Ans Doc281Y


24. A franchise agreement grants the franchisor an option to purchase the franchisee’s business. It is probable that the option will be exercised. When recording the initial franchise fee, the franchisor should
A) record the entire initial franchise fee as a deferred credit which will reduce the franchisor’s investment in the purchased outlet when the option is exercised.
B) record the entire initial franchise fee as unearned revenue which will reduce the amount of cash paid when the option is exercised.
C) record the portion of the initial franchise fee which is attributable to the bargain purchase option as a reduction of the future amounts receivable from the franchisee.
D) None of these.

Hogan Corp.’s trial balance of income statement accounts for the year ended December 31, 2007 included the following:

On Hogan’s multiple-step income statement for 2007,

12. Income before extraordinary item is
A) $64,000.
B) $47,000.
C) $32,900.
D) $24,500.
17. On July 1, 2007, Ed Vance signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of $180,000. Of this amount, $60,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $30,000 beginning July 1, 2008. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Vance’s credit rating indicates that he can borrow money at 14% for a loan of this type. Information on present and future value factors is as follows:
Present value of 1 at 14% for 4 periods 0.59
Future value of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91
Vance should record the acquisition cost of the franchise on July 1, 2007 at
A) $130,800.
B) $147,300.
C) $180,000.
D) $202,800.
Use the following to answer question 19:

The balance sheet data of Naley Company at the end of 2008 and 2007 follow:
2008 2007
Cash $ 50,000 $ 70,000
Accounts receivable (net) 120,000 90,000
Merchandise inventory 140,000 90,000
Prepaid expenses 20,000 50,000
Buildings and equipment 180,000 150,000
Accumulated depreciation—buildings and equipment (36,000) (16,000)
Land 180,000 80,000
Totals $654,000 $514,000
Accounts payable $136,000 $110,000
Accrued expenses 24,000 36,000
Notes payable—bank, long-term 80,000
Mortgage payable 60,000
Common stock, $10 par 418,000 318,000
Retained earnings (deficit) 16,000 (30,000)
$654,000 $514,000
Land was acquired for $100,000 in exchange for common stock, par $100,000, during the year; all equipment purchased was for cash. Equipment costing $10,000 was sold for $4,000; book value of the equipment was $8,000 and the loss was reported as an ordinary item in net income. Cash dividends of $20,000 were charged to retained earnings and paid during the year; the transfer of net income to retained earnings was the only other entry in the Retained Earnings account. In the statement of cash flows for the year ended December 31, 2008, for Naley Company:

19. The net cash provided (used) by investing activities was
A) $26,000.
B) $(40,000).
C) $(136,000).
D) $(36,000).

Use the following to answer question 23:

Lange Co. provided the following information on selected transactions during 2008:
Purchase of land by issuing bonds $250,000
Proceeds from issuing bonds 500,000
Purchases of inventory 950,000
Purchases of treasury stock 150,000
Loans made to affiliated corporations 350,000
Dividends paid to preferred stockholders 100,000
Proceeds from issuing preferred stock 400,000
Proceeds from sale of equipment 50,000