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 interest income does Moss record
on its individual books for 20X8?
A. $10,950
B. $8,002
C. $9,410
D. $10,002
Barcode Corporation acquired 70% of the common stock of a Russian company on
January 1, 20X6. The goodwill associated with this acquisition was $12,520. Exchange
rates at various dates during 20X6 follow:
January 1, 20X6 1 ruble = $0.0313
December 31, 20X6 1 ruble = $0.0308
Average for 20X6 1 ruble = $0.031
Goodwill suffered an impairment of 25 percent during the year. If the functional
currency is the Russian ruble, how much goodwill impairment loss should be reported
on Barcode’s consolidated statement of income for 20X6?
A. $3,130
B. $3,100
C. $3,090
D. $3,080
Light Corporation owns 80 percent of Sound Company’s voting shares. On January 1,
20X7, Sound sold bonds with a par value of $300,000 when the market rate was 7
percent. Light purchased two thirds of the bonds; the remainder was sold to
nonaffiliates. The bonds mature in ten years and pay an annual interest rate of 6 percent.
Interest is paid semiannually on June 30 and Dec 31.
Based on the information given above, what amount of interest income will Light
Corporation recognize on December 31, 20X8 relative to the interest received on that
day, in its separate financial statements?
A. $13,023
B. $13,096
C. $6,538
D. $6,557
Which of the following statements is (are) correct about the funds used by
governmental entities?
A. I only
B. II only
C. I and II
D. Neither I nor II
Net assets restricted as to time or purpose should be classified as:
I. temporarily restricted.
II. permanently restricted.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
Which of the following accounts could be found in the general ledger of a partnership?
A. Option A
B. Option B
C. Option C
D. Option D
The partnership of X and Y shares profits and losses in the ratio of 60 percent to X and
40 percent to Y. For the year 20X8, partnership net income was double X’s withdrawals.
Assume X’s beginning capital balance was $80,000, and ending capital balance (after
closing) was $140,000. Partnership net income for the year was:
A. $120,000.
B. $300,000.
C. $500,000.
D. $600,000.
The balance sheet given below is presented for the partnership of Janet, Anton, and
Millet:
The partners share profits and losses in the ratio of 5:3:2, respectively. The partners
agreed to dissolve the partnership after selling the other assets for $50,000. On
dissolution of the partnership, Janet should receive:
A. $0.
B. $80,000.
C. $10,000.
D. $30,000.
Grant, Inc. acquired 30 percent of South Co.’s voting stock for $200,000 on January 2,
20X4. Grant’s 30 percent interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies. During 20X4, South earned
$80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six
months ended June 30, 20X5, and $200,000 for the year ended December 31, 20X5. On
July 1, 20X5, Grant sold half of its stock in South for $150,000 cash. South paid
dividends of $60,000 on October 1, 20X5.
What amount should Grant include in its 20X4 income statement as a result of the
investment?
A. $15,000
B. $24,000
C. $50,000
D. $80,000
Following its acquisition of the net assets of Dan Company, Empire Company assigned
goodwill of $60,000 to one of the reporting divisions. Information for this division
follows:
Based on the preceding information, what amount of goodwill impairment will be
recognized for this division if its fair value is determined to be $195,000?
A. $5,000
B. $30,000
C. $60,000
D. $55,000
The income tax expense applicable to the second quarter’s income statement is
determined by:
A. dividing the estimated annual income tax expense by four and allocating the amount
to the second quarter.
B. multiplying the effective income tax rate times the income before tax for the second
quarter.
C. subtracting the income tax expense applicable to the first quarter from the income
tax expense applicable to the first two quarters.
D. subtracting the income tax liability applicable to the first quarter from the income tax
liability applicable to the first two quarters.
The capital balances, prior to the liquidation of the XYZ partnership, were as follows:
X, Y, and Z share profits and losses in the ratio of 5:3:2. As a result of a loan, the
partnership owes Y $80,000. Using the information above, which partner has the
highest Loss Absorption Power (LAP) prior to liquidation?
