1) GAAP requires that segment information be reported
A) by geographics, without regard to size of the segment
B) by geographics, without regard to industry or product-line
C) however management organizes the enterprise into units for internal
decision-making and performance-evaluation purposes
D) by industry or product-line, without regard to geographics
2) The risk premium on corporate bonds reflects the fact that corporate bonds have a
higher default risk and are ________ US Treasury bonds
A) less liquid than
B) less speculative than
C) tax-exempt unlike
D) lower-yielding than
3) If you have a very low tolerance for risk, which of the following bonds would you be
least likely to hold in your portfolio?
A) a US Treasury bond
B) a municipal bond
C) a corporate bond with a rating of Aaa
D) a corporate bond with a rating of Baa
4) A subsidiary can be excluded from consolidation if
A) control does not rest with the majority owner
B) the subsidiary is in legal reorganization
C) the subsidiary is operating under severe foreign-exchange restrictions
D) All of the above are correct
5) Everything else held constant, if income tax rates were lowered, then
A) the interest rate on municipal bonds would fall
B) the interest rate on Treasury bonds would rise
C) the interest rate on municipal bonds would rise
D) the price of Treasury bonds would fall
6) On January 1, 2011, Pamplin Corporation stockholders’ equity consisted of
$1,000,000 of $10 par value Common Stock, $750,000 of Additional Paid-in Capital,
and $3,000,000 of Retained Earnings. On January 1, 2011, Pamplin purchased 90% of
the outstanding common stock of Sage Corporation for $1,500,000 with all excess
purchase cost assigned to goodwill. The stockholders’ equity of Sage on this date
consisted of $800,000 of $100 par value, 8% cumulative, preferred stock callable at
$105, $900,000 of $10 par value common stock and $500,000 of Retained Earnings.
Sage’s net income for 2011 was $100,000.
On January 1, 2011, no preferred dividends are in arrears. No dividends are declared or
paid in 2011 . In a separate transaction on January 1, 2011, Pamplin purchased 70% of
Sage’s preferred stock for $600,000.
What is the goodwill on the consolidated balance sheet for Pamplin and Subsidiaries on
December 31, 2011 based on Pamplin’s purchase of Sage’s common stock?
A) $140,000
B) $240,000
C) $290,000
D) $306,667
7) Paint Corporation owns 82% of Achille Corporation and Achille Corporation owns
80% of Badrack Corporation. For the current year, the separate net incomes (excluding
investment income) of Paint, Achille, and Badrack are $120,000, $100,000, and
$50,000, respectively. The cost of each investment was equal to the book value of the
investment, which was also equal to the fair value.
Controlling interest share of consolidated net income for Paint Corporation and
Subsidiaries is:
A) $234,800
B) $244,800
C) $260,000
D) $270,000
8) Under parent company theory, noncontrolling interest is valued at ________ on the
consolidated balance sheet. Under entity theory, noncontrolling interest is valued at
________ on the consolidated balance sheet.
A) fair value; present value
B) present value; fair value
C) book value; fair value
D) fair value; book value
9) What is an advantage of filing a Chapter 11 petition?
A) The continuation of interest accrual on liabilities
B) Restrictions imposed by the bankruptcy court on day-to-day transactions
C) It is less costly than filing Chapter 7
D) The opportunity to cancel unfavorable contracts
10) According to the expectations theory of the term structure, the interest rate on a
long-term bond will equal the ________ of the short-term interest rates that people
expect to occur over the life of the long-term bond
A) average
B) sum
C) difference
D) multiple
11) The following are transactions for the city of Springfield.
a.Borrowed $20,000 by issuing a three-month, 5% note.
b.Paid $4,000 for equipment.
c.Services for $1,000 were billed and collected.
d.Year-end accrual of 3 months interest on note in (a).
Required:
Analyze the above transactions by using the accounting equation for a governmental
fund.
12) According to FASB Statement No. 141, liabilities assumed in an acquisition will be
valued at the ________.
