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Q1. On january 1, 2011, Hutchinson Pharmaceutical company purchased a patent for a new drug for 7200000 and paid 36000 of legal fees to transfer the tile of the patent. At the time of the purchase, the patent was valid for 20 years. due to the competitive nature of the product, however, the patent was estimated to have a useful life of 12 years with no residue value. On October 1, 2018, the product was permanently removed from the market under governmental order, and deemed worthless, because of a potential health hazard present in the product. What amount should Hutchinson charge(both loss and amortization) against income during 2018?

Q2. Expensing interest costs incurred during the construction of a building that should be capitalized:

A.understates current assets

B. overstates stockholder's equity

C. overstates non-current assets

D. overstates total assets

E. None of the above

Q3. A plant asset with a 15 year useful life and no residual value is sold at the end of the 13th year of its useful life. which of the following statement is correct about using the straight line method of depreciation instead of the sum of the year's method of depreciation for this asset?

A. it increase a possible gain on the sale

B. it increases a possible loss on the sale

C. it does not affect the amount of the gain or loss to be recognized on the sale

D. its effects on a possible gain or loss cannot be determined with the given information

E. none of the above

Answer 1

Question 1:

Amortisation of Patent every year = 7236000/12 = $ 603,000

Amortisation provided till oct 1,2018 = 603000*7 = $ 4,221,000

Balance of Patent on Oct 1,2018 = 7236000 - 4221,000 = $ 3,015,000

This Balance amount as to be charges as Amortisation to Profit & loss for the year 2018.

Question 2:

Option E. None of the Above

Expensing interest costs incurred during the construction of a building that should be capitalized is a Correct Statement & no understatement or overstatement of assets.

Question 3:

Option B. it increases a possible loss on the sale

The Depreciation under Sum of Years digit method will be less than the Depreciation under straight line method.

So, by following Straight line method of depreciation, there will be increase in Possible loss on the sale of the asset.