1 On January 1, 2011, Ace Electronics purchased a patent for $2,000,000 cash, wh

Question

1   On January 1, 2011, Ace Electronics purchased a patent for $2,000,000 cash, which allows Ace the exclusive legal right to manufacture a new microchip for the next 20 years. However, Ace thinks that the useful life of the patent is only 5 years because rapid changes in technology will make the microchip obsolete. For 2011, Ace should report___.

A.            depreciation expense of $100,000

B.            amortization expense of $400,000

C.            amortization expense of $100,000

D.            depreciation expense of $400,000

I know its amortization but is it 100,000 or 400,000

what equation is this?

2 In February, one of Team Shirts best customers went bankrupt owning Team Shirts $85. Team Shirts uses the sales method estimating bad debts. February sales were $15,000. The accountant has been using 3% of sales as the estimated bad debts percentage. Before adjustment and the write off, the balance in the allowance for uncollectible accounts was $(100). After the write off and adjustment, the balance in the allowance for uncollectible accounts should be___.

A.    $365

B.    $450

C.    $550

D.    $465

3   Ace Company sells goods FOB destination. The shiping costs___.

A.            appear on Ace

Explanation / Answer

The correct Answers are

(1) Option B. amortization expense of $400,000.

      Working:

      ($ 2,000,000 / 5 Years.) because estimated useful life has been reduced.

(2) Option D. $465

     Working

     $ 100 + ($ 15,000 X 3%) - $ 85

(3) Option A. appear on Ace

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