1) The town of Mayberry receives a gift of $500,000 in bonds. The contributor instructs
that the principal should remain intact, but the annual interest income of $50,000 can be
used for the maintenance of the zoo animals.
What type of fund should be used to account for the gift of bonds and the interest
income?
A) General Fund
B) Special Revenue Fund
C) Proprietary Fund
D) Permanent Fund
2) Under the Uniform Probate Code, the personal representative must publish for what
time period a notice in a newspaper of general circulation in the county in which the
decedent resided?
A) For one week
B) For two weeks
C) For three weeks
D) For five weeks
3) Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book
value on December 31, 2010 . A summary of the stockholders’ equity for SOS at the end
of 2010 and 2011 is as follows:
12/31/1012/31/11
Capital stock, $10 par$600,000$600,000
Additional paid-in capital30,00030,000
Retained Earnings270,000420,000
Total stockholders’ equity$900,000$1,050,000
On January 1, 2012, SOS sold 10,000 new shares of its $10 par value common stock for
$45 per share.
If SOS sold the additional shares to the general public, Great’s Investment in SOS
account after the sale would be ________. (Use four decimal places.)
A) $945,000
B) $1,157,100
C) $1,225,000
D) $1,245,000
4) A parent company uses the equity method to account for its wholly-owned
subsidiary. Which of the following will be a correct procedure for the Investment
account?
A) A debit for a subsidiary loss and a credit for dividends received
B) A credit for subsidiary income and a debit for dividends received
C) A debit for subsidiary dividends received and a credit for a subsidiary loss
D) A credit for a subsidiary loss and a credit for dividends received
5) Which of the following is not true?
A) A not-for-profit entity operates for purposes other than to provide goods or services
at a profit
B) A not-for-profit entity may be governmental or non-governmental
C) A not-for-profit entity may possess ownership interests like a corporation
D) A not-for-profit entity receives resources from resource providers who do not expect
commensurate or proportionate pecuniary return
6) A newly acquired subsidiary had pre-existing goodwill on its books. The parent
company’s consolidated balance sheet will
A) not show any value for the subsidiary’s pre-existing goodwill
B) treat the goodwill similarly to other intangible assets of the acquired company
C) not show any value for the pre-existing goodwill unless all other assets of the
subsidiary are stated at their full fair value
D) always show the pre-existing goodwill of the subsidiary at its book value
7) At any point in time, a government will be able to spend an amount equal to
A) appropriations minus expenditures
B) appropriations minus expenditures minus encumbrances
C) appropriations minus encumbrances
D) expenditures minus encumbrances
8) Palmquist Corporation and its 80%-owned subsidiary, Sadler Corporation, are
members of an affiliated group. They do not file consolidated tax returns. Sadler had
$3,000,000 of income and paid $1,000,000 dividends in 2010 . Palmquist and Sadler
had 35% income tax rates. What amount of Sadler’s dividends is taxable to Palmquist in
2010?
A) $0
B) $ 70,000
C) $160,000
D) $200,000
9) Creditors of the partnership may seek the personal assets of the partners to satisfy
amounts owed. When this happens
A) creditors may only file against partnership assets
B) creditors must file against all partners and recover their claims based on the
individual partner’s profit and loss distribution percentage
C) creditors must file against all partners and recover their claims based on the
individual partner’s percentage ownership
D) creditors may file against an individual partner to recover their claims, or against
any combination of partners
10) As default risk decreases, the expected return on corporate bonds ________, and the
return becomes ________ uncertain, everything else held constant
A) increases; less
B) increases; more
C) decreases; less
D) decreases; more
11) On January 2, 2011, PBL Enterprises purchased 90% of Santos Incorporated
outstanding common stock for $1,687,500 cash. Santos’ net assets had a book value of
$1,300,000 at the time. A building with a 15-year remaining life and a book value of
$100,000 had a fair value of $175,000. Any other excess amount was attributed to
goodwill. PBL reported net income for the first year of $350,000 (without regard for its
ownership in Santos), while Santos had $175,000 in earnings.
Required:
1>Calculate the amount of goodwill related to this acquisition as reported on the
consolidated balance sheet at January 2, 2011 .
2>Calculate the amount of consolidated net income for the year ended December 31,
2011 .
3>What is the amount that will be assigned to the building on the consolidated balance
sheet at the date of acquisition?
12) Gonne Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The
trustee has determined that the unsecured claims will receive $.35 on the dollar.
Odemay Corporation holds a $100,000 mortgage note receivable from Gonne that is
secured by equipment with a $120,000 book value and a $75,000 fair value.
Required:
How much of the mortgage receivable will be recovered by Odemay?
13) Osprin Corporation has three operating segments, as summarized below:
Required:
1> Using the revenue test, what is the minimum amount of revenue of a reportable
segment?
