Alexandria Company started a research and development project on a new product on January 1, 2021. Total cost incurred before reaching technological feasibility amounted to P4,000,000 while development cost after reaching technological feasibility amounted to P5,000,000 before year-end. Prior to commercial production, the entity paid legal and registration fees amounting to P1,000,000 in filing for a patent on the new product on July 1, 2021. Early in January 2022, an additional amount of P2,000,000 was incurred to develop the project to full manufacturing stage. The patent was approved in early January 2022 and valid for 20 years. However, the entity expected technological advancements will render the new product virtually obsolete by December 31, 2026. The entity decided to account separately any capitalized development cost. 1. What amount should be capitalized as cost of patent? a. 1,000,000 b. 6,000,000 c. 7,000,000 d. 5,000,000 2. What amount should be capitalized as development cost? a. 5,000,000 b. 7,000,000 c. d. 6,000,000 3. What total amount should be reported as amortization of intangible assets for 2022? a. 1,600,000 b. 1,000,000 200,000 d.

Alexandria Company started a research and development project on a new product on January 1, 2021. Total cost incurred before reaching technological feasibility amounted to P4,000,000 while development cost after reaching technological feasibility amounted to P5,000,000 before year-end. Prior to commercial production, the entity paid legal and registration fees amounting to P1,000,000 in filing for a patent on the new product on July 1, 2021. Early in January 2022, an additional amount of P2,000,000 was incurred to develop the project to full manufacturing stage. The patent was approved in early January 2022 and valid for 20 years. However, the entity expected technological advancements will render the new product virtually obsolete by December 31, 2026. The entity decided to account separately any capitalized development cost. 1. What amount should be capitalized as cost of patent? a. 1,000,000 b. 6,000,000 c. 7,000,000 d. 5,000,000 2. What amount should be capitalized as development cost? a. 5,000,000 b. 7,000,000 c. d. 6,000,000 3. What total amount should be reported as amortization of intangible assets for 2022? a. 1,600,000 b. 1,000,000 200,000 d.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

On January 1, 2021, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $412,184 and has an expected economic life of five years. Aqua expects the residual value at December 31, 2024, to be $50,000. Negotiations led to Maywood guaranteeing a $70,000 residual value. Equal payments under the lease are $100,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Maywood is aware that Aqua used a 5% interest rate when calculating lease payments.Required:1. Prepare the appropriate entry for Maywood on January 1, 2021, to record the lease.2. Prepare all appropriate entries for Maywood on December 31, 2021, related to the lease.
Apollo Medical Supplies Ltd borrowed $25 million to finance an investment in a laboratory for developing and testing surgical supplies on 1 July 2019. The loan is due 30 June 2029. The lender insisted on a debt covenant in the loan agreement, specifying that the leverage ratio not exceed 60%. Apollo Medical Supplies Ltd complied with the requirement in 2020 when the ratio of total liabilities to total tangible assets was 58%. Apollo Medical Supplies Ltd also invested in plant and equipment used exclusively to manufacture polyester surgical masks. However, due to a decline in demand for polyester surgical masks, analysts are predicting that the company may need to write-down some of its plant and equipment. Requireda) Debt covenants or restrictions are commonly used in lending agreements. Discuss how they are used to reduce agency problems that exist in the relationship between management and lenders.b) Why would management choose to enter into a lending agreement that contains a…
Damian Company operates a construction company. On January 1, 2021, Damian Company negotiates a new contract with Horton Hockey Association and agrees to construct a large complex for the hockey association in four phases over a 12-month period at a total cost of $1,600,000. The complex will not be usable until all construction is complete. On January 1, 2021, Horton pays Damian a refundable deposit of $100,000 and agrees to four installment payments of $375,000. The installment payments are due on March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021. Under the contract terms, Horton has the option of ending the contract if the association is dissatisfied with the construction. To terminate the contract, the hockey association must notify Damian Company before June 30, 2021. If the hockey association decides to terminate the contract, the association will receive the January 1, 2021, refundable deposit of $100,000. If the hockey association provides a timely notice…
Garnet Corporation enters into a 4-year construction contract worth $100 million with Gold company on January 1, 2022. At the end of 2022, construction costs totaled $20 million and Garnet estimates $60 million of construction costs remain. If Garnet uses the percent of completion method to determine revenues, how much revenue will Garnet recognize in 2022 related to the construction contract?
