Accounting 721 Test | Course Paper

Unlock access to all the studying documents.

View Full Document

1) Presented below are the financial balances for the Atwood Company and the Franz

Company as of December 31, 2012, immediately before Atwood acquired Franz. Also

included are the fair values for Franz Company’s net assets at that date.

Note: Parenthesis indicate a credit balance

Assume a business combination took place at December 31, 2012. Atwood issued 50

shares of its common stock with a fair value of $35 per share for all of the outstanding

common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of

$10 (in thousands) were paid to effect this acquisition transaction. To settle a difference

of opinion regarding Franz’s fair value, Atwood promises to pay an additional $5.2 (in

thousands) to the former owners if Franz’s earnings exceed a certain sum during the

next year. Given the probability of the required contingency payment and utilizing a 4%

discount rate, the expected present value of the contingency is $5 (in thousands).

Compute consolidated goodwill at date of acquisition.

A) $440.

B) $442.

C) $450.

D) $455.

E) $452.

2) Quincy Corp., about to be liquidated, has the following amounts for its assets and

liabilities:

The mortgage is secured by the land and building, and the note payable is secured by

the equipment. Quincy expects that the expenses of administering the liquidation will

total $40,000.

How much should Quincy expect to pay on the accounts payable?

A.$240,000.

B.$128,000.

C.$120,000.

D.$96,000.

E.$146,000.

3) River Co. owned 80% of Boat Inc. The two companies filed a consolidated income

tax return and River used the initial value method to account for the investment. The

following information was available from the two companies’ financial statements:

Operating income included net unrealized gains, which are associated with transfers of

inventories between the two companies, but it did not include dividends received from a

subsidiary. The income tax rate was 30%.

What was the amount of income tax expense that should have been assigned to Boat

using the percentage allocation method?

A.$31,500

B.$32,750

C.$36,000

D.$32,660

E.$30,390

4) The capital account balances for Donald & Hanes LLP on January 1, 2013, were as

follows:

Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The

partners agreed to admit May to the partnership with a 35% interest in partnership

capital and net income. May invested $100,000 cash, and no goodwill was recognized.

What is the balance of Hanes’s capital account after the new partnership is created?

A.$84,000.

B.$100,000.

C.$140,000.

D.$176,000.

E.$200,000.

5) Cayman Inc. bought 30% of Maya Company on January 1, 2013 for $450,000. The

equity method of accounting was used. The book value and fair value of the net assets

of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as

follows:

Maya reported net income of $100,000 in 2013 and $120,000 in 2014 while paying

$40,000 in dividends each year.What is the amount of unrealized inventory profit to be

deferred on December 31, 2014?

A) $1,500.

B) $2,400.

C) $3,600.

D) $4,000.

E) $8,000.

6) The capital account balances for Donald & Hanes LLP on January 1, 2013, were as

follows:

Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The

partners agreed to admit May to the partnership with a 35% interest in partnership

capital and net income. May invested $100,000 cash, and no goodwill was recognized.

What is the balance of Donald’s capital account after the new partnership is created?

A.$84,000.

B.$100,000.

C.$140,000.

D.$176,000.

E.$200,000.

7) Webb Company owns 90% of Jones Company. The original balances presented for

Jones and Webb as of January 1, 2013, are as follows:

Jones sells 20,000 shares of

previously unissued shares of its common stock to outside parties for $10 per share.

What is the adjusted book value of Jones after the sale of the shares?

A) $ 200,000.

B) $1,400,000.

C) $1,280,000.

D) $1,050,000.

E) $1,440,000.

8) Carnes has the following account balances as of May 1, 2012 before an acquisition

transaction takes place.

The fair value of Carnes’ Land and Buildings are $650,000 and $550,000, respectively.

On May 1, 2012, Riley Company issues 30,000 shares of its $10 par value ($25 fair

value) common stock in exchange for all of the shares of Carnes’ common stock. Riley

paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley

has $700,000 in its common stock account and $300,000 in its additional paid-in capital

account.

What will be Riley’s balance in its common stock account as a result of this acquisition?

A) $ 300,000.

B) $ 990,000.

C) $1,000,000.

D) $1,590,000.

E) $1,600,000.

