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1) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1,
2013. The book value and fair value of Vicker's accounts on that date (prior to creating
the combination) follow, along with the book value of Bullen's accounts:
Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a
$42 fair value for all of the outstanding stock of Vicker. What is the consolidated
balance for Land as a result of this acquisition transaction?
A) $460,000.
B) $510,000.
C) $500,000.
D) $520,000.
E) $490,000.
2) Certain balance sheet accounts of a foreign subsidiary of the Tulip Co. had been
stated in U.S. dollars as follows:
If the subsidiary's local currency is its functional currency, what total amount should be
included in Tulip's balance sheet in U.S. dollars?
A.$609,000
B.$658,000
C.$602,000
D.$630,000
E.$616,000
4) Pot Co. holds 90% of the common stock of Skillet Co. During 2013, Pot reported
sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet
had sales of $420,000 and cost of goods sold of $252,000.
Included in the amounts for Skillet's sales were Skillet's sales of merchandise to Pot for
$140,000. There were no sales from Pot to Skillet. Intra-entity sales had the same
markup as sales to outsiders. Pot still had 40% of the intra-entity sales as inventory at
the end of 2013. What are consolidated sales and cost of goods sold for 2013?
A) $1,400,000 and $ 952,000.
B) $1,400,000 and $ 966,000.
C) $1,540,000 and $1,078,000.
D) $1,400,000 and $ 974,400.
E) $1,540,000 and $1,092,000.
5) On December 1, 2013, Keenan Company, a U.S. firm, sold merchandise to Velez
Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable
is due on February 1, 2014. Keenan purchased a foreign currency put option with a
strike price of $.97 (U.S.) on December 1, 2013. This foreign currency option is
designated as a cash flow hedge. Relevant exchange rates follow:
Compute the fair value of the foreign currency option at December 1, 2013
A.$6,000
B.$4,500
C.$3,000
D.$7,500
E.$1,500
6) Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2013, for
$105,000 when the book value of Gates was $600,000. During 2013 Gates reported net
income of $150,000 and paid dividends of $50,000. On January 1, 2014, Dodge
purchased an additional 25% of Gates for $200,000. Any excess cost over book value is
attributable to goodwill with an indefinite life. The fair-value method was used during
2013 but Dodge has deemed it necessary to change to the equity method after the
second purchase. During 2014 Gates reported net income of $200,000 and reported
dividends of $75,000.
The income reported by Dodge for 2013 with regard to the Gates investment is
A) $ 7,500.
B) $ 22,500.
C) $ 15,000.
D) $100,000.
E) $150,000.
7) Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16,
2013, with payment of 10 million Korean won to be received on January 15, 2014. The
following exchange rates applied:
Assuming a forward contract was entered into, what would be the net impact on Car
Corp.'s 2013 income statement related to this transaction? Assume an annual interest
rate of 12% and a fair value hedge. The present value for one month at 12% is .9901
A.$700 (gain).
B.$700 (loss).
C.$300 (gain).
D.$300 (loss).
E.$297 (gain).
8) Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1,
2012. Selected account balances are available for the year ended December 31, 2013,
and are stated in Euro, the local currency.
Assume the functional currency is the Euro; compute the U.S. balance sheet amount for
equipment for 2013.
A.$81,900
B.$90,900
C.$83,700
D.$88,200
E.$85,500
9) On January 1, 2013, Harrison Corporation spent $2,600,000 to acquire control over
Involved, Inc. This price was based on paying $750,000 for 30 percent of Involved's
preferred stock, and $1,850,000 for 80 percent of its outstanding common stock. As of
the date of the acquisition, Involved's stockholders' equity accounts were as follows:
Johnson, Inc. owns control over Kaspar, Inc. Johnson reports sales of $400,000 during
2013 while Kaspar reports $250,000. Kaspar transferred inventory during 2013 to
Johnson at a price of $50,000. On December 31, 2013, 30% of the transferred goods are
still in Johnson's inventory. Consolidated accounts receivable on January 1, 2013 was
$120,000, and on December 31, 2013 is $130,000. Johnson uses the direct approach in
preparing the statement of cash flows. How much is cash collected from customers in
the consolidated statement of cash flows?
A) $590,000.
B) $610,000.
C) $625,000.
D) $635,000.
E) $650,000.
10) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1,
2013. The book value and fair value of Vicker's accounts on that date (prior to creating
the combination) follow, along with the book value of Bullen's accounts:
Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a
$47 fair value to obtain all of Vicker's outstanding stock. In this acquisition transaction,
how much goodwill should be recognized?
A) $144,000.
B) $104,000.
C) $ 64,000.
D) $ 60,000.
E) $ 0.
11) On January 1, 2014, Palk Corp. and Spraz Corp. had condensed balance sheets as
follows:
On January 2, 2014, Palk borrowed the entire $84,000 it needed to acquire 80% of the
outstanding common shares of Spraz. The loan was to be paid in ten equal annual
principal payments, plus interest, beginning December 31, 2014. The excess
consideration transferred over the underlying book value of the acquired net assets was
allocated 60% to inventory and 40% to goodwill.
