1) Mills Inc. had a receivable from a foreign customer that is due in the local currency
of the customer (stickles). On December 31, 2012, this receivable for §200,000 was
correctly included in Mills’ balance sheet at $132,000. When the receivable was
collected on February 15, 2013, the U.S. dollar equivalent was $144,000. In Mills’ 2013
consolidated income statement, how much should have been reported as a foreign
exchange gain?
A.$0
B.$36,000
C.$48,000
D.$10,000
E.$12,000
3) Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1,
2012. Selected account balances are available for the year ended December 31, 2013,
and are stated in Euro, the local currency.
Assume the functional currency is the U.S. Dollar; compute the U.S. balance sheet
amount for inventory, at cost, for 2013
A.$18,800
B.$19,600
C.$18,000
D.$20,200
E.$19,000
4) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.
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 having a 10-year remaining life. Any excess consideration transferred
over fair value was attributed to goodwill with an indefinite life. Based on an annual
review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the INITIAL VALUE is applied.
Compute Pell’s investment in Demers at December 31, 2014.
A) $500,000.
B) $574,400.
C) $625,000.
D) $542,400.
E) $532,000.
5) What is the adjusted book value of Chase Company after the issuance of the shares?
A) $608,000.
B) $720,000.
C) $680,000.
D) $760,000.
E) $400,000.
6) Cement Company, Inc. began the first quarter with 1,000 units of inventory costing
$25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per
unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the
company expects to replace the units of beginning inventory sold at a cost of $45 per
unit. Cement Company uses the LIFO method to account for inventory.
What is the correct journal entry to record cost of goods sold at the end of the first
quarter?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
7) 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. What was the balance in the investment account at April 1, 2014 just before
the sale of shares?
A) $468,281.
B) $468,750.
C) $558,375.
D) $616,000.
E) $624,375.
8) White Company owns 60% of Cody Company. Separate tax returns are required. For
2012, White’s operating income (excluding taxes and any income from Cody) was
$300,000 while Cody reported a pretax income of $125,000. During the period, Cody
paid a total of $25,000 in cash dividends; $15,000 (60%) to White and $10,000 to the
non-controlling interest. White paid dividends of $180,000. The income tax rate for
both companies is 30%.
Compute the income tax payable by White for 2013.
A.$93,600.
B.$91,350.
C.$94,500.
D.$90,900.
E.$90,000.
9) On March 1, 2013, Mattie Company received an order to sell a machine to a
customer in England at a price of 200,000 British pounds. The machine was shipped
and payment was received on March 1, 2014. On March 1, 2013, Mattie purchased a
put option giving it the right to sell 200,000 British pounds on March 1, 2014 at a price
of $380,000. Mattie properly designates the option as a fair hedge of the pound firm
commitment. The option cost $2,000 and had a fair value of $2,200 on December 31,
2013. The following spot exchange rates apply:
Mattie’s incremental borrowing rate is 12 percent, and the present value factor for two
months at a 12 percent annual rate is .9803.
What was the net impact on Mattie’s 2013 income as a result of this fair value hedge of
a firm commitment?
A.$1,800.00 decrease.
B.$1,760.60 decrease.
C.$2,240.40 decrease.
D.$1,660.40 increase.
E. $2,240.60 increase.
10) Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during
2012. One-third of the inventory is sold by Walsh uses the equity method to account for
its investment in Fisher.
In the consolidation worksheet for 2012, which of the following choices would be a
debit entry to eliminate unrealized intra-entity gross profit with regard to the 2012
intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Fisher Company.
E) Sales.
11) Strickland Company sells inventory to its parent, Carter Company, at a profit during
2012. One-third of the inventory is sold by Carter in 2012.
In the consolidation worksheet for 2013, assuming Carter uses the initial value methd of
accounting for its investment in Strickland, which of the following choices would be a
credit entry to eliminate unrealized intra-entity gross profit with regard to the 2012
intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.
12) On January 1, 2013, a subsidiary buys 12 percent of the outstanding voting stock of
its parent corporation. The payment of $400,000 exceeded book value of the acquired
shares by $80,000, attributable to a copyright with a 10-year useful life. During the
year, the parent reported operating income of $1,000,000 (excluding investment income
from the subsidiary), and paid $120,000 in dividends. If the treasury stock approach is
used, how is the Investment in Parent Stock reported in the consolidated balance sheet
at December 31, 2013?
A.Consolidated stockholders’ equity is reduced by $400,000.
B.Consolidated stockholders’ equity is reduced by $320,000.
C.Included in current assets.
D.Included in noncurrent assets.
E.There is no effect on the consolidated balance sheet, because the effects have been
eliminated.
13) On January 1, 2013, Payton Co. sold equipment to its subsidiary, Starker Corp., for
$115,000. The equipment had cost $125,000, and the balance in accumulated
depreciation was $45,000. The equipment had an estimated remaining useful life of
eight years and $0 salvage value. Both companies use straight-line depreciation. On
their separate 2013 income statements, Payton and Starker reported depreciation
expense of $84,000 and $60,000, respectively. The amount of depreciation expense on
the consolidated income statement for 2013 would have been
A) $144,000.
