Multiple Choice

Multiple Choice

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1. Neura Pharma, Inc. has purchased a drug patent with a remaining useful life of 13 years. How should this new asset be classified?

• A current tangible asset

• A non-current tangible asset

• A non-current intangible asset

• A current intangible asset

2. June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market value over the next two months.

How would this transaction be recorded by Silica Labs?

• Debit patent account $700,000; credit cash $500,000; credit common stock $200,000

• Debit cash $500,000; debit common stock $200,000; credit patent account $700,000

• Debit cash $500,000; credit patent account $500,000

• Debit patent account $500,000; credit cash $500,000

3. Consider the same scenario as in the previous question:

June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market value over the next two months.

Assuming that Silica Labs holds some long-term debt, which of the following describes the effect of the transaction on Silica Labs?

• Current ratio will decrease and total debt to equity ratio will increase

• Current ratio will increase and total debt to equity ratio will decrease

• Current ratio will increase and total debt to equity ratio will increase

• Current ratio will decrease and total debt to equity ratio will decrease

4. Lucky Lee, a video-game store in New York city, purchases a game machine directly from Taiwan for $30,000. In the U.S., the same machine will probably cost at least $36,000. Pick the most appropriate accounting action for Lucky Lee:

• Record the machine at $36,000

• Record the machine at $30,000

• Record the machine for [($30,000+$36,000)/2] = $33,000

• Have the machine examined by an independent appraiser and record it at the appraised value