1) Prime Industries acquired an 80 percent interest in Sands Company by purchasing
24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on
January 1, 2013. Sands reported net income in 2013 of $45,000 and in 2014 of $60,000
earned evenly throughout the respective years. Prime received no bold $12,000
dividends from Sands in 2013 and $18,000 in 2014. Prime uses the equity method to
record its investment.
Prime should record investment income from Sands during 2014 of:
a.$18,000
b.$60,000
c.$48,000
d.$33,600
2) On January 1, 2013, BelgianAir purchases an airplane for 14,400,000. The
components of the airplane and their useful lives are as follows:
BelgianAir uses the straight-line method of depreciation. The asset is assumed to have
no salvage value.
Under US GAAP, the entry to record depreciation expense on the asset at December 31,
2014 will include
a.a credit to accumulated depreciation of 1,200,000
b.a debit to depreciation expense of 1,440,000
c.a debit to depreciation expense of 800,000
d.a credit to accumulated depreciation of 600,000
3) The partnership of Ned, Fred, and Ted had total capital of $1,140,000 on December
31, 2014, as follows:
Ned, Capital (30%)$360,000
Fred, Capital (45%)510,000
Ted, Capital (25%) 270,000
Total$1,140,000
Profit and loss sharing percentages are shown in parentheses.
Assume that Ed became a partner by investing $300,000 in the Ned, Fred, and Ted
partnership for a 25 percent interest in the capital and profits, and the partnership assets
are revalued. Under this assumption
a.Eds capital credit will be $300,000
b.Neds capital will be increased to $394,000
c.total partnership capital after Eds admission to the partnership will be $1,200,000
d.net assets of the partnership will increase by $380,000 including Eds interest
4) Several years ago, P Company bought land from S Company, its 80% owned
subsidiary, at a gain of $50,000 to S Company. The land is still owned by P Company.
The consolidated working papers for this year will require:
a.no entry because the gain happened prior to this year
b.a credit to land for $50,000
c.a debit to Ps retained earnings for $50,000
d.a debit to Noncontrolling interest for $50,000
5) Hopkins Company is considering the acquisition of Richfield, Inc. To assess the
amount it might be willing to pay, Hopkins makes the following computations and
assumptions.
A.Richfield, Inc. has identifiable assets with a total fair value of $6,000,000 and
liabilities of $3,700,000. The assets include office equipment with a fair value
approximating book value, buildings with a fair value 25% higher than book value, and
land with a fair value 50% higher than book value. The remaining lives of the assets are
deemed to be approximately equal to those used by Richfield, Inc.
B.Richfield, Inc.’s pretax incomes for the years 2011 through 2013 were $470,000,
$570,000, and $370,000, respectively. Hopkins believes that an average of these
earnings represents a fair estimate of annual earnings for the indefinite future. However,
it may need to consider adjustments for the following items included in pretax earnings:
Depreciation on Buildings (each year)380,000
Depreciation on Equipment (each year)30,000
Extraordinary Loss (year 2013)130,000
Salary Expense (each year) 170,000
C.The normal rate of return on net assets for the industry is 15%.
Required:
A.Assume that Hopkins feels that it must earn a 20% return on its investment, and that
goodwill is determined by capitalizing excess earnings. Based on these assumptions,
calculate a reasonable offering price for Richfield, Inc. Indicate how much of the price
consists of goodwill.
B.Assume that Hopkins feels that it must earn a 15% return on its investment, but that
average excess earnings are to be capitalized for five years only. Based on these
assumptions, calculate a reasonable offering price for Richfield, Inc. Indicate how much
of the price consists of goodwill.
6) P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation.
In 2013, P sold merchandise that cost $240,000 to S for $300,000. Half of this
merchandise remained in Ss December 31, 2013 inventory. During 2014, P sold
merchandise that cost $375,000 to S for $468,000. Forty percent of this merchandise
inventory remained in Ss December 31, 2014 inventory. Selected income statement
information for the two affiliates for the year 2014 is as follows:
P_S_
Sales Revenue$2,250,000$1,125,000
Cost of Goods Sold1,800,000 937,500
Gross profit$450,000$187,500
Consolidated cost of goods sold for P Company and Subsidiary for 2014 are:
a.$2,260,500
b.$2,268,000
c.$2,276,700
d.$2,737,500
7) On January 1, 2014, Puma Corporation acquired 30 percent of Slume Company’s
stock for $150,000. On the acquisition date, Slume reported net assets of $450,000
valued at historical cost and $500,000 stated at fair value. The difference was due to the
increased value of buildings with a remaining life of 10 years. During 2014 Slume
reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity
method.
