1) Bonds issued by a company remain on their books as a liability, but are considered
constructively retired when
A) the company borrows money from unaffiliated entities to re-purchase its own bonds
at a gain
B) The company borrows money from an affiliate to re-purchase its own bonds at a
gain
C) The company’s parent or subsidiary purchases the bonds from outside entities
D) The company borrows money from an affiliate to repurchase its own bonds at a gain
or at a loss
2) In 2011, Parla Corporation sold land to its subsidiary, Sidd Corporation, for $38,000.
It had a book value of $24,000. In the next year, Sidd sold the land for $41,000 to an
unaffiliated firm.
The 2011 unrealized gain from the intercompany sale
A) should be recognized in consolidation in 2011 by a working paper entry
B) should be eliminated from consolidated net income by a working paper entry that
credits land for $14,000
C) should be eliminated from consolidated net income by a working paper entry that
debits land for $14,000
D) should be eliminated from consolidated net income by a working paper entry that
credits gain on sale of land for $14,000
3) The town of Mayberry receives a gift of $500,000 in bonds. The contributor instructs
that the principal should remain intact, but the annual interest income of $50,000 can be
used for the maintenance of the zoo animals.
When the interest income of $50,000 is received, what account should be credited?
A) Other Financing Sources
B) Other Financing Uses
C) Deferred Revenue
D) Revenue
4) Voluntary health and welfare organizations (VHWO) measure contributions at fair
value unless
A) fair value is less than the original cost of the item
B) the contributed item is not intended to be re-sold by the VHWO
C) fair value cannot be reasonably determined
D) the contributions are not in cash or cash equivalents
5) On January 1, 2011, Pardy Corporation acquired a 70% interest in the common stock
of Salter Corporation for $7,000,000 when Salter’s stockholders’ equity was as follows:
10% cumulative, nonparticipating preferred stock,
$100 par, with a $105 liquidation preference,
callable at $110$ 1,000,000
Common stock, $10 par value6,000,000
Additional paid-in capital1,500,000
Retained earnings2,500,000
Total stockholders’ equity$11,000,000
There were no preferred dividends in arrears on January 1, 2011 . There are no book
value/fair value differentials.
Assume Salter’s net income for 2011 is $220,000. No dividends are declared or paid in
2011 . What is the change in Pardy’s Investment in Salter for the year ending December
31, 2011?
A) $ 84,000
B) $119,000
C) $154,000
D) $189,000
6) On December 31, 2010, Giant Corporation’s Investment in Penguin Corporation
account had a balance of $500,000. The balance consisted of 80% of Penguin’s
$625,000 stockholders’ equity on that date. Giant owns 80% of Penguin. On January 2,
2011, Penguin increased its outstanding common stock from 15,000 to 18,000 shares.
Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on
January 2, 2011. Giant’s percentage ownership in Penguin immediately after the
purchase of the additional stock is
A) 66-2/3%
B) 80%
C) 83-1/3%
D) 86-2/3%
7) Palomba Corporation allocates consolidated income taxes to its 90%-owned
subsidiary using the percentage allocation method. Under this method, consolidated
income tax expense will be allocated to a subsidiary
A) on the basis of the agreement between the parent and subsidiary
B) on the basis of the subsidiary’s pretax income as a percentage of consolidated pretax
income
C) on the basis of the income taxes remitted to the IRS
D) 90% to the subsidiary
8) According to the segmented markets theory of the term structure
A) bonds of one maturity are close substitutes for bonds of other maturities, therefore,
interest rates on bonds of different maturities move together over time
B) the interest rate for each maturity bond is determined by supply and demand for that
maturity bond
C) investors’ strong preferences for short-term relative to long-term bonds explains why
yield curves typically slope downward
D) because of the positive term premium, the yield curve will not be observed to be
downward-sloping
9) On December 5, 2010, Unca Corporation, a U.S. firm, bought inventory items from
Skagerrak Corporation of Norway for 1,000,000 Norwegian kroner when the spot rate
for kroner was $0.166. The purchase was denominated in kroner. At Unca’s fiscal year
end, December 31, 2010, the spot rate was $0.171. On January 4, 2011, Unca purchased
1,000,000 kroner for $167,500 and paid the invoice. How much gain or (loss) did Unca
report in its 2010 and 2011 income statements, respectively?
