1) Jeff Corporation owns 90% of the common stock of Subsidiary Jordan. The
following data is available:
JeffJordan
Net income for 2011$250,000$150,000
Preferred dividends for 2011$20,000
Common dividends for 2011$25,000
Number of common shares outstanding 200,00020,000
10% Preferred Stock, $100 par$200,000
The preferred stock is cumulative and convertible. The annual preferred dividends are
$20,000.
Required:
1> Jordan’s preferred stock is convertible into 20,000 shares of Jordan’s common stock.
Jeff and Jordan do not have any other potentially dilutive securities outstanding.
a. What is Jordan’s basic EPS and diluted EPS?
b. What is consolidated basic EPS and diluted EPS?
2> Jordan’s preferred stock is convertible into 20,000 shares of Jeff’s common stock.
Jeff and Jordan do not have any other potentially dilutive securities outstanding. What
is consolidated basic EPS and diluted EPS?
2) The mound-shaped yield curve in the figure above indicates that the inflation rate is
expected to
A) remain constant in the near-term and fall later on
B) fall moderately in the near-term and rise later on
C) rise moderately in the near-term and fall later on
D) remain unchanged in the near-term and rise later on
3) Platinum City collects state sales taxes quarterly from local businesses and then gives
the state revenue department the money at the end of the year. The sales taxes would go
in Platinum City’s
A) special revenue fund
B) general fund
C) agency fund
D) enterprise fund
4) A parent company uses the equity method to account for its wholly-owned
subsidiary, but has applied it incorrectly. In each of the past four full years, the company
adjusted the Investment account when it received dividends from the subsidiary but did
not adjust the account for any of the subsidiary’s profits. The subsidiary had four years
of profits and paid yearly dividends in amounts that were less than reported net
incomes. Which one of the following statements is correct if the parent company
discovered its mistake at the end of the fourth year, and is now preparing consolidation
working papers?
A) The parent company’s Retained Earnings will be increased by the cumulative total of
four years of subsidiary profits
B) The parent company’s Retained Earnings will be increased by the cumulative total of
the first three years of subsidiary profit, and the Subsidiary Income account will be
increased by the profit for the current year
C) The parent company’s Subsidiary Income account will be increased by the
cumulative total of four years of subsidiary profits
D) A prior period adjustment must be recorded for the cumulative effect of four years of
accounting errors
5) On consolidated working papers, a subsidiary’s net income is
A) deducted from beginning consolidated retained earnings
B) deducted from ending consolidated retained earnings
C) allocated between the noncontrolling interest share and the parent’s share
D) only an entry in the parent company’s general ledger
6) When the bankruptcy court grants an order for relief under Chapter 7,
A) creditors may not seek payment for their claims directly from the debtor corporation
B) the reorganization plan was accepted by creditors having at least one-half of the total
number of claims and the claims represent at least two-thirds of the total amount owed
C) the bankruptcy court confirms that the reorganization plan is fair and equitable to
creditors
D) the court discharges the debtor except for those claims provided for in the
reorganization plan
7) The segmented markets theory can explain
A) why yield curves usually tend to slope upward
B) why interest rates on bonds of different maturities tend to move together
C) why yield curves tend to slope upward when short-term interest rates are low and to
be inverted when short-term interest rates are high
D) why yield curves have been used to forecast business cycles
8) Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope
Company. Pitch will treat the $50,000 as
A) an expense for the current year
B) a prior period adjustment to retained earnings
C) additional cost to investment of Slope on the consolidated balance sheet
D) a reduction in additional paid-in capital
9) An increase in the liquidity of corporate bonds will ________ the price of corporate
bonds and ________ the yield of Treasury bonds, everything else held constant
A) increase; increase
B) reduce; reduce
C) increase; reduce
D) reduce; increase
10) If a U.S. company is preparing a journal entry for a recent purchase,
foreign-currency-denominated purchases must be measured in ________ at the
purchase date using the foreign currency ________ rate on the purchase date.
A) foreign currency; spot
B) foreign currency; future
C) U.S. dollars; forward
D) U.S. dollars; spot
11) Polaris Incorporated purchased 80% of The Solar Company on January 2, 2011,
when Solar’s book value was $800,000. Polaris paid $700,000 for their acquisition, and
the fair value of noncontrolling interest was $175,000. At the date of acquisition, the
fair value and book value of Solar’s identifiable assets and liabilities were equal. At the
end of the year, the separate companies reported the following balances:
PolarisSolar
Current assets 5,700,0001,250,000
Plant & equipment15,200,0003,400,000
Investment in Solar 780,0000
Goodwill00
Current liabilities 3,600,000 950,000
Long-term debt11,680,0002,800,000
Stockholder’s Equity6,400,000900,000
Requirement 1: Calculate consolidated balances for each of the accounts as of
December 31, 2011 .
