2017. So amortization expense will be $15,000/12*10 =$12,500. Amortization expense is debited for $12,500 and Patent or Accumulated amortization is credited for $12,500. Hence the right answer is option a.
Answer is b. False
Amortization of premium decreases the interest expense. Premium on bonds payable is a credit balance and when it is amortized it is debited and credit is given to interest expense account. Hence interest expense will reduce
Amortization of discount increases the interest expense. Discount on bonds payable is a debit balance and when it is amortized it is credited and debit is given to interest expense account. Hence interest expense will increase.
2)solution 1
(b) $ 10000
in the question , only the cash recceived from bank to the company is asked .So only the principal amount of $10000 will be given by the bank to the borrowing company.And when the note matures company pays the bank principal amount plus interest.
solution 2
(a) false
partial depreciation can only be used if the asset is purchased in the middle of the fiscal year.
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