1) Oscar Lloyd is serving as the executor for the estate of Dixie Cooper, who passed
away on January 28, 2011, at the age of 98. Dixie’s estate consisted of Treasury bonds
with a maturity value and fair market value of $1,400,000, $4,000 in her checking
account, and $50,000 in a Certificate of Deposit with First State Bank of Springfield.
Total accrued interest at the time of death was $44,000, made up of $2,000 from the CD
and $42,000 from the bonds.
Dixie left a valid will, which provided that most of her estate would be inherited by her
two nephews, Jimmy Johns and Joey Johns. In addition, Dixie provided that $200,000
be transferred to a trust account for her faithful cats, Petra and Hobbes. Income from the
trust would be used to care for Hobbes and Petra. Upon their passing, the remaining
funds would then transfer to Operation Kindness, an organization that cares for cats and
dogs.
Mr. Lloyd will also serve as the fiduciary for the trust. He has determined that no state
or federal inheritance taxes are due. The limited estate income is also free from any
federal or state income tax. The following transactions occurred during February.
1>On February 3, Oscar sold the treasury bonds for $1,460,000. $1,400,000 was for the
fair market value of the bonds, $42,000 was for interest accrued to the time of Dixie’s
death, and the remaining $18,000 was for accrued interest since Dixie’s death. Estate
income will be used to pay final medical expenses, and if anything is left, funeral
expenses.
2>On February 11, Oscar issued a check to pay Dixie’s final medical expenses of
$11,900.
3>On February 15, Oscar received a check in the amount of $52,000 from First State
Bank of Springfield. It is the maturity value and interest from a certificate of deposit in
the amount of $50,000. The CD matured on January 22, 2011 .
4>In Dixie’s will, she wanted to give $150,000 to the American Humane Society. After
examining the assets, Oscar determined that the estate’s assets will adequately cover all
expenses and specific devises, so on February 3, he issued a check to the organization
for $150,000.
5>On February 18, Oscar transferred $200,000 to a trust account at First State Bank to
fund the trust, to care for the cats.
6>On February 25, Oscar issued a check to pay Dixie’s funeral expenses of $9,800.
7>On February 26, Oscar paid himself the $4,000 executor’s fee specified in Dixie’s
will.
8>On February 28, Oscar finalized the estate and transferred the balance of the estate’s
assets equally between Dixie’s nephews, Jimmy Johns and Joey Johns.
Required:
1>Prepare an inventory of estate assets at the time of Dixie’s death and record the
necessary journal entries to create the estate.
2>Prepare journal entries to record the estate’s transactions during February.
2) A 15% stock dividend by a subsidiary causes
A) the parent company investment account to decrease
B) the parent company investment account to remain the same
C) the parent company investment account to increase
D) the noncontrolling interest equity to increase
3) The year-end balance sheet and residual profit and loss sharing percentages for the
Gary, Harold, and Ivan partnership on December 31, 2011, are as follows:
Cash$60,000Accounts payable$150,000
Loan to Gary50,000Loan from Harold50,000
Other assets360,000Gary, capital (25%)70,000
Harold, capital (25%)80,000
Ivan, capital (50%)120,000
Total assets$470,000Total liab./equity$470,000
The partners agree to liquidate the business and distribute cash when it becomes
available. A cash distribution plan is developed with vulnerability rankings for the Gary,
Harold and Ivan partnership. After outside creditors are paid, the cash available will
initially go to
A) Gary in the amount of $20,000
B) Harold in the amount of $50,000
C) Harold in the amount of $70,000
D) Ivan in the amount of $40,000
4) Poe Corporation owns an 80% interest in Seri Company acquired at book value
several years ago. On January 2, 2011, Seri purchased $100,000 par of Poe’s
outstanding 10% bonds for $103,000. The bonds were issued at par and mature on
January 1, 2014 . Straight-line amortization is used. Separate incomes of Poe and Seri
for 2011 are $350,000 and $120,000, respectively. Poe uses the equity method to
account for the investment in Seri.
Controlling interest share of consolidated net income for 2011 was
A) $443,600
B) $444,000
C) $444,400
D) $448,000
5) Everything else held constant, a decrease in marginal tax rates would likely have the
effect of ________ the demand for municipal bonds, and ________ the demand for US
government bonds
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
6) The risk structure of interest rates is
A) the structure of how interest rates move over time
B) the relationship among interest rates of different bonds with the same maturity
C) the relationship among the term to maturity of different bonds
D) the relationship among interest rates on bonds with different maturities
7) Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was
then dissolved. Salt had no liabilities. The fair values of Salt’s assets were $3,750,000.
Salt’s only non-current assets were land and buildings with book values of $100,000
and $520,000, respectively, and fair values of $180,000 and $730,000, respectively. At
what value will the buildings be recorded by Pepper?
