ABC, a holder of a $400,000 XYZ Inc. bond, collected the interest due on June 30,
20X8, and then sold the bond to DEF Inc. for $365,000. On that date the bond issuer,
XYZ, a 90 percent owner of DEF, had a $450,000 carrying amount for this bond.
Based on the information given above, what was the effect of DEF’s purchase of XYZ’s
bond on the noncontrolling interest amount reported in XYZ’s June 30, 20X8,
consolidated balance sheet?
A. No effect
B. $35,000 increase
C. $8,500 decrease
D. $8,500 increase
Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,
20X8. This purchase followed a series of transactions between P-controlled
subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a
nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19,
20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has
control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, what amount of gain or loss on sale of land should
be reported in the consolidated income statement for 20X8?
A. $60,000
B. $0
C. $75,000
D. $23,000
On June 30, the balance sheet for the partnership of Williams, Brown and Lowe,
together with their respective profit and loss ratios, was as follows:
Williams has decided to retire from the partnership and by mutual agreement the assets are
to be adjusted to their fair value of $360,000 at June 30. It was agreed that the partnership
would pay Williams $102,000 cash for his partnership interest exclusive of his loan which
is to be repaid in full. No goodwill is to be recorded in this transaction. After William’s
retirement, and before the loan is repaid, what are the capital account balances of Brown
and Lowe, respectively?
A. $65,000 and $150,000
B. $72,000 and $171,000
C. $73,000 and $174,000
D. $77,000 and $186,000
Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent Hunter bonds from
Cruse Corporation for $115,000. Hunter originally issued the bonds to Cruse on January
1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue and
pay interest semiannually on June 30 and December 31 each year. Moss’ reported net
income of $65,000 for 20X8, and Hunter reported income (excluding income from
ownership of Moss’s stock) of $90,000. Hunter’s partial bond amortization schedule is
as follows:
Based on the information given above, what amount of consolidated net income should be
reported for 20X8?
A. $147,240
B. $134,240
C. $149,134
D. $136,134
Bill, Page, Larry, and Scott have decided to terminate their partnership. The
partnership’s balance sheet at the time they decide to wind up is as follows:
During the winding up of the partnership, the other assets are sold for $150,000 and the
accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are
personally insolvent. The partners share profits and losses in the ratio of 3:2:1:4.
Based on the preceding information, what amount will be paid out to Bill upon
liquidation of the partnership?
A. $0
B. $5,000
C. $25,000
D. $2,500
Which accounts described below would have non-zero balances after the accounts are
closed in the general fund of a state or local government?
A. I, II, III.
B. I, II, IV.
C. IV, V, VI.
D. III, IV, V.
At its inception, Peacock Company purchased land for $50,000 and a building for
$220,000. After exactly 4 years, it transferred these assets and cash of $75,000 to a
newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick’s
$5 par value stock. Peacock uses straight-line depreciation. When purchased, the
building had a useful life of 20 years with no expected salvage value. An appraisal at
the time of the transfer revealed that the building has a fair value of $250,000.
Based on the information provided, at the time of the transfer, Selvick Company should
record
A. the building at $220,000 and accumulated depreciation of $44,000.
B. the building at $220,000 with no accumulated depreciation.
C. the building at $176,000 with no accumulated depreciation.
D. the building at $250,000 with no accumulated depreciation.
Golden Path, a labor union, had the following receipts and expenses for the year ended
December 31, 20X8:
The union’s constitution provides that 12 percent of the per capita dues be designated
for the strike insurance fund to be distributed for strike relief at the discretion of the
union’s executive board.
Based on the information provided, in Golden Path’s statement of activities for the year
ended December 31, 20X8, what amount should be reported under the classification of
revenue from unrestricted funds?
A. $980,000
B. $1,100,000
C. $1,210,000
D. $1,020,000
Wakefield Company uses a perpetual inventory system. In August, it sold 2,000 units
from its LIFO-base inventory, which had originally cost $35 per unit. The replacement
cost is expected to be $45 per unit. The company is planning to reduce its inventory and
expects to replace only 1,500 of these units by December 31, the end of its fiscal year.
The company replaced 1,500 units in November at an actual cost of $50 per unit.
Based on the preceding information, in the entry to record the replacement of the 1,500
units in November, Cost of Goods Sold will be debited for:
A. $52,500.
B. $22,500.
C. $15,000.
D. $7,500.
Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3,
20X5. This purchase followed a series of transactions between Patch-controlled
subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a
nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15,
20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has
control of the following companies:
Subsidiary Level of Ownership 20X5 Net Income
Sub3 60 percent $60,000
Sub2 90 percent $140,000
Sub1 70 percent $90,000
Patch reported income from its separate operations of $345,000 for 20X5.
