1) The following are transactions for the city of Greenville.
a.Issued $50,000 10-year bonds.
b.Used $30,000 of the cash to buy a truck.
c.Sold the truck that was replaced which had cost $28,000, for $2,000. The old truck
was fully depreciated. Residual value is zero.
d.Computed depreciation on the new truck for the year of $6,000.
Required:
Analyze the above transactions by using the accounting equation for a governmental
fund.
2) Peter Corporation owns 90% of the common stock of Subsidiary Subway. The
following data is available:
PeterSubway
Net income for 2011$150,000$50,000
Preferred dividends for 2011$10,000
Common dividends for 2011$15,000
Number of common shares outstanding 200,00020,000
10% Preferred Stock, $100 par$100,000
The preferred stock is cumulative and convertible. The annual preferred dividends are
$10,000.
Required:
1> Subway’s preferred stock is convertible into 12,000 shares of Subway’s common
stock. Peter and Subway do not have any other potentially dilutive securities
outstanding.
a. What is Subway’s basic EPS and diluted EPS?
b. What is consolidated basic EPS and diluted EPS?
2> Subway’s preferred stock is convertible into 12,000 shares of Peter’s common stock.
Peter and Subway do not have any other potentially dilutive securities outstanding.
What is consolidated basic EPS and diluted EPS?
3) Parrot Corporation acquired a 70% interest in Swifti Corp. on January 1, 2010, when
Swifti’s book values and fair values were equivalent. On January 1, 2011, Swifti sold a
building with a book value of $60,000 to Parrot for $80,000. The building had a
remaining life of five years, no salvage value, and was depreciated by the straight-line
method. Swifti reported net income of $200,000 for 2011 . What was the noncontrolling
interest share for 2011?
A) $54,000
B) $55,200
C) $60,000
D) $128,800
4) Cass Corporation’s balance sheet at December 31, 2011 included a $48,480 account
receivable from Redmun Corporation of Mexico. The account receivable was
denominated as 600,000 Mexican pesos. What entry did Cass make on January 16,
2012 when the account receivable was collected and the exchange rate for the peso was
$.09?
A)
B)
C)
D)
5) A business merger differs from a business consolidation because
A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all
of the prior entities
B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all
of the prior entities
C) a merger is created when two entities join, but a consolidation is created when more
than two entities join
D) a consolidation is created when two entities join, but a merger is created when more
than two entities join
6) If the expected path of 1-year interest rates over the next four years is 5 percent, 4
percent, 2 percent, and 1 percent, then the expectations theory predicts that today’s
interest rate on the four-year bond is
A) 1 percent
B) 2 percent
C) 3 percent
D) 4 percent
7) Pahm Corporation owns 80% of the outstanding voting common stock of Abussi
Corporation, which was purchased for $60,000 over Abussi’s book value. The excess
purchase price was attributable to goodwill. Abussi Corporation owns 60% of the
outstanding common stock of Badock Corporation, which was purchased at book value.
The separate net incomes of Pahm, Abussi, and Badock (excluding investment income)
for the year are $200,000, $240,000, and $260,000, respectively. There were no fair
value/book value differences in the assets and liabilities of Pahm, Abussi and Badock.
The net income reported for Pahm Corporation for the current year is
A) $504,800
B) $516,800
C) $545,200
D) $557,200
8) Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1
percent The expectations theory of the term structure predicts that the current interest
rate on 3-year bond is
A) 1 percent
B) 2 percent
C) 3 percent
D) 4 percent
9) Which of the following funds has similar accounting and reporting to the special
revenue fund?
A) The proprietary fund
B) The trust fund
C) The general fund
D) The agency fund
10) On June 30, 2011, the Able, Baker, and Charlie partnership had the following fiscal
year-end balance sheet:
Cash$8,000Accounts payable$14,000
Accounts receivable12,000Loan from Charlie10,000
Inventory28,000Able, capital (20%)28,000
Plant assets-net24,000Baker, capital (20%)20,000
Loan to Able12,000Charlie,capital (60%)12,000
Total assets$84,000Total liab./equity$84,000
The percentages shown are the residual profit and loss sharing ratios. The partners
dissolved the partnership on July 1, 2011, and began the liquidation process. During
July the following events occurred:
*Receivables of $6,000 were collected.
*All inventory was sold for $8,000.
*All available cash was distributed on July 31, except for
$4,000 that was set aside for contingent expenses.
