On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s
common stock for $160,000 cash. The fair value of the noncontrolling interest at that
date was determined to be $40,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of
$45,000, and land, which had a fair value of $60,000.
Based on the preceding information, what amount will be reported as noncontrolling
interest in the consolidated balance sheet prepared immediately after the business
combination?
1) A.$0
B.$15,000
C.$40,000
D.$46,000
2) Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds
of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on
January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of
issue. Moss’ reported net income of $65,000 for 20X8, and Hunter reported income
(excluding income from ownership of Moss’s stock) of $90,000.
Based on the information given above, what amount of consolidated net income should
be reported for 20X8?
A.$163,750
B.$161,250
C.$146,250
D.$148,750
3) Note: This is a Kaplan CPA Review Question
Grum Corp., a publicly-owned corporation, is subject to the requirements for segment
reporting. In its income statement for the year ended December 31st, Grum reported
consolidated revenues of $50,000,000, operating expenses of $47,000,000, and net
income of $3,000,000. Operating expenses include payroll costs of $15,000,000.
Grum’s combined identifiable assets of all industry segments at December 31st, were
$40,000,000. In its year-end financial statements, Grum would be most likely to
disclose major customer data if sales to any single customer amounted to at least:
A.$1,500,000
B.$300,000
C.$5,000,000
D.$4,000,000
4) Which chapters of the Bankruptcy Code deal with corporations?
A.Chapters 1, 3, and 5
B.Chapter 9
C.Chapters 7 and 11
D.Chapters 12 and 13
5) Mortar Corporation acquired 80 percent of Granite Corporation’s voting common
stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite
for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment
is expected to have a 10-year useful life and no salvage value. Both companies
depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of elimination entries related to
the equipment transfer for the 20X9 consolidated financial statements, net effect on
accumulated depreciation will be:
A.a decrease of $110,000
B.an increase of $110,000
C.an increase of $100,000
D.a decrease of $100,000
6) Pisa Company acquired 75 percent of Siena Company on January 1, 20X3 for
$712,500. The fair value of the noncontrolling interest was equal to 25 percent of book
value. On the date of acquisition, Siena had common stock outstanding of $300,000 and
a balance in retained earnings of $650,000. During 20X3, Siena purchased inventory for
$35,000 and sold it to Pisa for $50,000. Of this amount, Pisa reported $20,000 in ending
inventory in 20X3 and later sold it in 20X4. In 20X4, Pisa sold inventory it had
purchased for $40,000 to Siena for $60,000. Siena sold $45,000 of this inventory in
20X4.
Income and dividend information for Siena for 20X3 and 20X4 are as follows:
Pisa Company uses the cost method.
Required:
a. Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X3.
b. Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X4.
7) Senior Inc. owns 85 percent of Junior Inc. During 20X8, Senior sold goods with a 25
percent gross profit to Junior. Junior sold all of these goods in 20X8. How should 20X8
consolidated income statement items be adjusted?
A.No adjustment is necessary
B.Sales and cost of goods sold should be reduced by 85 percent of the intercompany
sales
C.Net income should be reduced by 85 percent of the gross profit on intercompany
sales
D.Sales and cost of goods sold should be reduced by the intercompany sales
8) Orville Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets of Orville Company are as follows:
Debts of Orville are as follows:
Based on the preceding information, what estimated amount will be available for
general unsecured creditors upon liquidation?
A.$28,000
B.$93,000
C.$113,000
D.$121,000
9) West, Inc. holds 100 percent of the common stock of Coast Company, an investment
acquired for $680,000. Immediately following the combination, West’s net assets have a
book value of $1,150,000 and a fair value of $1,390,000. The book value and the fair
value of Coast’s net assets on the date of combination are $400,000 and $550,000,
respectively. Immediately following the combination, a consolidated balance sheet is
prepared.
Based on the information given above, what will be the amount of net assets reported in
the consolidated balance sheet, prepared immediately following the combination?
A.$1,150,000
B.$1,550,000
C.$1,700,000
D.$1,830,000
10) Bristle Corporation acquired 75 percent of Silver Corporation’s common stock on
December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that
date was determined to be $100,000. Silver’s balance sheet immediately before the
combination reflected the following balances:
A careful review of the fair value of Silver’s assets and liabilities indicated that
inventory, land, and buildings and equipment (net) had fair values of $65,000,
$100,000, and, $300,000 respectively. Goodwill is assigned proportionately to Bristle
and the noncontrolling shareholders.
Based on the preceding information, what amount of goodwill will be reported in the
consolidated balance sheet immediately following the acquisition?
A.$0
B.$120,000
C.$65,000
D.$20,000
11) Note: This is a Kaplan CPA Review Question
The statement of cash flows for a private not-for-profit performing arts center should
report cash flows according to which of the following classifications?
