1) In reference to the probate process, which of the following statements is correct?
A) The personal representative of the deceased can file a petition with the appropriate
probate court requesting that an existing will be probated
B) The Uniform Probate Code varies from state to state
C) The Uniform Probate Code is applied to all wills found to be valid, and to wills
found to be invalid in probate court
D) The Uniform Probate Code is applied to all wills found to be valid, but not to wills
found to be invalid in probate court
2) When a subsidiary has preferred stock that is convertible into subsidiary common
stock, the parent’s equity in the subsidiary’s diluted earnings is calculated by the number
of
A) subsidiary shares into which the subsidiary’s dilutive securities can be converted
times the subsidiary’s basic EPS figure
B) parent shares into which the subsidiary’s dilutive securities can be converted times
the parent’s basic EPS figure
C) subsidiary common shares held by the parent times the subsidiary’s diluted EPS
figure
D) parent shares into which the subsidiary’s dilutive securities can be converted times
the subsidiary’s basic EPS figure
3) In general, GAAP encourages the identification of reportable segments based on the
following:
A) Reported segments must account for at least 75% of all external and inter-segment
sales
B) Reported segments must ideally account for at least 75% of all sales, unless there are
many smaller divisions and separate reporting would create less clarity in reporting
C) If there are more than 10 reportable segments, the company should consider
additional aggregation of their segments
D) Reported segments must account for 100% of the external sales, but only 75% of
external and inter-segment sales
4) On November 1, 2010, Rolleks Corporation sold merchandise to Watchem
Corporation, a Swiss firm. Rolleks measured and recorded the account receivable from
the sale at $107,100. Watchem paid for this account on November 30, 2010 . Spot rates
for Swiss francs on November 1 and November 30, respectively, were $1.05 and $1.02.
If the sale of merchandise is denominated in dollars, the November 30 entry to record
receipt of the payment from Watchem included a
A) credit to Accounts Receivable for $104,040
B) credit to Exchange Gain for $3,060
C) debit to Cash for $107,100
D) debit to Exchange Loss for $3,060
5) According to the expectations theory of the term structure
A) when the yield curve is steeply upward sloping, short-term interest rates are
expected to remain relatively stable in the future
B) when the yield curve is downward sloping, short-term interest rates are expected to
remain relatively stable in the future
C) investors have strong preferences for short-term relative to long-term bonds,
explaining why yield curves typically slope upward
D) yield curves should be equally likely to slope downward as slope upward
6) Which of the following procedures is acceptable when accounting for a deficit
balance in a partner’s capital account during partnership liquidation, if the partner with a
negative capital balance is personally insolvent?
A) The partner with a negative capital balance must contribute personal assets to the
partnership that are sufficient to bring the capital account to zero
B) The negative capital balance may be absorbed by those partners having a positive
capital balance according to the residual profit and loss sharing ratios that apply to all
the partners
C) The negative capital balance may be absorbed by those partners having a positive
capital balance according to the residual profit and loss sharing ratios that apply to
those partners having positive balances
D) The partner with a negative capital balance must contribute personal assets to the
partnership that are sufficient to bring the capital account to the same level of the other
partners’ capital accounts
7) On November 2, 2011, Bellamy Corporation sells product to their Danish customer.
At the same time, Bellamy signed a forward contract to sell 200,000 Danish krone in
ninety days to hedge the account receivable at $0.1905, the 90-day forward rate. The
receivable is expected to be collected in ninety days. Assume the forward contract will
be settled net and this is a fair value hedge. The related exchange rates are shown
below:
Assuming a present value factor of 1 for simplicity, what is the fair value of this
forward contract on November 2?
A) $-0-
B) $100 asset
C) $100 liability
D) $38,100 asset
8) Quincy has decided to retire from the partnership of Quincy, Robert, and Sam. The
partnership will pay Quincy $400,000. Total partnership capital should be revalued
based on the excess payment to Quincy. (Assume the book values of the assets listed
below equals fair values.) A summary balance sheet for the Quincy, Robert, and Sam
partnership appears below. Quincy, Robert, and Sam share profits and losses in a ratio
of 1:1:3, respectively.