9) Perry Company acquires 100% of the stock of Hurley Corporation on January 1,

2012, for $3,800 cash. As of that date Hurley has the following trial balance;

Compute

the amount of Hurley’s long-term liabilities that would be reported in a December 31,

2012, consolidated balance sheet.

A) $1,800.

B) $1,700.

C) $1,725.

D) $1,675.

E) $3,500.

10) 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 Pot’s sales were Pot’s sales of merchandise to Skillet for

$140,000. There were no sales from Skillet to Pot. Intra-entity sales had the same

markup as sales to outsiders. Skillet 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 $1,022,000.

E) $1,540,000 and $1,092,000.

11) Clemente Co. owned all of the voting common stock of Snider Co. On January 2,

2012, Clemente sold equipment to Snider for $125,000. The equipment had cost

Clemente $140,000. At the time of the sale, the balance in accumulated depreciation

was $40,000. The equipment had a remaining useful life of five years and a $0 salvage

value. Straight-line depreciation is used by both Clemente and Snider.

At what amount should the equipment (net of depreciation) be included in the

consolidated balance sheet dated December 31, 2013?

A) $110,000.

B) $105,000.

C) $100,000.

D) $ 90,000.

E) $ 60,000.

12) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.

Demers reported common stock of $300,000 and retained earnings of $210,000 on that

date. Equipment was undervalued by $30,000 and buildings were undervalued by

$40,000, each having a 10-year remaining life. Any excess consideration transferred

over fair value was attributed to goodwill with an indefinite life. Based on an annual

review, goodwill has not been impaired.

Demers earns income and pays dividends as follows:

Assume the EQUITY METHOD is applied.

Compute the non-controlling interest in the net income of Demers at December 31,

2016.

A) $20,400.

B) $24,600.

C) $26,000.

D) $14,000.

E) $12,600.

13) Cayman Inc. bought 30% of Maya Company on January 1, 2013 for $450,000. The

equity method of accounting was used. The book value and fair value of the net assets

of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as

follows:

Maya reported net income of $100,000 in 2013 and $120,000 in 2014 while paying

$40,000 in dividends each year.

What is the balance in Cayman’s Investment in Maya account at December 31, 2014?

A) $488,700.

B) $489,600.

C) $492,000.

D) $494,400.

E) $514,500.

14) On January 1, 2013, Pride, Inc. acquired 80% of the outstanding voting common

stock of Strong Corp. for $364,000. There is no active market for Strong’s stock. Of this

payment, $28,000 was allocated to equipment (with a five-year life) that had been

undervalued on Strong’s books by $35,000. Any remaining excess was attributable to

goodwill which has not been impaired.

As of December 31, 2013, before preparing the consolidated worksheet, the financial

statements appeared as follows:

During 2013, Pride bought inventory for $112,000 and sold it to Strong for $140,000.

Only half of this purchase had been paid for by Strong by the end of the year. 60% of

these goods were still in the company’s possession on December 31, 2013. What is the

total of consolidated operating expenses?

A) $42,000.

B) $47,600.

C) $53,200.

D) $49,000.

E) $35,000.

15) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.

Demers reported common stock of $300,000 and retained earnings of $210,000 on that

date. Equipment was undervalued by $30,000 and buildings were undervalued by

$40,000, each having a 10-year remaining life. Any excess consideration transferred

over fair value was attributed to goodwill with an indefinite life. Based on an annual

review, goodwill has not been impaired.

Demers earns income and pays dividends as follows:

Assume the EQUITY METHOD is applied.

Compute Pell’s income from Demers for the year ended December 31, 2015.

A) $90,400.

B) $89,000.

C) $50,400.

D) $56,000.

E) $96,000.

16) Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory

to Posito at a 25% profit on selling price. The following data are available pertaining to

intra-entity purchases. Gargiulo was acquired on January 1, 2012.

Assume the equity method is used. The following data are available pertaining to

Gargiulo’s income and dividends.

Compute the non-controlling interest in Gargiulo’s net income for 2013.

A) $8,500.

B) $8,570.

C) $8,430.

D) $8,400.

E) $7,580.

17) Presented below are the financial balances for the Atwood Company and the Franz

Company as of December 31, 2012, immediately before Atwood acquired Franz. Also

included are the fair values for Franz Company’s net assets at that date.