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1) 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, at what amount would Glen's Inventory
acquired be represented in a December 31, 2012 consolidated balance sheet?
A) $40,000.
B) $50,000.
C) $ 0.
D) $10,000.
E) $90,000.
2) A U.S. company's foreign subsidiary had the following amounts in stickles (§) in
2013:
The average exchange rate during 2013 was §1 = $.96. The beginning inventory was
acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired
when the exchange rate was §1 = $.90. The exchange rate at December 31, 2013 was §1
= $.84. Assuming that the foreign country had a highly inflationary economy, at what
amount should the foreign subsidiary's cost of goods sold have been reflected in the
2013 U.S. dollar income statement?
A.$11,253,600
B.$11,577,600
C.$11,649,600
D.$11,613,600
E.$11,523,600
3) On May 1, 2013, Mosby Company received an order to sell a machine to a customer
in Canada at a price of 2,000,000 Mexican pesos. The machine was shipped and
payment was received on March 1, 2014. On May 1, 2013, Mosby purchased a put
option giving it the right to sell 2,000,000 pesos on March 1, 2014 at a price of
$190,000. Mosby properly designates the option as a fair value hedge of the peso firm
commitment. The option cost $3,000 and had a fair value of $3,200 on December 31,
2013. The following spot exchange rates apply:
Mosby's incremental borrowing rate is 12 percent, and the present value factor for two
months at a 12 percent annual rate is .9803
What was the impact on Mosby's 2014 net income as a result of this fair value hedge of
a firm commitment?
A.$1,800.00 decrease.
B.$2,500.00 increase.
C.$2,500.00 decrease.
D.$188,760.60 increase.
E. $188,760.60 decrease.
4) Bauerly Co. owned 70% of the voting common stock of Devin Co. During 2012,
Devin made frequent sales of inventory to Bauerly. There were unrealized gains of
$40,000 in the beginning inventory and $25,000 of unrealized gains at the end of the
year. Devin reported net income of $137,000 for 2012. Bauerly decided to use the
equity method to account for the investment. What is the non-controlling interest's share
of Devin's net income for 2012?
A) $41,100.
B) $33,600.
C) $21,600.
D) $45,600.
E) $36,600.
5) 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 first year?
A.$120,900.
B.$118,300.
C.$126,100.
D.$80,600.
E.$111,500.
6) During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The
inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the
combination, when is the $14,000 gain realized?
A) When the goods are sold to a third party by Lord.
B) When Lord pays Von for the goods.
C) When Von sold the goods to Lord.
D) When Lord receives the goods.
E) No gain can be recognized since the transaction was between related parties.
7) Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on
May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is
Brisco's fiscal year-end. The pertinent exchange rates were as follows:
How much U.S. $ will it cost Brisco to finally pay the payable on June 7?
A.$1,666,667
B.$2,440,000
C.$2,520,000
D.$2,500,000
E.$2,400,000
8) Which one of the following is a requirement that must be met before an involuntary
bankruptcy petition can be filed when there are at least 12 unsecured creditors?
A.The petition must be filed by all creditor(s) to whom the debtor owes at least
$15,325.
B.The petition must be signed by creditor(s) with unsecured debts of at least $5,000.
C.The petition must be signed by a majority of the creditor(s).
D.The petition must be signed by creditor(s) to whom the debtor owes more than half of
its debts.
E.The petition must be signed by at least three creditors with unsecured debts of at least
$15,325.
9) The balance sheets of Butler, Inc. and its 70 percent-owned subsidiary, Cassie Corp.,
are presented below:
Additional information for 2013:
Net cash flow from financing activities was:
A) $(129,000).
B) $ (96,000).
C) $(300,000).
D) $ (80,000).
E) $(126,000).
10) 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 U.S. Dollar; compute the U.S. balance sheet
amount for equipment for 2013
A.$81,900
B.$90,900
C.$83,700
D.$88,200
E.$85,500
11) 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 equity method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations?
A) $400 increase.
B) $300 increase.
C) $380 increase.
D) $280 increase.
E) $480 increase.
12) When a company applies the partial equity method in accounting for its investment
in a subsidiary and initial value, book values, and fair values of net assets acquired are
all equal, what consolidation worksheet entry would be made?
A) A above
B) B above
C) C above
D) D above
E) E above
