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1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2011 and paid dividends of $60,000 on October 1, 2011. How […]

20. All of the following would require use of the equity method for investments except: A. material intra-entity transactions. B. investor participation in the policy-making process of the investee. C. valuation at fair value. D. technological dependency. E. significant control. […]

40. Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2011, for $105,000 when the book value of Gates was $600,000. During 2011 Gates reported net income of $150,000 and paid dividends of $50,000. On January 1, 2012, Dodge […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 01-05 Record the sale of an equity investment and identify the accounting method to be applied to any remaining shares that are subsequently held. […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 01-06 Describe the rationale and computations to defer unrealized gross profits on intra-entity transfers until the goods are either consumed or sold to outside […]

99. What argument could be made against the equity method? An argument could be made against the recognition of income under the equity method. The investor is required to recognize its share of the investee’s income even when it is […]

113. Jager Inc. holds 30% of the outstanding voting shares of Kinson Co. and appropriately applies the equity method of accounting. Amortization associated with this investment equals $11,000 per year. For 2011, Kinson reported earnings of $100,000 and paid cash […]

1. In accounting, the term translation refers to A. the calculation of gains or losses from hedging transactions. B. the calculation of exchange rate gains or losses on individual transactions in foreign currencies. C. the procedure required to identify a […]

23. A U.S. company’s foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2011: The average exchange rate during 2011 was §1 = $.96. The beginning inventory was acquired when the exchange rate was §1 = […]

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 10-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods. Learning Objective: 10-04 Remeasure a foreign subsidiary’s financial […]

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 10-01 Explain the theoretical underpinnings and the limitations of the current rate and temporal methods. Learning Objective: 10-03 Translate a foreign subsidiary’s financial […]

83. A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2008. (A.) How would depreciation expense on the equipment be translated for 2011? (B.) How would depreciation expense on the equipment be remeasured for 2011? (A.) Depreciation […]

1. In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must: A. present financial statements that comply with international GAAP. B. conform with U.S. GAAP or present a […]

26. The following information pertains to inventory held by a company at December 31, 2011. What amount of inventory should be reported under IFRS? A. $25,000 B. $21,000 C. $20,000 D. $4,000 E. $5,000 AACSB: Analytic AACSB: Diversity AICPA BB: […]

45. Why does each country have its own unique set of financial reporting practices? A survey identified five commonly accepted factors that influence financial reporting practices: (1) legal system, (2) taxation, (3) financing system, (4) inflation, and (5) political and […]

1. Which one of the following is not a division of the SEC? A. the Division of Corporation Finance. B. the Division of Investment Management. C. the Division of Compliance Information. D. the Division of Enforcement. E. the Division of […]

AACSB: Reflective thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-06 Describe an issuer’s registration process; various forms used by the issuers; and the exemption(s) from registration. 30. Filings with the SEC are divided […]

51. What is a wrap-around filing ? A wrap-around filing is a method of filing Form 10-K with the SEC. The company files its annual report and uses incorporation by reference to meet many of the requirements of the SEC. […]

1. A Chapter 7 bankruptcy is a(n) A. involuntary reorganization. B. bankruptcy forced by a company’s creditors. C. liquidation. D. bankruptcy in which all creditors receive payment in full. E. voluntary reorganization. AACSB: Reflective thinking AICPA BB: Legal AICPA FN: […]

25. Mandich Co. had the following amounts for its assets, liabilities, and stockholders’ equity accounts just before filing a bankruptcy petition and requesting liquidation: Of the salaries payable, $30,000 was owed to an officer of the company. The remaining amount […]

52. What information is included on the statement of realization and liquidation? The statement of realization and liquidation reports the account balances of the company at the date the order of relief was filed. The report will specify the cash […]

• Accounts receivable of $23,400 were collected. • All of the company’s inventory was sold for $52,000. • Additional accounts payable of $13,000 incurred for various expenses such as utilities and maintenance were discovered. • The land and building were […]

78. Hampton Company is trying to decide whether to seek liquidation or reorganization. Hampton has provided the following balance sheet: Additional information is as follows: ● The investments are currently worth $13,000. ● It is estimated that $32,000 of the […]

1. Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method […]

23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual […]

43. The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of net income (after the bonus) and that the remaining net income is to be divided equally. If the partnership income […]

63. What is the dissolution of a partnership? The dissolution of a partnership is the breakup of the partnership caused by any change in the members that make up the partnership. AACSB: Reflective thinking AICPA BB: Legal AICPA FN: Measurement […]

79. The ABCD Partnership has the following balance sheet at January 1, 2010, prior to the admission of new partner, Eden. Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill was to […]

1. When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to: A. declare personal bankruptcy. B. initiate legal proceedings against the partnership. C. contribute cash to the partnership. D. deliver a […]

E. The first available $8,000 would go to Newman. The next $4,000 would be split equally between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $24,000 before all four […]