Based on the preceding information, what amount of gain or loss on the sale of land
should be reported in the consolidated income statement for 20X5?
A. $0
B. $20,000 loss
C. $110,000 gain
D. $130,000 gain
Paccu Corporation acquired 100 percent of Sallee Company’s common stock on
January 1, 20X7. Balance sheet data for the two companies immediately following the
acquisition follow:
Paccu Sallee
Cash $50,000 $30,000
Accounts Receivable 60,000 35,000
Inventory 130,000 45,000
Land 75,000 60,000
Buildings and Equipment 310,000 170,000
Less: Accumulated Depreciation (130,000) (30,000)
Investment in Sallee Company Stock 250,000
Total Assets $745,000 $310,000
Accounts Payable $40,000 $35,000
Taxes Payable 30,000 12,000
Bonds Payable 250,000 50,000
Common Stock 75,000 75,000
Retained Earnings 350,000 138,000
Total Liabilities and Stockholders’ Equity $745,000 $310,000
At the date of the business combination, the book values of Sallee’s assets and liabilities
approximated fair value except for inventory, which had a fair value of $55,000, and
land, which had a fair value of $65,000. The fair value of land for Paccu Corporation
was estimated at $90,000 immediately prior to the acquisition.
Based on the preceding information, at what amount should the land be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $135,000
B. $140,000
C. $150,000
D. $155,000
Which of the following funds are classified as fiduciary funds?
A. Agency and Special revenue funds.
B. Internal service and Enterprise funds.
C. Private-purpose trust and Agency funds.
D. Capital projects and Debt service funds.
For which of the following reporting units is the preparation of combined financial
statements most appropriate?
A. A corporation and a foreign subsidiary with nonintegrated homogeneous operations.
B. A corporation and a majority-owned subsidiary with nonhomogeneous operations.
C. Several corporations with related operations owned by one individual.
D. Several corporations with related operations with some common individual owners.
Financing for the renovation of Fir City’s municipal park, begun and completed during
20X4, came from the following sources:
In its 20X4 capital projects fund operating statement, Fir should report these amounts as:
Revenues Other financing sources
A. $ 400,000 $ 600,000
B. $ 0 $1,000,000
C. $1,000,000 $ 0
D. $ 900,000 $ 100,000
The following information was obtained from the general fund balance sheet of Lincoln
County on June 30, 20X2, the close of its fiscal year:
On June 30, 20X2, what was Lincoln’s unassigned fund balance in its general fund?
A. $96,000
B. $126,000
C. $176,000
D. $206,000
Mortar Corporation acquired 80 percent of Granite Corporation’s voting common stock
on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite for
equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment is
expected to have a 10-year useful life and no salvage value. Both companies depreciate
equipment on a straight-line basis.
Based on the preceding information, in the preparation of the 20X8 consolidated
financial statements, equipment will be:
A. debited for $50,000.
B. debited for $40,000.
C. credited for $70,000.
D. debited for $25,000.
The statement of financial position for a private not-for-profit college should show
separate dollar amounts for
A. Unrestricted net assets, temporarily restricted net assets, and permanently restricted
net assets.
B. All accounts in its equity section.
C. Unrestricted net assets only.
D. Unrestricted net assets and temporarily restricted net assets.
Pursuing an inorganic growth strategy, Wilson Company acquired Venus Company’s net
assets and assigned them to four separate reporting divisions. Wilson assigned total
goodwill of $134,000 to the four reporting divisions as given below:
Based on the preceding information, for Gamma:
A. no goodwill should be reported at year-end.
B. goodwill impairment of $30,000 should be recognized at year-end.
C. goodwill impairment of $20,000 should be recognized at year-end.
D. goodwill of $30,000 should be reported at year-end.
Under the modified accrual basis of accounting for the general fund, expenditures
should be recognized in the period in which the related liability is:
A. I only
B. II only
C. Both I and II
D. Neither I nor II
As of May 30, 20X9, the debt service fund of Cody had accumulated $52,000 of assets
in a debt service fund to pay the principal of its currently maturing serial bonds. On
June 1, 20X9, $50,000 of serial bonds matured and were paid with the resources
accumulated in the debt service fund. In Cody’s debt service fund, Matured Bonds
Payable was debited for $50,000 and:
