1) On January 1, 2013, Deuce Inc. acquired 15% of Wiz Co.’s outstanding common
stock for $62,400 and categorized the investment as an available-for-sale security. Wiz
earned net income of $96,000 in 2013 and paid dividends of $36,000. On January 1,
2014, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave
Deuce the ability to significantly influence the decision making of Wiz. During 2014,
Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2014, Wiz
reported a net book value of $468,000. For both purchases, Deuce concluded that Wiz
Co.’s book values approximated fair values and attributed any excess cost to goodwill.
What amount of equity income should Deuce have reported for 2014?
A) $30,000.
B) $16,420.
C) $38,340.
D) $18,000.
E) $32,840.
2) 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 ending inventory for 2013 under the temporal method.
A.$13,950
B.$14,100
C.$14,400
D.$14,850
E.$15,150
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 EQUITY METHOD is applied.
Compute the non-controlling interest in the net income of Demers at December 31,
2014.
A) $20,000.
B) $12,000.
C) $18,600.
D) $10,600.
E) $14,400.
4) The financial balances for the Atwood Company and the Franz Company as of
December 31, 2013, are presented below. Also included are the fair values for Franz
Company’s net assets.
Note: Parenthesis indicate a credit balance
Assume an acquisition business combination took place at December 31, 2013. 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.
Compute consolidated long-term liabilities at the date of the acquisition.
A) $2,600.
B) $2,700.
C) $2,800.
D) $3,720.
E) $3,820.
5) Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The
consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below:
Additional information for 2013:
Net cash flow from operating activities was:
A) $43,000.
B) $44,800.
C) $46,200.
D) $50,000.
E) $25,000.
6) 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 income tax expense for 2013.
A.$33,000.
B.$34,500.
C.$37,500.
D.$30,000.
E.$22,500.
7) 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;
Any excess
of consideration transferred over fair value of net assets acquired is considered goodwill
with an indefinite life. FIFO inventory valuation method is used.Compute the
consideration transferred in excess of book value acquired at January 1, 2012. A) $ 150.
B) $ 700.
C) $2,200.
D) $ 550.
E) $2,900.
8) Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers
maintained its incorporation. Which of Racer’s account balances would vary between
the equity method and the initial value method?
A) Goodwill, Investment in Tangiers Co., and Retained Earnings.
B) Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C) Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D) Common Stock, Goodwill, and Investment in Tangiers Co.
E) Expenses, Goodwill, and Investment in Tangiers Co.
9) Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of
Gamma, Inc. all of which are domestic corporations. Information for the three
companies for the year ending December 31, 2013 follows:
What is Beta’s accrual-based income for 2013?
A.$200,000.
B.$276,800.
C.$280,000.
D.$296,000.
E.$300,000.
10) A company that was to be liquidated had the following liabilities:
The company had the following assets:
Total assets available to pay liabilities with priority and unsecured creditors are
calculated to be what amount?
11) Consolidated accounts payable decreased by $7,000.
How is the amount of excess acquisition-date fair value over book value recognized in a
consolidated statement of cash flows assuming the indirect method is used?
A) It is ignored.
B) $6,000 subtracted from net income.
C) $4,800 subtracted from net income.
D) $6,000 added to net income.
E) $4,800 added to net income.
12) Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2013 and paid dividends of $100.
Assume the initial value method is used. In the year subsequent to acquisition, what
additional worksheet entry must be made for consolidation purposes that is not required
for the equity method?
A) Entry A.
B) Entry B.
C) Entry C.
D) Entry D.
E) Entry E.
13) 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 Demers at December 31, 2015.
A) $107,000.
B) $126,000.
C) $109,200.
D) $149,600.
E) $148,200.
14) 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 is the amount of Adjustment to Accumulated Other Comprehensive Income for
2014 from these transactions?
A.$1,000
B.$1,600
C.$1,800
D.$2,000
E.$2,600
15) 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 Ding’s
creditors would have received?
A.$36,000.
B.$0.
C.$2,500.
D.$38,720.
E.$67,250.
16) Betsy Kirkland, Inc. incurred a flood loss during the first quarter of 2013 that is
deemed both unusual and infrequent. The loss is considered immaterial to the
twelve-month period, but is material in amount relative to the first quarter. The proper
accounting treatment in the first quarter interim statement is to:
A.Ignore the loss.
B.Record the loss in the first quarter as an extraordinary loss, net of income taxes.
C.Record one-fourth of the loss in the first quarter as an extraordinary loss, net of
income taxes.
D.Ignore the loss in the first quarter, and record it in the annual statement only.
E.Record the loss in the first quarter, but not as an extraordinary loss, and disclose the
loss in a separate note or in the income statement as a separate line item.
17) 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 Eaton’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.
18) Yoderly Co., a wholly owned subsidiary of Nelson Corp., sold goods to Nelson near
the end of 2013. The goods had cost Yoderly $105,000 and the selling price was
$140,000. Nelson had not sold any of the goods by the end of the year.
Required:
Prepare Consolidation Entry TI and Consolidation Entry G that are required for 2013.
19) On January 1, 2013, Chester Inc. acquired 100% of Festus Corp.’s outstanding
common stock by exchanging 37,500 shares of Chester’s $2 par value common voting
stock. On January 1, 2013, Chester’s voting common stock had a fair value of $40 per
share. Festus’ voting common shares were selling for $6.50 per share. Festus’ balances
on the acquisition date, just prior to acquisition are listed below.
Required: Compute the value of the Goodwill account on the date of acquisition,
1/1/15.
20) 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 was the balance in the Investment in Nicole Corp. account at December 31, 2013?
21) The executor of Danny Mack’s estate has listed the following properties at fair
value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and
Bonds $50,000, Rental Property $100,000, and Personal Property $80,000.
Additionally, the executor found $100,000 of various debts incurred before the
decedent’s death. The cost of Danny Mack’s funeral was $20,000.
Prepare the journal entry to record payment of $20,000 in funeral expenses.
22) On April 7, 2013, Pate Corp. sold land to Shannahan Co., its subsidiary. From a
consolidated point of view, when will the gain on this transfer actually be earned?
23) The executor of Danny Mack’s estate has listed the following properties at fair
value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and
Bonds $50,000, Rental Property $100,000, and Personal Property $80,000.
Additionally, the executor found $100,000 of various debts incurred before the
decedent’s death. The cost of Danny Mack’s funeral was $20,000.
Prepare the journal entry to record the collection of the life insurance policy.
24) For the month of December 2013, patient charges at Northfield Hospital (a
not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000.
Prepare the necessary journal entry to record the revenue and receivables.
25) Bazley Co. had severe financial difficulties and was considering the possibility of
filing a bankruptcy petition. At that time, the company had the following assets (stated
at net realizable value) and liabilities.
In a liquidation, total assets available to pay liabilities with priority and unsecured
creditors are calculated to be what amount?
26) Hampton Company is trying to decide whether to seek liquidation or
reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
– The investments are currently worth $13,000.
– It is estimated that $32,000 of the accounts receivable are collectible.
– The inventory can be sold for $74,000.
– The prepaid expenses and the intangible assets have no net realizable value.
– The land and building are currently valued at $250,000.
– The equipment can be sold for $60,000.
– Administrative expenses (not yet recorded) are estimated to be $12,500.
– Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and
$3,000 each to two other employees).
– Accrued expenses include $7,000 of unpaid payroll taxes.
How much will Hampton’s creditor of an unsecured accounts payable of $4,000
receive?
27) 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 Revenues, Expenditures and Changes in Fund Balances
