On the statement of functional expenses prepared for a voluntary health and welfare
organization, depreciation expense is allocated to
I. expenses for program services.
II. expenses for supporting services.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company’s
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial
balances of the two companies are as follows:
Based on the preceding information, what amount would be reported as total assets in
the consolidated balance sheet at December 31, 20X9?
A. $805,000
B. $712,000
C. $742,000
D. $1,102,000
Paccu Corporation acquired 100 percent of Sallee Company’s common stock on
January 1, 20X7. Balance sheet data for the two companies immediately following the
acquisition follow:
Paccu Sallee
Cash $50,000 $30,000
Accounts Receivable 60,000 35,000
Inventory 130,000 45,000
Land 75,000 60,000
Buildings and Equipment 310,000 170,000
Less: Accumulated Depreciation (130,000) (30,000)
Investment in Sallee Company Stock 250,000
Total Assets $745,000 $310,000
Accounts Payable $40,000 $35,000
Taxes Payable 30,000 12,000
Bonds Payable 250,000 50,000
Common Stock 75,000 75,000
Retained Earnings 350,000 138,000
Total Liabilities and Stockholders’ Equity $745,000 $310,000
At the date of the business combination, the book values of Sallee’s assets and liabilities
approximated fair value except for inventory, which had a fair value of $55,000, and
land, which had a fair value of $65,000. The fair value of land for Paccu Corporation
was estimated at $90,000 immediately prior to the acquisition.
Based on the preceding information, what amount of total assets will appear in the
consolidated balance sheet prepared immediately after the business combination?
A. $745,000
B. $805,000
C. $830,000
D. $842,000
Lea Company acquired all of Tenzing Corporation’s stock on January 1, 20X6 for
$150,000 cash. On December 31, 20X8, the trial balances of the two companies were as
follows:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.
The difference between the acquisition price and underlying book value is assigned to
buildings and equipment with a remaining economic life of five years from the date of
acquisition. At December 31, 20X8, Tenzing owed Lea $4,000 for services provided.
Based on the preceding information, all of the following are consolidating entries
required on December 31, 20X8, to prepare consolidated financial statements, except:
A. Option A
B. Option B
C. Option C
D. Option D
The gain or loss on the effective portion of a U.S. parent company’s hedge of a net
investment in a foreign entity should be treated as:
A. an adjustment to the retained earnings account in the stockholders’ equity section of
its balance sheet.
B. other comprehensive income.
C. a translation gain or loss in the computation of net income for the reporting period.
D. an adjustment to a valuation account in the asset section of its balance sheet.
Push Company owns 60% of Shove Company’s outstanding common stock. Intra-entity
sales are as follows:
Assume Push sold the inventory to Shove. Using the fully adjusted equity method, what
journal entry would be recorded by Push to recognize the realization of the 20X1 deferred
intercompany profit and to defer the 20X2 unrealized gross profit on inventory sales to
Shove?
On October 15, 20X1, Jerry Company sold inventory to Garcia Corporation, its
Mexican subsidiary. The goods cost Jerry $2,700 and were sold to Garcia for $3,500,
payable in Mexican pesos. The goods are still on hand at the end of the year on
December 31. The Mexican peso is the functional currency of Garcia. The exchange
rates follow:
October 15 1 peso = $0.07
December 31 1 peso = $0.08
Based on the preceding information, at what dollar amount is the ending inventory
shown in the subsidiary’s trial balance column of the consolidation worksheet?
A. $3,250
B. $3,500
C. $3,750
D. $4,000
Local Services, a voluntary health and welfare organization had the following classes of
net assets on July 1, 20X8, the beginning of its fiscal year:
During the year ended June 30, 20X9, the following events occurred:
(1) It purchased equipment, costing $100,000, with contributions restricted for this
purpose. The contributions had been received from donors during June of 20X8.
(2) It received $130,000 of cash donations which were restricted for research activities.
During the year ended June 30, 20X9, $90,000 of the contributions were expended on
research.
(3) It sold investments classified in the permanently restricted class for a loss of
$40,000. Dividends and interest income earned on the investments amounted to
$70,000. There were no restrictions on how investment income was to be used.
(4) It received cash contributions of $200,000 from donors who did not place either
time or use restrictions upon their donations.
(5) Expenses, excluding depreciation expense, for program services and supporting
services incurred during the year ended June 30, 20X9, amounted to $260,000.
(6) Depreciation expense for the year ended June 30, 20X9, was $80,000.
