1) When a company applies the initial method in accounting for its investment in a
subsidiary and the subsidiary reports income in excess of 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
2) Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2012. At that date, Glen owns only three assets and has no liabilities:
If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and
pays $20,000 in dividends during 2012, what amount would be reflected in
consolidated net income for 2012 as a result of the acquisition?
A) $20,000 under the initial value method.
B) $30,000 under the partial equity method.
C) $50,000 under the partial equity method.
D) $44,500 under the equity method.
E) $45,500 regardless of the internal accounting method used.
3) Ryan Company owns 80% of Chase Company. The original balances presented for
Ryan and Chase as of January 1, 2013, are as follows:
Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12
per share.
What is the new percent ownership Ryan owns in Chase?
A) 80.0%.
B) 87.5%.
C) 90.0%.
D) 75.0%.
E) 82.5%.
4) Strickland Company sells inventory to its parent, Carter Company, at a profit during
2012. One-third of the inventory is sold by Carter in 2012.
In the consolidation worksheet for 2013, assuming Carter uses the initial value method
of accounting for its investment in Strickland, which of the following choices would be
a debit entry to eliminate unrealized intra-entity gross profit with regard to the 2012
intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.
5) Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16,
2013, with payment of 10 million Korean won to be received on January 15, 2014. The
following exchange rates applied:
Assuming a forward contract was entered into, the foreign currency was originally sold
in the foreign currency market on December 16, 2013 at a
A.forward contract discount $600
B.forward contract premium $600
C.forward contract discount $980
D.forward discount premium $980
E.There is no premium or discount because the fair value of the contract is zero.
6) Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with
investments of $100,000, $150,000, and $200,000, respectively. For division of income,
they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual
compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss
in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was
$150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was Cleary’s capital balance at the end of 2012?
A.$100,000.
B.$117,000.
C.$119,000.
D.$129,000.
E.$153,000.
8) A parent acquires 70% of a subsidiary€s common stock and 60 percent of its
preferred stock. The preferred stock is noncumulative. The current year€s dividend was
paid. How is the non-controlling interest in the subsidiary€s net income assigned?
A) Income is assigned as 40 percent of the value of the preferred stock, based on an
allocation between common stock and preferred stock and their relative par values.
B) There is no allocation to the non-controlling interest because there are no dividends
in arrears.
C) Income is assigned as 40 percent of the preferred stock dividends.
D) Income is assigned as 40 percent of the preferred stock dividends plus 30% of the
subsidiary€s income after subtracting all preferred stock dividends.
E) Income is assigned as 30 percent of the subsidiary€s income after subtracting 60% of
preferred stock dividends.
9) 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 intra-entity inventory
profit to be deferred on December 31, 2013?
A) $ 900.
B) $3,000.
C) $4,500.
D) $6,000.
E) $9,000.
10) On January 1, 2014, Palk Corp. and Spraz Corp. had condensed balance sheets as
follows:
On January 2, 2014, Palk borrowed the entire $84,000 it needed to acquire 80% of the
outstanding common shares of Spraz. The loan was to be paid in ten equal annual
principal payments, plus interest, beginning December 31, 2014. The excess
consideration transferred over the underlying book value of the acquired net assets was
allocated 60% to inventory and 40% to goodwill.
What are the total consolidated current liabilities at January 2, 2014?
A) $53,200.
B) $56,000.
C) $64,400.
D) $42,000.
E) $70,000.
11) Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2015. Several of Green’s accounts have been omitted.
Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2011, Vega’s
land was undervalued by $40,000, its buildings were overvalued by $30,000, and
equipment was undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a
16-year remaining life. There was no goodwill associated with this investment.Compute
the book value of Vega at January 1, 2011. A) $ 997,500.
B) $ 857,500.
C) $1,200,000.
D) $1,600,000.
E) $ 827,500.
13) Ryan Company owns 80% of Chase Company. The original balances presented for
Ryan and Chase as of January 1, 2013 are as follows:
Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per
share.
When Ryan’s new percent ownership is rounded to a whole number, what adjustment is
needed for Ryan’s investment in Chase account?
A) $16,000 decrease.
B) $60,000 decrease.
C) $64,000 increase.
D) $64,000 decrease.
E) No adjustment is necessary.
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 2014 effect on net income as a result of these transactions?
A.$195,000
B.$201,600
C.$201,000
D.$202,600
E.$203,000
15) Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on
January 1, 2012, for $257,000. Annual amortization of $19,000 resulted from this
acquisition. Jansen reported net income of $70,000 in 2012 and $50,000 in 2013 and
paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2012
and $47,000 in 2013 and paid $10,000 in dividends each year. What is the Investment in
Merriam Co. balance on Jansen’s books as of December 31, 2013, if the equity method
has been applied?
A) $286,000.
B) $295,000.
C) $276,000.
D) $344,000.
E) $324,000.
16) 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 Wilson’s share of income from Simon for consolidation for 2012.
A) $72,000.
B) $90,000.
C) $73,575.
D) $73,800.
E) $72,500.
17) On January 1, 2013, Nichols Company acquired 80% of Smith Company’s common
stock and 40% of its non-voting, cumulative preferred stock. The consideration
transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred.
Any excess acquisition-date fair value over book value is considered goodwill. The
capital structure of Smith immediately prior to the acquisition is:
The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit
Additional paid-in capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional
paid-in capital $200,000, and debit Retained earnings $500,000.
18) For each of the following situations, select the best answer concerning the
classification of the liability.
(A) Unsecured without priority
(B) Unsecured with priority
(C) Partially secured
(D) Fully secured
___ 1) Payroll taxes payable.
___ 2) Land and building valued at $427,000 mortgaged by a bank loan in the amount
of $517,000.
___ 3) Equipment valued at $73,000 securing a loan to an individual in the amount of
$32,100.
___ 4) Salaries payable to employees in the following amounts: $1,250; $1,876; $4,500.
___ 5) Electric bill owed to a local utility.
___ 6) Unpaid defined contribution pension plan payments in the amount of $4,000
(none in excess of $375 per employee).
___ 7) Obligations arising from the purchase of materials on July 5, 2013. (Bankruptcy
petition filed July 14, 2013).
___ 8) Fees charged by bankruptcy trustee.
___ 9) Inventory valued at $61,895 collateralizing a note payable to a bank in the
amount of $56,982.
___ 10) Delivery trucks valued at $389,900 securing a lien by General Motors for
$400,000.
19) Prince Corp. owned 80% of Kile Corp.’s common stock. During October 2013, Kile
sold merchandise to Prince for $140,000. At December 31, 2013, 50% of this
merchandise remained in Prince’s inventory. For 2013, gross profit percentages were
30% of sales for Prince and 40% of sales for Kile. The amount of unrealized intra-entity
profit in ending inventory at December 31, 2013 that should be eliminated in the
consolidation process is
A) $28,000.
B) $56,000.
C) $22,400.
D) $21,000.
E) $42,000.
20) A company that was to be liquidated had the following liabilities:
The company had the following assets:
Total liabilities with priority are calculated to be what amount?