1) When there have been intercompany sales of depreciable property, workpaper entries
are necessary to accomplish several financial reporting objectives. Identify three of
these financial reporting objectives for depreciable property.
2) Discuss the methods used to record changes in partnership membership.
3) A principal limitation of consolidated financial statements is their lack of separate
financial in-formation about the assets, liabilities, revenues, and expenses of the
individual companies included in the consolidation. Identify some problems that the
reader of consolidated financial statements would encounter as a result of this
limitation.
4) How are liquidating dividends treated on the books of an investor, assuming the
investor uses the cost method? Assuming the investor uses the equity method?
5) P Corporation acquired 80% of S Corporation on January 1, 2014 for $240,000 cash
when Ss stockholders equity consisted of $100,000 of Common Stock and $30,000 of
Retained Earnings. The difference between the price paid by P and the underlying
equity acquired in S was allocated solely to a patent amortized over 10 years.
P sold merchandise to S during the year in the amount of $30,000. $10,000 worth of
inventory is still on hand at the end of the year with an unrealized profit of $4,000. The
separate company statements for P and S appear in the first two columns of the partially
completed consolidated workpaper.
Required:
Complete the consolidated workpaper for P and S for the year 2014.
P Corporation and Subsidiary
Consolidated Statements Workpaper
6) Executive stock options (ESOs) are used to provide incentives for executives to
improve company performance. ESOs are usually granted at-the-money, meaning that
the exercise price of the options is set to equal the market price of the underlying stock
on the grant date. Clearly, executives would prefer to be granted options when the stock
price (and thus the exercise price) is at its lowest. Backdating options is the practice of
choosing a past date when the market price was particularly low. Backdating has not, in
the past, been illegal if no documents are forged, if communicated to the shareholders,
and if properly reflected in earnings and in taxes.
1>Since backdating gives the executive an instant profit, why wouldnt the firm simply
grant an option with the exercise price lower than the cur-rent current market price?
2>Suppose the executive was not involved in back-dating backdating the ESOs. Does
the executive face any ethical issues?
7) The following information regarding the fiscal year ended June 30, 2014, was drawn
from the accounts and records of the Johnson County general fund:
Revenues and other asset inflows:
Property taxes$6,000,000
Licenses and permits750,000
State grants150,000
Collection of interfund advance to other fund80,000
Proceeds from sale of equipment 40,000
Expenditures and other asset outflows:
General government $2,250,000
Public safety1,130,000
Judicial system600,000
Health900,000
Equipment purchases370,000
Payment to debt service fund to cover future debt
service on general government bonds 570,000
Total fund balance, July 1, 2013$1,200,000
Required:
Prepare a statement of revenues, expenditures, and changes in fund balance for the
Johnson County general fund for the year ended June 30, 2014.
8) What is the primary legal constraint on business combinations? Why does such a
constraint exist?
9) Define remeasurement.