A. Cash was credited for $50,000.
B. Due to General Fund was credited for $50,000.
C. Investments was credited for $50,000.
D. Reserve for Encumbrances was credited for $50,000.
A newly created subsidiary sold all of its inventory to its parent at a profit in its first
year of existence. The parent, in turn, sold all but 20 percent of the inventory to
unaffiliated companies, recognizing a profit. The parent had no other sales during the
year. The amount that should be reported as cost of goods sold in this year’s
consolidated income statement should be:
A. 80 percent of the amount reported as intercompany sales by the subsidiary.
B. 80 percent of the amount reported as cost of goods sold by the subsidiary.
C. the amount reported as cost of goods sold by the parent minus unrealized profit in
the ending inventory of the parent.
D. 80 percent of the amount reported as cost of goods sold by the parent.
Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3,
20X5. This purchase followed a series of transactions between Patch-controlled
subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a
nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15,
20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has
control of the following companies:
Subsidiary Level of Ownership 20X5 Net Income
Sub3 60 percent $60,000
Sub2 90 percent $140,000
Sub1 70 percent $90,000
Patch reported income from its separate operations of $345,000 for 20X5.
Based on the preceding information, at what amount should the land be reported in the
consolidated balance sheet as of December 31, 20X5?
A. $220,000
B. $240,000
C. $305,000
D. $350,000
Plummet Corporation reported the book value of its net assets at $400,000 when Zenith
Corporation acquired 100 percent ownership. The fair value of Plummet’s net assets
was determined to be $510,000 on that date.
Based on the preceding information, what amount of goodwill will be reported in
consolidated financial statements presented immediately following the combination if
Zenith paid $500,000 for the acquisition?
A. $0
B. $50,000
C. $150,000
D. $40,000
On September 30, 20X8, Wilfred Company sold inventory to Jackson Corporation, its
Canadian subsidiary. The goods cost Wilfred $30,000 and were sold to Jackson for
$40,000, payable in Canadian dollars. The goods are still on hand at the end of the year
on December 31. The Canadian dollar (C$) is the functional currency of the Canadian
subsidiary. The exchange rates follow:
Based on the preceding information, at what amount is the inventory shown on the
consolidated balance sheet for the year?
A. $45,000
B. $30,000
C. $40,000
D. $35,000
Colton Company acquired 80 percent ownership of Mota Company’s voting shares on
January 1, 2008, at underlying book value. The fair value of the noncontrolling interest
on that date was equal to 20 percent of the book value of Mota Company. During 2008,
Colton purchased inventory for $30,000 and sold the full amount to Mota Company for
$50,000. On December 31, 2008, Mota’s ending inventory included $10,000 of items
purchased from Colton. Also in 2008, Mota purchased inventory for $80,000 and sold
the units to Colton for $100,000. Colton included $30,000 of its purchase from Mota in
ending inventory on December 31, 2008. Summary income statement data for the two
companies revealed the following:
Required:
a. Compute the amount to be reported as sales in the 20X8 consolidated income
statement.
b. Compute the amount to be reported as cost of goods sold in the 20X8 consolidated
income statement.
c. What amount of income will be assigned to the noncontrolling shareholders in the
20X8 consolidated income statement?
d. What amount of income will be assigned to the controlling interest in the 20X8
consolidated income statement?
On December 31, 20X5, Paris Corporation acquired 60 percent of Sanlo Company’s
common stock for $180,000. At that date, the fair value of the noncontrolling interest
was $120,000. Of the $45,000 differential, $5,000 related to the increased value of
Sanlo’s inventory, $15,000 related to the increased value of its land, and $10,000 related
to the increased value of its equipment that had a remaining life of five years from the
date of combination. Sanlo sold all inventory it held at the end of 20X5 during 20X6.
The land to which the differential related was also sold during 20X6 for a large gain. In
20X6, Sanlo reported net income of $40,000 but paid no dividends. Paris accounts for
its investment in Sanlo using the equity method.
Based on the preceding information, the amount of goodwill reported in the
consolidated financial statements prepared immediately after the combination is
A. $9,000
B. $15,000
C. $27,000
D. $45,000
Under which nonjudicial action do creditors agree to assist the debtor in managing the
most efficient payment of creditors’ claims?
A. Debt restructuring arrangement
B. Creditors’ committee management
C. Transfer of assets
D. Composition agreement
Tinitoys, Inc., a domestic company, purchased inventory from a Brazilian company for
500,000 Brazilian reals (Br. reals) on May 1, 20X2. Payment is due on June 30, 20X2.
