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15. (TCO D) On January 1, Patterson Inc. issued $5,000,000, 9%
bonds for $4,695,000. The market rate of interest for these bonds is
10%. Interest is payable annually on December 31. Patterson uses
the effective-interest method of amortizing bond discount. At the
end of the first year, Patterson should report unamortized bond
discount of (Points: 5)
(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.
(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.
3. (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.
4. (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%.