42. What events or circumstances might force the termination of a partnership and liquidation of its assets? There are many events or situations that can lead to the termination of a partnership and the liquidation of its assets. These circumstances […]

58. Hardin, Sutton, and Williams have operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy […]

1. Which standard issued by the Governmental Accounting Standards Board in 1999 required two distinct sets of financial statements for state and local governments? A. GASB Statement No. 32. B. GASB Statement No. 33. C. GASB Statement No. 34. D. […]

27. Which statement is not correct? A. Governmental funds account for expenditures of financial resources rather than matching revenues and expenses. B. The Fund Balance Reserved for Encumbrances account is not closed at the end of a fiscal year. C. […]

54. What is the primary difference between monies accounted for in the general fund and monies accounted for in the special revenue fund? Monies in the special revenue fund are legally restricted as to expenditure and monies in the general […]

68. On January 1, 2011, Wakefield City purchased $40,000 office supplies. During the year $35,000 of these supplies were used. Required: Record the journal entries for these transactions using the consumption method. (Disregard the encumbrance entries.) AACSB: Analytic AICPA BB: […]

1. For government-wide financial statements, what account is credited when a piece of equipment is leased on a capital lease? A. Equipment – Capital Lease B. Encumbrances – Long Term C. Encumbrances – Lease Obligations D. Capital Lease Obligation E. […]

26. A city starts a solid waste landfill during 2010. When the landfill was opened the city estimated that it would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which […]

41. The parking garage and parking lots owned by the City of Danton reported the following balances for 2011: Required: What amount of net revenue (or expense) should be reported by the fund that was used to account for parking […]

1. Reciprocal transfers where both parties give and receive something of value are A. contributed services. B. unconditional promises to give. C. endowment transactions. D. exchange transactions. E. required contributions. AACSB: Reflective thinking AICPA BB: Industry AICPA FN: Measurement Blooms: […]

25. Which entry would be the correct entry to record pledges of $100,000 to a public television fundraiser? The public television organization estimates that 5% of the funds will be uncollectible. A. Option A B. Option B C. Option C […]

47. For May 2011, Carlington Hospital’s charges for patient services were $608,000, of which 80% was billed to third-party payors. Required: Prepare the journal entry to accrue patient charges for the month. AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement […]

1. When a person dies without leaving a valid will, how is the distribution of his or her property determined? A. in accordance with federal inheritance laws. B. in accordance with generally accepted accounting principles. C. in accordance with a […]

33. The provisions of a will currently undergoing probate are: “One thousand shares of Wal-Mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash to my daughter; and any remaining property divided […]

59. The executor of the Estate of Kate Tweed discovered the following assets (at fair value): The will of Kate Tweed had the following provisions: • $195,000 in cash went to Victor Vickery. • All shares of PepsiCo went to […]

70. The executor of Danny Mack’s estate has listed the following properties at fair value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds $50,000, Rental Property $100,000, and Personal Property $80,000. Additionally, the executor found $100,000 of […]

1. At the date of an acquisition which is not a bargain purchase, the acquisition method AACSB: Reflective thinking AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Describe the valuation principles of the acquisition method. Learning Objective: […]

26. Which of the following statements is true regarding a statutory consolidation? A. The original companies dissolve while remaining as separate divisions of a newly created company. B. Both companies remain in existence as legal corporations with one corporation now […]

AACSB: Analytic AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; […]

AACSB: Analytic AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; […]

59. The financial balances for the Atwood Company and the Franz Company as of December 31, 20X1, are presented below. Also included are the fair values for Franz Company’s net assets. Note: Parenthesis indicate a credit balance Assume an acquisition […]

69. The financial balances for the Atwood Company and the Franz Company as of December 31, 20X1, are presented below. Also included are the fair values for Franz Company’s net assets. Note: Parenthesis indicate a credit balance Assume an acquisition […]

79. Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2010, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company’s net assets at that date. Note: […]

89. Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 20X1. To obtain these shares, Flynn pays $400 cash (in thousands) and issues 10,000 shares of $20 par value common stock on this date. […]

AACSB: Analytic AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Describe the valuation principles of the acquisition method. Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair […]

1. Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination? AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: 2 […]

22. Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, […]

41. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance; Any excess of consideration transferred over fair value of net assets acquired […]

53. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of […]

73. How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life? AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: […]

94. From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary? AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Identify and describe […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in subsidiary account in its internal […]

1. For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except : A. identifiable assets acquired, at fair value. B. liabilities assumed, at book value. C. non-controlling […]

22. Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2010 when Park’s book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-02 Describe the valuation principles underlying the acquisition method of accounting for the noncontrolling interest. 42. McGuire Company acquired 90 percent of Hogan Company […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 04-04 Understand the computation and allocation of consolidated net income in the presence of a noncontrolling interest. 62. Pell Company acquires 80% of Demers […]

82. Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each […]

103. Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz’s net assets was $600,000. For all of Martz’s assets and liabilities, book value and fair value were approximately equal. Required: Using […]

1. On November 8, 2011, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale […]

23. On January 1, 2011, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong’s stock. Of this payment, $28,000 was allocated to equipment (with a five-year life) […]

43. Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method? A. The sale of merchandise between a parent and its subsidiary represents an arm’s-length transaction and thus provides […]

64. Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of […]

84. Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, […]

104. How is the gain on an intra-entity transfer of a depreciable asset realized? AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: 1 Easy Learning Objective: 05–07 Prepare the consolidation entries to remove the effects […]

118. McGraw Corp. owned all of the voting common stock of both Ritter Co. and Lawler Co. During 2011, Ritter sold inventory to Lawler. The goods had cost Ritter $65,000, and they were sold to Lawler for $100,000. At the […]

1. On January 1, 2011, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between […]

23. If newly issued debt is issued from a parent to its subsidiary, which of the following statements is false ? AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-02 Understand […]

46. The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2.) Non-controlling interest […]

69. Pursley, Inc. owns 70 percent of Harry, Inc. The consolidated income statement for a year reports $50,000 Non-controlling Interest in Harry, Inc. Income. Harry paid dividends in the amount of $80,000 for the year. What are the effects of […]

91. During 2011, Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows? AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: […]

105. Thomas Inc. had the following stockholders’ equity accounts as of January 1, 2011: Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2011, for $20,656,000. The preferred stock remained in the hands of outside […]

1. Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle. When Buckette prepared consolidated financial statements , it should include A. Shuvelle but not Tayle. B. Tayle but not Shuvelle. C. […]

23. Hardford Corp. held 80% of Inglestone Inc. which, in turn, owned 80% of Jade Co. Operating income figures (without investment income) as well as unrealized upstream gains included in the income for the current year follow: The accrual-based income […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 07-03 Understand the implications for the consolidation process when a corporate ownership structure is characterized by mutual ownership. 42. Tower Company owns 85% of […]

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Analyze Difficulty: 1 Easy Learning Objective: 07-01 Understand the implications for the consolidation process when indirect control is present in a grandfather-father-son ownership configuration. 64. Alpha Corporation owns 100 percent […]

84. Tate, Inc. owns 80 percent of Jeffrey, Inc. During the current year, Jeffrey sold merchandise costing $60,000 to Tate for $75,000. At the end of the year, 10 percent of this merchandise was still being held. The tax rate […]

106. Kurton Inc. owned 90% of Luvyn Corp.’s voting common stock. The consideration paid exceeded book value by $110,000. Of this amount, one half is attributable to a patent and is to be amortized over 5 years. Luvyn held 20% […]

Required: Determine the accrual-based income of Mace Co for the year 2011 . © 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not […]

1. Generally accepted accounting principles require a U.S. corporation to disclose the following disaggregated information for each operating segment, except: A. Revenues from external customers. B. Discontinued operations. C. Cost of goods sold. D. Depreciation expense. E. Intersegment revenues. AACSB: […]

22. Which of the following statements is false concerning the number of operating segments that should be disclosed? A. At least 75 percent of total company sales made to outsiders should be presented. B. Even though an operating segment has […]

43. Elektronix, Inc. has three operating segments with the following information: Which operating segments are separately reportable under the assets test? A. DVDs only. B. DVDs and MP3s. C. DVDs and VCRs. D. VCRs and MP3s. E. DVDs, VCRs, and […]

68. How should seasonal revenues be reported in an interim financial statement? A. The seasonal nature should be disclosed, and a pro forma report for the next 12-month period should supplement the interim report. B. The seasonal nature should be […]

91. What two disclosure guidelines for operating segment information are designed to ensure the consistency of data reported from year to year? 1) If an operating segment does not pass a test for current segment disclosure but was a reportable […]

105. Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and (5) finance. Each of these segments had been consolidated appropriately by the company in producing its annual financial statements. Information describing each segment is […]

1. Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2011. Pigskin received payment of 35,000 British pounds on May 8, 2011. The exchange rate was £1 = $1.54 on April 8 and […]

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement Blooms: Evaluate Difficulty: 2 Medium Learning Objective: 09-02 Account for foreign currency transactions using the two-transaction perspective; accrual approach. 23. A U.S. company buys merchandise from a foreign company denominated […]

44. Winston Corp., a U.S. company, had the following foreign currency transactions during 2011: (1.) Purchased merchandise from a foreign supplier on July 16, 2011 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2011 […]

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-06 Account for forward contracts and options used as hedges of forecasted foreign currency transactions. 63. On October 1, 2011, Eagle Company forecasts […]

83. Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2011: The appropriate exchange rates during 2011 were as follows: What amount will Coyote Corp. report in its 2011 income statement […]