A.Operating activities, investing activities and financing activities
B.Operating activities, non-capital activities and capital activities
C.Investing activities, capital activities and financing activities
D.Financing activities, non-capital activities and capital activities
12) Pace Corporation acquired 100 percent of Spin Company’s common stock on
January 1, 20X9. Balance sheet data for the two companies immediately following the
acquisition follow:
At the date of the business combination, the book values of Spin’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of
$60,000, and land, which had a fair value of $50,000. The fair value of land for Pace
Corporation was estimated at $80,000 immediately prior to the acquisition.
Based on the preceding information, what amount of retained earnings will be reported
in the consolidated balance sheet prepared immediately after the business combination?
A.$300,000
B.$409,000
C.$259,000
D.$191,000
13) When a parent company uses the equity method to account for investments, the
controlling interest in consolidated net income includes all of the following except:
A.The parent’s income from its own operations
B.The parent company’s share of income from consolidated subsidiaries
C.The non-controlling interest’s share of income from consolidated subsidiaries
D.Differential adjustments
14) On January 1, 20X8, Transport Corporation acquired 75 percent interest in
Steamship Company for $300,000. Steamship is a Norwegian company. The local
currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of
cost-over-book value of $25,000 due solely to a patent having a remaining life of 5
years. Transport uses the fully adjusted equity method to account for its investment.
Steamship’s December 31, 20X8, trial balance has been translated into U.S. dollars,
requiring a translation adjustment debit of $8,000. Steamship’s net income translated
into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1,
20X8. Relevant exchange rates are as follows:
Assume the kroner is the functional currency.
Based on the preceding information, what amount of translation adjustment is required
for increase in differential?
A.$3,000
B.$5,500
C.$4,500
D.$5,000
15) Top Company obtained 100 percent of Bottom Company’s common stock on
January 1, 20X6 by issuing 12,500 shares of its own common stock, which had a $5 par
value and a $15 fair value on that date. Bottom reported a net book value of $150,000
and its shares had a $20 per share fair value on that date. However, some of its plant
assets (with a 5-year remaining life) were undervalued by $20,000 in the company’s
accounting records. Bottom had also developed a customer list with an estimated fair
value of $10,000 and a remaining life of 10 years. Top Company uses the
equity-method to account for its investment in Bottom. During 20X6 Top and Bottom
reported the following:
Required:
Prepare each of the journal entries listed below related to Top’s investment in Bottom.
1> Top’s acquisition of Bottom.
2> Top’s share of Bottom’s 20X6 income.
3> Top’s share of Bottom’s 20X6 dividend income.
4> Top’s amortization of excess acquisition price.
16) Mortar Corporation acquired 80 percent of Granite Corporation’s voting common
stock on January 1, 20X7. On December 31, 20X8, Mortar received $390,000 from
Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The
equipment is expected to have a 10-year useful life and no salvage value. Both
companies depreciate equipments on a straight-line basis.
Based on the preceding information, the gain on sale of the equipment recorded by
Mortar for 20X8 is:
A.$150,000
B.$65,000
C.$110,000
D.$40,000
17) Catalyst Corporation acquired 90 percent of Trigger Corporation’s common stock
on September 30, 20X8 for $225,000. At that date, the fair value of the noncontrolling
interest was $25,000. On January 1, 20X8, Trigger reported the following stockholders’
equity balances:
Trigger reported net income of $80,000 in 20X8, earned uniformly throughout the year,
and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,
20X8. Catalyst reported retained earnings of $250,000 on January 1, 20X8, and had
20X8 income of $120,000 from its separate operations. Catalyst paid dividends of
$50,000 on December 31, 20X8. Catalyst accounts for its investment in Trigger
Corporation using the fully adjusted equity method.
Based on the information provided, what is the amount of consolidated retained
earnings as of December 31, 20X8?
A.$340,000
B.$250,000
C.$338,000
D.$388,000
18) Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,
20X3, which Star Corporation purchased. On July 1, 20X7, Sun Corporation purchased
$120,000 face value of Moon bonds from Star. The bonds pay 12 percent interest
annually on December 31. The preparation of consolidated financial statements for
Moon and Sun at December 31, 20X9, required the following eliminating entry:
Based on the information given above, what amount of gain or loss on bond retirement
is included in the 20X7 consolidated income statement?
A.$6,600
B.$4,800
C.$6,000
D.$5,400
19) According to UPA 1997, during partnership liquidation, loans the partners have
made to the partnership have the same status as loans from third-party creditors. As a
practical matter, most loans from partners:
A.are subordinated to third-party creditors
B.have the same status as loans from third-party creditors
C.are paid prior to third-party creditors
D.None of these
20) The adjusted trial balance for White River for the fiscal year ended June 30, 20X9,
is presented below.
Required:
a. Prepare a statement of revenues, expenditures, and changed in fund balance for White
River for the year ended June 30, 20X9. Assume there were no supplies or outstanding
encumbrances at the beginning of the year.
b. Prepare a balance sheet for White River at June 30, 20X9.
