1) Anthony and Cleopatra create a joint venture to distribute artifacts. Anthony
contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb
Company. How would Anthony report information about Cleopatra on Anthony’s
financial statements?
A) Not at all
B) In a footnote
C) As a liability
D) As a noncontrolling interest
2) A summary balance sheet for the Lemon, Mango, and Nobb partnership appears
below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5,
respectively.
Assets
Cash$ 100,000
Marketable securities200,000
Inventory125,000
Land100,000
Building-net500,000
Total assets$1,025,000
Equities
Lemon, capital$ 425,000
Mango, capital400,000
Nobb, capital200,000
Total equities$1,025,000
The partners agree to admit Oran for a one-fifth interest. The fair market value of
partnership land is appraised at $200,000 and the fair market value of inventory is
$175,000. The assets are to be revalued prior to the admission of Oran and there is
$30,000 of goodwill that attaches to the old partnership.
What will the profit and loss sharing ratios be after Oran’s investment?
A) 1:2:4:2
B) 2:3:5:2
C) 3:4:6:2
D) 4:6:10:5
3) Paggle Corporation owns 80% of Spillway Inc.’s common stock that was purchased
at its underlying book value. At the time of purchase, the book value and fair value of
Spillway’s net assets were equal. The two companies report the following information
for 2011 and 2012 .
During 2011, one company sold inventory to the other company for $50,000 which cost
the transferor $40,000. As of the end of 2011, 30% of the inventory was unsold. In
2012, the remaining inventory was resold outside the consolidated entity.
2011 Selected Data:PaggleSpillway
Sales Revenue $600,000 $320,000
Cost of Goods Sold320,000155,000
Other Expenses100,00089,000
Net Income $180,000 $76,000
Dividends Paid19,0000
2012 Selected Data:PaggleSpillway
Sales Revenue$580,000 $445,000
Cost of Goods Sold300,000180,000
Other Expenses130,000171,000
Net Income$150,000 $94,000
Dividends Paid16,0005,000
If the intercompany sale mentioned above was an upstream sale, what will be the
reported amount of total consolidated sales revenue for 2012?
A) $1,025,000
B) $1,900,000
C) $1,950,000
D) $2,000,000
4) On January 1, 2011, Pansy Company acquired a 10% interest in Sunflower
Corporation for $80,000 when Sunflower’s stockholders’ equity consisted of $400,000
capital stock and $100,000 retained earnings. Book values of Sunflower’s net assets
equaled their fair values on this date. Sunflower’s net income and dividends for 2011
through 2013 were as follows:
2011 2012 2013
Net income$ 8,000$ 10,000$15,000
Dividends paid5,0005,0005,000
Assume that Pansy has significant influence and uses the equity method of accounting
for its investment in Sunflower. The balance in the Investment in Sunflower account at
December 31, 2013 was
A) $78,200
B) $80,000
C) $81,800
D) $83,300
5) Which of the following statements is correct concerning companies emerging from
reorganization under Chapter 11 when they do not qualify for fresh start accounting?
The forgiveness of debt is reported as
A) an operating gain
B) a non-operating gain
C) an extraordinary item
D) an increase in contributed capital
6) For internal decision-making purposes, Falcon Corporation identifies its industry
segments by geographical area. For 2011, the total revenues of each segment are
provided below. There are no intersegment revenues.
Total
Revenues
Canada$22,000,000
United States76,000,000
Mexico10,000,000
South America9,000,000
China2,000,000
Russia1,500,000
Australia3,000,000
European Union12,000,000
Other European14,000,000
Total revenues$149,500,000
Required:
1> Which operating segments will be considered reporting segments based on the
revenue test?
2> What is the test value for determining whether a sufficient number of segments are
reported?
3> What will be the minimum number of segments that must be reported?
7) In actual practice, short-term interest rates and long-term interest rates usually move
together; this is the major shortcoming of the
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
8) The estimated revenues control account of Metro City’s general fund is created when
A) the city’s tax receipts are measurable and available
B) the budget is recorded in the accounting records
C) encumbrances are made
D) taxes are levied and bills are mailed
9) Following the accounting concept of a business combination, a business combination
occurs when a company acquires an equity interest in another entity and has
A) at least 20% ownership in the entity
B) more than 50% ownership in the entity
C) 100% ownership in the entity
D) control over the entity, irrespective of the percentage owned
10) In the Uniform Partnership Act, partners have
I.mutual agency
II.unlimited liability
A) I only
B) II only
C) I and II
D) Neither I nor II
11) A summary balance sheet for the Sissy, Jody, and Buffy partnership on December
31, 2011 is shown below. Partners Sissy, Jody, and Buffy allocate profit and loss in their
respective ratios of 3:4:6. The partnership agreed to pay Buffy $360,000 for her
partnership interest upon her retirement from the partnership on January 1, 2012 . Any
payments exceeding Buffy’s capital balance are treated as a bonus from partners Sissy
and Jody.