The book value of the partnership equity (i.e., total equity of the partners) on June 30,
2011 is
A) $ 58,000
B) $ 60,000
C) $ 84,000
D) $120,000
11) Which one of the following items, originally recorded in the Investment in Falcon
Co. account under the equity method, would not be systematically used to reduce
investment income on a periodic basis?
A) Amortization expense of goodwill
B) Depreciation expense on the excess fair value attributed to machinery
C) Amortization expense on the excess fair value attributed to lease agreements
D) Interest expense on the excess fair value attributed to long-term bonds payable
12) An alumnus made a donation of adjoining land to a not-for-profit, nongovernmental
university. The donor made no specifications regarding the time period or use of the
land. The university would record the gift as
A) an endowment asset
B) temporarily restricted revenue
C) unrestricted revenue
D) permanently restricted support
13) You are serving as the executor for the estate of Scott Michaels, who passed away
on June 28, 2011 . The following transactions occur during the balance of June and
July, 2011 .
1>On July 11, you issued a check to pay Scott’s final medical expenses of $28,000.
2>In Scott’s will, he wanted $90,000 given to the American Society for the Prevention
of Cruelty to Animals (ASPCA). After examining the assets, you determined that the
estate’s assets will adequately cover all expenses and specific devises, so on July 13,
you issued a check to the ASPCA for $90,000.
3>On July 15, you received a check in the amount of $27,900 from First State Bank of
Greenville. It is the maturity value and interest from a certificate of deposit in the
amount of $25,000 that was not included in the estate’s initial inventory. The CD
matured on June 30, 2011
4>On July 26, you received interest of $2,000 on Greenville City bonds. Interest of
$180 was earned after the date of death. The balance was earned prior to death, and had
been accrued. The bonds were included in the initial inventory.
5>On July 28, you issued a check to pay Scott’s funeral expenses of $7,600.
Required:
Prepare the necessary journal entries for the above transactions. You may ignore any
estate or income taxes.
14) Enterprise funds are accounted for in a manner similar to
A) internal service funds
B) capital project funds
C) special revenue funds
D) debt service funds
15) The modified accrual basis of accounting is used for
A) governmental funds
B) proprietary funds
C) internal service funds
D) both A and C
16) On January 2, 2011, Paogo Company sold a truck with book value of $15,000 to
Sanall Corporation, its wholly-owned subsidiary, for $20,000. The truck had a
remaining useful life of five years with zero salvage value. Both firms use the
straight-line depreciation method. If Paogo failed to make year-end
adjustments/eliminations on the consolidated working papers in 2011, consolidated
depreciation expense for 2011 would be
A) $5,000 too high
B) $5,000 too low
C) $1,000 too low
D) $1,000 too high
17) Bertram and Ernest share profits and losses equally after salary and interest
allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000,
respectively, and both partners receive 10% interest on their average capital balances.
Average capital balances are calculated at the beginning of each month, regardless of
when additional capital contributions or permanent withdrawals are made subsequently
within the month. Partners’ drawings of $3,000 per month are not used in determining
the average capital balances. Total net income for 2011 is $240,000.
BertramErnest
January 1 capital balances$200,000$240,000
Yearly drawings ($3,000 a month)(36,000)(36,000)
Permanent withdrawals of capital:
June 3(24,000)
May 2(30,000)
Additional investments of capital:
July 380,000
October 2100,000
If the average capital balances for Bertram and Ernest are $200,000 and $240,000, what
will the total partnership profit allocations be for Bertram and Ernest in 2011?
A) $100,000 and $140,000
B) $108,000 and $132,000
C) $120,000 and $120,000
D) $140,000 and $100,000
18) As their relative riskiness ________, the expected return on corporate bonds
________ relative to the expected return on default-free bonds, everything else held
constant
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; does not change
19) The following information regarding the fiscal year ended September 30, 2011, was
drawn from the accounts and records of the Mayberry County general fund:
Revenues and other asset inflows:
Taxes$12,000,000
Licenses and permits2,500,000
Intergovernmental revenues1,000,000
Capital lease for fixed asset1,200,000
Receipt of cash from terminated fund1,800,000
Expenditures and other asset outflows:
General government expenditures7,500,000
Public safety expenditures2,000,000
Judicial system expenditures1,200,000
Health and welfare expenditures1,750,000
Equipment purchases750,000
Payment to debt service fund to cover future debt
service on general government bonds500,000
Total fund balance, October 1, 2010$3,000,000
Required:
Prepare a statement of revenues, expenditures, and changes in fund balance for the
Mayberry County general fund for the year ended September 30, 2011 .