A) estimated fair value
B) historical book value
C) current replacement cost
D) present value using market interest rates
13) Assume there are routine inventory sales between parent companies and
subsidiaries. When preparing the consolidated financial statements, which of the
following line items is indifferent to the sales being either upstream or downstream?
A) Consolidated retained earnings
B) Consolidated gross profit
C) Noncontrolling interest share
D) Controlling interest share of consolidated net income
14) In a business combination, which of the following will occur?
A) All identifiable assets and liabilities are recorded at fair value at the date of
acquisition
B) All identifiable assets and liabilities are recorded at book value at the date of
acquisition
C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book
value of the net assets acquired
D) None of the above is correct
15) If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5
percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A) 2 percent
B) 3 percent
C) 4 percent
D) 5 percent
16) Subsequent to an acquisition, the parent company and consolidated financial
statement amounts would not be the same for
A) investments in unconsolidated subsidiaries
B) investments in consolidated subsidiaries
C) capital stock
D) ending retained earnings
17) Park Incorporated purchased a 70% interest in Silk Company in 2008 at book value.
On January 1, 2010, equipment having a historical cost of $100,000 and a net book
value of $70,000 is sold in an intercompany transfer for $90,000. The equipment has a
remaining useful life of five years and no salvage value. Straight-line depreciation is
used by both companies. Silk reports net income of $180,000 in 2010 and $200,000 in
2011 .
Required:
1>Assume Park sold the equipment to Silk.
A. Prepare the consolidating worksheet entries for the equipment for 2010 and 2011 .
B. Calculate the noncontrolling interest share in Silk’s income for 2010 and 2011 .
2>Assume that Silk sold the equipment to Park.
A. Prepare the consolidating worksheet entries for the equipment for 2010 and 2011 .
B. Calculate the noncontrolling interest share in Silk’s income for 2010 and 2011 .
18) 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 the merchandise was denominated in Swiss francs, the November 30 entry
to record the receipt of 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
19) Pearl Corporation paid $150,000 on January 1, 2010 for a 25% interest in Sandlin
Inc. On January 1, 2010, the book value of Sandlin’s stockholders’ equity consisted of
$200,000 of common stock and $200,000 of retained earnings. All the excess purchase
cost over book value acquired was attributable to a patent with an estimated life of 5
years. During 2010 and 2011, Sandlin paid $3,000 of dividends each quarter and
reported net income of $60,000 for 2010 and $80,000 for 2011 . Pearl used the equity
method.
Required:
1>Calculate Pearl’s income from Sandlin for 2010 .
2>Calculate Pearl’s income from Sandlin for 2011 .
3>Determine the balance of Pearl’s Investment in Sandlin account on December 31,
2011 .
20) For each of the following events or transactions, identify the type of fund(s) that
will be affected.
1>A central purchasing department was established to handle all the purchasing needs
of a county government.
2>A county government levies sales taxes restricted as to use for job creation.
3>A county government receives a large contribution specifying that income from the
contribution be distributed each year to the county zoo. The principal is to remain intact
indefinitely.
4>A city government paid construction costs of $12,000 on city hall building.
5>A city government paid general operating costs.
21) The following information is available about the operations for a private,
not-for-profit university.
1>The university sold $20,000,000 of 5% bonds to finance the construction of a new
building for the business school. The bonds were sold on January 1 and pay interest on
December 31 of each year. The bonds were sold at par and mature in 20 years.
2>The university received $7,500,000 cash in alumni and corporate donations for the
new business school building.
3>The building was constructed at a total cost of $22,000,000 and the contractor was
paid in full.
4>Interest was paid on the bonds.
