1) If a subsidiary has both common and preferred stock outstanding, a parent must own
a controlling interest in
a.both the subsidiary’s common and preferred stock to justify consolidation
b.the subsidiary’s common stock to justify consolidation
c.the subsidiary’s common stock and at least 20% of the subsidiary’s preferred stock to
justify consolidation
d.the subsidiary’s common stock and more than 50% of the subsidiary’s preferred stock
to justify consolidation
A segment is considered to be significant if its2) 1>reported profit is at least 10% of the
combined profit of all operating segments.
2>reported profit (loss) is at least 10% of the combined reported profit of all operating
segments not reporting a loss.
3>reported profit (loss) is at least 10% of the combined reported loss of all operating
segments that reported a loss.
a.1
b.2
c.3
d.both 2 and 3
3) Under the partial equity method, the entry to eliminate subsidiary income and
dividends includes a debit to
a.Dividend Income
b.Dividends Declared – S Company
c.Equity in Subsidiary Income
d.Retained Earnings – S Company
4) Under the economic unit concept, noncontrolling interest in net assets is treated as
a.a liability
b.an asset
c.stockholders’ equity
d.an expense
5) The following information pertains to the transfer of real estate in regards to a
troubled debt restructuring by North Co. to Bell Co. in full settlement of Norths liability
to Bell:
Carrying amount of liability settled$450,000
Carrying amount of real estate transferred$300,000
Fair value of real estate transferred$330,000
What amount should North report as ordinary gain (loss) on transfer of real estate?
a.$(30,000)
b.$30,000
c.$120,000
d.$150,000
6) SFAS 141R requires that all business combinations be accounted for using
a.the pooling of interests method
b.the acquisition method
c.either the acquisition or the pooling of interests methods
d.neither the acquisition nor the pooling of interests methods
7) ParkerCompany owns 90% of the outstanding common stock of Stagger Company.
On January 1, 2014, Stagger Company issued $500,000, 12%, ten-year bonds.
On January 1, 2013, Parker Company paid $315,000 for Stagger Company bonds with a
par value of $300,000 and a carrying value of $297,600. Both companies use the
straight-line method to amortize bond premiums and discounts. Parker Company
accounts for the investment using the cost method of accounting.
Compute the noncontrolling interest in the 2013 consolidated income assuming that
Parker Company reported a net income of $240,000 (includes dividend income from
Stagger Company). Stagger Company reported net income of $150,000 and declared
and paid cash dividends of $90,000.
a.$15,000
b.$14,790
c.$14,760
d.$15,210
e.None of these
8) A, B, and C have capital balances of $80,000, $80,000, and $40,000, respectively.
Profits are allocated 40% to A, 40% to B and 20% to C. The partners have decided to
dissolve and liquidate the partnership. After paying all creditors the amount available
for distribution is $20,000. A, and B are personally solvent. C is personally insolvent.
Under the circumstances, A and B will each
a.receive $10,000
b.receive $9,000
c.receive $8,000
d.receive $6,000
9) On January 1, 2013, Pell Company and Sand Company had condensed balance
sheets as follows:
PellSand
Current assets $ 280,000$80,000
Noncurrent assets_360,000__160,000
Total assets $640,000$240,000
Current liabilities $ 120,000$40,000
Long-term debt200,000-0-
Stockholders’ equity__320,000 200,000
Total liabilities & stockholders’ equity$640,000$240,000
On January 2, 2013 Pell borrowed $240,000 and used the proceeds to purchase 90% of
the outstanding common stock of Sand. This debt is payable in 10 equal annual
principal payments, plus interest, starting December 30, 2013. Any difference between
book value and the value implied by the purchase price relates to land.
On Pell’s January 2, 2013 consolidated balance sheet,
Current liabilities should be
a.$200,000
b.$184,000
c.$160,000
d.$120,000
10) A foreign subsidiarys functional currency is its local currency and inflation of over
100 percent has been experienced over a three-year period. For consolidation purposes,
SFAS No. 52 requires the use of:
a.the current rate method only
b.the temporal method only
c.both the current rate and temporal methods
d.neither the current rate or the temporal method
11) Inventory losses from market declines that are expected to be temporary
a.should be recognized in the interim period in which the decline occurs
b.should be recognized in the last (fourth) quarter of the year in which the decline
occurs
c.should not be recognized
d.none of these
12) On January 1, 2013, Pell Company and Sand Company had condensed balance
sheets as follows:
PellSand
Current assets $ 280,000$80,000
Noncurrent assets_360,000__160,000
Total assets $640,000$240,000
Current liabilities $ 120,000$40,000
Long-term debt200,000-0-
Stockholders’ equity__320,000 200,000
Total liabilities & stockholders’ equity$640,000$240,000
On January 2, 2013 Pell borrowed $240,000 and used the proceeds to purchase 90% of
the outstanding common stock of Sand. This debt is payable in 10 equal annual
principal payments, plus interest, starting December 30, 2013. Any difference between
book value and the value implied by the purchase price relates to land.