Requirement 2: Assuming that Solar has paid no dividends during the year, what is the
ending balance of the noncontrolling interest in the subsidiary?
12) The following transactions relate to a municipal golf course and tennis club,
financed with debt secured by membership fees.
1>The General Fund loaned $25,000,000 cash to the Enterprise Fund. The note is not
interest-bearing.
2>The municipal golf course and tennis club purchased land and constructed the
facilities which totaled expenditures of $23,700,000.
3>Bonds were issued by the municipal golf course and tennis club for $20,000,000, par
value of the bonds.
4>Membership fees were billed in the amount of $4,800,000. $4,200,000 was collected.
5>$5,000,000 was repaid to the general fund, with the anticipation of repaying
$5,000,000 more per year for the next four years.
Required:
Prepare the necessary journal entries for each of the above transactions for the
Enterprise Fund.
13) Johnson Corporation (a U.S. company) began operations on December 1, 2010,
when the owner contributed $100,000 of his own money to establish the business.
Johnson then had the following import and export transactions with unaffiliated
Mexican companies:
December 12, 2011Bought inventory for 150,000 pesos on account.
Invoice denominated in pesos.
December 15, 2011Sold 60% of inventory acquired on 12/12/11 for 120,000 pesos on
account. Invoice denominated in pesos.
January 1, 2012Acquired and paid the 150,000 pesos owed to the Mexican supplier
January 15, 2012Collected the 120,000 pesos from the Mexican customer and
immediately converted them into U.S. dollars
The following exchange rates apply:
DateRate
December 12$.11 = 1 peso
December 15$.12 = 1 peso
December 31$.13 = 1 peso
January 1$.14 = 1 peso
January 15$.15 = 1 peso
Required:
1> What were Sales in the income statement for the year ended December 31, 2011?
2> What was the COGS associated with these sales?
3> What is the Accounts Payable balance in the balance sheet at December 31, 2011?
4> What is the Inventory balance in the balance sheet at December 31, 2011?
14) Josh Drake died on May 1, 2011 . He left his entire estate, with a fair value of
$6,200,000 to his sole surviving family member, his daughter, DeeDee.
Prior to any distribution of assets, Josh’s estate reflected the following details:
Funeral expenses$11,300
Executor’s fees10,800
Estate liabilities84,000
Final medical expenses40,700
Required:
Calculate the federal estate tax on Mr. Drake’s estate. You may ignore any state-level
inheritance taxes and assume that the federal estate tax rate is 45%.
15) The City of Attross entered the following transactions during 2011:
1>The city authorized a bond issue of $2,500,000 par to finance construction of a
fountain and pavilion in the city square. The bonds were issued for $2,560,000. The
premium was transferred to the fund for which the debt will be serviced. (This was a
nonreciprocal transfer.)
2>The city entered into a contract for construction of the fountain at an estimated cost
of $2,425,000.
3>The city received and paid a bill for $2,445,000 from the contractor upon completion
of and approval of the fountain.
4>The unused bond proceeds were set aside for debt service on the bonds. Accordingly,
those resources were paid to the appropriate fund(nonreciprocal).
Required:
Prepare journal entries for each of the above transactions. Identify the appropriate fund
or funds used by Attross.
16) On January 2, 2010 Carolina Clothing issued 100,000 new shares of its $5 par value
common stock valued at $19 a share for all of Dakota Dressing Company’s outstanding
common shares in an acquisition. Carolina paid $15,000 for registering and issuing
securities and $10,000 for other direct costs of the business combination. The fair value
and book value of Dakota’s identifiable assets and liabilities were the same. Assume
Dakota Company is dissolved on the date of the acquisition. Summarized balance sheet
information for both companies just before the acquisition on January 2, 2010 is as
follows:
CarolinaDakota
Cash$150,000$120,000
Inventories320,000400,000
Other current assets500,000500,000
Land350,000250,000
Plant assets-net 4,000,000 1,500,000
Total Assets$5,320,000$2,770,00
Accounts payable$1,000,000$300,000
Notes payable1,300,000660,000
Capital stock, $5 par2,000,000500,000
Additional paid-in capital1,000,000100,000
Retained Earnings 20,000 1,210,000
Total Liabilities & Equities$5,320,000$2,770,000
Required:
Prepare a balance sheet for Carolina Clothing immediately after the business
combination.