On May 1, 20X2, Tinitoys also entered into a 60-day forward contract to purchase
500,000 Brazilian reals. The forward contract is not designated as a hedge. Tinitoys’
fiscal year ends on May 31. The direct exchange rates were as follows:
Spot Rate Forward Rate
May 1, 20X2 $0.523 $0.525 (60 days)
May 31, 20X2 $0.516 $0.52 (30 days)
June 30, 20X2 $0.508
Based on the preceding information, the entries on May 31, 20X2, include a
A. credit to Foreign Currency Payable to Exchange Broker, $3,500.
B. debit to Foreign Currency Transaction Loss, $3,500.
C. credit to Foreign Currency Receivable from Exchange Broker, $2,500.
D. credit to Foreign Currency Receivable from Exchange Broker, $260,000.
Which of the following observations is true of the shelf registration rule?
A. It is an option available to all listed companies.
B. Shelf registration is limited to 25 percent of the company’s currently outstanding
stock.
C. It allows private placements of an unlimited amount of securities.
D. It allows large companies to select the optimal time to sell their stock.
Micron Corporation owns 75 percent of the common shares and 60 percent of the
preferred shares of Stanley Company, all acquired at underlying book value on January
1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley’s common
stock was equal to 25 percent of the book value of its common stock. The balance
sheets of Micron and Stanley immediately after the acquisition contained these
balances:
Stanley’s preferred stock pays a 12 percent dividend and is cumulative. For 20X8,
Stanley reports net income of $40,000 and pays no dividends. Micron reports income
from its separate operations of $75,000 and pays dividends of $30,000 during 20X8.
Based on the preceding information, what is the total noncontrolling interest reported in
the consolidated balance sheet as of January 1, 20X8?
A. $80,000
B. $40,000
C. $50,000
D. $60,000
On September 22, 20X1, Yumi Corp. purchased merchandise from an unaffiliated
foreign company for 10,000 units of the foreign company’s local currency. On that date,
the spot rate was $.55. Yumi paid the bill in full, six months later, on March 20, 20X2,
when the spot rate was $.65. The spot rate was $.70 on December 31, 20X1. What
amount should Yumi report as a foreign currency transaction loss in its income
statement for the year ended December 31, 20X1?
A. $500
B. $0
C. $1,500
D. $1,000
The transactions described in the following questions occurred in a voluntary health and
welfare organization during the year ended December 31, 20X8. For each transaction,
indicate its effect(s) on the organization’s statement of activities prepared for the year
ended December 31, 20X8. List all effects of transactions affecting more than one class
of net assets. Indicate your choice(s) by entering the letter corresponding to the effects
listed here:
Incurred fund-raising costs.
On January 1, 2008, Orion Company acquired 70 percent of Simplex Company’s stock
at underlying book value. At that date, the fair value of the noncontrolling interest was
equal to 30 percent of the book value of Simplex Company. On December 31, 2009,
Simplex acquired 15 percent of Orion’s stock. Balance sheets for the two companies on
December 31, 2009, are as follows:
Required:
Assuming that the treasury stock method is used in reporting Orion’s shares held by
Simplex, prepare the elimination entries and a consolidated balance sheet worksheet for
December 31, 2009.
The transactions described in the following questions occurred in a voluntary health and
welfare organization during the year ended December 31, 20X8. For each transaction,
indicate its effect(s) on the organization’s statement of activities prepared for the year
ended December 31, 20X8. List all effects of transactions affecting more than one class
of net assets. Indicate your choice(s) by entering the letter corresponding to the effects
listed here:
Received a multi-year pledge, with cash being received this year and for the next 4
years. Donors did not place any use restrictions on how the pledges were to be spent.
Listen and Hear are thinking of dissolving their partnership. Listen has a friend who
told him to complete a “lump-sum” liquidation. Hear wants to complete an
“installment” liquidation. They have come to you for advice. What do you recommend
and Why?
Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on
December 1, 20X8, with payment due on January 20, 20X9. The exchange rates were:
December 1, 20X8 1 real = $0.5435
December 31, 20X8 1 real = 0.5192
January 20, 20X9 1 real = 0.5305
Based on the preceding information, which of the following is true of dollar’s
movement vis–vis Brazilian real during the period?
A cash dividend returns assets to the stockholders while reducing corporate liquidity.
Why are not all cash dividends considered to be “liquidating dividends”? In your
response include a discussion of how an investor accounts for a liquidating dividend.
