Assume that Pansy Incorporated used the cost method of accounting for its investment
in Sunflower. The balance in the Investment in Sunflower account at December 31,
2015 was
A) $76,700.
B) $80,000.
C) $83,300.
D) $95,000.
A business merger differs from a business consolidation because
A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all
of the prior entities and forms a new corporation.
B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all
of the prior entities.
C) a merger is created when two entities join, but a consolidation is created when more
than two entities join.
D) a consolidation is created when two entities join, but a merger is created when more
than two entities join.
According to FASB Statement No. 141, liabilities assumed in an acquisition will be
valued at the ________.
A) reasonably estimated fair value
B) historical book value
C) current replacement cost
D) present value using market interest rates
Oscar Lloyd is the trustee for the Petra/Hobbes Trust. The following transactions
occurred during 2014. Petra and Hobbes, two cats are going to reside with Oscar Lloyd,
the trustee and devoted cat lover.
Required:
Prepare the necessary journal entries for the above transactions. You may ignore any tax
effects.
What is the fair value of the forward contract at March 1?
A) $-0-
B) $1,654.97 asset
C) $1,654.97 liability
D) $1,680 asset
The amount of noncontrolling interest share for the current year is
A) $69,000.
B) $85,000.
C) $95,000.
D) $99,000.
For internal decision-making purposes, Geogh Corporation identifies its industry
segments by geographical area. For 2014, the total revenues of each segment are
provided below. There are no intersegment revenues.
Required:
1. Which operating segments will be considered reporting segments based on the
revenue test?
2. What is the test value for determining whether a sufficient number of segments are
reported?
3. What will be the minimum number of segments that must be reported?
Which of the following methods does the FASB consider the best indicator of fair
values in the evaluation of goodwill impairment?
A) Senior executive’s estimates
B) Financial analyst forecasts
C) Market value
D) The present value of future cash flows discounted at the firm’s cost of capital
On January 1, 2014, Punch Corporation purchased 80% of the common stock of Soopy
Co. Separate balance sheet data for the companies at the acquisition date(after the
acquisition) are given below:
At the date of the acquisition, the book values of Soopy’s net assets were equal to the
fair value except for Soopy’s inventory, which had a fair value of $60,000.
Determine below what the consolidated balance would be for each of the requested
accounts.
What amount of Goodwill will be reported?
A) $54,400
B) $68,000
C) $72,000
D) $90,000
On January 1, 2012, Shrimp Corporation purchased a delivery truck with an expected
useful life of five years, and a salvage value of $8,000. On January 1, 2014, Shrimp
sold the truck to Pacet Corporation. Pacet assumed the same salvage value and
remaining life of three years used by Shrimp. Straight-line depreciation is used by both
companies. On January 1, 2014, Shrimp recorded the following journal entry:
Pacet holds 60% of Shrimp. Shrimp reported net income of $55,000 in 2014 and Pacet’s
separate net income (excludes interest in Shrimp) for 2014 was $98,000.
In preparing the consolidated financial statements for 2014, the elimination entry for
depreciation expense was a
A) debit for $5,000.
B) credit for $5,000.
C) debit for $15,000.
D) credit for $15,000.
Picasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to
acquire shares of Seurat Company in an all-stock transaction. Picasso paid the
investment bankers $35,000 and will treat the investment banker fee as
A) an expense for the current year.
B) a prior period adjustment to Retained Earnings.
C) additional goodwill on the consolidated balance sheet.
D) a reduction to additional paid-in capital.
What is the fair value of the forward contract at January 30?
A) $796 liability
B) $796 asset
C) $800 liability
D) $800 asset
Which of the following is not a reason for a company to expand through a combination,
rather than by building new facilities?
A) A combination might provide cost advantages.
B) A combination might provide fewer operating delays.
C) A combination might provide easier access to intangible assets.
D) A combination might provide an opportunity to invest in a company without having
to take responsibility for its financial results.
The accountant for Baxter Corporation has assigned most of the company’s assets to its
three segments as follows:
The unassigned assets consist of $430,000 of unallocated goodwill and $270,000 of
assets attached to the corporate headquarters. For internal decision-making purposes,
goodwill is not assigned to the segments and the assets assigned to the corporate
headquarters are allocated equally to the operating segments.
Required:
1. What is the proper threshold value to use in determining which of the operating
segments shown above are reporting segments?
2. Which of the operating segments are considered reporting segments?
Maxtil Corporation estimates its income by calendar quarter as follows for 2014:
Required:
Determine Maxtil’s estimated effective tax rate.
Separate income statements of Plantation Corporation and its 90%-owned subsidiary,
Savannah Corporation, for 2014 are as follows, prior to Plantation recording any
income related to its subsidiary:
Plantation Savannah
Sales Revenue $870,000 $230,000
Gain on equipment 35,000
Gain on land 20,000
Cost of sales (470,000) (90,000)
Other expenses (265,000) (60,000)
Separate incomes $170,000 $100,000
Additional information:
1.Plantation acquired its 90% interest in Savannah Corporation when the book values
were equal to the fair values.
2.The gain on equipment relates to equipment with a book value of $95,000 and a
7-year remaining useful life that Plantation sold to Savannah for $130,000 on January 1,
2014. The straight-line depreciation method was used and the equipment has no salvage
value.
3.On January 1, 2014, Savannah sold land to an outside entity for $90,000. The land
was acquired from Plantation in 2009 for $70,000. The original cost of the land to
Plantation was $45,000.
4.Savannah did not declare or distribute dividends in 2014.
Required:
1.Prepare elimination/adjusting entries on the consolidated worksheet for the year 2014.
2.Prepare the consolidated income statement for the year ended December 31, 2014.
On January 2, 2013 Piron Corporation issued 100,000 new shares of its $5 par value
common stock valued at $19 a share for all of Seana Corporation’s outstanding common
shares. Piron paid $15,000 to register and issue shares. Piron also paid $20,000 for the
direct combination costs of the accountants. The fair value and book value of Seana’s
identifiable assets and liabilities were the same. Summarized balance sheet information
for both companies just before the acquisition on January 2, 2013 is as follows:
Required:
1. Prepare Piron’s general journal entry for the acquisition of Seana, assuming that
Seana survives as a separate legal entity.
2. Prepare Piron’s general journal entry for the acquisition of Seana, assuming that
Seana will dissolve as a separate legal entity.
Krull Corporation is preparing its interim financial statements for the third quarter of
calendar 2014.
The following trial balance information is available for third quarter:
Additional information
At the end of the year, Krull distributes annual employee bonuses and charitable
donations that are estimated at $40,000, and $12,000, respectively. The cost of goods
sold includes the liquidation of a $45,000 base layer in inventory that Krull will restore
in the fourth quarter at a cost of $75,000. Effective corporate tax rate for 2014 is 32%.
Required:
Prepare Krull’s interim income statement for the third quarter of calendar 2014.
Saveed Corporation purchased the net assets of Penny Inc. on January 2, 2013 for
$1,690,000 cash and also paid $15,000 in direct acquisition costs. Penny dissolved as of
the date of the acquisition. Penny’s balance sheet on January 2, 2013 was as follows:
Fair values agree with book values except for inventory, land, and equipment, which
have fair values of $640,000, $140,000 and $230,000, respectively. Penny has customer
contracts valued at $20,000.
Required:
Prepare Saveed’s general journal entry for the cash purchase of Penny’s net assets.