A) $(5,000) and $1,500
B) $0 and ($1,500)
C) ($5,000) and $3,500
D) $0 and ($3,500)
10) Match the following fund balance descriptions for a General Fund with the proper
classification for a fund balance. Each classification may be used more than once.
A.Nonspendable Fund Balance
B.Restricted Fund Balance
C.Committed Fund Balance
D.Assigned Fund Balance
E.Unassigned Fund Balance
_____1> Amounts can only be spent for the specific purposes determined by a formal
action of the government’s highest level of decision-making authority.
_____2> Amounts can only be spent for the specific purposes stipulated by constitution,
external resource provider or enabling legislation.
_____3> Residual classification of funds for the General Fund.
_____4> Dollar amount of Ending Inventory.
_____5> Amounts intended to be used by the government for specific purposes but do
not meet the criteria of restricted or committed.
_____6> Dollar amount of endowment principal
11) Under the Uniform Partnership Act, loans made by a partner to the partnership are
treated as
A) liabilities to the partnership for which interest shall be paid from the date of the
advance
B) advances to the partnership that are carried in the partners’ capital accounts
C) Accounts Payable of the partnership for which interest is paid
D) advances to the partnership for which interest does not have to be paid
12) The executor or administrator of a will is required to prepare and file an inventory
of property owned by the deceased within what time period?
A) One month of appointment
B) Two months of appointment
C) Three months of appointment
D) 45 days of appointment
13) If the partnership agreement provides a formula for the computation of a bonus to
the partners, the bonus would be computed
A) next to last, because the final allocation is the distribution of the profit residual
B) before income tax allocations are made
C) after the salary and interest allocations are made
D) in any manner agreed to by the partners in the partnership agreement
14) John Doe’s will states that all assets he had should be transferred to a trust to cover
living expenses for his spouse, who he feels will not be able to handle her own financial
affairs without advice and supervision. Upon his spouse’s passing, the trust will be
converted to cash and distributed to their only daughter, Jane. The probate court already
ruled on which assets could be excluded from the estate, and all tax issues were
addressed, leaving the following inventory of assets from the estate:
Required:
Prepare the journal entry for the creation of the trust.
15) Based upon the flow information provided below for the year ending December 31,
2011, prepare a cash flow statement for the Downtown City Motor Pool, an internal
service fund.
Cash received from customers$830,000
Cash received from General Fund (noncapital loan)20,000
Interest revenue received1,000
Cash received from short-term note payable (not used for capital assets)40,000
Payments to employees450,000
Payments to suppliers250,000
Cash paid to the General Fund – noncapital loan65,000
Payments for capital improvements60,000
Interest paid on short-term note payable above2,000
Principal paid on capital debt50,000
Interest paid on capital debt5,000
Unrestricted Cash (and cash equivalents), January 1, 201113,000
16) On January 1, 2010, Palgan, Co. purchased 75% of the outstanding voting common
stock of Somil, Inc., for $1,500,000. The book value of Somil’s net equity on that date
was $2,000,000. Book values were equal to fair values except as follows:
BookFair
Assets & LiabilitiesValuesValues
Inventory$ 225,000$ 253,000
Building850,000750,000
Note payable320,000304,000
Required:
Prepare a schedule to allocate any excess purchase cost to specific assets and liabilities.
17) Paik Corporation owns 80% of Acdol Corporation and 60% of Ben Corporation.
Acdol Corporation owns 10% of Ben Corporation. All subsidiary investments were
acquired at book value. There are no fair value/book value differentials associated with
each investment. Separate net incomes (excluding investment income) of the affiliated
companies for 2011 are:
Paik:$600,000 which includes $60,000 unrealized losses on inventory items sold to Ben
Acdol:$360,000
Ben:$340,000 which includes $100,000 unrealized profit on land sold to Acdol
Required:
Determine controlling interest share of consolidated net income and noncontrolling
interest shares for Paik Corporation and Subsidiaries for 2011 .
18) The City of Electri entered the following transactions during 2011:
1>Borrowed $120,000 for a six-month term, to be paid upon receipt of property tax
payments which were previously billed.
2>Used the funds borrowed to purchase a new fire truck. The truck is expected to have
a 15-year useful life, and a $5,000 residual value.
3>Received $90,000 cash from a state grant. Funds are restricted for the purchase of a
second fire truck.
