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1) On May 1, 2013, Mosby Company received an order to sell a machine to a customer
in Canada at a price of 2,000,000 Mexican pesos. The machine was shipped and
payment was received on March 1, 2014. On May 1, 2013, Mosby purchased a put
option giving it the right to sell 2,000,000 pesos on March 1, 2014 at a price of
$190,000. Mosby properly designates the option as a fair value hedge of the peso firm
commitment. The option cost $3,000 and had a fair value of $3,200 on December 31,
2013. The following spot exchange rates apply:
Mosby's incremental borrowing rate is 12 percent, and the present value factor for two
months at a 12 percent annual rate is .9803.
What was the impact on Mosby's 2013 net income as a result of this fair value hedge of
a firm commitment?
A.$1,760.60 decrease.
B.$1,960.60 decrease.
C.$1,000.00 decrease.
D.$1,760.60 increase.
E. $1,960.60 increase.
2) 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 buildings that would be reported in a December 31, 2013,
consolidated balance sheet.
A) $1,620.
B) $1,380.
C) $1,320.
D) $1,080.
E) $1,500.
3) 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 INITIAL VALUE is applied.
Compute Pell's investment in Demers at December 31, 2016.
A) $592,400.
B) $500,000.
C) $625,000.
D) $676,000.
E) $620,000.
4) Certain balance sheet accounts of a foreign subsidiary of Parker Company at
December 31, 2013, have been restated into U.S. dollars as follows:
If the current rate used to restate these amounts is $.95, what was the average historical
rate used to arrive at the total amount for historical rates?
A.$0.9000
B.$1.0000
C.$0.9500
D.$0.9474
E.$1.0556
5) X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2013,
Kent made several sales of inventory to X-Beams. The total selling price was $180,000
and the cost was $100,000. At the end of the year, 20% of the goods were still in
X-Beams' inventory. Kent's reported net income was $300,000. What was the
non-controlling interest in Kent's net income?
A) $90,000.
B) $85,200.
C) $54,000.
D) $94,800.
E) $86,640.
6) 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. income statement
amount for sales for 2013.
A.$364,000
B.$372,000
C.$380,000
D.$360,000
E.$404,000
7) West Corp. owned 70% of the voting common stock of East Co. East owned 60% of
Compass Co. West and East both used the initial value method to account for their
investments. The following information was available from the financial statements and
records of the three companies:
Operating income included unrealized intra-entity gains (which are related to inventory
transfers) but did not include dividend income from investment in subsidiary.
For West Corp. and consolidated subsidiaries, what total amount would have been
reported for the non-controlling interest's share of subsidiaries' net income?
A.$165,300.
B.$199,300.
C.$191,000.
D.$228,000.
E.$153,000.
8) When a company applies the initial value method in accounting for its investment in
a subsidiary and the subsidiary reports income less than dividends paid, what entry
would be made for a consolidation worksheet?
A) A above
B) B above
C) C above
D) D above
E) E above
9) 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. income statement
amount for depreciation expense for 2013.
A.$8,190
B.$8,370
C.$8,820
D.$9,090
E.$8,550
10) A five-year lease is signed by the City of Wachovia for equipment with a seven-year
life. The asset will be returned to the lessor at the end of the lease. The present value of
the lease is $20,000, and annual payments of $5,411.41 are payable beginning on the
date the lease is signed. The interest portion of the second payment is $1,604.75. The
equipment is to be used in City Hall and was purchased from appropriated funds of the
General Fund.
What entry should be made for the government-wide financial statements on the date
the lease is signed?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
11) A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the
following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to
Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of
the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman,
respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of
$52,000 in the second year.
What was the balance in Young's Capital account at the end of the second year?
A.$133,380.
B.$84,760.
C.$105,690.
D.$132,860.
E.$71,760.
12) Wilson owned equipment with an estimated life of 10 years when it was acquired
for an original cost of $80,000. The equipment had a book value of $50,000 at January
1, 2012. On January 1, 2012, Wilson realized that the useful life of the equipment was
longer than originally anticipated, at ten remaining years.
On April 1, 2012 Simon Company, a 90% owned subsidiary of Wilson Company,
bought the equipment from Wilson for $68,250 and for depreciation purposes used the
estimated remaining life as of that date. The following data are available pertaining to
Simon's income and dividends:
Compute the gain on transfer of equipment reported by Wilson for 2012.
A) $19,500.
B) $18,250.
C) $11,750.
D) $38,250.
E) $37,500.
13) Esposito is an Italian subsidiary of a U.S. company.
Esposito's ending inventory is valued at the average cost for the last quarter of the year.
The following account balances are available for Esposito for 2013:
Compute the cost of goods sold for 2013 in U.S. dollars using the temporal method.
A.$376,650
B.$387,750
C.$388,800
D.$400,950
E.$409,050
14) A local partnership was considering the possibility of liquidation since one of the
partners (Ding) was personally insolvent. Capital balances at that time were as follows.
Profits and losses were divided on a 4:2:2:2 basis, respectively.
Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that
time, the partnership held noncash assets reported at $360,000 and liabilities of
$120,000. There was no cash on hand at the time.
If the assets could be sold for $228,000, what is the minimum amount that Ezzard's
creditors would have received?
A.$36,000.
B.$0.
C.$2,500.
D.$38,250.
E.$67,250.
15) Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1,
2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial
records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair
value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends
of $70,000 were paid in each of these two years. Selected account balances as of
December 31, 2013, for the two companies follow.
