Exam 7: Investing Activities

Under current accounting rules an asset is ____________________ when its carrying amount is deemed "not recoverable."

___________________________________ include trade and brand names, trademarks, patents, copyrights, franchise rights, customer lists and goodwill.

Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010. During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000. At the end of 2010 the market value of a share of Judd, Inc. stock has increased to $32 per share. - If Ashley Company accounts for the investment as a minority, passive investment and classifies it as a available-for-sale security the investment will appear in the December 31, 2010 balance sheet at what amount?

All of the following are types of intercorporate investments in capital stock except:

Securities that are purchased in order to take advantage of short-term changes in market value should be classified as ____________________ securities.

U.S. GAAP requires firms to expense immediately all internal expenditures for R&D costs. Alternatively, U.S. GAAP could require firms to capitalize and subsequently amortize all internal expenditures on R&D that have future potential. Required: Why have standard setters chosen not to allow the capitalization alternative? How would analysts be better served if U.S. GAAP required capitalization of R&D costs?

When certain kinds of assets are built that require public welfare and safety expenditures at the end of the asset's life,

Orman Company is a large international canning company. Orman uses straight-line depreciation for financial reporting purposes and accelerated depreciation for tax reporting. The company's tax rate is 35%. Selected financial information about Orman appears below. $\text {Orinan Coipany}$ $\text {Selected Financial data}$ $\text {December 31,}$ 2010 2009 2008 Property, Plant \& Equipment (net) \ 178,454 \ 162,369 \1 55,388 Total Assets 515,685 424,545 410,256 Deferred Tax Liability relating to Temporary Depreciation Differences 25,138 18,245 19,689 Common Shareholders'Equity 302,754 298,564 289,455 Sales \9 86,258 \ 888,965 Cost of GoodsSold \ 693,857 588,920 Depreciation Expense 48,265 39,640 Interest Expense 48,265 75,689 Net Income 124,581 91,025 Required: a. Compute the amount of depreciation expense that Orman recognized for income tax purposes for year 2010 and 2009 . The amount reported as the deferred tax liability relating to temporaty depreciation differencesrepresents the cumulative income tax delayed as of each balance sheet date because Orman uses accelerated depreciation for tax purposes and straight-line depreciation for financial statement reporting b. Compute the fixed asset tunover ratio for years 2010 and 2009 using the amounts reported for financial statement purposes. c. Compute the fixed asset turnover ratio for years 2010 and 2009 using the amount s reported for tax purposes.

The following problem requires some of the following present value information: PV of an ordinary anduity for 20 periods at 10\% 3.5136 PV of an ordinary anumity for 19 periods at 10\% 3.3649 PV of an ordinary anumity for 18 periods at 10\% 3.2014 PV of 1 for 20 periods at 10\% 0.14864 Bioco sold a patent on a new laser process to Agent Co. The sales agreement which was signed on January 1, 2011 requires Agent Co. to pay Bioco $1 million immediately. In addition, Agent is required to pay $600,000 each December 31 for 20 years starting with December 31, 2011. Agent and Bioco estimate that 10 percent is an appropriate interest rate for this arrangement. Required: a. Compute the present value of the receivable on Bioco's books on January 1,2011 imme cliately after receiving the $\$ 1$ million down payment. b. Compute the present value of the receivable on Biotech's books on December 31, 2011. C. Compute the present value of the re ceivable on Biotech's books on December 31,2012 .

Stock Trader, Inc. began operations in 2012. Stock Trader has acquired a number of equity investments during 2012. None have been sold. Stock Trader exerts no influence over any of its investments each of which represents a small percentage of the investee. An analysis of Stock Trader's investment portfolios shows the following totals at December 31, 2012: Available-for-Sale Available-for-Sale \ 49,000 \ 65,000 Aggregate Cost \ 39,000 \ 90,000 Dividends received from investments \ 5,000 \ 9,000 Based on the information provided, describe how Stock Trader would present this information in its financial statements. You should discuss what amounts would appear in each financial statement.

For U.S. GAAP, software development costs are capitalized as intangible assets

An _________________________ occurs when the carrying amount of a company's long-lived assets are not recoverable.

Under the equity method the investor's share of investee income ____________________ the investment account and dividends ____________________ the investment account.

A key characteristic of asset measurement is best described as:

Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP. GAAP defines a carrying amount as "not recoverable" if

Pop, Inc. acquires 100% of the outstanding shares of Snap Corp. for $3,923,450 and accounts for the transaction using the purchase method. The purchase price Pop paid for Snap exceeded Snap's book value for four reasons: 1. Snap's long-term depreciable assets have a market value of $1,250,000. 2. Deferred income taxes of $125,000 arise from the excess of market value over the book value of the depreciable assets. 3. Pop assigns a value of $90,000 to Snap's customer list and records it as an intangible asset. 4. Goodwill exists equal to the difference between the acquisition cost and the market value of the identifiable assets and liabilities acquired. Information about Pop and Snap's balance sheet at the acquisition date and the current market value of Snap's assets appears below: $\text {Consolidated Financial Information}$ $\text {Pop, Inc. and Snap Corp.}$ $\text {Acquisition Date}$ Snap at Current Consolidated Historical Historical Market at Date of Cost-Pop Cost-Snap Value Acq. Assets Current Assets \ 4,230,600 \ 1,330,000 \ 1,330,000 Depreciable Assets less \ 7,245,000 \ 545,000 \ 1,250,000 Accumulated Depreciation Intangible Asset - Customer \ 0 \ 0 \ 90,000 List Goodwill \ 0 \ 0 Total Assets \ 11,475,600 \ 2,275,000 Liabilities and Equities Liabilities \ 6,100,600 \ 1,670,000 \ 1,670,000 Deferred Income Tax Liability \ 0 \ 0 \ 125,000 Shareholders' Equity \ 5,375,000 \ 605,000 Total Liabilities and Equities \1 1,475,600 \2 ,275,000 Required: Complete the table for Snap's current market values and the consolidated amounts at the date of acquisition.

When a company has a minority passive investment it will recognize changes in the market value of the investment as ____________________ gains and losses.

Using the information below calculate the average total depreciable life of the assets: $\text { Information from the Balance Sheet: }$ 2012 2011 Depreciable Assets \ 2,458,600 \ 1,985,400 Accumulated Depreciation Depreciable Assets(Net) \1 ,107,900 \9 39,400 From the Income Statement 2012 Depreciation Expense \3 84,500

Ownership of 50% or more of the voting stock of another company implies an ability to ____________________.