4>Used the grant funds received to purchase a second fire truck. The truck is expected
to have a 15-year useful life, and a $5,000 residual value.
5>Nonreciprocal transfer of $50,000 to the Debt Service Fund to be used toward
repayment of the note.
Required:
Prepare the journal entries in the General Fund for the transactions.
19) Pittle Corporation acquired a 80% interest in Seel Corporation at a cost equal to
80% of the book value of Seel’s net assets several years ago. At the time of purchase,
the fair value and book value of Seel’s assets and liabilities were equal. Pittle purchases
its entire inventory from Seel at 150% of Seel’s cost. During 2011, Seel sold $490,000
of merchandise to Pittle. Pittle’s beginning and ending inventories for 2011 were
$72,000 and $66,000, respectively. Income statement information for both companies
for 2011 is as follows:
PittleSeel
Sales Revenue$ 820,000$440,000
Investment income from Sitt145,600
Cost of Goods Sold(460,000)(165,000)
Expenses(120,000)(95,000)
Net Income$ 385,600$ 180,000
Required:
Prepare a consolidated income statement for Pittle Corporation and Subsidiary for
2011 .
20) On January 1, 2011, Jeff Company acquired a 90% interest in Marian Company for
$198,000 cash. On January 1, 2011, Marian Company had the following assets and
liabilities:
Book ValueFair Value
Cash$5,000$5,000
Accounts Receivable30,00035,000
Inventory40,00050,000
Plant Assets60,00080,000
Total Assets$135,000$170,000
Liabilities$25,000$25,000
Capital Stock100,000
Retained Earnings10,000
Total Liabilities &
Stockholders’ Equity $135,000
Push-down accounting is used for the acquisition.
Required:
1> Assume both companies use the entity theory. Prepare the elimination entry(ies) on
consolidating work papers on January 1, 2011 .
2> Assume both companies use the parent company theory. Prepare the elimination
entry(ies) on consolidating work papers on January 1, 2011 .
21) Parkview Holdings owns 70% of Skyline Corporation. On January 1, 2011, Skyline
acquires half of the $2,000,000 of bonds originally issued by Parkview on January 1,
2006 . The bonds were issued at a stated rate of 5% for 10 years, for $1,920,000.
Skyline purchased them for $950,000. Assume that both Parkview and Skyline will use
the straight-line method for any bond-related amortization. Annual interest is paid on
December 31 .
Required: Prepare the entries required for the consolidating worksheet for the years
ended December 31, 2006 through December 31, 2016 .
22) Pacini Corporation owns an 80% interest in Abdoo Corporation, acquired on
January 1, 2010 for $700,000 when Abdoo’s stockholders’ equity consisted of $600,000
of Capital Stock and $200,000 of Retained Earnings.
Abdoo Corporation acquired a 60% interest in Bach Corporation on July 1, 2010 for
$180,000 when Bach had Capital Stock of $200,000 and Retained Earnings of $50,000.
On January 1, 2011, Abdoo acquired a 70% interest in Cabo Corporation for $270,000
when Cabo had Capital Stock of $250,000 and Retained Earnings of $100,000.
No change in outstanding stock of any of the affiliated companies has occurred since
the investments were made. All cost-book value differentials are goodwill. There are no
fair value/book value differentials. The stockholders’ equity section of the separate
balance sheets of Abdoo, Bach, and Cabo at December 31, 2011 are as follows:
AbdooBachCabo
Capital Stock$600,000$200,000$250,000
Retained Earnings280,000140,000130,000
Total stockholders’ equity$880,000$340,000$380,000
Required:
1> Compute the amount at which goodwill should be shown in the consolidated balance
sheet of Pacini Corporation and Subsidiaries at December 31, 2011 .
2> Pacini and Abdoo have applied the equity method correctly. Determine the balances
of the three investment accounts at December 31, 2011 .
23) The City’s municipal golf course had the following transactions.
1>Received a beautification(operating) grant from the state for $600,000. Received
cash of $600,000.
2>Incurred and paid qualifying expenses under the state grant program in (1) above of
$280,000.
3>Incurred and paid construction costs on an uncompleted clubhouse for $1,200,000.
4>Received $1,000,000 cash from a grant to assist with construction costs for the
clubhouse.
Required:
Given that the golf course is operated based on user fees for upkeep, prepare the
necessary journal entries for each of these transactions.