What will be the balance in the Investment account as of Dec 31, 2014?
a.$150,000
b.$157,500
c.$154,500
d.$153,000
8) P Company purchased 90% of the outstanding common stock of S Company on
January 1, 2010 . S Companys stockholders equity at various dates was:
1/1/10 1/1/1412/31/14
Common stock$400,000$400,000$400,000
Retained earnings 120,000 380,000 460,000
Total$520,000$780,000$860,000
The workpaper entry to establish reciprocity under the cost method in the preparation of
a consolidated statements workpaper on December 31, 2014 should include a credit to P
Companys retained earnings of
a.$80,000
b.$234,000
c.$260,000
d.$306,000
9) The excess of the amount offered in an acquisition over the prior stock price of the
acquired firm is the
a.bonus
b.goodwill
c.implied offering price
d.takeover premium
10) Pall, Inc., owns 40% of the outstanding stock of Sibil Company. During 2014, Pall
received a $4,000 cash dividend from Sibil. What effect did this dividend have on Palls
2014 financial statements?
a.Increased total assets
b.Decreased total assets
c.Increased income
d.Decreased investment account
11) P Company sold merchandise costing $240,000 to S Company (90% owned) for
$300,000. At the end of the current year, one-third of the merchandise remains in S
Companys inventory. Applying the lower-of- cost-or-market rule, S Company wrote
this inventory down to $92,000. What amount of intercompany profit should be
eliminated on the consolidated statements workpaper?
a.$20,000
b.$18,000
c.$12,000
d.$10,800
12) Accounting under IFRS and US GAAP is similar for all of the following topics
except:
a.changes in estimates
b.related party transactions
c.research and development costs
d.changes in methods
13) The following funds and account groups are recommended for use in accounting for
state and municipal governmental financial operations:
A. General Fund.
B.Special Revenue Fund.
C.Debt Service Fund.
D.Capital Projects Fund.
E.Agency Fund.
F.Enterprise Fund.
G.Internal Service Fund.
H.Trust Fund.
I.Government-wide Statement of Activities.
J.Government-wide Statement of Net Assets.
Identify, by the letters given above, the funds and account groups in which each of the
ac-count account titles below might properly appear.
(1)Bonds Payable.
(2)Reserve for Encumbrances.
(3)Equipment.
(4)Appropriations.
(5)Estimated Revenue.
(6)Property Taxes Receivable.
(7)Construction Work in Progress.
(8)Accumulated Depreciation.
(9)Depreciation Expense.
(10) Required Earnings.
14) P Company purchased 90% of the outstanding common stock of S Company on
January 1, 2012. S Companys stockholders equity at various dates was:
1/1/12 1/1/14 12/31/14
Common stock$200,000$200,000$200,000
Retained earnings60,000190,000230,000
Total$260,000$390,000$430,000
The workpaper entry to establish reciprocity under the cost method in the preparation of
a consolidated statements workpaper on December 31, 2014 should include a credit to P
Companys retained earnings of
a.$40,000
b.$117,000
c.$130,000
d.$153,000
15) On January 1, 2013, Pultey Company acquired an 80% interest in Saucey Company
for $1,070,000.Saucey reported common stock of $1,000,000 and retained earnings of
$400,000 on this date.Any difference between implied value and the book value interest
acquired is attributable to land.
Other information available for Saucey Company is shown below:
Net IncomeCash Dividends
2013$130,000$160,000
Pultey Company uses the cost method to account for its investment in Saucey
Company.
Required:
A.Prepare the general journal entries for 2013 to record the receipt of the cash
dividends.
B.Prepare in general journal form the workpaper entries necessary in the consolidated
statements workpaper for the year end December 31, 2013.
