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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 U.S. Dollar; compute the U.S. statement of
retained earnings amount for dividends for 2013
A.$19,000
B.$20,200
C.$18,600
D.$19,400
E.$19,600
3) Kennedy Company acquired all of the outstanding common stock of Hastie
Company of Canada for U.S. $350,000 on January 1, 2013, when the exchange rate for
the Canadian dollar (CAD) was U.S. $.70. The fair value of the net assets of Hastie was
equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition
consideration excess over fair value was attributed to an unrecorded patent with a
remaining life of five years. The functional currency of Hastie is the Canadian dollar.
For the year ended December 31, 2013, Hastie's trial balance net income was translated
at U.S. $25,000. The average exchange rate for the Canadian dollar during 2013 was
U.S. $.68, and the 2013 year-end exchange rate was U.S. $.65
Amortization of the patent, translated, for 2013 would be
A.$7,000
B.$10,000
C.$6,800
D.$9,000
E.$6,500
4) Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to
Posito at a 25% profit on selling price. The following data are available pertaining to
intra-entity purchases. Gargiulo was acquired on January 1, 2012.
Assume the equity method is used. The following data are available pertaining to
Gargiulo's income and dividends.
For consolidation purposes, what amount would be debited to cost of goods sold for the
2013 consolidation worksheet with regard to the unrealized gross profit of the 2013
intra-entity transfer of merchandise?
A) $1,000.
B) $ 800.
C) $3,000.
D) $2,400.
E) $ 900.
5) Carnes has the following account balances as of May 1, 2012 before an acquisition
transaction takes place.
The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively.
On May 1, 2012, Riley Company issues 30,000 shares of its $10 par value ($25 fair
value) common stock in exchange for all of the shares of Carnes' common stock. Riley
paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley
has $700,000 in its common stock account and $300,000 in its additional paid-in capital
account.
What will be the consolidated additional paid-in capital as a result of this acquisition?
A) $440,000.
B) $740,000.
C) $750,000.
D) $940,000.
E) $950,000.
6) Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle
owned 35% of Tayle.
When Buckette prepared consolidated financial statements, it should include
A.Shuvelle but not Tayle.
B.Tayle but not Shuvelle.
C.either Shuvelle or Tayle.
D.Shuvelle and Tayle.
E. neither
7) The financial balances for the Atwood Company and the Franz Company as of
December 31, 2013, are presented below. Also included are the fair values for Franz
Company's net assets.
Note: Parenthesis indicate a credit balance
Assume an acquisition business combination took place at December 31, 2013. Atwood
issued 50 shares of its common stock with a fair value of $35 per share for all of the
outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and
direct costs of $10 (in thousands) were paid.
Compute consolidated expenses at the date of the acquisition.
A) $2,760.
B) $2,770.
C) $2,785.
D) $3,380.
E) $3,390.
8) Chapel Hill Company had common stock of $350,000 and retained earnings of
$490,000. Blue Town Inc. had common stock of $700,000 and retained earnings of
$980,000. On January 1, 2013, Blue Town issued 34,000 shares of common stock with
a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding
common stock. This combination was accounted for as an acquisition. Immediately
after the combination, what was the total consolidated net assets?
A) $2,520,000.
B) $1,190,000.
C) $1,680,000.
D) $2,870,000.
E) $2,030,000.
9) Gargiulo Company, a 90% owned subsidiary of Posito Corporation, sells inventory to
Posito at a 25% profit on selling price. The following data are available pertaining to
intra-entity purchases. Gargiulo was acquired on January 1, 2012.
Assume the equity method is used. The following data are available pertaining to
Gargiulo's income and dividends.
Compute the equity in earnings of Gargiulo reported on Posito's books for 2012.
A) $63,000.
B) $62,730.
C) $63,270.
D) $70,000.
E) $62,700.
11) Acker Inc. bought 40% of Howell Co. on January 1, 2012 for $576,000. The equity
method of accounting was used. The book value and fair value of the net assets of
Howell on that date were $1,440,000. Acker began supplying inventory to Howell as
follows:
Howell reported net income of $100,000 in 2012 and $120,000 in 2013 while paying
$40,000 in dividends each year.
