1) 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. balance sheet amount for
accumulated depreciation for 2013.
A.$40,950
B.$41,850
C.$45,450
D.$42,750
E.$44,100
2) Webb Company owns 90% of Jones Company. The original balances presented for
Jones and Webb as of January 1, 2013, are as follows:
Jones sells 20,000 shares of
previously unissued shares of its common stock to outside parties for $10 per share.
What adjustment is needed for Webb’s investment in Jones account?
A) $180,000 increase.
B) $180,000 decrease.
C) $ 30,000 increase.
D) $ 30,000 decrease.
E) No adjustment is necessary.
3) On December 1, 2013, Keenan Company, a U.S. firm, sold merchandise to Velez
Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable
is due on February 1, 2014. Keenan purchased a foreign currency put option with a
strike price of $.97 (U.S.) on December 1, 2013. This foreign currency option is
designated as a cash flow hedge. Relevant exchange rates follow:
Compute the U.S. dollars received on February 1, 2014
A.$138,000
B.$136,500
C.$145,500
D.$141,000
E.$142,500
4) Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In
addition, Bullen paid $35,000 to a group of attorneys for their work in arranging the
combination to be accounted for as an acquisition. What will be the balance in
consolidated goodwill?
A) $0.
B) $20,000.
C) $35,000.
D) $55,000.
E) $65,000
5) Consolidated accounts payable decreased by $7,000.
Using the indirect method, where does the decrease in accounts payable appear in a
consolidated statement of cash flows?
A) $7,000 increase to net income as an operating activity.
B) $7,000 decrease to net income as an operating activity.
C) $5,600 increase to net income as an operating activity.
D) $5,600 decrease to net income as an operating activity.
E) $7,000 increase as a financing activity.
6) The employees of the City of Raymond earn vacation compensation that totals
$1,500 per week. During 2013, $30,000 in vacation time was taken and $48,000 is
expected to be used during the latter part of next year. On fund financial statements,
what liability should be reported at the end of 2013?
A.$0.
B.$1,500.
C.$30,000.
D.$48,000.
E.$78,000.
7) Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that
date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000
and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin
reported net income of $300,000 and $325,000 for 2012 and 2013, respectively. Pepe
uses the equity method to account for its investment in Devin.
What is the gain or loss on equipment reported by Devin for 2012?
A) $54,000 gain.
B) $21,000 loss.
C) $21,000 gain.
D) $ 9,000 loss.
E) $ 9,000 gain.
8) 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 equipment that would be reported in a December 31, 2012,
consolidated balance sheet.
A) $1,000.
B) $1,250.
C) $ 875.
D) $1,125.
E) $ 750.
9) 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 PARTIAL EQUITY method is applied.
Compute Pell’s investment in Demers at December 31, 2015.
A) $676,000.
B) $629,000.
C) $580,000.
D) $604,000.
E) $572,000.
10) Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares
of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each
preferred share received an annual per share dividend of $10 and is convertible into
four shares of common stock. Knight did not own any of Stoop’s preferred stock. Stoop
also had 600 bonds outstanding, each of which is convertible into ten shares of common
stock. Stoop’s annual after-tax interest expense for the bonds was $22,000. Knight did
not own any of Stoop’s bonds. Stoop reported income of $300,000 for 2013.
What was the amount of Stoop’s earnings that should be included in calculating
consolidated diluted earnings per share?
A) $300,000.
B) $240,000.
C) $257,600.
D) $322,000.
E) $201,250.
11) 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, 2012,
consolidated balance sheet.
A) $1,560.
B) $1,260.
C) $1,440.
D) $1,160.
E) $1,140.
12) 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 balance in Cayman’s Investment in Maya
account at December 31, 2013?
A) $463,500.
B) $467,100.
C) $468,000.
D) $468,900.
E) $480,000.
13) White, Sands, and Luke has the following capital balances and profit and loss
ratios:
$60,000 (30%); $100,000 (20%); and $200,000 (50%).
The partnership has received a predistribution plan.
How would $200,000 be distributed?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
14) The Town of Conway opened a solid waste landfill in 2001 that is now filled to
capacity. The city initially anticipated closure costs of $2 million. These costs were not
expected to be incurred until the landfill is closed. What is the final journal entry to
record these costs assuming the estimated $2 million closure costs were properly
recorded and the landfill is accounted for in an enterprise fund?
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
15) Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that
date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000
and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin
reported net income of $300,000 and $325,000 for 2012 and 2013, respectively. Pepe
uses the equity method to account for its investment in Devin.
What is the consolidated gain or loss on equipment for 2012?
A) $ 0.
B) $ 9,000 gain.
C) $ 9,000 loss.
D) $21,000 gain.
E) $21,000 loss.
16) Fesler Inc. acquired all of the outstanding common stock of Pickett Company on
January 1, 2012. Annual amortization of $22,000 resulted from this transaction. On the
date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett
reported a $240,000 balance for retained earnings. Fesler reported net income of
$100,000 in 2012 and $68,000 in 2013, and paid dividends of $25,000 in dividends
each year. Pickett reported net income of $24,000 in 2012 and $36,000 in 2013, and
paid dividends of $10,000 in dividends each year.
Assume that Fesler’s reported net income includes Equity in Subsidiary Income.
If the parent’s net income reflected use of the partial equity method, what were the
consolidated retained earnings on December 31, 2013?
17) On January 1, 2012, Mace Co. acquired 75% of Lance Co.’s outstanding common
stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these
investments were acquired when book value was equal to fair value of identifiable net
assets acquired. Both of these investments were accounted using the initial value
method. No dividends were distributed by either Lance or Curle during 2012 or 2013.
Mace paid cash dividends each year equal to 40% of operating income. Reported
operating income totals for 2012 were as follows:
Following are the 2013 financial statements for these three companies. Curle made
numerous transfers of inventory to Lance since the takeover: $112,000 (2012) and
$140,000 (2013). These transactions included the same markup applicable to Curle’s
outside sales. In each of these years, Lance carried 20% of this inventory into the
succeeding year before disposing of it.
An effective income tax rate of 45% was applicable to all companies.
Determine the non-controlling interest in Curle Co.’s net income for the year 2013.
18) Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a
number of years. Howell decides to withdraw from the partnership when the partners’
capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000.
Land with a book value of $20,000 has a fair value of $35,000. Howell has agreed to
receive $84,000 in exchange for her partnership interest.
Prepare the journal entries for the dissolution of Howell’s partnership interest, assuming
the goodwill method is to be applied.
19) Thomas Inc. had the following stockholders’ equity accounts as of January 1, 2013:
K
uried Co. acquired all of the voting common stock of Thomas on January 1, 2013, for
$20,656,000. The preferred stock remained in the hands of outside parties and had a fair
value of $3,060,000. A database valued at $656,000 was recognized and amortized over
five years. During 2013, Thomas reported earning $630,000 in net income and paid
$504,000 in total cash dividends. Kuried used the equity method to account for this
investment.
Prepare all consolidation entries for 2013.
20)