B) $148,375.
C) $109,000.
D) $134,000.
E) $139,625.
14) Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that
date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000
and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin
reported net income of $300,000 and $325,000 for 2012 and 2013, respectively. Pepe
uses the equity method to account for its investment in Devin.
Compute the income from Devin reported on Pepe’s books for 2013.
A) $190,200.
B) $196,000.
C) $194,400.
D) $187,000.
E) $195,000.
15) Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2015. Several of Green’s accounts have been omitted.
Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2011, Vega’s
land was undervalued by $40,000, its buildings were overvalued by $30,000, and
equipment was undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a
16-year remaining life. There was no goodwill associated with this investment.
Compute the December 31, 2015, consolidated total expenses.
A) $620,000.
B) $280,000.
C) $900,000.
D) $909,625.
E) $299,625.
16) The financial balances for the Atwood Company and the Franz Company as of
December 31, 2013, are presented below. Also included are the fair values for Franz
Company’s net assets.
Note: Parenthesis indicate a credit balance
Assume an acquisition business combination took place at December 31, 2013. Atwood
issued 50 shares of its common stock with a fair value of $35 per share for all of the
outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and
direct costs of $10 (in thousands) were paid.
Compute consolidated cash at the completion of the acquisition.
A) $1,350.
B) $1,085.
C) $1,110.
D) $ 870.
E) $ 845.
17) A local partnership was in the process of liquidating and reported the following
capital balances:
Douglass indicated that the $14,000 deficit would be covered by a forthcoming
contribution. However, the two remaining partners asked to receive the $31,000 that
was then in the cash account.
How much of this money should Zobart receive?
A.$15,467.
B.$14,467.
C.$17,333.
D.$15,633.
E.$15,867.
18) In an acquisition where control is achieved, how would the land accounts of the
parent and the land accounts of the subsidiary be combined?
19) The ABCD Partnership has the following balance sheet at January 1, 2012, prior to
the admission of new partner, Eden.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500
directly to the other four partners. No goodwill is to be recorded. Profits and losses have
previously been split according to the following percentages: Adams, 15%, Barnes,
35%, Cordas, 30%, and Davis, 20%. After Eden made his investment, what were the
individual capital balances?
20) Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of
$100,000 and Caylor invested $30,000 in cash and equipment with a book value of
$40,000 and fair value of $50,000. For both partners, the beginning capital balance was
to equal the initial investment. Norr and Caylor agreed to the following procedure for
sharing profits and losses:
– 12% interest on the yearly beginning capital balance
– $10 per hour of work that can be billed to the partnership’s clients
– the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than
$1,000 per month.
For 2012, the partnership’s income was $70,000. Norr had 1,000 billable hours, and
Caylor worked 1,400 billable hours. In 2013, the partnership’s income was $24,000, and
Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner
withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2012.
21) During the most recent year, an estate generated income of $26,000:
The interest income was conveyed immediately to the beneficiary stated in the
decedent’s will. Dividends of $1,560 were given to the decedent’s church.
Prepare a schedule to show the amount of taxable income.
22) Fesler Inc. acquired all of the outstanding common stock of Pickett Company on
January 1, 2012. Annual amortization of $22,000 resulted from this transaction. On the
date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett
reported a $240,000 balance for retained earnings. Fesler reported net income of
$100,000 in 2012 and $68,000 in 2013, and paid dividends of $25,000 in dividends
each year. Pickett reported net income of $24,000 in 2012 and $36,000 in 2013, and
paid dividends of $10,000 in dividends each year.
Assume that Fesler’s reported net income includes Equity in Subsidiary Income.
If the parent’s net income reflected use of the initial value method, what were the
consolidated retained earnings on December 31, 2013?
23) Assume the partnership of Dean, Hardin, and Roth has been in existence for a
number of years. Dean decides to withdraw from the partnership when the partners’
capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000.
Dean has agreed to receive $64,000 in exchange for his partnership interest.
What are the remaining partners’ capital balances after Dean’s interest is dissolved,
assuming the bonus method is applied?
24) On February 23, 2013, Cleveland, Inc. paid property taxes of $300,000 for the
calendar year 2013
How much of this expense should be included in Cleveland’s net income for the quarter
ending March 31, 2013?
25) 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 Williams’ creditors, the partnership has decided to liquidate.
The following balance sheet has been produced:
During the liquidation process, the following transactions take place:
– Noncash assets are sold for $116,000.
– Liquidation expenses of $12,000 are paid. No further expenses are expected.
– Safe capital distributions are made to the partners.
– Payment is made of all business liabilities.
– Any deficit capital balances are deemed to be uncollectible.
Develop a predistribution plan for this partnership, assuming $12,000 of liquidation
expenses are expected to be paid.
26) 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.
Funeral expenses of $26,000 were paid.
Prepare the journal entry to record the transaction.