A) $730,000
B) $520,000
C) $210,000
D) $0
8) Justice Corporation paid $40,000 cash for an 80% interest in the voting common
stock of Grace Corporation on July 1, 2012, when Grace’s stockholders’ equity
consisted of $30,000 of $10 par common stock and $15,000 retained earnings. The
excess cost over the book value of the investment was assigned $2,000 to undervalued
inventory items that were sold in 2012, with the remaining excess being assigned to
goodwill. During the last half of 2012, Grace reported $4,000 net income and declared
dividends of $2,000, and Justice reported income from Grace of $1,200.
There were no intercompany sales during the last half of 2012, but during 2013 Justice
sold inventory items that cost $8,000 to Grace for $12,000. Half of these inventory
items were included in Grace Corporation’s Inventory at December 31, 2013, with
$1,000 unpaid by Grace at December 31, 2013 .
On January 5, 2013, Justice sold a plant asset with a book value of $2,500 and a
remaining useful life of 5 years to Grace for $4,000. Grace Corporation owned the plant
asset at year-end. The plant asset has no salvage value and both companies use the
straight-line depreciation method.
Justice Corporation uses the equity method to account for its investment in Grace, and
the changes in Justice’s Investment in Grace account from acquisition until year-end
2013 are as follows:
Investment in Grace, July 1, 2012$40,000
Income from Grace July 1 – December 31, 20121,200
Less: Share of dividends received(1,600)
Investment in Grace at December 31, 201239,600
Add: Income from Grace for 20134,800
Less: Dividends received(3,200)
Investment in Grace at December 31, 2013$41,200
Required:
Complete the working papers for the year ending December 31, 2013 that are given
below.
9) Everything else held constant, the interest rate on municipal bonds rises relative to
the interest rate on Treasury securities when
A) income tax rates are lowered
B) income tax rates are raised
C) municipal bonds become more widely traded
D) corporate bonds become riskier
10) If a sale on account by a U.S. company is made with a foreign company, and the
U.S. company has no foreign currency risk, then
A) the U.S. company has measured the transaction in US dollars
B) the U.S. company has denominated the transaction in US dollars
C) the foreign company has measured the transaction in their own currency
D) the foreign company has denominated the transaction in their own currency
11) On November 1, 2011, Moddel Company (a U.S. corporation) entered into a 90-day
forward contract to purchase 200,000 British pounds. The purpose of the forward
contract is to hedge a commitment to purchase special equipment on January 30, 2012
from a British firm Jeckyl Inc. The invoice price on the purchase commitment is
denominated in British pounds. The forward contract is not settled net. Assume Moddel
uses a 12% interest rate. Use a fair value hedge.
The relevant exchange rates are stated in dollars per pound:
Forward Rate
Spot Rateto Jan. 30, 2012
November 1, 2011$1.32$1.35
December 31, 2011$1.47$1.50
January 30, 2012$1.55-
Required:
1>What journal entry did Moddel record on November 1, 2011?
2>What journal entries did Moddel record on December 31, 2011?
3>What journal entries did Moddel record on January 30, 2012 if the purchase was
made?
12) For internal decision-making purposes, Dashwood Corporation’s operating
segments have been identified as follows:
RevenuesOperating
(includesProfitIdentifiable
Operating Segmentintersegmentor LossAssets
revenues)
Appliances$1,100,000$(150,000)$1,200,000
Clothing1,300,000(750,000)400,000
Lawn and Garden850,000150,000150,000
Auto Accessories1,000,000100,000200,000
Service Contracts650,000(50,000)100,000
Catalog Sales2,300,00050,000500,000
Home Furnishings2,800,000250,0001,000,000
Tools2,400,000300,000250,000
$12,400,000$(100,000)$3,800,000
Revenues of the segments are external, with the exception of tools, which sold
$400,000 to other segments, and Appliances, which sold $200,000 to other segments.
Required:
1> In applying the “revenue” test to identify reporting segments, what is the test value
for Dashwood Corporation?
2> Using the “revenue” test, which of Dashwood’s operating segments will also be
reportable segments?
13) The general fund trial balance for Lakeview City held the following balances at
September 30, 2011, just before closing entries were made:
Due from other funds$8,000
Fund balance – unassigned50,000
Estimated revenues180,000
Revenues177,000
Appropriations176,000
Expenditures – current year169,000
Expenditures – prior year16,000
Other financing sources – transfer in from Capital Projects Fund62,000
Required:
Prepare the necessary closing entries for the General Fund.
14) Paula’s Pizzas purchased 80% of their supplier, Sarah’s Sauces. Sarah’s book values
equaled fair value at the time of the acquisition. Paula sold Sarah some packaging
equipment on January 2, 2011 for $100,000. The equipment had a carrying value of
$90,000, and original cost of $120,000, and had a remaining life of 10 years. Both
Paula and Sarah depreciate their assets on the straight-line method. The equipment has
no salvage value.
Required: Prepare the following entries:
1>Journal entries Paula and Sarah will prepare on their separate books in 2011 .
2>Eliminating/adjusting entries on the consolidation worksheet at the end of 2011 .
3>Eliminating/adjusting entries on the consolidation worksheet at the end of 2012 .