If the equity method had been applied, what would be the Investment in Tysk Corp.
account balance within the records of Jans at the end of 2013?
A) $612,100.
B) $744,000.
C) $774,150.
D) $372,000.
E) $844,150.
16) On January 1, 2013, Jackie Corp. purchased 30% of the voting common stock of
Rob Co., paying $2,000,000. Jackie properly accounts for this investment using the
equity method. At the time of the investment, Rob's total stockholders' equity was
$3,000,000. Jackie gathered the following information about Rob's assets and liabilities
whose book values and fair values differed:
Any excess of cost over fair value was attributed to goodwill, which has not been
impaired. Rob Co. reported net income of $300,000 for 2013, and paid dividends of
$100,000 during that year.
What is the amount of excess amortization expense for Jackie Corp's investment in Rob
Co. for year 2013?
A) $ 0.
B) $30,000.
C) $40,000.
D) $55,000.
E) $60,000.
17) On October 1, 2013, Eagle Company forecasts the purchase of inventory from a
British supplier on February 1, 2014, at a price of 100,000 British pounds. On October
1, 2013, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a
strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a
forecasted foreign currency transaction. On December 31, 2013, the option has a fair
value of $1,600. The following spot exchange rates apply:
What journal entry should Eagle prepare on December 31, 2013?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
19) White Company owns 60% of Cody Company. Separate tax returns are required.
For 2012, White's operating income (excluding taxes and any income from Cody) was
$300,000 while Cody reported a pretax income of $125,000. During the period, Cody
paid a total of $25,000 in cash dividends; $15,000 (60%) to White and $10,000 to the
non-controlling interest. White paid dividends of $180,000. The income tax rate for
both companies is 30%.
Compute Cody's undistributed earnings for 2013.
A.$62,500.
B.$125,000.
C.$87,500.
D.$100,000.
E.$70,000.
20)
Patton's operating income excludes income from the investment in Stevens, but
includes $150,000 of unrealized gains on intra-entity transfers of inventory. Patton uses
the initial value method to account for the investment in Stevens.
Assume Patton owns 90 percent of the voting stock of Stevens and files a consolidated
income tax return. What amount of income taxes would be paid?
21) The following are preliminary financial statements for Black Co. and Blue Co. for
the year ending December 31, 2013.
On December 31, 2013 (subsequent to the preceding statements), Black exchanged
10,000 shares of its $10 par value common stock for all of the outstanding shares of
Blue. Black's stock on that date has a fair value of $50 per share. Black was willing to
issue 10,000 shares of stock because Blue's land was appraised at $204,000. Black also
paid $14,000 to several attorneys and accountants who assisted in creating this
combination. Required:
Assuming that these two companies retained their separate legal identities, prepare a
consolidation worksheet as of December 31, 2013.
22) The Town of Portsmouth has at the beginning of the year a $213,000 Net Asset
balance, and a $52,000 Fund Balance.
The following information relates to the activities within the Town of Portsmouth for
the year of 2013.
Prepare a Statement of Net Assets
23) Hardin, Sutton, and Williams have operated a local business as a partnership for
several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively.
Recently, Williams has undergone personal financial problems, and is insolvent. To
satisfy Williams' creditors, the partnership has decided to liquidate.
The following balance sheet has been produced:
During the liquidation process, the following transactions take place:
- Noncash assets are sold for $116,000.
- Liquidation expenses of $12,000 are paid. No further expenses are expected.
- Safe capital distributions are made to the partners.
- Payment is made of all business liabilities.
- Any deficit capital balances are deemed to be uncollectible.
Compute safe cash payments after the noncash assets have been sold and the liquidation
expenses have been paid.
24) The ABCD Partnership has the following balance sheet at January 1, 2012, prior to
the admission of new partner, Eden.
Eden contributes $49,000 into the partnership for a 25% interest. The four original
partners share profits and losses equally. Using the bonus method, determine the
balances for each of the five partners after Eden joins the partnership.
25) A company that was to be liquidated had the following liabilities:
The company had the following assets:
Required:
Assets available for unsecured creditors after payment of liabilities with priority are
calculated to be what amount?
26) King Corp. owns 85% of James Co. King uses the equity method to account for this
investment. During 2015, King sells inventory to James for $500,000. The inventory
originally cost King $420,000. At 12/31/15, 25% of the goods were still in James'
inventory.
Required:
Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation
worksheet.
27) B Co. owned 70% of the voting common stock of C Corp.; C Corp. owned 20% of
B Co. For 2013, B Co. and C Corp. reported net income (not including the investment)
of $600,000 and $300,000, respectively. B Co. and C Corp. paid dividends of $80,000
and $60,000, respectively.
Prepare a schedule showing B Co.'s share of consolidated netincome for 2013 using the
treasury stock approach.
28) On January 1, 2013, Vacker Co. acquired 70% of Carper Inc. by paying $650,000.
This included a $20,000 control premium. Carper reported common stock on that date
of $420,000 with retained earnings of $252,000. A building was undervalued in the
company's financial records by $28,000. This building had a ten-year remaining life.
Copyrights of $80,000 were to be recognized and amortized over 20 years.
Carper earned income and paid cash dividends as follows:
On December 31, 2015, Vacker owed $30,800 to Carper. There have been no changes in
Carper's common stock account since the acquisition. Required:
If the equity method had been applied by Vacker for this acquisition, what were the
consolidation entries needed as of December 31, 2015?