16) On January 1, 2014, Pharma Company purchased a 90% interest in Sandy Company
for $2,800,000. At that time, Sandy had $1,840,000 of common stock and $360,000 of
retained earnings. The difference between implied and book value was allocated to the
following assets of Sandy Company:
Inventory$ 80,000
Plant and equipment (net)240,000
Goodwill591,111
The plant and equipment had a 10-year remaining useful life on January 1, 2014.
During 2014, Pharma sold merchandise to Sandy at a 20% markup above cost. At
December 31, 2014, Sandy still had $180,000 of merchandise in its inventory that it had
purchased from Pharma. In 2014, Pharma reported net income from independent
operations of $1,600,000, while Sandy reported net income of $600,000.
Required:
A.Prepare the workpaper entry to allocate, amortize, and depreciate the difference
between implied and book value for 2014.
B.Calculate controlling interest in consolidated net income for 2014.
17) When the functional currency is identified as the U.S. dollar, land purchased by a
foreign subsidiary after the controlling interest was acquired by the parent company
should be translated using the:
a.historical rate in effect when the land was purchased
b.current rate in effect at the balance sheet date
c.forward rate
d.average exchange rate for the current period
18) On January 1, 2014, Pioneer Company purchased 80% of the common stock of
Shipley Company for $600,000. At that time, Shipleys stockholders equity consisted of
the following:
Common stock$220,000
Other contributed capital 90,000
Retained earnings320,000
During 2014, Shipley distributed a dividend in the amount of $120,000 and at year-end
reported a $320,000 net income. Any difference between implied and book value relates
to subsidiary goodwill. Pioneer Company uses the equity method to record its
investment. No impairment of goodwill is observed in the first year.
Required:
A.Prepare on Pioneer Companys books journal entries to record the investment related
activities for 2014.
B.Prepare the workpaper eliminating entries for a workpaper on December 31, 2014.
19) Which of the following reporting practices is permissible for interim financial
reporting?
a.Use of the gross profit method for interim inventory pricing
b.Use of the direct costing method for determining manufacturing inventories
c.Deferral of unplanned variances under a standard cost system until year-end
d.Deferral of inventory market declines until year-end
20) Posch Company issued 12,000 shares of its $20 par value common stock for the net
assets of Sato Company in a business combination under which Sato Company will be
merged into Posch Company. On the date of the combination, Posch Company common
stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato
Company immediately prior to the combination were as follows:
Posch Sato
Current Assets$ 657,000$ 96,000
Plant and Equipment (net) 863,000 204,000
Total$1,520,000$300,000
Liabilities$ 450,000$ 75,000
Common Stock, $20 par value 825,000 120,000
Other Contributed Capital 109,000 30,000
Retained Earnings 136,000 75,000
Total$1,520,000$300,000
If the business combination is treated as an acquisition and Sato Companys net assets
have a fair value of $343,200, Posch Companys balance sheet immediately after the
combination will include goodwill of
a.$15,300
b.$19,200
c.$16,800
d.$28,200
21) A Statement of Affairs is a report designed to show:
a.an estimated amount that would be received by each class of creditors claims in the
event of liquidation
b.a balance sheet prepared on the going-concern assumption
c.assets and liabilities classified as current and noncurrent
d.assets and liabilities reported at their current book values
22) Down Dog Corporation filed a petition under Chapter 7 of the U.S. Bankruptcy Act
on June 30, 2014. Data relevant to its financial position as of this date are:
Estimated Net
Book ValueRealizable Values
Cash$ 3,000$ 3,000
Accounts receivable-net 72,00048,000
Inventories60,00072,000
Equipment-net 165,000 87,000
Total assets$300,000 $210,000
Accounts payable$ 72,000
Rent payable 21,000
Wages payable45,000
Note payable plus accrued interest96,000
Capital stock180,000
Retained earnings (deficit) (120,000)
Total liabilities and equity $300,000
Required:
A.Prepare a statement of affairs assuming that the note payable and interest are secured
by
a mortgage on the equipment and that wages are less than $4,650 per employee.
B.Estimate the amount that will be paid to each class of claims if priority liquidation
expenses including trustee fees are $24,000 and estimated net realizable values are
actually realized.
23) Bell Foundation, a voluntary health and welfare organization, supported by
contributions from the general public, included the following costs in its statement of
functional expenses for the year ended December 31, 2014.
