Test Advance Financial Accounting

Qno.1 On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of
$500,000 for $537,907.37, which provides the bondholders with a 10% yield. The bonds are
dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each
year. Aumont Company allocates interest and unamortized discount or premium
on the eff ective-interest basis.

Instructions
(Round answers to the nearest cent.)
a. Prepare the journal entry at the date of the bond issuance.
b. Prepare a schedule of interest expense and bond amortization for 2020–2022.
c. Prepare the journal entry to record the interest payment and the amortization for 2020.
d. Prepare the journal entry to record the interest payment and the amortization for 2022.

Qno.2 Presented below are two independent situations

a. George Gershwin Co. sold $2,000,000 of 10%, 10-year bonds at 104 on

January 1, 2020. The bonds were dated January 1, 2020, and pay interest on July
1 and January 1. If Gershwin uses the straight line method to amortize bond
premium or discount, determine the amount of interest expense to be reported
on July 1, 2020, and December 31, 2020.

b. Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for
$562,500. This price provided a yield of 10% on the bonds. Interest is payable
semiannually on December 31 and June 30. If Kenoly uses the eff ective-interest
method, determine the amount of interest expense to record if fi nancial
statements are issued on October 31, 2020.
A conceptual framework for financial reporting is:

A set of items which make up an entity's financial statements

A set of regulations which govern financial reporting
A set of principles which underpin financial reporting
A set of financial reporting standards
 
Which of the following is not a contributory factor towards faithful representation?
Completeness
 
Freedom from
error
Neutrality
Consistency
The following is selected information for Alatorre Company.
1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2018. The
patent is being amortized over its remaining legal life of 10 years, expiring on January 1,
2028. During 2020, Alatorre determined that the economic benefi ts of the patent would
not last longer than 6 years from the date of acquisition. What amount should be
reported in the balance sheet for the patent net of accumulated amortization, at
December 31, 2020?

2. Alatorre bought a franchise from Alexander Co. on January 1, 2019, for $400,000.
The carrying amount of the franchise on Alexander’s books on January 1, 2019, was
$400,000. The franchise agreement had an estimated useful life of 30 years. Because
Alatorre must enter a competitive bidding at the end of 2021, it is unlikely that the
franchise will be retained beyond 2028. What amount should be amortized for the year
ended December 31, 2020?

3. On January 1, 2020, Alatorre incurred organization costs of $275,000. What amount

of organization expense should be reported in 2020?

4. Alatorre purchased the license for distribution of a popular consumer product on

January 1, 2020, for $150,000. It is expected that this product will generate cash fl ows
for an indefi nite period of time. The license has an initial term of 5 years but by paying a
nominal fee, Alatorre can renew the license indefi nitely for successive 5-year terms.
What amount should be amortized for the year ended December 31, 2020?