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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%.