1) West Corp. owned 70% of the voting common stock of East Co. East owned 60% of
Compass Co. West and East both used the initial value method to account for their
investments. The following information was available from the financial statements and
records of the three companies:
Operating income included unrealized intra-entity gains (which are related to inventory
transfers) but did not include dividend income from investment in subsidiary.
The accrual-based income of West Corp. is calculated to be
A.$734,000.
B.$1,261,000.
C.$1,123,900.
D.$1,140,700.
E.$1,149,700.
2) A company that was to be liquidated had the following liabilities:
Assets available for unsecured creditors after payments of liabilities with priority are
calculated to be what amount?
A.$226,000.
B.$247,050.
C.$251,000.
D.$251,275.
E.$275,000.
3) 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 equity in Vega’s income to be included in Green’s consolidated income
statement for 2015.
A) $500,000.
B) $300,000.
C) $190,375.
D) $200,000.
E) $290,375.
4) A parent acquires all of a subsidiary€s common stock and 60 percent of its preferred
stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How
is the non-controlling interest in the subsidiary€s net income assigned?
A) Income is assigned as 40 percent of the value of the preferred stock, based on an
allocation between common stock and preferred stock.
B) There is no allocation to the non-controlling interest because the parent owns 100%
of the common stock and net income belongs to the residual owners.
C) Income is assigned as 40 percent of the preferred stock dividends.
D) Income is assigned as 40 percent of the subsidiary€s income before preferred stock
dividends.
E) Income is assigned as 40 percent of the subsidiary€s income after subtracting
preferred stock dividends.
6) Coulanger Corp. identified four operating segments: A, B, C, and D. Segment A met
the revenue test for identifying reportable segments while Segment C met the revenue
test, profit or loss test, and asset test. Segment B and Segment D did not meet any of
these tests. Which of these segments must be disclosed separately?
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. How much income did Mehan report from Cook during 2012?
A) $30,000
B) $22,500
C) $ 7,500
D) $ 0
E) $50,000
8) Retro Corp. was engaged solely in manufacturing operations. The following data
pertain to the operating segments for 2013:
What is the minimum amount of profit or loss that each of these segments must earn to
be considered separately reportable?
A.$769,263
B.$812,000
C.$854,737
D.$897,000
E.$833,368
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 increase or decrease in cash flow from having purchased the foreign
currency option to hedge this exposure to foreign exchange risk?
A.$0
B.$10,000 increase.
C.$10,000 decrease.
D.$20,000 increase.
E. $20,000 decrease.
10) Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2013 and paid dividends of $100.
Assume the partial equity method is applied. How much will Kaye’s income increase or
decrease as a result of Fiore’s operations?
A) $400 increase.
B) $300 increase.
C) $380 increase.
D) $280 increase.
E) $480 increase.