A. X
B. Y
C. Z
D. Both X and Y
Based on the preceding information, the entry to revalue the foreign currency payable
to current U.S. dollar value on May 31 will include a
A. credit to Foreign Currency Transaction Gain for $350.
B. credit to Foreign Currency Transaction Gain for $200.
C. debit to Foreign Currency Transaction Loss for $550.
D. debit to Foreign Currency Transaction Loss for $350.
Parent Corporation owns 90 percent of Subsidiary 1 Company’s stock and 75 percent of
Subsidiary 2 Company’s stock. During 20X8, Parent sold inventory purchased in 20X7
for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost
of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of
inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,
20X8.
Based on the information given above, what amount of inventory must be eliminated
from the consolidated balance sheet for 20X8?
A. $2,400
B. $9,000
C. $12,000
D. $3,000
A donor agrees to contribute $5,000 per year at the end of each of the next five years to
a voluntary health and welfare organization. The donor did not place any use
restrictions on the amount pledged. The stream of the payments is discounted at 6
percent. The first payment of $5,000 is received at the end of the first year. The present
value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
Based on the preceding information, at the end of the first year, the pledge increased
unrestricted net assets by:
A. $25,000.
B. $21,062.
C. $4,212.
D. $5,000.
Based on the preceding information, what amount will be reported by the company as
cash received from customers during the year?
A. $590,000
B. $585,000
C. $575,000
D. $560,000
Company A holds 70 percent of the voting shares of Company B. During 20X8,
Company B sold land with a book value of $125,000 to Company A for $150,000.
Company A continues to hold the land at the end of the year. The companies file
separate tax returns and are subject to a 40 percent tax rate. Assume that Company A
uses the fully adjusted equity method in accounting for its investment in Company B.
Use the information given, but also assume that Company A holds the land at the end of
20X9. The consolidating entry relating to the intercorporate sale of land to be entered in
the consolidation worksheet prepared at the end of 20X9 will include a debit to
Investment in Company B for:
A. $4,500.
B. $7,500.
C. $15,000.
D. $10,500.
Consolidated financial statements are being prepared for Behemoth Corporation and its
two wholly-owned subsidiaries that have intercompany loans of $50,000 and
intercompany profits of $100,000. How much of these intercompany loans and profits
should be eliminated?
A. intercompany loans – $0; intercompany profits – $0
B. intercompany loans – $50,000; intercompany profits – $0
C. intercompany loans – $50,000; intercompany profits – $100,000
D. intercompany loans – $0; intercompany profits – $100,000
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of
Perth Company for $3,100,000. Any excess cost over book value is attributable to a
patent with a 10-year remaining life. At the date of acquisition, Perth’s balance sheet
contained the following information:
Perth’s income statement for 20X8 is as follows:
The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at
various dates for 20X8 follow:
Assume Perth’s revenues, purchases, operating expenses, depreciation expense, and
income taxes were incurred evenly throughout 20X8.
Refer to the above information. Assuming Perth’s local currency is the functional
currency, what is the balance in Johnson’s investment in foreign subsidiary account at
December 31, 2008?
A. $3,216,500
B. $3,560,000
C. $3,568,300
D. $3,577,694
Perfect Corporation acquired 70 percent of Trevor Company’s shares on December 31,
2008, for $140,000. At that date, the fair value of the noncontrolling interest was
$60,000. On January 1, 2010, Perfect acquired an additional 10 percent of Trevor’s
common stock for $32,500. Summarized balance sheets for Trevor on the dates
indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the fully
adjusted equity method in accounting for its investment in Trevor and amortizes all
differentials over 5 years against the related investment income. All differentials are
assigned to patents in the consolidated financial statements.
Based on the preceding information, what was the balance in Perfect’s Investment in
Trevor Company Stock account on December 31, 2010?
