1) On January 1, 2013, Riney Co. owned 80% of the common stock of Garvin Co. On
that date, Garvin’s stockholders’ equity accounts had the following balances:
The balance in Riney’s Investment in
Garvin Co. account was $552,000, and the non-controlling interest was $138,000. On
January 1, 2013, Garvin Co. sold 10,000 shares of previously unissued common stock
for $15 per share. Riney did not acquire any of these shares.
What is the balance in Non-controlling Interest in Garvin Co. after the sale of the
10,000 shares of common stock?
A) $138,000.
B) $101,000.
C) $280,000.
D) $230,000.
E) $168,000.
2) Webb Company owns 90% of Jones Company. The original balances presented for
Jones and Webb as of January 1, 2013 are as follows:
Assume Jones issues 20,000 new
shares of its common stock for $15 per share. Of this total, Webb acquires 18,000
shares to maintain its 90% interest in Jones.
After acquiring the additional shares, what adjustment is needed for Webb’s investment
in Jones account?
A) $270,000 increase.
B) $270,000 decrease.
C) $ 27,000 increase.
D) $ 27,000 decrease.
E) No adjustment is necessary.
3) On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net
assets for an investment of $50,000 cash. Prior to the admission of Noris, Lamb and
Mona had net assets of $100,000 and an income-sharing ratio of 25% to Lamb and 75%
to Mona. After the admission of Noris, the partnership contract included the following
provisions:
– Salary of $40,000 a year to Noris.
– Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%.
– During the fiscal year ended December 31, 2013, the partnership had income of
$90,000 prior to recognition of salary to Noris.
Record the journal entry to allocate the salary of Noris.
4) The Fratilo Co. had three operating segments with the following information:
In addition, revenues generated at corporate headquarters are $1,400
Combined segment revenues are calculated to be
A.$29,400
B.$25,200
C.$26,600
D.$28,000
E.$27,300
5) A five-year lease is signed by the City of Wachovia for equipment with a seven-year
life. The asset will be returned to the lessor at the end of the lease. The present value of
the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the
date the lease is signed. The interest portion of the second payment is $1,604.75. The
equipment is to be used in City Hall and was purchased from appropriated funds of the
General Fund.
What should be recorded in the General Fund one year from the date the lease is
signed?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
6) Chain Co. owned all of the voting common stock of Shannon Corp. The
corporations’ balance sheets dated December 31, 2012, include the following balances
for land: for Chain-$416,000, and for Shannon-$256,000. On the original date of
acquisition, the book value of Shannon’s land was equal to its fair value. On April 4,
2013, Chain sold to Shannon a parcel of land with a book value of $65,000. The selling
price was $83,000. There were no other transactions which affected the companies’ land
accounts during 2012. What is the consolidated balance for land on the 2013 balance
sheet?
A) $672,000.
B) $690,000.
C) $755,000.
D) $737,000.
E) $654,000.
7) A U.S. company’s foreign subsidiary had the following amounts in stickles (§), the
functional currency, in 2013:
The average exchange rate during 2013 was §1 = $.96. The beginning inventory was
acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired
when the exchange rate was §1 = $.90. The exchange rate at December 31, 2013 was §1
= $.84. Assuming that the foreign nation for the subsidiary had a highly inflationary
economy, at what amount should that foreign subsidiary’s purchases have been reflected
in the 2013 U.S. dollar income statement?
A.$11,865,600
B.$11,577,600
C.$11,520,000
D.$11,613,600
E.$11,523,600
8) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.
Demers reported common stock of $300,000 and retained earnings of $210,000 on that
date. Equipment was undervalued by $30,000 and buildings were undervalued by
$40,000, each having a 10-year remaining life. Any excess consideration transferred
over fair value was attributed to goodwill with an indefinite life. Based on an annual
review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the EQUITY METHOD is applied.
Compute the non-controlling interest in Demers at December 31, 2014.
A) $135,600.
B) $137,000.
C) $112,000.
D) $100,000.
E) $118,600.
9) Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2014 when
Park’s book value was $560,000. The Royce stock was not actively traded. On the date
of acquisition, Park had equipment (with a ten-year life) that was undervalued in the
financial records by $140,000. One year later, the following selected figures were
reported by the two companies. Additionally, no dividends have been paid.
What is the consolidated balance of the Equipment account at December 31, 2015?
A) $644,400.
B) $784,000.
C) $719,600.
D) $770,000.
E) $775,600.
10) Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1,
2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk’s financial
records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair
value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends
of $70,000 were paid in each of these two years. Selected account balances as of
December 31, 2013, for the two companies follow.
If the partial equity method had been applied, what was 2013 consolidated net income?
A) $840,000.
B) $768,400.
C) $822,000.
D) $240,000.
E) $600,000.
11) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.
