1) The trust fund for a school library is required to prepare financial statements that
include
A) Balance Sheet and Income Statement
B) Statement of Revenues, Expenses and Changes in Fiduciary Net Assets
C) Statement of Fund Balance and Statement of Changes in Fund Balance
D) Statement of Fiduciary Net Assets and Statement of Changes in Fiduciary Net Assets
2) The XYZ partnership provides a 10% bonus to Partner Y that is based upon
partnership income, after deduction of the bonus. If the partnership’s income is
$140,000, how much is Partner Y’s bonus allocation?
A) $12,727
B) $13,860
C) $14,000
D) $15,400
3) On January 1, 2011, Penelope Company acquired a 90% interest in Leah Company
for $180,000 cash. On January 1, 2011, Leah Company had the following assets and
liabilities:
Book ValueFair Value
Cash$10,000$10,000
Accounts Receivable30,00035,000
Inventory40,00050,000
Plant Assets60,00080,000
Total Assets$140,000$175,000
Liabilities$25,000$25,000
Capital Stock100,000
Retained Earnings15,000
Total Liabilities &
Stockholders’ Equity$140,000
Push-down accounting is used for the acquisition.
Assume the entity theory is used. On January 2, 2011, Leah Company will report
Goodwill of ________ and Accounts Receivable of ________ on Leah’s balance sheet.
A) $27,000; $30,000
B) $27,000; $34,500
C) $30,000; $30,000
D) $50,000; $35,000
4) Pogo Corporation acquired a 75% interest in Sperry Corporation on January 1, 2009
at a cost equal to book value and fair value. In the same year Sperry sold land costing
$25,000 to Pogo for $50,000. On July 1, 2012, Pogo sold the land to an unrelated party
for $85,000. What was the gain on the sale of the land on the consolidated income
statement for 2012?
A) $25,000
B) $35,000
C) $45,000
D) $60,000
5) On December 1, 2011, Thomas Company, a U.S. corporation, purchases inventory
from a vendor in Italy for 400,000 euros. Payment is due in 90 days. To hedge the
transaction, Thomas signs a forward contract to buy 400,000 euros in 90 days at
$1.3670. Thomas uses a discount rate of 6% (present value factor for 30 days = .9950;
60 days = .9901; 90 days = .9851). Assume the forward contract will be settled net and
this is a cash flow hedge. Currency exchange rates are shown below:
What is the fair value of the forward contract at February 29?
A) $-0-
B) $1,654.97 asset
C) $1,654.97 liability
D) $1,680 asset
6) Paiva Corporation owns 80% of Ackroyd Corporation’s outstanding common stock
and Ackroyd owns 80% of the outstanding common stock of Bailey Corporation. Bailey
Corporation owns 10% of the outstanding common stock of Ackroyd Corporation. The
cost of the investments was equal to book value and there were not fair value/book
value differences for the investments. The separate net incomes for the three affiliated
companies for the year ended December 31, 2011 (excluding investment income) are as
follows: Paiva Corporation, $100,000, Ackroyd Corporation, $50,000, and Bailey
Corporation, $30,000. Use the conventional approach.
Symbols used:
P = Income of Paiva on a consolidated basis
A = Income of Ackroyd on a consolidated basis
B = Income of Bailey on a consolidated basis
Ackroyd’s noncontrolling interest share for 2011 is
A) $ 7,609
B) $ 8,044
C) $15,652
D) $23,696
7) On July 1, 2011, when Salaby Company’s total stockholders’ equity was $360,000,
Pogana Corporation purchased 14,000 shares of Salaby’s common stock at $30 per
share. Salaby had 20,000 shares of common stock outstanding both before and after the
purchase by Pogana, and the book value of Salaby’s net assets on July 1, 2011 was
equal to the fair value. On a consolidated balance sheet prepared at July 1, 2011,
goodwill would be
A) $60,000
B) $85,714
C) $100,000
D) $240,000
8) Shalles Corporation, a 80%-owned subsidiary of Pani Corporation, sold inventory
items to its parent at a $48,000 profit in 2012 . Pani resold one-third of this inventory to
outside entities. Shalles reported net income of $200,000 for 2012 . Noncontrolling
interest share of consolidated net income that will appear in the income statement for
2012 is
A) $30,400
B) $32,000
C) $33,600
D) $40,000
9) Bower Corporation purchased a 70% interest in Stage Corporation on June 1, 2010 at
a purchase price of $350,000. On June 1, 2010, the book values of Stage’s assets and
liabilities were equal to fair values. On June 1, 2010, Stage’s stockholders’ equity
consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All
cost-book differentials were attributed to goodwill.
During 2010, Stage earned $120,000 of net income, earned uniformly throughout the
year and paid $6,000 of dividends on March 1 and another $6,000 on September 1 .
Preacquisition income for 2010 is
A) $50,000
B) $35,000
C) $44,000
D) $36,000
10) A fair value hedge differs from a cash flow hedge because a fair value hedge
A) cannot be used for firm purchase or sales commitments
B) is not recorded unless it is a highly-effective hedge
C) records gains or losses in the value of the derivative directly to earnings of the
company
D) defers the gains or losses in the value of the derivative using Other Comprehensive
Income
11) Paiva Corporation owns 80% of Ackroyd Corporation’s outstanding common stock
and Ackroyd owns 80% of the outstanding common stock of Bailey Corporation. Bailey
Corporation owns 10% of the outstanding common stock of Ackroyd Corporation. The
cost of the investments was equal to book value and there were not fair value/book
value differences for the investments. The separate net incomes for the three affiliated
companies for the year ended December 31, 2011 (excluding investment income) are as
follows: Paiva Corporation, $100,000, Ackroyd Corporation, $50,000, and Bailey
Corporation, $30,000. Use the conventional approach.
