1) Natarajan, Inc. had the following operating segments, with the indicated amounts of
segment revenues and segment expenses:
For purposes of the profit or loss test, segment C’s operating profit or (loss) is
A.$1,300,000
B.$700,000
C.$2,000,000
D.$200,000
E.$(200,000)
2) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1,
2013. The book value and fair value of Vicker’s accounts on that date (prior to creating
the combination) follow, along with the book value of Bullen’s accounts:
Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In
addition, Bullen paid $35,000 for secretarial and management time allocated to the
acquisition transaction. What will be the balance in consolidated goodwill?
A) $ 0.
B) $20,000.
C) $35,000.
D) $55,000.
E) $65,000.
3) Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2012.
As of that date, Jackson had the following trial balance:
During 2012, Jackson reported net income of $96,000 while paying dividends of
$12,000. During 2013, Jackson reported net income of $132,000 while paying
dividends of $36,000. Assume that Matthews Co. acquired the common stock of
Jackson Co. for $588,000 in cash. As of January 1, 2012, Jackson’s land had a fair value
of $102,000, its buildings were valued at $188,000, and its equipment was appraised at
$216,000. Any excess of consideration transferred over fair value of assets and
liabilities acquired is due to an unamortized patent to be amortized over 10 years.
Matthews decided to use the equity method for this investment.
Required:
(A.) Prepare consolidation worksheet entries for December 31, 2012
(B.) Prepare consolidation worksheet entries for December 31, 2013
4) A local partnership was considering the possibility of liquidation since one of the
partners (Ding) was personally insolvent. Capital balances at that time were as follows.
Profits and losses were divided on a 4:2:2:2 basis, respectively.
Creditors of partner Ding filed a $25,000 claim against the partnership’s assets. At that
time, the partnership held noncash assets reported at $360,000 and liabilities of
$120,000. There was no cash on hand at the time.
If the assets could be sold, for $228,000 what is the minimum amount that Tillman’s
creditors would have received?
A.$36,000.
B.$0.
C.$2,500.
D.$38,250.
E.$67,250.
5) Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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
compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss
in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was
$150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was the amount of interest attributed to Wasser for 2013?
A.$17,600
B.$18,800
C.$20,100
D.$17,800
E.$30,100
6) A city starts a solid waste landfill during 2012. 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 will not be paid until the facility is closed. At the
end of 2012, the facility was 20% full, and at the end of 2013 the facility was 45% full.
If the landfill is judged to be a governmental fund, what liability is reported on the fund
financial statements at the end of 2013?
A.$0.
B.$300,000.
C.$375,000.
D.$600,000.
E.$675,000.
7) White, Sands, and Luke has the following capital balances and profit and loss ratios:
$60,000 (30%); $100,000 (20%); and $200,000 (50%).
The partnership has received a predistribution plan.
How would $90,000 be distributed?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
8) Club Co. appropriately uses the equity method to account for its investment in Chip
Corp. As of the end of 2013, Chip’s common stock had suffered a significant decline in
fair value, which is expected to be recovered over the next several months. How should
Club account for the decline in value?
A) Club should switch to the fair-value method.
B) No accounting because the decline in fair value is temporary.
C) Club should decrease the balance in the investment account to the current value and
recognize a loss on the income statement.
D) Club should not record its share of Chip’s 2013 earnings until the decline in the fair
value of the stock has been recovered.
E) Club should decrease the balance in the investment account to the current value and
recognize an unrealized loss on the balance sheet.
9) 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, 2015.
A) $625,000.
B) $664,800.
C) $592,400.
D) $500,000.
E) $572,000.
10) Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2013, for
$105,000 when the book value of Gates was $600,000. During 2013 Gates reported net
income of $150,000 and paid dividends of $50,000. On January 1, 2014, Dodge
purchased an additional 25% of Gates for $200,000. Any excess cost over book value is
attributable to goodwill with an indefinite life. The fair-value method was used during
2013 but Dodge has deemed it necessary to change to the equity method after the
second purchase. During 2014 Gates reported net income of $200,000 and reported
dividends of $75,000.
The income reported by Dodge for 2014 with regard to the Gates investment is
A) $80,000.
B) $30,000.
C) $50,000.
D) $15,000.
E) $75,000.
11) Consolidated accounts payable decreased by $7,000.
How will dividends be reported in consolidated statement of cash flows?
A) $15,000 decrease as a financing activity.
B) $25,000 decrease as a financing activity.
C) $10,000 decrease as a financing activity.
D) $23,000 decrease as a financing activity.
E) $17,000 decrease as a financing activity.
12) 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 retained earnings.
A) $1,645,375.
B) $1,350,000.
C) $1,565,375.
D) $1,840,375.
E) $1,265,375.
13) 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 2013, 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 Fisher Company.
E) Sales.