2> Using the operating profit or loss test, what is the minimum amount of operating
profit or loss of a reportable segment?
3> Using the asset test, what is the minimum amount of assets of a reportable segment?
4> Based on the three tests, which segments will be separately reported?
14) Party Corporation acquired an 80% interest in Sang Corporation on January 1, 2011
for $20,000. Balance sheet and fair value information on this date is summarized as
follows:
Party Book ValueSang Book ValueSang Fair Value
Current assets$15,000$9,000$9,000
Land and Building-net35,0007,0007,000
Equipment8,0004,0006,000
Total assets$58,000$20,000$22,000
Liabilities$27,000$10,00010,000
Capital stock18,0004,000
Retained earnings13,0006,000
Total liab. & equity$58,000$20,000
Required:
1> Prepare an entry on the books of Sang Corporation to record the push-down
adjustment under parent company theory.
2> Prepare an entry on the books of Sang Corporation to record a push-down
adjustment under entity theory.
15) Pike Corporation paid $100,000 for a 10% interest in Salmon Corp. on January 1,
2010, when Salmon’s stockholders’ equity consisted of $800,000 of $10 par value
common stock and $200,000 retained earnings. On December 31, 2011, after receipt of
the year’s dividends from Salmon, Pike paid $192,000 for an additional 20% interest in
Salmon Corp. Both of Pike’s investments were made when Salmon’s book values
equaled their fair values. Salmon’s net income and dividends for 2010 and 2011 were as
follows:
2010 2011
Net income$60,000$140,000
Dividends$20,000$40,000
Required:
1>Prepare journal entries for Pike Corporation to account for its investment in Salmon
Corporation for 2010 and 2011 .
2>Calculate the balance of Pike’s investment in Salmon at December 31, 2011
16) Parakeet Company has the following information collected in order to prepare a
cash flow statement and uses the direct method for Cash Flow from Operations. The
annual report year end is December 31, 2011 .
Noncontrolling Interest Dividends Paid$20,000
Dividends Received from Equity Investees17,000
Cash Paid to Employees37,000
Cash Paid for Other Operating Activities34,000
Cash Paid for Interest Expense22,300
Cash Proceeds from the Sale of Equipment70,000
Cash Paid to Suppliers192,700
Cash Received from Customers412,600
Required:
Prepare the Cash Flow for Operations part of the cash flow statement for Parakeet for
the year ended December 31, 2011 .
17) Shoreline Corporation had $3,000,000 of $10 par value common stock outstanding
on January 1, 2009, and retained earnings of $1,000,000 on the same date. During 2009,
2010, and 2011, Shoreline earned net incomes of $400,000, $700,000, and $300,000,
respectively, and paid dividends of $300,000, $550,000, and $100,000, respectively.
On January 1, 2009, Pebble purchased 21% of Shoreline’s outstanding common stock
for $1,240,000. On January 1, 2010, Pebble purchased 9% of Shoreline’s outstanding
stock for $510,000, and on January 1, 2011, Pebble purchased another 5% of
Shoreline’s outstanding stock for $320,000. All payments made by Pebble that are in
excess of the appropriate book values were attributed to equipment, with each block
depreciable over 20 years under the straight-line method.
Required:
1>What is the adjustment to Investment Income for depreciation expense for Pebble’s
investment in Shoreline in 2009, 2010, and 2011?
2>What will be the December 31, 2011 balance in the Investment in Shoreline account
after all adjustments have been made?
18) On January 1, 2011, Paul Corporation acquired a 90% interest in Satorius Company
for $360,000 when Satorius’ stockholders’ equity was $400,000; with Common stock
$200,000 and Retained earnings $200,000.
On January 1, 2011, Satorius Company purchased a 10% interest in Paul Company for
$90,000 when Paul’s total stockholders’ equity was $900,000; with Common stock
$500,000 and Retained earnings $400,000.
The following data was available for the year ending December 31, 2011:
Paul CompanySatorius Company
Net income$150,000$130,000
Dividends00
Use the conventional approach to account for the mutually-held stock. Assume there
were no book value/fair value differentials for each investment. The separate net
incomes do not include investment income.
Required:
1> Prepare the journal entry for Paul on January 1, 2011 .
2> Prepare the journal entry for Satorius on January 1, 2011 .
3> Prepare the journal entry to record the constructive retirement of 10% of Paul’s
outstanding stock due to Satorius’ purchase of Paul’s stock.
4> Determine the incomes of Paul and Satorius on a consolidated basis with mutual
income for 2011 using simultaneous equations.
5> What is controlling interest share of consolidated net income and noncontrolling
interest shares for 2011?
6> What is consolidated net income?