21) “Preference payments” made by the debtor to one creditor to the detriment of all
other creditors within 90 days before the bankruptcy petition was filed:
A.is reduced from the monies available to the general unsecured creditors
B.is usually written off
C.may be recovered and returned to the cash available for all creditors
D.are not recovered, as management assurances are binding
22) On July 1, 20X9, Link Corporation paid $340,000 for all of Tinsel Company’s
outstanding common stock. On that date, the costs and fair values of Tinsel’s recorded
assets and liabilities were as follows:
Based on the preceding information, what amount should be allocated to goodwill in
the consolidated balance sheet, prepared after this business combination?
A.$0
B.$25,000
C.$70,000
D.$45,000
23) Which of the following funds are classified as governmental funds?
A.Internal service and capital projects funds
B.Internal service and debt service funds
C.Enterprise and agency funds
D.The general and special revenue funds
24) On January 1, 20X8, Chariot Company acquired 100 percent of Stryder Company
for $220,000 cash. The trial balances for the two companies on December 31, 20X8,
included the following amounts:
On the acquisition date, Stryder reported net assets with a book value of $170,000. A
total of $10,000 of the acquisition price is applied to goodwill, which was not impaired
in 20X8. Stryder’s depreciable assets had an estimated economic life of 10 years on the
date of combination.The difference between fair value and book value of tangible assets
is related entirely to buildings and equipment. Chariot used the equity method in
accounting for its investment in Stryder. Analysis of receivables and payables revealed
that Stryder owed Chariot $10,000 on December 31, 20X8.
Based on the information provided, the beginning differential assigned to buildings and
equipment is:
A.$50,000
B.$40,000
C.$10,000
D.$36,000
25) Big Corporation receives management consulting services from its 92 percent
owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services.
For the year 20X8, Small billed Big $140,000 for such services and collected all but
$7,900 by year-end. Small’s labor cost and other associated costs for the employees
providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported
$2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of income should be assigned to the
noncontrolling shareholders in the consolidated income statement for 20X8?
A.$47,700
B.$44,400
C.$55,600
D.$60,000
26) Under the Bankruptcy Code, an insolvent corporation may be:
I. Reorganized.
II. Liquidated.
A.I
B.II
C.Either I or II
D.Neither I nor II
27) Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009.
The trial balance for each proprietorship is shown below as of January 1, 2009.
The LM partnership will take over the assets and assume the liabilities of the
proprietors as of January 1, 2009.
Required:
a) Prepare a balance sheet, for financial accounting purposes, for the LM partnership as
of January 1, 2009.
b) In addition, assume that M agreed to recognize the goodwill generated by L’s
business. Accordingly, M agreed to recognize an amount for L’s goodwill such that L’s
capital equaled M’s capital on January 1, 2009. Given this alternative, how does the
balance sheet prepared for requirement A change?
28) When a parent and its subsidiary use a periodic inventory system rather than a
perpetual system, the income and asset balances reported in the consolidated financial
statements are:
I. affected only if there are upstream intercompany sales of inventory.
II. affected only if there are downstream intercompany sales of inventory.
A.I
B.II
C.Both I and II
D.Neither I nor II
29) Mint Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign entity is
located. On October 1, 20X8, Mint purchased confectionary items from a foreign
company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20.
The account has not been settled as of December 31, 20X8, when the exchange rate has
decreased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint’s records at
year-end for this transaction will be:
A.$500 loss
B.$500 gain
C.$378 gain
D.$5,500 loss
30) Cinema Company acquired 70 percent of Movie Corporation’s shares on December
31, 20X5, at underlying book value of $98,000. At that date, the fair value of the
noncontrolling interest was equal to 30 percent of the book value of Movie Corporation.
Movie’s balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares
from Nonaffiliated Corporation for $6 per share.
Based on the preceding information, in the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares, Investment
in Movie stock will be credited for:
A.$165,625
B.$135,625
C.$185,000
D.$155,000
31) Janet Corporation holds 75 percent of Slider Corporation’s voting common stock,
acquired at book value.The fair value of the noncontrolling interest at the date of
acquisition was equal to 25 percent of the book value of Slider Corporation. On
December 31, 20X8, Slider Corporation acquired 25 percent of Janet Corporation’s
stock. Slider records dividends received from Janet as nonoperating income. In 20X9,
Janet reported operating income of $100,000 and paid dividends of $40,000. During the
same year, Slider reported operating income of $75,000 and paid $20,000 in dividends.
Based on the information provided, what amount will be reported as consolidated net
income for 20X9 under the treasury stock method?
A.$150,000
B.$100,000
C.$75,000
D.$175,000
32) Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,
20X3, which Star Corporation purchased. Sun Corporation owns 65% of Moon’s voting
shares. On Jan 1, 20X7, Sun Corporation purchased $120,000 face value of Moon
bonds from Star for $118,020. On the date Sun purchased the bonds, the bonds’ carrying
value on Moon’s book was $126,019. The bonds pay 12 percent interest annually on
December 31. The preparation of consolidated financial statements for Moon and Sun
at December 31, 20X9, required the following eliminating entry:
Based on the information given above, what amount of gain or loss on bond retirement
is included in the 20X7 consolidated income statement?
A.$8,000
B.$5,200
C.$(8,000)
D.$(5,200)