Assets
Cash$ 150,000
Marketable securities76,000
Inventory164,000
Land300,000
Building-net510,000
Total assets$1,200,000
Equities
Quincy, capital320,000
Robert, capital280,000
Sam, capital600,000
Total equities$1,200,000
What partnership capital will Robert have after Quincy retires?
A) $200,000
B) $280,000
C) $360,000
D) $440,000
9) A company emerging from bankruptcy will have a reorganization value that
A) approximates the book value of the entity’s assets prior to bankruptcy
B) approximates the book value of the entity prior to bankruptcy
C) approximates the fair market value of the entity without considering liabilities
D) approximates the fair market value of the entity’s liabilities
10) Which of the following is a reason to use a partnership as the legal form of a
business?
A) Partnerships avoid the issue of mutual agency
B) Partnerships avoid the issue of unlimited liability
C) Partnerships avoid the issue of double-taxation faced by corporations
D) Partnerships avoid the difficulty of raising capital
11) Pabari Corporation owns an 80% interest in Alders Corporation and Alders owns a
60% interest in Babao Corporation. Both interests were acquired at a cost equal to book
value equal to fair value. During 2010, Alders sells land to Babao at a profit of $12,000.
Babao still holds the land at December 31, 2010 . Net income(loss) of the three
companies (excluding investment income) for 2010 are:
Pabari Corporation$180,000
Alders Corporation72,000
Babao Corporation(30,000)
Controlling interest share of consolidated net income and noncontrolling interest share,
respectively, for 2010 are
A) $211,200 and ($1,200)
B) $211,200 and ($3,600)
C) $213,600 and ($1,200)
D) $213,600 and ($3,600)
12) On January 1, 2010, Shrimp Corporation purchased a delivery truck with an
expected useful life of five years, and a salvage value of $8,000. On January 1, 2012,
Shrimp sold the truck to Pacet Corporation. Pacet assumed the same salvage value and
remaining life of three years used by Shrimp. Straight-line depreciation is used by both
companies. On January 1, 2012, Shrimp recorded the following journal entry:
Debit Credit
Cash50,000
Accumulated depreciation18,000
Truck53,000
Gain on Sale of Truck15,000
Pacet holds 60% of Shrimp. Shrimp reported net income of $55,000 in 2012 and Pacet’s
separate net income (excludes interest in Shrimp) for 2012 was $98,000.
Controlling interest share in consolidated net income for 2012 was
A) $121,000
B) $125,000
C) $131,000
D) $143,000
13) Packo Company acquired all the voting stock of Sennett Corporation on January 1,
2010 for $90,000 when Sennett had Capital Stock of $50,000 and Retained Earnings of
$8,000. The excess of fair value over book value was allocated as follows: (1) $5,000 to
inventories(sold in 2010), (2) $16,000 to equipment with a 4-year remaining useful
life(straight-line method of depreciation) and ( the remainder to goodwill.
Financial statements for Packo and Sennett at the end of the fiscal year ended
December 31, 2011 (two years after acquisition), appear in the first two columns of the
partially completed consolidation working papers. Packo has accounted for its
investment in Sennett using the equity method of accounting.
Required:
Complete the consolidation working papers for Packo Company and Subsidiary for the
year ending December 31, 2011 .
14) Leotronix Corporation estimates its income by calendar quarter as follows for 2011:
1st2nd3rd4th2011
QuarterQuarterQuarterQuarterTotal
Est. Income$30,000$40,000$40,000$50,000$160,000
Income tax rates applicable to Leotronix:
From: $ 0 to $50,00015%
From: $50,001 to $75,00025%
Over: $75,00035%
Required:
Determine Leotronix’s estimated effective tax rate.
15) Parker Corporation owns an 80% interest in Sample Corporation’s common stock.
Throughout 2010, Sample had 10,000 shares of common stock outstanding and Parker
had 100,000 shares of common stock outstanding. Sample’s only dilutive security
consists of $50,000 face amount of 8% bonds payable. Each $1,000 bond is convertible
into 20 shares of Sample stock. Parker and Sample’s separate incomes for the year are
$100,000 and $75,000, respectively. Assume a 34% flat income tax rate.