Celestial Holdings Co. began constructing a condominium in January 1, 2017 for a contract price of P1,250,000. The entity has assured collection of its contract and the costs can be reliably estimated. For the year ended December 31, 2018, Celestial billed its client an additional 60% of the contract price. Data relating to the construction are as follows: 2017 2018 2019 Construction in progress 300,000 ? ? Estimated cost to complete ? ? - Cost incurred 250,00 600,000 112,500 Excess of CIP over PB 25,000 (125,000) How much is the Gross Profit/Loss Realized in 2018? Show your good accounting form. Thank you!
On January 15, 2023, Caramel Company enters into a contract to build custom equipment for Candy Company. The contract specified a delivery date of of March 1. The equipment was not delivered until March 31. the contract required full payment of $75,000 30 days after delivery. the revenue for this contract should be
Early in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $330,000 immediately and signing a noninterest-bearing note requiring the company to pay $730,000 on March 28, 2023. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $33,000 were paid at closing. At the end of April, the old building was demolished at a cost of $83,000, and an additional $63,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) May 1 July 30 September 1 October 1…
On February 1, 2023, Armen Inc. entered into a contract to deliver one of its specialty machines to Idris Inc. The contract requires Idris Inc to pay the contract price of $15,000 in advance on February 20, 2023. Idris Inc. pays Armen Inc on February 20, 2023, and Armen Inc delivers the machine (costing $12,600) on February 28, 2023 and Idris Inc starts using the machine on March 3, 2023. When should Armen Inc recognize revenue?
Early In Its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $200,000 Immediately and signing a noninterest-bearing note requiring the company to pay $600,000 on March 28, 2023. An Interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, Insurance, and other closing costs totaling $20,000 were paid at closing. At the end of April, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1. PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) May 1 July 30 September 1 October 1…
A company prepares its financial statements according to International Financial Reporting Standards. During 2024 the company incurred $1,265,000 in research expenditures to develop a new product. An additional $776,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2024 fiscal year. Sale of the product began in 2023. What amount of the above expenditures would be expensed in the 2024 income statement?
Marin Furniture started construction of a combination office and warehouse building for its own use at an estimated cost of €4,360,000 on January 1, 2022. Marin expected to complete the building by December 31, 2022. Marin has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2021 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2023 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2026 (a) * Your answer is incorrect. Assume that Marin completed the office and warehouse building on December 31, 2022, as planned at a total cost of €4,628,000. The following expenditures were made during the period forthis project: January 1, €890,000; April 1, €1.290,000; July 1, €1,690,000; and October 1, €560,000. Excess funds from the construction loans were invested during the period and earned €19,600 of…
On January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $3,200,000, and construction is expected to take 18 months. Drewry is billed and pays $1,600,000 of the contract price on January 2, 2019, and will pay the balance at completion. TI estimates that the cost of construction will be $2,300,000. Drewry includes two performance bonuses in the contact: • U.S. Bonus: If the equipment design receives a U.S. patent by March 15, 2020, Drewry will pay a $200,000 bonus. • International Bonus: If the equipment receives approval for international distribution by January 31, 2020, Drewry will pay a $1,000,000 bonus. The bonuses are payable when a U.S. patent is approved and when international distribution is approved. On the date the contract is signed, TI estimates that there is an 80% chance it will receive U.S. patent protection by March 15, 2020, but only a 30% chance that the equipment will be approved for…