15) Philiam Benedict dies on October 1, 2011, leaving his entire estate to his sole
surviving niece, Muriel Finster. After all devise distributions and payments for estate
expenses and liabilities, the fair value of Philiam’s estate is $6,350,000.
Required:
Calculate the federal estate tax on Philiam’s estate, assuming that federal estate taxes
are paid at the 45% rate.
16) Snow Company is a wholly owned subsidiary of Penguin Corporation. On January
1, 2009, Penguin transferred equipment to Snow for $195,000. The equipment had
originally cost $250,000, but at the time of transfer, had a $180,000 book value and a
five year remaining life. Both companies use the straight-line method of depreciation
and assume no salvage value for the equipment.
Required: Prepare the consolidation worksheet entries for this asset on the following
dates:
1>December 31, 2009
2>December 31, 2010
3>December 31, 2011
17) For 2010 and 2011, Sabil Corporation earned net income of $480,000 and $640,000
and paid dividends of $18,000 and $20,000, respectively. At January 1, 2010, Sabil had
$200,000 of $10 par value common stock outstanding and $1,500,000 of retained
earnings.
On January 1 of each of these years, Phyit Corporation bought 10% of the outstanding
common stock of Sabil paying $200,000 per 10% block on January 1, 2010 and 2011 .
All payments made by Phyit in excess of book value were attributable to equipment,
which is depreciated over ten years on a straight-line basis.
Required:
1>If Phyit uses the cost method of accounting for its investment in Sabil, how much
dividend income will Phyit recognize in 2010 and 2011, and what will be the balance in
the investment account at the end of each year?
2>If Phyit has significant influence and can justify using the equity method of
accounting, how much net investee income will Phyit recognize for 2010 and 2011?
18) Anna and Bess share partnership profits and losses at 60% and 40%, respectively.
The partners agree to admit Cal into the partnership for a 50% interest in capital and
earnings. Capital accounts immediately before the admission of Cal are:
Anna (60%)$300,000
Bess (40%)300,000
Total$600,000
Required:
1> Prepare the journal entry(s) for the admission of Cal to the partnership assuming Cal
invested $400,000 for the ownership interest, and that this is a fair price for that share
of the partnership to be acquired. Cal paid the money directly to Anna and to Bess for
50% of each of their respective capital interests. The partnership records goodwill.
2> Prepare the journal entry(s) for the admission of Cal to the partnership assuming Cal
invested $500,000 for the ownership interest. Cal paid the money to the partnership for
a 50% interest in capital and earnings. Assume the valuation is based on the capital of
the current partnership, which is fairly valued. The partnership records goodwill.
3> Prepare the journal entry(s) for the admission of Cal to the partnership assuming Cal
invested $700,000 for the ownership interest, and that this is a fair price for that share
of the partnership to be acquired. Cal paid the money to the partnership for a 50%
interest in capital and earnings. The partnership records goodwill.
19) Dan and Ellie share partnership profits and losses at 70% and 30%, respectively.
The partners agree to admit Fran into the partnership for a 50% interest in capital and
earnings. Capital accounts immediately before the admission of Fran are:
Dan (70%)$800,000
Ellie (30%)400,000
Total$1,200,000
Required:
1>Prepare the journal entry(s) for the admission of Fran to the partnership assuming
Fran invested $800,000 for the ownership interest, and that this is a fair price for that
share of the partnership to be acquired. Fran paid the money directly to Dan and to Ellie
for 50% of each of their respective capital interests. The partnership records goodwill.
2>Prepare the journal entry(s) for the admission of Fran to the partnership assuming
Fran invested $1,000,000 for the ownership interest. Fran paid the money to the
partnership for a 50% interest in capital and earnings. Assume the valuation is based on
the capital of the current partnership, which is fairly valued. The partnership records
goodwill.
3>Prepare the journal entry(s) for the admission of Fran to the partnership assuming
Fran invested $1,400,000 for the ownership interest, and that this is a fair price for that
share of the partnership to be acquired. Fran paid the money to the partnership for a
50% interest in capital and earnings. The partnership records goodwill.
20) On January 1, 2011, Wrobel Company acquired a 90 percent interest in Sally
Company for $270,000. On January 1, 2011, Sally’s total stockholders’ equity was
$300,000. The fair value and book value of Sally’s individual assets and liabilities were
equal.
On January 2, 2011, Sally Company acquired a 10 percent interest in Wrobel Company
for $70,000. On January 2, 2011, Wrobel’s total stockholders’ equity was $700,000. The
fair value and book value of Wrobel’s individual assets and liabilities were equal.
For the year ending December 31, 2011, the following data is available:
Net incomeDividends
Wrobel Company$50,000$0
Sally Company$30,000$0
The treasury stock method is used to account for the mutual stock holdings between
Wrobel and Sally. The separate net incomes do not include investment income.
A partial working paper is available for the year ending December 31, 2011 .
Required:
Prepare the elimination entries for the year ending December 31, 2011 .
Do not enter them onto the worksheet. Instead, list them below.