On Pell’s January 2, 2013 consolidated balance sheet,
On January 1, 2013, Pell Company and Sand Company had condensed balance sheets
as follows:
PellSand
Current assets $ 280,000$80,000
Noncurrent assets_360,000__160,000
Total assets $640,000$240,000
Current liabilities $ 120,000$40,000
Long-term debt200,000-0-
Stockholders’ equity__320,000 200,000
Total liabilities & stockholders’ equity$640,000$240,000
On January 2, 2013 Pell borrowed $240,000 and used the proceeds to purchase 90% of
the outstanding common stock of Sand. This debt is payable in 10 equal annual
principal payments, plus interest, starting December 30, 2013. Any difference between
book value and the value implied by the purchase price relates to land.
On Pell’s January 2, 2013 consolidated balance sheet,
Noncurrent assets should be
a.$520,000
b.$536,000
c.$544,000
d.$586,667
13) Which of the following statements most accurately describes interim period tax
expense?
a.The best estimate of the annual tax rate times the ordinary income (loss) for the
quarter
b.The best estimate of the annual tax rate times income (loss) for the year to date less
tax expense (benefit) recognized in previous interim periods
c.Average tax rate for each quarter, including the current quarter, times the current
income (loss)
d.The previous year’s actual effective tax rate times the current quarter’s income
Long Corporation’s revenues for the year ended December 31, 2014, were as follows14)
Consolidated revenue per income statement$800,000
Intersegment sales105,000
Intersegment transfers 35,000
Combined revenues of all operating segments$940,000
Long has a reportable segment if that segment’s revenues exceed
a.$80,000
b.$90,500
c.$94,000
d.$14,000
15) Which of the following statements is correct?
1>Personal creditors have first claim on partnership assets.
2>Partnership creditors have first claim on partnership assets.
3>Partnership creditors have first claim on personal assets.
a.1
b.2
c.3
d.Both 2 and 3
16) The summarized balances of the accounts of RST partnership on December 31,
2014, are as follows:
AssetsLiabilities and Equity
Cash$ 30,000Liabilities$ 30,000
Noncash180,000R, Capital90,000
S, Capital60,000
T, Capital 30,000
Total Assets$210,000Total Lia & Equities$210,000
The agreed upon profit/loss ratio is 50:40:10, respectively. Using the information given
above, which one of the following amounts, if any, is the loss absorption potential of
partner S as of December 31, 2014?
a.$60,000
b.$70,000
c.$150,000
d.$240,000
17) The Expenditures account of a governmental unit is debited when:
a.the budget is recorded
b.supplies are ordered
c.supplies encumbered are received
d.the supplies invoice is paid
18) The partnership of Larry, Moe, and Curly shares profits and losses 60%, 30%, and
10%, respectively. On January 1, 2014, the partners voted to dissolve the partnership, at
which time the assets, liabilities, and capital balances were as follows:
AssetsLiabilities and Capital
Cash$ 400,000Accounts Payable$ 580,000
Other Assets1,200,000Larry, Capital440,000
Moe, Capital380,000
Curly, Capital 200,000
Total assets$1,600,000Total liabilities$1,600,000
All of the partners are personally insolvent.
Assume that all noncash assets are sold for $840,000 and all available cash is
distributed in final liquidation of the partnership. Cash should be distributed to the
partners as follows
a.Larry, $744,000;Moe, $372,000;Curly, $124,000
b.Larry, $440,000;Moe, $380,000;Curly, $200,000
c.Larry, $224,000;Moe, $272,000;Curly, $164,000
d.Larry, $396,000;Moe, $198,000;Curly, $66,000
19) On January 1, 2013, P Corporation sold equipment with a 3-year remaining life and
a book value of $100,000 to its 70% owned subsidiary for a price of $115,000. In the
consolidated workpapers for the year ended December 31, 2014, an elimination entry
for this transaction will include a:
a.debit to Equipment for $15,000
b.debit to Gain on Sale of Equipment for $15,000
c.credit to Depreciation Expense for $15,000
d.debit to Accumulated Depreciation for $10,000
20) P Corporation acquired an 80% interest in S Corporation two years ago at animplied
valueequal to the book value of S. On January 2, 2014, S sold equipment with a
five-year remaining life to P for a gain of $180,000. S reports net income of $900,000
for 2014 and pays dividends of $300,000. Ps Equity from Subsidiary Income for 2014
is:
a.$720,000
b.$576,000
c.$604,800
d.$864,000
21) Under the acquisition method, if the fair values of identifiable net assets exceed the
value implied by the purchase price of the acquired company, the excess should be
a.accounted for as goodwill
b.allocated to reduce current and long-lived assets
c.allocated to reduce current assets and classify any remainder as an extraordinary gain
d.allocated to reduce any previously recorded goodwill on the sellers books and classify
any remainder as an ordinary gain
22) P Company regularly sells merchandise to its 80%-owned subsidiary, S
Corporation. In 2013, P sold merchandise that cost $192,000 to S for $240,000. Half of
this merchandise remained in Ss December 31, 2013 inventory. During 2014, P sold
merchandise that cost $300,000 to S for $375,000. Forty percent of this merchandise
inventory remained in Ss December 31, 2014 inventory. Selected income statement
information for the two affiliates for the year 2014 is as follows:
P _ S_
Sales Revenue $1,800,000$900,000
Cost of Goods Sold 1,440,000 750,000
Gross profit $ 360,000$150,000
Consolidated cost of goods sold for P Company and Subsidiary for 2014 are:
a.$1,809,000
b.$1,815,000
c.$1,821,000
d.$2,190,000
23) Which of the following is not required to be disclosed by SFAS No. 131?