What is consolidated stockholders' equity at January 2, 2014?
A) $112,000.
B) $133,000.
C) $168,000.
D) $182,000.
E) $203,000.
12) Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that
date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000
and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin
reported net income of $300,000 and $325,000 for 2012 and 2013, respectively. Pepe
uses the equity method to account for its investment in Devin.
Compute the non-controlling interest in the net income of Devin for 2013.
A) $126,800.
B) $130,000.
C) $122,000.
D) $130,800.
E) $129,600.
13) Consolidated accounts payable decreased by $7,000.
Using the indirect method, where does the decrease in accounts receivable appear in a
consolidated statement of cash flows?
A) $8,000 increase to net income as an operating activity.
B) $8,000 decrease to net income as an operating activity.
C) $6,400 increase to net income as an operating activity.
D) $6,400 decrease to net income as an operating activity.
E) $8,000 increase as an investing activity.
14) Thomas Inc. had the following stockholders' equity accounts as of January 1, 2013:
K
uried Co. acquired all of the voting common stock of Thomas on January 1, 2013, for
$20,656,000. The preferred stock remained in the hands of outside parties and had a fair
value of $3,060,000. A database valued at $656,000 was recognized and amortized over
five years.
During 2013, Thomas reported earning $630,000 in net income and paid $504,000 in
total cash dividends. Kuried used the equity method to account for this investment.
What was Kuried's balance in the Investment in Thomas Inc. account as of December
31, 2013?
15) Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The
parent's interest was acquired several years ago on the date that the subsidiary was
formed. Consequently, no goodwill or other allocation was recorded in connection with
the acquisition price.
On January 1, 2012, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The
bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds
on January 1, 2014, for 95% of the face value. Both companies utilized the straight-line
method of amortization.
What consolidation entry would be recorded in connection with these intra-entity bonds
on December 31, 2015?
16) On January 1, 2015, John Doe Enterprises (JDE) acquired a 55% interest in Bubba
Manufacturing, Inc. (BMI). JDE paid for the transaction with $3 million cash and
500,000 shares of JDE common stock (par value $1.00 per share). At the time of the
acquisition, BMI's book value was $16,970,000.
On January 1, JDE stock had a market value of $14.90 per share and there was no
control premium in this transaction . Any consideration transferred over book value is
assigned to goodwill. BMI had the following balances on January 1, 2015.
For internal reporting purposes, JDE employed the equity method to account for this
investment.
Prepare a schedule to determine goodwill, and the amortization and allocation amounts.
17) Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards'
inventory in 2013. The transfer price was equal to 30 percent of the sales price. When
preparing consolidated financial statements, what amount of these sales is eliminated?
18) Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a
number of years. Howell decides to withdraw from the partnership when the partners'
capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000.
Land with a book value of $20,000 has a fair value of $35,000. Howell has agreed to
receive $84,000 in exchange for her partnership interest.
What are the remaining partners' capital balances after Howell's interest is dissolved,
assuming the goodwill method is applied?
19) Steven Company owns 40% of the outstanding voting common stock of Nicole
Corp. and has the ability to significantly influence the investee's operations. On January
3, 2013, the balance in the Investment in Nicole Corp. account was $503,000.
Amortization associated with this acquisition is $12,000 per year. During 2013, Nicole
earned net income of $120,000 and paid cash dividends of $40,000. Previously in 2012,
Nicole had sold inventory costing $35,000 to Steven for $50,000. All but 25% of that
inventory had been sold to outsiders by Steven during 2012. Additional sales were
made to Steven in 2013 at a transfer price of $75,000 that had cost Nicole $54,000.
Only 10% of the 2013 purchases had not been sold to outsiders by the end of 2013.
What amount of unrealized intra-entity profit should be deferred by Steven at
December 31, 2013?
20) Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of
$100,000 and Caylor invested $30,000 in cash and equipment with a book value of
$40,000 and fair value of $50,000. For both partners, the beginning capital balance was
to equal the initial investment. Norr and Caylor agreed to the following procedure for
sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than
$1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and
Caylor worked 1,400 billable hours. In 2013, the partnership's income was $24,000, and
Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner
withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2013. (Round all
calculations to the nearest whole dollar).
21) Flintstone Inc. acquired all of Rubble Co. on January 1, 2013. Flintstone decided to
use the initial value method to account for this investment. During 2013, Flintstone sold
to Rubble for $600,000 inventory with a cost of $500,000. At the end of the year 30%
of the goods were still in Rubble's inventory.
Required:
Prepare Consolidation Entry TI for the intra-entity transfer and Consolidation Entry G
for the ending inventory adjustment necessary for the consolidation worksheet at
12/31/15.