5>Depreciation on the new building the first year was $275,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
22) The unadjusted trial balance for the general fund of the City of Jordan at June 30,
2011 is as follows:
Debits
Accounts receivable$90,000
Cash110,000
Due from agency fund19,000
Encumbrances18,000
Estimated revenues1,250,000
Expenditures1,090,000
Taxes receivable175,000
Credits
Allowance for doubtful accounts15,000
Allowance for uncollectible taxes35,000
Appropriations1,180,000
Due to internal service fund51,000
Fund balance – unassigned52,000
Reserve for encumbrances18,000
Revenues1,130,000
Taxes received in advance22,000
Vouchers payable249,000
Supplies on hand at June 30, 2011 totaled $17,000. The $18,000 encumbrance relates to
equipment ordered but not received by fiscal year-end.
Required:
Prepare a balance sheet for the general fund of the City of Jordan at June 30, 2011 .
23) On January 1, 2011, Singh Company acquired an 80 percent interest in Gonzalez
Company for $300,000. On January 1, 2011, Gonzalez’s total stockholders’ equity was
$375,000. The fair value and book value of Gonzalez’s individual assets and liabilities
were equal.
On January 2, 2011, Gonzalez Company acquired a 10 percent interest in Singh
Company for $50,000. On January 2, 2011, Singh’s total stockholders’ equity was
$500,000. The fair value and book value of Singh’s individual assets and liabilities were
equal.
For the year ending December 31, 2011, the following data is available:
Net incomeDividends
Singh Company$40,000$0
Gonzalez Company$10,000$0
The treasury stock method is used to account for the mutual stock holdings between
Singh and Gonzalez. The separate net incomes do not include investment income. A
partial consolidating worksheet is below.
Required:
Prepare the elimination entries for the year ending December 31, 2011 .
Do not enter them onto the worksheet. Instead, list them below.
24) The accountant for Baxter Corporation has assigned most of the company’s assets to
its three segments as follows:
Electronics$1,760,000
Hardware3,420,000
Plumbing490,000
Total$5,670,000
The unassigned assets consist of $430,000 of unallocated goodwill and $270,000 of
assets attached to the corporate headquarters. For internal decision-making purposes,
goodwill is not assigned to the segments and the assets assigned to the corporate
headquarters are allocated equally to the operating segments.
Required:
1> What is the proper threshold value to use in determining which of the operating
segments shown above are reporting segments?
2> Which of the operating segments are considered reporting segments?
25) On January 2, 2012, Pal Corporation sold warehouse equipment to SimCo, a
wholly-owned subsidiary. The equipment had an original cost of $130,000 and a net
book value of $100,000 when it was sold to SimCo for $150,000. Both companies
agreed that the equipment had a five-year remaining life and compute depreciation on
the straight-line method. The equipment has no salvage value.
Pal reported $470,000 in net income in 2012 (prior to reporting any income from
SimCo), and SimCo reported $160,000 in net income.
Required:
1>Calculate consolidated net income for 2012 .
2>Determine the controlling share of net income for the year if Pal only owned 75% of
SimCo.
3>Determine the controlling share of net income for the year if Pal only owned 75% of
SimCo AND the equipment transfer was upstream.
26) Pennack Corporation purchased 75% of the outstanding stock of Shing Corporation
on January 1, 2011 for $300,000 cash. At the time of the purchase, the book value and
fair value of Shing’s assets and liabilities were equal. Shing’s balance sheet at the time
of acquisition and December 31, 2011 are shown below.
Jan 1, 2011 Dec 31, 2011
Cash$75,000 80,000
Other current assets 175,000160,000
Plant Assets net 250,000240,000
Total assets 500,000480,000
Liabilities 100,000 50,000
Capital stock 100,000100,000
Retained earnings 300,000330,000
Total liabilities and equity 500,000480,000
Shing earned $60,000 in income during the year, and paid out $30,000 in dividends.
Pennack uses the equity method to account for its investment in Shing.
Requirement 1: Calculate Pennack’s net income from Shing in 2011 .
Requirement 2: Calculate the noncontrolling interest share in Shing’s income for 2011 .
Requirement 3: Calculate the balance in the Investment in Shing account reported on
Pennack’s separate general ledger at December 31, 2011 .
Requirement 4: Calculate the noncontrolling interest that will be reported on the
consolidated balance sheet at December 31, 2011 .