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2) Webb Company owns 90% of Jones Company. The original balances presented for
Jones and Webb as of January 1, 2013 are as follows:
Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this
total, Webb acquires 18,000 shares to maintain its 90% interest in Jones.
What is the adjusted book value of Jones after the stock issuance?
A) $1,500,000.
B) $1,200,000.
C) $1,350,000.
D) $1,080,000.
E) $1,335,000.
3) Acker Inc. bought 40% of Howell Co. on January 1, 2012 for $576,000. The equity
method of accounting was used. The book value and fair value of the net assets of
Howell on that date were $1,440,000. Acker began supplying inventory to Howell as
follows:
Howell reported net income of $100,000 in 2012 and $120,000 in 2013 while paying
$40,000 in dividends each year.
What is the balance in Acker's Investment in Howell account at December 31, 2012?
A) $576,000.
B) $598,400.
C) $614,400.
D) $606,000.
E) $616,000.
4) 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 presented below (in thousands).
Prepare the revenue test and determine which of these segments was separately
reportable.
5) Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The
consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below:
Additional information for 2013:
Net cash flow from financing activities was:
A) $(28,000).
B) $(35,000).
C) $(13,000).
D) $(63,000).
E) $(61,000).
6) On December 1, 2013, Keenan Company, a U.S. firm, sold merchandise to Velez
Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable
is due on February 1, 2014. Keenan purchased a foreign currency put option with a
strike price of $.97 (U.S.) on December 1, 2013. This foreign currency option is
designated as a cash flow hedge. Relevant exchange rates follow:
Compute the fair value of the foreign currency option at February 1, 2014
A.$6,000
B.$4,500
C.$3,000
D.$7,500
E.$1,500
7) On January 4, 2013, Mason Co. purchased 40,000 shares (40%) of the common stock
of Hefly Corp., paying $560,000. At that time, the book value and fair value of Hefly's
net assets was $1,400,000. The investment gave Mason the ability to exercise
significant influence over the operations of Hefly. During 2013, Hefly reported income
of $150,000 and paid dividends of $40,000. On January 2, 2014, Mason sold 10,000
shares for $150,000.
What is the appropriate journal entry to record the sale of the 10,000 shares?
A) A Above
B) B Above
C) C Above
D) D Above
E) E Above
8) Red Co. acquired 100% of Green, Inc. on January 1, 2012. 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, 2012. Also, on the date of acquisition, Green had a
building with a book value of $200,000 and a fair value of $390,000. Green had
equipment with a book value of $350,000 and a fair value of $280,000. The building
had a 10-year remaining useful life and the equipment had a 5-year remaining useful
life. How much total expense will be in the consolidated financial statements for the
year ended December 31, 2012 related to the acquisition allocations of Green?
A) $43,000.
B) $33,000.
C) $ 5,000.
D) $15,000.
E) 0.
9) On January 1, 2012, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2013
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2012, was $1,000,000. The book value of Cook on January
1, 2013, was $1,150,000. Any excess of cost over book value for this second transaction
is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2014, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment. How much of Cook's net income did Mehan report for the year 2014?
A) $61,750.
B) $81,250.
C) $72,500.
D) $59,250.
E) $75,000.
10) A company that was to be liquidated had the following liabilities:
Total liabilities with priority are calculated to be what amount?
A.$19,000.
B.$37,950.
C.$43,725.
D.$44,000.
E.$144,000.
11) Natarajan, Inc. had the following operating segments, with the indicated amounts of
segment revenues and segment expenses:
When totaling the revenues to use as the basis for the 75% rule, what is the 75% hurdle
that must be exceeded by the revenues of the reportable segments?
A.$1,670,000
B.$12,525,000
C.$15,487,500
D.$16,700,000
E.$20,650,000
12) 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 Duchess Doyle.
- The residence went to Louis Tweed.
- All other estate assets were to be liquidated with the resulting cash going to the Sacred
Church of Liberty, Missouri.
Debts of $52,000 were discovered.
Prepare the journal entry to record the transaction.
13) Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The
parent's interest was acquired several years ago on the date that the subsidiary was
formed. Consequently, no goodwill or other allocation was recorded in connection with
the acquisition price.
On January 1, 2012, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The
bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds
on January 1, 2014, for 95% of the face value. Both companies utilized the straight-line
method of amortization.
What consolidation entry would be recorded in connection with these intra-entity bonds
on December 31, 2014?
14) During 2013, the Garfield Humane Society, a voluntary health and welfare
organization, received cash donations of $892,000 and membership dues of $62,000. A
member of the Humane Society donated services valued at $8,000 that would otherwise
have been performed by a paid staff member. A pet food manufacturer donated dog
food valued at $16,400. The Humane Society received a gift of $140,000, to be used in
building a new animal shelter. Also during 2013, investments held by the Humane
Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have
recorded for public support for 2013.
15) The executor of the estate of Yelbert Toper recorded the following information:
Assets discovered at death (at fair value):
Debts of $22,100 still remain to be paid. The shares of Dell stock were conveyed to the
appropriate beneficiary. Executor fees are allocated based on total charges for principal
and for income.
Required:
Prepare a charge and discharge statement for this estate.
16) Hambly Corp. owned 80% of the voting common stock of Stroban Co. During
2013, Stroban sold a parcel of land to Hambly. The land had a book value of $82,000
and was sold to Hambly for $145,000. Stroban's reported net income for 2013 was
$119,000.
Required:
What was the non-controlling interest's share of Stroban Co.'s net income?