Symbols used:
P = Income of Paiva on a consolidated basis
A = Income of Ackroyd on a consolidated basis
B = Income of Bailey on a consolidated basis
The equation, in a set of simultaneous equations, that computes Paiva Corporation
income on a consolidated basis is
A) P = $50,000 + 0.8B
B) P = $30,000 + 0.2A
C) P = $100,000 + 0.2A
D) P = $100,000 + 0.8A
12) When yield curves are steeply upward sloping,
A) long-term interest rates are above short-term interest rates
B) short-term interest rates are above long-term interest rates
C) short-term interest rates are about the same as long-term interest rates
D) medium-term interest rates are above both short-term and long-term interest rates
13) Which of the following is not a reason for a company to expand through a
combination, rather than by building new facilities?
A) A combination might provide cost advantages
B) A combination might provide fewer operating delays
C) A combination might provide easier access to intangible assets
D) A combination might provide an opportunity to invest in a company without having
to take responsibility for its financial results
14) Municipal bonds have default risk, yet their interest rates are lower than the rates on
default-free Treasury bonds This suggests that
A) the benefit from the tax-exempt status of municipal bonds is less than their default
risk
B) the benefit from the tax-exempt status of municipal bonds equals their default risk
C) the benefit from the tax-exempt status of municipal bonds exceeds their default risk
D) Treasury bonds are not default-free
15) A Capital Projects Fund awards the construction of a building to a construction
contractor at a contract cost of $1,000,000. What entry is prepared by the Capital
Projects Fund?
A) Debit Expenditures $1,000,000, Credit Liability $1,000,000
B) Debit Building $1,000,000, Credit Expenditures $1,000,000
C) Debit Other Financing Uses $1,000,000, Credit Expenditures $1,000,000
D) Debit Encumbrances $1,000,000, Credit Reserve for Encumbrances $1,000,000
16) A partner assigned his partnership interest to a third party. Which statement best
describes the legal ramifications to the assignee?
A) The assignment of the partnership interest does not entitle the assignee to
partnership assets upon a liquidation
B) The assignment dissolves the partnership
C) The assignee has the right to share in the management of the partnership
D) The assignee does not become a partner but has the right to share in future
partnership profits and to receive the proper share of partnership assets upon liquidation
17) When recording an approved budget into the accounts of the general fund, which of
the following accounts would be credited?
A) Appropriations
B) Encumbrances
C) Estimated revenues
D) Deferred revenues
18) At December 31, 2012 year-end, Arnold Corporation’s investment in Oakes Inc. was
$200,000 consisting of 80% of Oakes’s $250,000 stockholders’ equity on that date. On
April 1, 2013, Arnold sold 20% interest (one-fourth of its holdings) in Oakes for
$65,000. During 2013, Oakes had net income of $75,000 (earned uniformly) and on
July 1, 2013, Oakes paid dividends of $40,000. Arnold uses the equity method to
account for the investment.
Required:
1> What is the gain or loss on sale of the 20% interest?
2> Record the journal entries for Arnold for the year ending December 31, 2013 . Use
the beginning-of-the-year-sale-date assumption.
19) On January 1, 2011, Adam Corporation purchased a 90% interest in Rodney
Corporation. On January 1, 2011, Rodney Corporation purchased an 80% interest in
Ben Corporation.
In all investment acquisitions, the cost of the interest was equal to the book value of the
interest and the fair value of the interest. The following information is available for
2011:
Purchase CostNet Income(Net Loss) for 2011
Adam$1,000,000$200,000
Rodney$10,000($10,000)
Ben$15,000$50,000
The separate net incomes do not include investment income.
Required:
1> What is controlling interest share of consolidated net income for 2011?
2> What is noncontrolling interest shares of consolidated net income for 2011?
20) Finale Company is in bankruptcy and is being liquidated under the provisions of
Chapter 7 of the bankruptcy code. The trustee has converted all assets into $180,000
cash and has prepared the following list of approved claims:
Customer deposits ($1,000 from each of three customers
that ordered products that were never delivered)$3,000
Property taxes payable6,000
Accounts payable, unsecured45,000
Trustee’s fees and other costs of liquidation24,000
Mortgage payable, secured by property that was sold for $120,00090,000
Note payable to bank, secured by all accounts receivable of which $45,000
were collected and $15,000 were written off as uncollectible60,000
Required:
How much will the bank receive on the note payable?
21) Prepare journal entries to record the following grant-related transactions of the
municipal swimming pool, which is funded primarily by membership fees.
1>Received an operating grant in cash from the state for $200,000, to be used for
life-saving and first-aid training.
2>Incurred and paid qualifying expenses on the state grant program by providing
training, $165,000.
3>Received a federal grant to finance purchase of an energy efficient heating system for
the pool, $120,000 (cash received in advance).
4>New heating system installed and paid, $115,000.
22) Slade Corporation, a U.S. company, purchased materials on account from a
manufacturer in Mexico on June 15 . The invoice was denominated in the shipper’s
currency for 480,000 pesos. The goods were paid for on July 18. Slade closes their
fiscal year on June 30, and used the following indirect quotes to measure the amounts
related to the transactions.
June 15 $1.00 = 12.50 pesos
June 30 $1.00 = 12.80 pesos
July 18 $1.00 = 12.00 pesos
Required:
Show all related journal entries for Slade Company.