Refer to the above information. At June 30, 20X9, the amount of permanently restricted
net assets reported on the statement of financial position would be:
A. $1,070,000.
B. $1,030,000.
C. $1,000,000.
D. $960,000.
All of the following describe the International Accounting Standard Board (IASB)
except for:
A. The IASB is a privately funded accounting standards-setting body based in London.
B. The mission of the IASB is to develop a single set of high-quality, understandable
and enforceable global accounting standards.
C. Board members of the IASB come from diverse geographical countries that have
adopted IFRS.
D. IASB members serve a five-year term subject to one reappointment.
Five of eight internally reported operating segments of Rollins Company qualify under
the standards set by ASC 280 for segment reporting. However, the five identified
segments do not meet the 75 percent revenue test. ASC 280 prescribes that
management:
A. subdivide segments until there are at least 10 reportable segments.
B. consolidate the remaining operating segments and include them under an “all other”
category.
C. select additional operating segments until the 75% threshold is met.
D. include the heading “corporate headquarters” as an operating segment.
An analysis of Abbey Company’s operating segments provides the following
information:
Refer to the above information. Which of the operating segments above are reportable
segments?
A. B, C, and D
B. A, B, D, and E
C. B, D, and E
D. A, B, C, D, and E
Forge Company, a calendar-year entity, had 6,000 units in its beginning inventory for
20X8. On December 31, 20X7, the units had been adjusted down to $470 per unit from
an actual cost of $510 per unit. It was the lower of cost or market. No additional units
were purchased during 20X8. The following additional information is provided for
20X8:
Forge does not have sufficient experience with the seasonal market for its inventory
units and assumes that any reductions in market value during the year will be
permanent.
Based on the preceding information, the cost of goods sold for the second quarter is:
A. $416,000
B. $364,000
C. $304,000
D. $424,000
Company X acquired for cash all of the outstanding common stock of Company Y. How
should Company X determine in general the amounts to be reported for the inventories
and long-term debt acquired from Company Y?
Inventories Long-term debt
A. Fair value Fair value
B. Fair value Recorded value
C. Recorded value Fair value
D. Recorded value Recorded value
On January 1, 20X7, Gild Company acquired 60 percent of the outstanding common
stock of Leeds Company at the book value of the shares acquired. On that date, the fair
value of noncontrolling interest was equal to 40 percent of book value of Leeds. At the
time of purchase, Leeds had common stock of $1,000,000 outstanding and retained
earnings of $800,000.
On December 31, 20X7, Gild purchased 50 percent of Leeds’ bonds outstanding which
were originally issued on January 1, 20X4, at 99. The total bond issue has a face value
of $600,000, pays 10 percent interest annually, and has a 10-year maturity. Any
premium or discount is amortized using the effective interest method. Gild paid
$306,000 for its investment in Leeds’ bonds and intends to hold the bonds until
maturity.
Income and dividends for Gild and Leeds for 20X7 and 20X8 are as follows:
Assume Gild accounts for its investment in Leeds stock using the modified equity method.
Required:
A) Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X7.
B) Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X8.
Park Co. uses the equity method to account for its January 1, 20X5, purchase of Tun
Inc.’s common stock. On January 1, 20X5, the fair values of Tun’s depreciable assets
and land exceeded their carrying amounts. How do these excesses of fair values over
carrying amounts affect Park’s reported year-end Earnings from Investment in Tun for
20X5?
Depreciable assets excess Land excess
A. Decrease No effect
B. Decrease Decrease
C. Increase No effect
D. Increase Increase
The key to reporting accounting information by segments is determining what
constitutes a segment. Of the following, which is not a method of determining a
reportable segment?
A. Operating profit
B. Revenues
C. Number of employees
D. Combined identifiable assets
The general fund of the City of Atlanta received a check for $10,000 from an Atlanta
resident on July 1, 20X8. Of the amount received, $4,800 represented full payment of
property taxes for 20X8, and the remaining $5,200 represented an advance payment for
property taxes of 20X9. On July 1, 20X8, the general fund should record the receipt by
debiting Cash for $10,000 and by crediting
A. Revenue-Property Tax for $10,000.
B. Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200.
C. Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200.
D. Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for
$5,200.
If the functional currency is the local currency of a foreign subsidiary, what exchange
rates should be used to translate the items below, assuming the foreign subsidiary is in a
country which has not experienced hyperinflation over three years?
A. Option A
B. Option B
C. Option C
D. Option D
The functional currency of Nash, Inc.’s subsidiary is the French franc. Nash borrowed
French francs as a partial hedge of its investment in the subsidiary. In preparing
consolidated financial statements, Nash’s translation loss on its investment in the
subsidiary exceeded its exchange gain on the borrowing. How should the effects of the
loss and gain be reported in Nash’s consolidated financial statements?