Fund raising$1,000,000
Administrative600,000
Research200,000
Bells functional expenses for 2014 program services included
a.$200,000
b.$600,000
c.$1,000,000
d.$1,800,000
24) On January 1 2013, Paulus Company purchased 75% of Sweet Corporation for
$500,000. Sweet stockholders equity on that date was equal to $600,000 and Sweet had
60,000 shares issued and outstanding on that date. Sweet Corporation sold an additional
15,000 shares of previously unissued stock on December 31, 2013.
AssumeAssuming that Paulus Company purchased the additional shares, what would be
their current percentage ownership on December 31, 2013?
a.92%
b.87%
c.80%
d.100%
25) The SEC requires the use of push down accounting when the ownership change is
greater than
a.50%
b.80%
c.90%
d.95%
26) In January 2014, Cain Company paid $200,000 in property taxes on its plant for the
calendar year 2014. Also in January 2014, Cain estimated that its year-end bonuses to
executives for 2014 would be $800,000. What is the amount of expenses related to
these two items that should be reflected in Cain’s quarterly income statement for the
three months ended June 30, 2014 (second quarter)?
a.$ -0-
b.$250,000
c.$ 50,000
d.$200,000
27) New terminology introduced under the joint IFRS- US GAAP Customer
Consideration (Allocation) Model includes all of the following except:
a.revenue recognition voids
b.contract rights
c.net contract asset/ liability
d.performance obligations
28) How are foreign currency exchange gains and losses from hedging a forecasted
transaction handled?
29) What are the arguments for and against the alternatives for the handling of bargain
acquisitions? Why are such acquisitions unlikely to occur with great frequency?
30) Pruin Corporation acquired all of the voting stock of Satto Corporation on January
1, 2013, for $210,000 when Satto had common stock of $150,000 and retained earnings
of $24,000. The excess of implied over book value was allocated $9,000 to inventories
that were sold in 2013, $12,000 to equipment with a 4-year remaining useful life under
the straight-line method, and the remainder to goodwill.
Financial statements for Pruitt and Satto Corporations at the end of the fiscal year ended
December 31, 2014 (two years after acquisition), appear in the first two columns of the
partially completed consolidated statements workpaper. Pruin Corp. has accounted for
its investment in Satto using the partial equity method of accounting.
Required:
Complete the consolidated statements workpaper for Pruin Corporation and Satto
Corporation for December 31, 2014.
Pruin Corporation and Satto Corporation
Consolidated Statements Workpaper
at December 31, 2014
31) Is the recognition of a deferred tax asset or deferred tax liability when allocating the
difference between book value and the value implied by the purchase price affected by
whether or not the affiliates file a consolidated income tax re-turnreturn?
32) The fund structure and terminology differ among NNOS, but there are six funds
commonly used. Identify the funds used by nongovernment nonbusiness organizations.
33) Distinguish an annuity fund from a life income fund.
34) The City Parks Endowment Fund transferred $160,000 in expendable funds to the
City Parks Special Revenue Fund.
5>Proceeds of $21,000 were received from the sale of equipment which had been
purchased from general revenues at a cost of $100,000. Accumulated depreciation on
the equipment was $75,000.
6>The City Power Company (an enterprise fund) issued a bill for $400,000 for
electricity provided to municipal government buildings.
7>The City Power Company transferred excess funds of $90,000 to the General Fund.
8>A central data processing center was established by a contribution of $400,000 from
the General Fund, a long-term loan of $130,000 from the City Parks Special Revenue
Fund, and general obligation bond proceeds of $180,000.
9>The Data Processing Fund billed the General Fund $20,000 and the City Parks
Special Revenue Fund $8,500 for data processing services.
10>The City Power Company received $7,000 as customer deposits during the year.
The monies are to be held in trust until customers request that their services be
discontinued and final bills are collected.
11>In order to retire general obligation term bonds when they become due, it is
determined that the Debt Service Fund will require annual contributions of $40,000 and
earnings in the current year of $3,000.
35) Why is it important to distinguish between up-stream and downstream sales in the
analysis of intercompany profit eliminations?
missing short answer question 10 and ethics 1>>3
36) Explain the distinction between the terms withdrawals and salaries.
37) Why are realization gains or losses allocated to partners in their profit and loss
ratios?