20) On January 1, 2011, Jennifer Company acquired a 90% interest in Jayda Company
for $270,000 cash. On January 1, 2011, Jayda Company had the following assets and
liabilities:
Book ValueFair Value
Cash$10,000$10,000
Accounts Receivable50,00070,000
Inventory50,00080,000
Plant Assets100,000200,000
Total Assets$210,000$360,000
Liabilities$100,000$120,000
Capital Stock100,000
Retained Earnings10,000
Total Liabilities &
Stockholders’ Equity$210,000
Push-down accounting is used for the acquisition. Both companies use the entity theory.
Required:
1> What is the goodwill associated with Jayda Company on January 1, 2011?
2> Prepare the journal entry(ies) on Jayda’s books on January 1, 2011 .
3> Prepare the journal entry(ies) on Jennifer’s books on January 1, 2011 .
4> Prepare the elimination entry(ies) on the consolidating working papers on January 1,
2011 .
21) Xavier, Young, and Zane operate a partnership with a complex profit and loss
sharing agreement. The average capital balance for each partner on December 31, 2011
is $300,000 for Xavier, $250,000 for Young, and $325,000 for Zane. An 8% interest
allocation is provided to each partner based on the average capital balance on December
31, 2011 . Xavier and Young receive salary allocations of $10,000 and $15,000,
respectively. If partnership net income is above $25,000, after the salary allocations are
considered (but before the interest allocations are considered), Zane will receive a
bonus of 10% of the original amount of net income. All residual income is allocated in
the ratios of 2:3:5 to Xavier, Young, and Zane, respectively.
Required:
1>Prepare a schedule to allocate income or loss to the partners assuming that the
partnership incurs a net loss of $36,000 for 2011 .
2>Prepare a journal entry to distribute the partnership’s loss to the partners (assume that
an Income Summary account is used by the partnership).
22) On October 15, 2011, Napole Corporation, a French company, ordered merchandise
listed on the internet for 20,000 Euros from Adams Corporation, a U.S. corporation.
The euro rate was $1.20 (U.S. dollars) on October 15 . On November 15, 2011 Adams
shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro
rate was $1.30. Napole paid the bill on December 10, 2011, and Adams immediately
exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28 on December
10, 2011 .
Required:
Compute the foreign currency gain or loss on the December 31, 2011 financial
statements of Adams and show the related journal entries.
23) On January 1, 2011, Gregory Company acquired a 90% interest in Subway
Company for $200,000 cash. On January 1, 2011, Subway Company had the following
assets and liabilities:
Book ValueFair Value
Cash$5,000$5,000
Accounts Receivable30,00035,000
Inventory40,00050,000
Other Current Assets10,00010,000
Plant Assets60,00080,000
Total Assets$145,000$180,000
Liabilities$25,000$25,000
Common Stock100,000
Retained Earnings20,000
Total Liabilities &
Stockholders’ Equity$145,000
The plant assets have 20 years of useful life remaining. Straight-line depreciation is
used. The excess fair value over book value associated with Accounts Receivable and
Inventory is realized in 2011 .
In 2011, Subway reported net income of $35,000 and declared and paid common
dividends of $10,000. Gregory reported Income from Subway in 2011 of $17,100.
Required:
Assume both companies use the entity theory. Prepare the elimination entry(ies) on
consolidating work papers for the year ending December 31, 2011 .
24) Psalm Enterprises owns 90% of the outstanding voting stock of Solomon Siding,
which was purchased at a cost equal to 90% of the book value of Solomon’s net assets
many years ago. (At the time of purchase, the fair value and book value of Solomon’s
net assets were equal.) Psalm purchases merchandise from Solomon at 110% above
Solomon’s cost. In 2012, intercompany sales from Solomon to Psalm amounted to
$362,000. Unrealized profits in Psalm’s December 31, 2011 inventory and December
31, 2012 inventory were $82,000 and $26,000, respectively. Solomon reported net
income of $980,000 for 2012 .
Required:
1>Determine Psalm’s income from Solomon for 2012 .
2>In General Journal format, prepare consolidation working paper entries at December
31, 2012 to eliminate the effects of the intercompany inventory sales assuming the
perpetual inventory method is used.