A. $211,500
B. $218,000
C. $173,000
D. $216,000
Jupiter Corporation’s consolidated cash flow statement for the year ended December 31,
20X8, reported operating cash inflows of $160,000, financing cash outflows of
$90,000, and investing cash outflows $55,000, and an ending cash balance of $75,000.
Jupiter acquired 75 percent of Ganymede Company’s common stock on July 1, 20X6, at
book value. At that date, the fair value of the noncontrolling interest was equal to 25
percent of Ganymede Company’s book value. Ganymede reported net income of
$20,000, paid dividends of $8,000 in 20X8, and is included in Jupiter’s consolidated
statements. Jupiter paid dividends of $25,000 in 20X8. The indirect method is used in
computing cash flow from operations.
Based on the information provided, what was the consolidated cash balance at January
1, 20X8?
A. $60,000
B. $85,000
C. $15,000
D. $380,000
On January 1, 20X6, Nichols Corporation issued 10-year bonds at par to unrelated
parties. The bonds have a 10% stated rate, face value of $300,000, and pay interest
every June 30 and December 31. On December 31, 20X9, Harn Corporation purchased
all of Nichols’ bonds in the open market at a $6,000 discount. Harn is Nichols’ 80
percent owned subsidiary. Harn uses the effective interest method of amortization. The
consolidated income statement for the year 20X9 should report with respect to the
bonds:
I. interest expense of $30,000.
II. an extraordinary gain of $6,000.
A. I
B. II
C. Either I or II
D. Neither I nor II
Mint Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign entity is
located. On October 1, 20X8, Mint purchased confectionary items from a foreign
company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20.
The account has not been settled as of December 31, 20X8, when the exchange rate has
decreased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint’s records at
year-end for this transaction will be:
A. $500 loss
B. $500 gain
C. $378 gain
D. $5,500 loss
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 in August to record the sale of the
2,000 units:
A. Cost of Goods Sold will be debited for $70,000.
B. Inventory will be credited for $85,000.
C. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $15,000.
D. Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $67,000.
Which of the following items should not be included as revenue for a state government?
A. Property taxes levied in the current fiscal year.
B. Private property for which a state takes custody when the legal owner cannot be
found.
C. Amounts received from other financing sources.
D. Fines and licensing fees for which amounts cannot be budgeted.
Trimester Corporation’s revenue for the year ended December 31, 20X8, was as
follows:
Trimester has a reportable operating segment if that segment’s revenue exceeds:
A. $65,500
B. $60,000
C. $64,500
D. $61,000
When a capital projects fund transfers a premium from the issuance of general
obligation bonds to another fund, the transfer should be accounted for as which type of
interfund transaction or transfer?
A. As a loan.
B. As an interfund transfer.
C. As revenue.
D. As a reimbursement.
Typically, the plan of reorganization must be approved by at least _____ of all creditors,
who must hold at least _____ of the dollar amount of the outstanding debt.
A. one-third; half
B. two-thirds; half
C. half; one-third
D. half; two-thirds
Public Equity Corporation acquired Lenore Company through an exchange of common
shares. All of Lenore’s assets and liabilities were immediately transferred to Public
Equity. Public’s common stock was trading at $20 per share at the time of exchange.
Following selected information is also available.
Based on the preceding information, what is the par value of Public’s common stock?
A. $10
B. $1
C. $5
D. $4
Schedule 13D is filed
A. by entities that acquire a beneficial ownership of more than 5 percent of a class of
registered equity securities.
B. to broadly report material information that is being provided to securities analysts,
selected institutional investors, or others.
C. to disclose material items related to asset-backed securities such as a bond issue.
D. by management to report the existence and effectiveness of the company’s internal
control over financial reporting.
Which of the following forms is the most comprehensive registration statement?
A. Form S-1
B. Form F-2
C. Form S-3
D. Form S-2