a.Information concerning the enterprise’s products
b.Information related to an enterprise’s foreign operations
c.Information related to an enterprise’s major suppliers
d.All of the above are required disclosures
24) The fair value of net identifiable assets of a reporting unit exclusive of goodwill of
Y Company is $270,000. The carrying value of the reporting unit’s net assets on Y
Company’s books is $320,000, including $50,000 goodwill. If the reported goodwill
impairment for the unit is $10,000, what would be the fair value of the reporting unit?
a.$320,000
b.$310,000
c.$270,000
d.$290,000
The partnership of Gilligan, Skipper, and Ginger had total capital of $570,000 on
December 31, 2014 as follows:25) Gilligan, Capital (30%)$180,000
Skipper, Capital (45%)255,000
Ginger, Capital (25%) 135,000
Total$570,000
Profit and loss sharing percentages are shown in parentheses.
Assume that Professor became a partner by investing $190,000 in the Gilligan, Skipper,
and Ginger partnership for a 25 percent interest in the capital and profits, and the
partnership assets are revalued. Under this assumption
a.Professors capital credit will be $150,000
b.Gilligans capital will be increased to $147,000
c.total partnership capital after Professors admission to the partnership will be $600,000
d.net assets of the partnership will increase by $190,000, including Professors interest
26) The partnership of Mick, Keith, and Charlie has been dissolved and is in the process
of liquidation. On July 1, 2014, just before the second cash distribution, the assets and
equities of the partnership along with residual profit sharing ratios were as follows:
AssetsLiabilities & Equities
Cash$ 200,000Liabilities$ 150,000
Receivables-net50,000Mick, Capital 50%100,000
Inventories150,000Keith, Capital 30%175,000
Equipment-net 100,000Charlie, Capital 20% 75,000
Total assets$ 500,000Total Lia & Equity 500,000
Assume that the available cash is distributed immediately, except for a $25,000
contingency fund that is withheld pending complete liquidation of the partnership. How
much cash should be paid to each of the partners?
MickKeithCharlie
a.$87,500$52,500$35,000
b.12,5007,50010,000
c.- 0 – 25,000- 0 –
d.- 0 – 15,00010,000
27) Two methods are available to account for interim acquisitions of a subsidiarys stock
at the end of the first year. Describe the two methods of accounting for interim
acquisitions.
28) Explain the difference between an accretive and a dilutive acquisition.
29) Determination of the noncontrolling interest in consolidated net income differs
depending on whether intercompany sales are downstream or upstream. Explain the
difference in calculating noncontrolling interest for downstream and upstream sales.
30) Explain why a firm is exposed to an added risk when it enters into a transaction that
is to be settled in a foreign currency.
31) Creditors are classified by law as either secured or unsecured. Distinguish among
fully secured, partially secured, and unsecured creditors.
32) Consider the following information:
1>On November 1, 2014, a U.S. firm contracts to sell equipment (with an asking price
of 500,000 pesos) in Mexico. The firm will take delivery and will pay for the equipment
on February 1, 2015.
2>On November 1, 2014, the company enters into a forward contract to sell 500,000
pesos for $0.0948 on February 1, 2015.
3>Spot rates and the forward rates for February 1, 2015, settlement were as follows
(dollars per peso):
Forward Rate
Spot Ratefor 2/1/12
November 1, 2014$0.0954$0.0948
Balance sheet date (12/31/11)0.09490.0944
February 1, 20150.0947
4>On February 1, the equipment was sold for 500,000 pesos. The cost of the equipment
was $20,000.
Required:
Prepare all journal entries needed on November 1, December 31, and February 1 to
account for the forward contract, the firm commitment, and the transaction to sell the
equipment.
33) In what account is the difference between book value and the value implied by the
purchase
price recorded on the books of the investor? In what account is the excess of implied
over fair value recorded?
34) Distinguish between a partners interest in capital and his interest in the partnerships
income and losses. Also, make a general distinction between a partners capital account
and his drawing account.
35) In what funds might property and other non financial resources be recorded?