Required:
Compute the amount of basic and diluted earnings per share for Parker (Consolidated)
and Sample Corporations.
16) Sandy Corporation’s stockholders’ equity on December 31, 2010 was as follows:
10% cumulative preferred stock, $100 par value,
callable at $105, with one year dividends in arrears$100,000
Common stock, $1 par value200,000
Additional paid-in capital40,000
Retained earnings160,000
Total stockholders’ equity$500,000
On January 1, 2011, Bombard Corporation paid $200,000 for a 90% interest in Sandy’s
common stock. On January 1, 2011, the book values of Sandy’s assets and liabilities
were equal to fair values. On January 2, 2011, Bombard Corporation paid $120,000 for
a 90% interest in Sandy’s preferred stock.
Required:
1> Determine the book value of the common stockholders’ equity for Sandy
Corporation on January 1, 2011 .
2> Prepare the journal entry(ies) on January 1, 2011 for Bombard Corporation.
3> Prepare the journal entry(ies) on January 2, 2011 for Bombard Corporation.
4> For the year ending December 31, 2011, Sandy Corporation reported net income of
$50,000. Sandy Corporation declared and paid dividends of $20,000 to preferred
stockholders and $10,000 to common stockholders. Prepare the journal entries for
Bombard Corporation relating to this information.
17) On March 1, 2011, Amber Company sold goods to a foreign customer at a price of
50,000 foreign currency units. The customer will pay in three months. At the time of the
sale, Amber paid $2,000 to acquire an option to sell 50,000 foreign currency units in
three months at the strike price of $0.39. On May 30, 2011, the customer sent in 50,000
foreign currency units. Quarterly financial reports are prepared on March 31 . Ignore
the time value of money. Relevant exchange rates are as follows:
Required:
Prepare the journal entries required for these transactions, if the foreign currency option
is designated as a fair value hedge.
18) On January 1, 2011, Wrobel Company acquired a 90 percent interest in Sally
Company for $270,000. On January 1, 2011, Sally’s total stockholders’ equity was
$300,000. The fair value and book value of Sally’s individual assets and liabilities were
equal.
On January 2, 2011, Sally Company acquired a 10 percent interest in Wrobel Company
for $70,000. On January 2, 2011, Wrobel’s total stockholders’ equity was $700,000. The
fair value and book value of Wrobel’s individual assets and liabilities were equal.
For the year ending December 31, 2011, the following data is available:
Net incomeDividends
Wrobel Company$50,000$0
Sally Company$30,000$0
The treasury stock method is used to account for the mutual stock holdings between
Wrobel and Sally. The separate net incomes do not include investment income.
Required:
1> What is Sally’s income from Wrobel for 2011?
2> What is Wrobel’s income from Sally for 2011?
3> What is the noncontrolling interest share associated with Sally Company for 2011?
4> Prepare the elimination entry for Sally’s Investment in Wrobel Company.
19) Pare Corporation owns 65% of the outstanding voting stock of Summer
Corporation. On January 1, 2011, Pare purchased $4,000,000 of bonds that were
originally issued by Summer several years earlier. The ten-year bonds have a 5%
interest rate, and pay interest each December 31 .
The bonds were originally issued at a discount of $206,080, but at January 1, 2011, they
have a book value of $3,896,960. Pare paid $4,067,935 for the bonds and will amortize
the premium over the next five years when the bonds mature. Both companies use the
straight-method of amortization.
Required:
1>Calculate the interest expense for 2011 that will be recorded by Summer.
2>Calculate the interest income for 2011 that will be recorded by Pare.
3>Calculate the Gain/Loss on retirement of bonds payable that will be reported on the
consolidated financial statements for the year ending December 31, 2011 .
20) Moddle Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The
trustee has determined that the unsecured claims will receive $.20 on the dollar.
National Corporation holds a $500,000 mortgage note receivable from Moddle that is
secured by equipment with a $550,000 book value and a $430,000 fair value.
Required:
How much of the mortgage receivable will National recover?