Demers reported common stock of $300,000 and retained earnings of $210,000 on that
date. Equipment was undervalued by $30,000 and buildings were undervalued by
$40,000, each having a 10-year remaining life. Any excess consideration transferred
over fair value was attributed to goodwill with an indefinite life. Based on an annual
review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the EQUITY METHOD is applied.
Compute Pell’s investment account balance in Demers at December 31, 2016.
A) $639,000.
B) $643,200.
C) $763,200.
D) $676,000.
E) $620,000.
12) Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2014. For 2014, Kailey reported revenues of $810,000 and expenses of $630,000, all
reflected evenly throughout the year. The annual amount of amortization related to this
acquisition was $15,000.
What is the effect of including Kailey in consolidated net income for 2014?
A) $31,000.
B) $33,000.
C) $55,000.
D) $60,000.
E) $39,000.
13) On January 1, 2011, Rand Corp. issued shares of its common stock to acquire all of
the outstanding common stock of Spaulding Inc. Spaulding’s book value was only
$140,000 at the time, but Rand issued 12,000 shares having a par value of $1 per share
and a fair value of $20 per share. Rand was willing to convey these shares because it
felt that buildings (ten-year life) were undervalued on Spaulding’s records by $60,000
while equipment (five-year life) was undervalued by $25,000. Any consideration
transferred over fair value of identified net assets acquired is assigned to goodwill.
Following are the individual financial records for these two companies for the year
ended December 31, 2014.
Required:
Prepare a consolidation worksheet for this business combination.
14) The Yelton Center is a voluntary health and welfare organization. During 2012,
unrestricted pledges of $780,000 were received by the center, sixty percent of which
were payable in 2012, with the remainder payable in 2013 (for use in 2013). Officials
estimated that fifteen percent of these pledges will be uncollectible.
Required:
How much should the Yelton Center report as revenue for 2012?
15) Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of
$100,000 and Caylor invested $30,000 in cash and equipment with a book value of
$40,000 and fair value of $50,000. For both partners, the beginning capital balance was
to equal the initial investment. Norr and Caylor agreed to the following procedure for
sharing profits and losses:
– 12% interest on the yearly beginning capital balance
– $10 per hour of work that can be billed to the partnership’s clients
– the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than
$1,000 per month.
For 2012, the partnership’s income was $70,000. Norr had 1,000 billable hours, and
Caylor worked 1,400 billable hours. In 2013, the partnership’s income was $24,000, and
Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner
withdrew $1,000 per month throughout 2012 and 2013.
Determine the balance in both capital accounts at the end of 2013 to the nearest dollar.
16) The financial statements for Jode Inc. and Lakely Corp., just prior to their
combination, for the year ending December 31, 2012, follow. Lakely’s buildings were
undervalued on its financial records by $60,000.
On December 31, 2012, Jode issued 54,000 new shares of its $10 par value stock in
exchange for all the outstanding shares of Lakely. Jode’s shares had a fair value on that
date of $35 per share. Jode paid $34,000 to an investment bank for assisting in the
arrangements. Jode also paid $24,000 in stock issuance costs to effect the acquisition of
Lakely. Lakely will retain its incorporation. Required:
Determine consolidated net income for the year ended December 31, 2012.
18) Hampton Company is trying to decide whether to seek liquidation or
reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
– The investments are currently worth $13,000.
– It is estimated that $32,000 of the accounts receivable are collectible.
– The inventory can be sold for $74,000.
– The prepaid expenses and the intangible assets have no net realizable value.
– The land and building are currently valued at $250,000.
– The equipment can be sold for $60,000.
– Administrative expenses (not yet recorded) are estimated to be $12,500.
– Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and
$3,000 each to two other employees).
– Accrued expenses include $7,000 of unpaid payroll taxes.
Compute the amount of assets available for unsecured creditors after payment of
liabilities with priority.
19) On January 1, 2012, Mace Co. acquired 75% of Lance Co.’s outstanding common
stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these
investments were acquired when book value was equal to fair value of identifiable net
assets acquired. Both of these investments were accounted using the initial value
method. No dividends were distributed by either Lance or Curle during 2012 or 2013.
Mace paid cash dividends each year equal to 40% of operating income. Reported
operating income totals for 2012 were as follows:
Following are the 2013 financial statements for these three companies. Curle made
numerous transfers of inventory to Lance since the takeover: $112,000 (2012) and
$140,000 (2013). These transactions included the same markup applicable to Curle’s
outside sales. In each of these years, Lance carried 20% of this inventory into the
succeeding year before disposing of it.
An effective income tax rate of 45% was applicable to all companies.
Determine the non-controlling interest in Lace Co.’s net income for the year 2013.
20) Panton, Inc. acquired 18,000 shares of Glotfelty Corp. several years ago. At the
present time, Glotfelty is reporting the following stockholders’ equity:
Glotfelty issues
5,000 shares of previously unissued stock to the public for $40 per share. None of this
stock is purchased by Panton.
Describe how this transaction would affect Panton’s books.