A. The translation loss less the exchange gain is reported separately as other
comprehensive income.
B. The translation loss less the exchange gain is reported in the income statement.
C. The translation loss is reported separately in the stockholders’ equity section of the
balance sheet and the exchange gain is reported in the income statement.
D. The translation loss is reported in the income statement and the exchange gain is
reported separately in the stockholders’ equity section of the balance sheet.
ASC 280 uses a(n) ______ approach to the definition of segments.
A. line of business
B. entity approach
C. portfolio
D. management
The trial balance of WM Partnership is as follows:
Wilfred and Mike decide to incorporate their partnership. The partnership’s books will
be closed, and new books will be used for W & M Corporation. The following
additional information is available:
1) The estimated fair values of the assets follow:
2)All assets and liabilities are transferred to the corporation.
3) The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares.
4) The partners share profits and losses in the ratio 7:3.
Based on the preceding information, the journal entry on W & M Corporation’s books
to record the assets and the issuance of the common stock will include a credit to
Additional Paid-In Capital for:
A. $0.
B. $81,000.
C. $31,000.
D. $50,000.
On December 31, 20X9, Rudd Company acquired 80 percent of the common stock of
Wilton Company. At the time, Rudd held land with a book value of $100,000 and a fair
value of $260,000; Wilton held land with a book value of $50,000 and fair value of
$600,000. Using the parent company theory, at what amount would land be reported in
a consolidated balance sheet prepared immediately after the combination?
A. $550,000
B. $590,000
C. $700,000
D. $860,000
The transactions listed in the following questions occurred in a private, not-for-profit
hospital during 20X8. For each transaction, indicate its effect on the hospital’s statement
of operations for the year ended December 31, 20X8.
Transaction: Depreciation expense was recorded for the year.
Effect on Statement of Operations:
A. Increases operating income.
B. Decreases operating income.
C. The transaction is reported on the statement of operations, but there is no effect on
operating income.
D. The transaction is not reported on the statement of operations.
Simon Company has two foreign subsidiaries. One is located in France, the other in
England. Simon has determined the U.S. dollar is the functional currency for the French
subsidiary, while the British pound is the functional currency for the English subsidiary.
Both subsidiaries maintain their books and records in their respective local currencies.
What methods will Simon use to convert each of the subsidiary’s financial statements
into U.S. dollars?
A. Option A
B. Option B
C. Option C
D. Option D
Mom Corporation acquired 75 percent of Daughter Company’s voting shares on
January 1, 20X7, at underlying book value. On December 31, 20X7, it also purchased
$300,000 par value 9 percent Daughter bonds, which had been issued on January 1,
20X3 to Parry Corporation (unaffiliated with either Mom or Daughter) at a $20,000
premium. The bonds were originally issued with a 10-year maturity and pay interest
annually on December 31. During preparation of the consolidated financial statements
for December 31, 20X7, the following consolidation entry was included in the
consolidation worksheet:
Bonds Payable 300,000
Bond Premium 11,902
Loss on Bond Retirement 12,098
Investment in Daughter Company Bonds 324,000
Based on the information given above, what price did Mom pay to purchase the
Daughter bonds?
A. $324,000
B. $312,098
C. $311,902
D. $300,000
On October 15, 20X1, Jerry Company sold inventory to Garcia Corporation, its
Mexican subsidiary. The goods cost Jerry $2,700 and were sold to Garcia for $3,500,
payable in Mexican pesos. The goods are still on hand at the end of the year on
December 31. The Mexican peso is the functional currency of Garcia. The exchange
rates follow:
October 15 1 peso = $0.07
December 31 1 peso = $0.08
Based on the preceding information, at what amount is the inventory shown on the
consolidated balance sheet for the year?
A. $2,700
B. $3,200
C. $3,500
D. $4,000
New Life Corporation has just finished preparing a consolidated balance sheet, income
statement, and statement of changes in retained earnings for 20X9. The following items
are proposed for inclusion in the consolidated cash flow statement:
New Life holds 75 percent of the voting stock of Shane Pharmaceuticals, acquired at
book value on June 21, 20X6. On the date of the acquisition, the fair value of the
noncontrolling interest was equal to 25 percent of the book value of Shane.
Based on the preceding information, what amount will be reported in the consolidated
cash flow statement as net cash used in financing activities for 20X9?
A. $40,000
B. $55,000
C. $90,000
D. $10,000
On January 1, 20X7, Servant Company purchased a machine with an expected
economic life of five years. On January 1, 20X9, Servant sold the machine to Master
Corporation and recorded the following entry:
Master Corporation holds 75 percent of Servant’s voting shares. Servant reported net
income of $50,000, and Master reported income from its own operations of $100,000 for
20X9. There is no change in the estimated economic life of the equipment as a result of the
intercorporate transfer.
