1) On January 1, 2012, Packaging International purchased 90% of Shipaway
Corporation’s outstanding shares for $135,000 when the fair value of Shipaway’s net
assets were equal to the book values. The balance sheets of Packaging and Shipaway
Corporations at year-end 2011 are summarized as follows:
PackagingShipaway
Assets$590,000$180,000
Liabilities$70,000$30,000
Capital stock360,00090,000
Retained earnings160,00060,000
If a consolidated balance sheet was prepared immediately after the business
combination, the noncontrolling interest would be
A) $9,000
B) $13,500
C) $15,000
D) $16,667
2) On December 31, 2011, Pinne Corporation sold equipment with a three-year
remaining useful life and a book value of $21,000 to its 70%-owned subsidiary, Sull
Company, for a price of $27,000. Pinne bought the equipment four years ago for
$49,000. The salvage value is zero. Straight-line depreciation is used by both
companies.
An elimination entry at December 31, 2011 for the intercompany sale will include a
A) credit of $6,000 to Depreciation Expense
B) credit of $6,000 to Accumulated Depreciation
C) credit of $6,000 to Equipment
D) credit of $6,000 to Gain on Sale of Equipment
3) In reference to estate principal and income, which of the following statements is
correct?
A) A primary reason for dividing estate principal and estate income is that the
beneficiaries are often different
B) In accounting for the decedent’s estate, the receipts earned but not yet received at the
date of death are considered estate income
C) After death, earnings from income-producing property owned at the time of death
are considered estate principal
D) Expenses incurred after death to administer the estate are first charged against
income earned after death
4) Paint Corporation owns 82% of Achille Corporation and Achille Corporation owns
80% of Badrack Corporation. For the current year, the separate net incomes (excluding
investment income) of Paint, Achille, and Badrack are $120,000, $100,000, and
$50,000, respectively. The cost of each investment was equal to the book value of the
investment, which was also equal to the fair value.
Noncontrolling interest share for Achille is
A) $18,000
B) $25,200
C) $36,200
D) $72,000
5) Goldberg Corporation owned a 70% interest in Savannah Corporation on December
31, 2010, and Goldberg’s Investment in Savannah account had a balance of $3,900,000.
Savannah’s stockholders’ equity on this date was as follows:
Capital stock, $10 par value$3,000,000
Retained Earnings2,400,000
Total Stockholders’ Equity$5,400,000
On January 1, 2011, Savannah issues 80,000 new shares of common stock to Goldberg
for $16 each.
On January 1, 2011, assume the fair values of Savannah’s identifiable assets and
liabilities equal book values. What is the change in the amount of goodwill associated
with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places.)
A) Increase goodwill $38,176
B) Decrease goodwill $38,176
C) Increase goodwill $384,000
D) Decrease goodwill $384,000
6) Keynse Company owns 70% of Subdia Incorporated. The Investment in Subdia
qualifies as a business reporting unit under FASB 142, and Keynse has reported
goodwill in the amount of $200,000 with respect to its acquisition of Subdia. Subdia’s
$10 par common stock is currently trading for $92 per share, Subdia’s account book
balances and related fair values at December 31, 2011 are shown below.
Book ValuesFair Values
Cash$2,000,000 $2,000,000
Accounts Receivable8,000,000 7,500,000
Plant assets net18,000,000 23,000,000
Patents1,000,000 1,500,000
Accounts Payable( 9,000,000)( 9,000,000)
Notes Payable (16,000,000)(16,000,000)
Common Stock( 1,000,000)
Retained Earnings( 3,000,000)
Required: Determine if Goodwill has been impaired, and if so, the amount of
adjustment that would be required.
7) Poe Corporation owns an 80% interest in Seri Company acquired at book value
several years ago. On January 2, 2011, Seri purchased $100,000 par of Poe’s
outstanding 10% bonds for $103,000. The bonds were issued at par and mature on
January 1, 2014 . Straight-line amortization is used. Separate incomes of Poe and Seri
for 2011 are $350,000 and $120,000, respectively. Poe uses the equity method to
account for the investment in Seri.
Noncontrolling interest share for 2011 was
A) $23,000
B) $23,600
C) $24,000
D) $24,400
8) Utah Company holds 80% of the stock of a subsidiary company. The subsidiary
issues 100 additional shares of stock to Utah Company at a price above book value per
share. The subsidiary does not issue any additional shares at the same time. How will
Utah Company record the purchase?
A) Utah Company records a gain on sale of stock
B) Utah Company increases additional paid-in capital
C) Utah Company decreases additional paid-in capital
D) Utah Company assigns any excess cost over book value acquired to increase
undervalued identifiable assets or goodwill as appropriate
9) GASB requires ________ method(s) for the cash flow statement for proprietary
funds.