Big Company acquired 75 percent of Little Company’s stock at underlying book value
on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal
to 25 percent of the book value of Little Company. Little Company reported shares
outstanding of $350,000 and retained earnings of $100,000. During 20X8, Little
Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Little
Company reported net income of $90,000 and paid dividends of $15,000. The following
transactions occurred between Big Company and Little Company in 20X8 and 20X9:
Little Co. sold equipment to Big Co. for a $42,000 gain on December 31, 20X8. Little
Co. had originally purchased the equipment for $140,000 and it had a carrying value of
$28,000 on December 31, 20X8. At the time of the purchase, Big Co. estimated that the
equipment still had a seven-year remaining useful life.
Big sold land costing $90,000 to Old Company on June 28, 20X9, for $110,000.
Required:
Give all consolidating entries needed to prepare a consolidation worksheet for 20X9
assuming that Big Co. uses the modified equity method to account for its investment in
Old Company.
Locus Corporation acquired 80 percent ownership of Stereo Company on January 1,
20X6, at underlying book value. At that date, the fair value of the noncontrolling
interest was equal to 20 percent of the book value of Stereo Company. Consolidated
balance sheets at January 1, 20X8, and December 31, 20X8, are as follows:
The consolidated income statement for 20X8 contained the following amounts:
Locus and Stereo paid dividends of $25,000 and $15,000, respectively, in 20X8.
Required:
1) Prepare a worksheet to develop a consolidated statement of cash flows for 20X8
using the direct method of computing cash flows from operations.
2) Prepare a consolidated statement of cash flows for 20X8.
PeopleMag sells a plot of land for $100,000 to Seven Star Company, its 100 percent
owned subsidiary, on January 1, 20X7. The cost of the land was $75,000, when it was
purchased in 20X6. In 20X9, Seven Star sells the land to Hot Properties Inc., an
unrelated entity, for $120,000. How is the land reported in the consolidated financial
statements for 20X7, 20X8 and 20X9?
The PQ partnership has the following plan for the distribution of partnership net income
(loss):
Required:
Calculate the distribution of partnership net income (loss) for each independent
situation below (for each situation, assume the average capital balance of P is $140,000
and of Q is $240,000).
1) Partnership net income is $360,000.
2) Partnership net income is $240,000.
3) Partnership net loss is $40,000.
On December 1, 20X8, Secure Company bought a 90-day forward contract to purchase
200,000 euros (€) at a forward rate of €1 = $1.35 when the spot rate was $1.33. Other
exchange rates were as follows:
Required
1) Prepare all journal entries related to Secure Company’s foreign currency speculation
from December 1, 20X8, through March 1, 20X9, assuming the fiscal year ends on
December 31, 20X8.
2) Did the company gain or lose on its purchase of the forward contract?
Smithtown Distributors acquired Paul’s Plumbing on January 15, 20X8. Violet Flowers
acquired Frank’s Farm on January 1, 20X7. In the 12/31/X7 financial statements filed
with the SEC, Smithtown included a Pro Forma disclosure and Violet did not. If both
acquisitions account for 100% of the common stock of the company acquired and are
considered to be material, then can both filings be considered proper?
The transactions described in the following questions occurred in a voluntary health and
welfare organization during the year ended December 31, 20X8. For each transaction,
indicate its effect(s) on the organization’s statement of activities prepared for the year
ended December 31, 20X8. List all effects of transactions affecting more than one class
of net assets. Indicate your choice(s) by entering the letter corresponding to the effects
listed here:
Depreciation expense for the year was recorded.
Chicago based Corporation X has a number of exporting transactions with companies
based in Sweden. Exporting activities result in receivables. If the settlement currency is
the Swedish Krona, which of the following will happen by changes in the direct or
indirect exchange rates?
Binary Company acquired 75 percent ownership of Fordham Corporation in 20X5, at
underlying book value. On that date, the fair value of the noncontrolling interest was
equal to 25 percent of the book value of Fordham Corporation. Binary purchased
inventory from Fordham for $150,000 on July 24, 20X6, and resold 90 percent of the
inventory to unaffiliated companies on November 11, 20X6, for $160,000. Fordham
produced the inventory sold to Binary for $120,000. The companies had no other
transactions during 20X6.
Based on the information given above, what amount of sales will be reported in the
20X6 consolidated income statement?
A. $120,000
B. $135,000
C. $150,000
D. $160,000
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Basis for measuring contributions” describes which term listed above?