Based on the preceding information, income assigned to the noncontrolling interest in the
20X9 consolidated income statement will be:
A. $12,000.
B. $14,000.
C. $12,500.
D. $48,000.
Which of the following usually does not represent a variable interest?
A. Common stock, with no special features or provisions
B. Senior debt
C. Subordinated debt
D. Loan or asset guarantees
A private, not-for-profit hospital uses a fund structure which includes a general fund
and donor restricted funds. Contributions received from donors for research to be
conducted by the hospital should be accounted for in the:
A. specific purpose fund.
B. time-restricted fund.
C. general fund.
D. restricted current fund.
Goshen City acquires $36,000 of inventory on November 1, 20X5, having held no
inventory previously. On December 31, 20X5, the end of Goshen City’s fiscal year, a
physical count shows $7,000 still in stock. During 20X6, $5,000 of this inventory is
used, resulting in a $2,000 remaining balance of supplies on December 31, 20X6.
Based on the preceding information, which of the following would be the correct
account balances for 20X6 if Goshen City used the purchase method of accounting for
inventories?
Expenditures Inventory of Supplies
A. $0 $2,000
B. $0 $7,000
C. $5,000 $2,000
D. $7,000 $2,000
In the ABC partnership (to which Daniel seeks admittance), the capital balances of
Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are:
Based on the preceding information, what amount of goodwill will be recorded if
Daniel invests $450,000 for a one-third interest?
A. $0
B. $10,000
C. $50,000
D. $100,000
Autumn Corporation acquired 90 percent of the stock of Spring Company on January 1,
20X2, for $360,000. At that date, the fair value of the noncontrolling interest was
$40,000. Spring’s balance sheet contained the following amounts at the time of the
combination:
Cash $20,000 Accounts Payable $25,000
Accounts Receivable 60,000 Bonds Payable 75,000
Inventory 70,000 Common Stock 100,000
Buildings and Equipment (net) 350,000 Retained Earnings 300,000
Total Assets $500,000 Total Liabilities & Equity $500,000
During each of the next three years, Spring reported net income of $70,000 and paid
dividends of $20,000. On January 1, 20X4, Autumn sold 3,000 shares of Spring’s $5
par value shares for $90,000 in cash. Autumn used the fully adjusted equity method in
accounting for its ownership of Spring Company.
Based on the preceding information, in the journal entry recorded by Autumn for the
sale of shares
A. Cash will be credited for $90,000.
B. Investment in Spring Stock will be credited for $90,000.
C. Investment in Spring Stock will be credited for $75,000.
D. Additional Paid-in Capital will be credited for $9,000.
In the LMN partnership, Lynn’s capital is $60,000, Marty’s is $80,000, and Nancy’s is
$70,000. They share income in a 4:3:3 ratio, respectively. Nancy is retiring from the
partnership. Each of the following questions is independent of the others.
Refer to the information above. Nancy is paid $84,000, and no goodwill is recorded. In
the journal entry to record Nancy’s withdrawal
A. Lynn, Capital will be debited for $7,000
B. Marty, Capital will be debited for $6,000
C. Nancy, Capital will be credited for $70,000
D. Cash will be debited for $84,000
Which rule-making body is currently setting standards of financial reporting for private
not-for-profit universities and for public (governmental) universities?
Partners David and Goliath have decided to liquidate their business. The following
information is available:
Cash $100,000
Inventory $200,000
$300,000
Accounts Payable $80,000
David, Capital $140,000
Goliath, Capital $80,000
$300,000
David and Goliath share profits and losses in a 3:1 ratio, respectively. During the first
month of liquidation, half the inventory is sold for $70,000, and $50,000 of the
accounts payable are paid. During the second month, the rest of the inventory is sold for
$55,000, and the remaining accounts payable are paid. Cash is distributed at the end of
each month, and the liquidation is completed at the end of the second month.
Refer to the information provided above. How much cash will be distributed to Goliath
at the end of the second month?
A. $11,250
B. $13,750
C. $20,000
D. $25,000
Based on the information given above, what amount of cost of goods sold did Sink
record in 20X4?
A. $1,612,000
B. $2,418,000
C. $2,790,000
D. $3,596,000
Parent Company acquired 90% of Son Inc. on January 31, 20X2 in exchange for cash.