Assets
Cash$110,000
Marketable securities100,000
Inventory240,000
Land90,000
Building-net140,000
Total assets$680,000
Equities
Sissy, capital$220,000
Jody, capital170,000
Buffy, capital290,000
Total equities$680,000
Required:
Prepare the journal entry to reflect Buffy’s retirement.
12) Patama Holdings owns 70% of Seagull Corporation. On January 1, 2011, Seagull
acquires $1,000,000 of bonds originally issued by Patama on January 1, 2006 . The
bonds were issued at a stated rate of 5% for 10 years, for $960,000. Seagull purchased
them for $990,000. Assume that both Patama and Seagull will use the straight-line
method for any bond-related amortization. Annual interest is paid on December 31 .
Required:
Complete the table below with respect to the account balances that Patama, Seagull and
the consolidated entity would report on their respective financial statements.
13) Separate earnings and investment percentages for three affiliates for 2011 are as
follows:
SeparatePercentage InterestPercentage Interest
Earnings in Acres in Bain
Palace Company$450,00080%
Acres Inc200,00070%
Bain Corporation160,00010%
Assume the investments were acquired at a cost equal to the book value of each
investment, which also equals the fair value. Separate earnings do not include
investment income.
Required:
1> Calculate revised net incomes for Palace, Acres, and Bain by using the conventional
method.
2> Determine the controlling interest share of consolidated net income and the
noncontrolling interest shares.
14) Peter Corporation owns a 70% interest in Sundown Corporation acquired several
years ago at a price equal to book value and fair value. On December 31, 2010,
Sundown had $300,000 par of 6% bonds outstanding with an unamortized premium of
$30,000. The bonds mature in five years and pay interest on January 1 and July 1 . On
January 2, 2011, Peter acquired one-third of Sundown’s bonds for $117,000. Peter and
Sundown use straight-line amortization. Sundown reports net income of $250,000 for
2011 . Peter uses the equity method to account for the investment.
Required:
1>Calculate Peter’s income from Sundown for 2011 .
2>Calculate the noncontrolling interest share for 2011 .
15) On September 1, 2011, Bylin Company purchased merchandise from Himeji
Company of Japan for 20,000,000 yen payable on October 1, 2011 . The spot rate for
yen was $0.0079 on September 1 and the spot rate was $0.0077 on October 1 . The
purchase was paid on October 1, 2011 .
Required:
1> Did the U.S. dollar strengthen or weaken from September to October and what are
the implications for Bylin’s business?
2> What journal entry did Bylin record on September 1, 2011?
3> What journal entry did Bylin record on October 1, 2011?
16) Pirate Transport bought 80% of the outstanding voting stock of Seaways Shipping
at book value several years ago. (At the time of purchase, the fair value and book value
of Seaways’ net assets were equal.) Pirate sells merchandise to Seaways at 120% above
Pirate’s cost. Intercompany sales from Pirate to Seaways for 2012 were $450,000.
Unrealized profits in Seaways’ December 31, 2011 inventory and December 31, 2012
inventory were $17,000 and $15,000, respectively. Seaways reported net income of
$750,000 for 2012 .
Required:
1>Determine Pirate’s income from Seaways for 2012 .
2>In General Journal format, prepare consolidation working paper entries at December
31, 2012 to eliminate the effects of the intercompany inventory sales assuming the
perpetual inventory method is used.
17) Padma Corporation owns 70% of the outstanding stock of Somega Company. On
January 1, 2010, Somega issued $2,000,000 in 6% bonds that matured on January 1,
2020 . At the time of issuance, the bonds were sold at a premium of $250,000. At
January 1, 2011, Padma purchased half of the bonds for $910,000, and constructively
retired the debt. Annual interest is paid on December 31 . Straight-line amortization is
used by both companies.
Required:
Complete the table below with respect to the account balances that Padma, Somega and
the consolidated entity would report on their respective financial statements.