A) the reconciliation
B) the indirect
C) the direct
D) either the direct or indirect
10) On December 31, 2010, Parminter Corporation owns an 80% interest in the
common stock of Sanchez Corporation and an 80% interest in Sanchez’s preferred
stock. On December 31, 2010, Sanchez’s stockholders’ equity was as follows:
10% preferred stock, cumulative, $10 par value $50,000
Common stock350,000
Retained earnings100,000
Total stockholders’ equity$500,000
On December 31, 2010, preferred dividends are not in arrears. Sanchez had 2011 net
income of $30,000 and only preferred dividends are declared and paid in 2011 . There
are no book value/fair value differentials associated with Parminter’s investments.
What should be the noncontrolling interest share, common in the consolidated financial
statements of Parminter for the year ending December 31, 2011?
A) $ 5,000
B) $20,000
C) $25,000
D) $30,000
11) The partnership of May, Novem, and Octo was dissolved. By August 1, 2011, all
assets had been converted into cash and all partnership liabilities were paid. The
partnership balance sheet on August 1, 2011 (with partner residual profit and loss
sharing percentages) was as follows:
Cash$100,000May, capital (30%)$8,000
Novem, capital (20%)(120,000)
Octo, capital (50%)212,000
Total assets$100,000Total equity$100,000
The value of partners’ personal assets and liabilities on August 1, 2011 were as follows:
MayNovemOcto
Personal assets$148,000$240,000$112,000
Personal liabilities144,000160,000120,000
Required:
Prepare the final statement of partnership liquidation.
12) Pali Corporation exchanges 200,000 shares of newly issued $10 par value common
stock with a fair market value of $40 per share for all the outstanding $5 par value
common stock of Shingle Incorporated, which continues on as a legal entity. Fair value
approximated book value for all assets and liabilities of Shingle. Pali paid the following
costs and expenses related to the business combination:
Registering and issuing securities19,000
Accounting and legal fees150,000
Salaries of Pali’s employees whose
time was dedicated to the merger86,000
Cost of closing duplicate facilities223,000
Required: Prepare the journal entries relating to the above acquisition and payments
incurred by Pali, assuming all costs were paid in cash.
13) On September 1, 2011, Beck Corporation acquired an 80% interest in Johnsen
Corporation for $700,000. Johnsen’s stockholders’ equity at January 1, 2011 consisted
of $200,000 of Common Stock and $600,000 of Retained Earnings. The book values of
its assets and liabilities were equal to their respective fair values on this date. All excess
purchase cost was attributed to goodwill.
During 2011, Johnsen uniformly earned $78,000 and paid dividends of $9,000 on each
of four dates: February 1, June 1, August 1, and December 1 .
Required: Compute the following:
1> Implied goodwill associated with Johnsen Corporation based on Beck’s purchase
price on September 1, 2011 .
2> Beck’s income from Johnsen for 2011 .
3> Preacquisition income for Beck Corporation and Subsidiary for 2011 .
4> Noncontrolling interest share for 2011 .
5> What is the balance in Beck’s Investment in Johnsen account at December 31, 2011?
14) A trust fund was created to assist local students in financial need. The following
transactions occurred in the trust.
1>The committee forming the fund was able to raise $700,000 and invested the funds
so that the principal would remain indefinitely, and the earnings would be used to aid
needy students.
2>During the year, the fund earned $65,000 interest. Earnings remain invested in the
trust until withdrawn to distribute, so the interest was invested.
3>$50,000 of the investments were sold, withdrawn, and distributed to provide
scholarships.
4>The fund-raising committee contributed an additional $200,000 cash to the fund.
This cash was deposited into the account and invested.
5>Interest earned but not yet deposited into the investment account was accrued at
$17,000.
Required:
Prepare the necessary journal entries for each of the above transactions for the trust
fund.
15) On January 2, 2011, Pilates Inc. paid $700,000 for all of the outstanding common
stock of Spinning Company, and dissolved Spinning Company. The carrying values for
Spinning Company’s assets and liabilities are recorded below.
Cash$200,000
Accounts Receivable220,000
Copyrights (purchased)400,000
Goodwill120,000
Liabilities(180,000)
Net assets$760,000
On January 2, 2011, Spinning anticipated collecting $185,000 of the recorded Accounts
Receivable. Pilates entered into the acquisition because Spinning had Copyrights that
Pilates wished to own, and also unrecorded patents with a fair value of $100,000.
Required:
Calculate the amount of goodwill that will be recorded on Pilate’s balance sheet as of
the date of acquisition. Then record the journal entry Pilates would record on their
books to record the acquisition.