The book value of Son’s individual assets and liabilities approximated their
acquisition-date fair values. On the date of acquisition, Son reported the following:
During the year Son Inc. reported $310,000 in net income and declared $15,000 in
dividends. Parent Company reported $520,000 in net income and declared $25,000 in
dividends. Parent accounts for their investment using the equity method.
Required:
1. What journal entry will Parent make on the date of acquisition to record the
investment in Son Inc.?
2. If Parent were to prepare a consolidated balance sheet on the acquisition date
(January 31, 20X2), what is the basic consolidation entry Parent would use in the
consolidation worksheet?
3. What is Parent’s balance in “Investment in Son Inc.” prior to consolidation on
December 31, 20X2?
4. What is the basic consolidation entry Parent would use in the consolidation
worksheet on December 31, 20X2?
Problem 47 (continued):
Pone Company purchased 100 percent of Sone Inc. on January 1, 20X9 for $625,000.
Sone reported earnings of $76,000 and declared dividends of $8,000 during 20X9.
Based on the preceding information and assuming Pone uses the cost method to account
for its investment in Sone, what is the balance in Pone’s Investment in Sone account on
December 31, 20X9, prior to consolidation?
A. $617,000
B. $625,000
C. $633,000
D. $693,000
The SRT partnership agreement specifies that partnership net income be allocated as
follows:
Partner S Partner R Partner T
Salary allowance $20,000 $25,000 $15,000
Interest on average capital balance 10% 10% 10%
Remainder 30% 30% 40%
Average capital balances for the current year were $60,000 for S, $50,000 for R, and
$40,000 for T.
Refer to the information given. Assuming a current year net income of $125,000, what
amount should be allocated to each partner?
Partner S Partner R Partner T
A. $15,000 $15,000 $20,000
B. $37,500 $37,500 $50,000
C. $41,000 $45,000 $39,000
D. $42,000 $48,000 $35,000
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Classification of an endowment contribution” describes which term listed above?
On January 1, 20X8, Line Corporation acquired all of the common stock of Staff
Company for $300,000. On that date, Staff’s identifiable net assets had a fair value of
$250,000. The assets acquired in the purchase of Staff are considered to be a separate
reporting unit of Line Corporation. The carrying value of Staff’s investment at
December 31, 20X8, is $310,000. The fair value of the net assets (excluding goodwill)
at that date is $220,000 and the fair value of the reporting unit is determined to be
260,000.
Required:
1) Explain how goodwill is tested for impairment for a reporting unit.
2) Determine the amount, if any, of impairment loss to be recognized at December 31,
20X8.
Based on the information given above, what amount of sales will be reported in the
consolidated income statement for 20X3?
A. $725,000
B. $750,000
C. $875,000
D. $950,000
In the JK partnership, Jacob’s capital is $140,000, and Katy’s is $40,000. They share
income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of
the following questions is independent of the others.
Refer to the information provided above. Erin invests $52,000 for a one-fifth interest.
What amount of goodwill will be recorded?
A. $7,000
B. $28,000
C. $50,000
D. $80,000
To obtain cash quickly, DebCo. sold $750,000 of its receivables to Finco., with
recourse. As the accountant for DebCo., what issues do you need to resolve in order to
determine the appropriate accounting treatment?
Based on the information given above, what amount of cost of goods sold did Pink
record in 20X4?
A. $1,612,000
B. $2,418,000
C. $2,790,000
D. $3,596,000
On January 1, 20X4, Timber Company acquired 25% of Johnson Company’s common
stock at underlying book value of $200,000. Johnson has 80,000 shares of $10 par
value, 6 percent cumulative preferred stock outstanding. No dividends are in arrears.
Johnson reported net income of $270,000 for 20X4 and paid total dividends of
$140,000. Timber uses the equity method to account for this investment.
Based on the preceding information, what amount of investment income will Timber
Company report from its investment in Johnson for the year?
A. $140,000
B. $67,500
C. $55,500
D. $35,000
Peanut Company acquired 75 percent of Snoopy Company’s stock at underlying book
value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was
equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported
shares outstanding of $350,000 and retained earnings of $100,000. During 20X8,
Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In
20X9, Snoopy Company reported net income of $90,000 and paid dividends of
$15,000. The following transactions occurred between Peanut Company and Snoopy
Company in 20X8 and 20X9:
Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8.
Snoopy Co. had originally purchased the equipment for $140,000 and it had a carrying
value of $28,000 on December 31, 20X8. At the time of the purchase, Peanut Co.
estimated that the equipment still had a seven-year remaining useful life.
Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for $110,000.
Required:
Give all consolidating entries needed to prepare a consolidation worksheet for 20X9
assuming that Peanut Co. uses the cost method to account for its investment in Snoopy
Company.