What is the Equity in Howell Income that should be reported by Acker in 2013?
A) $32,000.
B) $41,600.
C) $48,000.
D) $49,600.
E) $50,600.
12) Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2014. For 2014, Kailey reported revenues of $810,000 and expenses of $630,000, all
reflected evenly throughout the year. The annual amount of amortization related to this
acquisition was $15,000.
In consolidation, the total amount of expenses related to Kailey, and to Denber's
acquisition of Kailey, for 2014 is determined to be
A) $153,750.
B) $161,250.
C) $205,000.
D) $210,000.
E) $215,000.
13) A $910,000 bond was issued on October 1, 2013 to build a new road. The bonds
carried a 6% interest rate and are due in 10 years.
Required:
(A) Prepare the required journal entry in the Capital Projects Fund on October 1 for the
Fund Financial Statements.
(B) Prepare the required journal entry for the Government-Wide Financial Statements.
14) Flynn acquires 100 percent of the outstanding voting shares of Macek Company on
January 1, 2013. To obtain these shares, Flynn pays $400 cash (in thousands) and issues
10,000 shares of $20 par value common stock on this date. Flynn's stock had a fair
value of $36 per share on that date. Flynn also pays $15 (in thousands) to a local
investment firm for arranging the acquisition. An additional $10 (in thousands) was
paid by Flynn in stock issuance costs.
The book values for both Flynn and Macek as of January 1, 2013 follow. The fair value
of each of Flynn and Macek accounts is also included. In addition, Macek holds a fully
amortized trademark that still retains a $40 (in thousands) value. The figures below are
in thousands. Any related question also is in thousands.
By how much will Flynn's additional paid-in capital increase as a result of this
acquisition?
A) $150,000.
B) $160,000.
C) $230,000.
D) $350,000.
E) $360,000.
15) The following account balances were available for the Perry, Quincy, and Renquist
partnership just before it entered liquidation:
Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry,
Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses
were expected to be $15,000.
All partners were solvent.
What amount would noncash assets need to be sold for in order for any partner to
receive some cash?
A.$185,000
B.$170,000
C.$165,000
D.$95,000
E.$90,000
16) Perez Company, a Mexican subsidiary of a U.S. company, sold equipment costing
200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on
March 1, 2013. The equipment was purchased on January 1, 2012. Relevant exchange
rates for the peso are as follows:
The financial statements for Perez are translated by its U.S. parent. What amount of
gain or loss would be reported in its translated income statement?
A.$1,530
B.$1,575
C.$1,590
D.$1,090
E.$1,650
17) Throughout 2013, Cleveland Co. sold inventory to Leeward Co., its subsidiary.
From a consolidated point of view, when will the gain on this transfer be earned?
18) The ABCD Partnership has the following balance sheet at January 1, 2012, prior to
the admission of new partner, Eden.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500
directly to the other four partners. Goodwill is to be recorded. Profits and losses have
previously been split according to the following percentages: Adams, 15%; Barnes,
35%; Cordas, 30%; and Davis, 20%. After Eden made his investment, what were the
individual capital balances?
19) Assume the partnership of Dean, Hardin, and Roth has been in existence for a
number of years. Dean decides to withdraw from the partnership when the partners'
capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000.
Dean has agreed to receive $64,000 in exchange for his partnership interest.
Prepare the journal entry for the payment to Dean in the dissolution of his partnership
interest, assuming the bonus method is to be applied.
20) Thomas Inc. had the following stockholders' equity accounts as of January 1, 2013:
Kuried 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.
What was the non-controlling interest's share of consolidated net income for the year
2013?
21) Hampton Company is trying to decide whether to seek liquidation or
reorganization. Hampton has provided the following balance sheet:
Additional information is as follows:
- The investments are currently worth $13,000.
- It is estimated that $32,000 of the accounts receivable are collectible.
- The inventory can be sold for $74,000.
- The prepaid expenses and the intangible assets have no net realizable value.
- The land and building are currently valued at $250,000.
- The equipment can be sold for $60,000.
- Administrative expenses (not yet recorded) are estimated to be $12,500.
- Accrued expenses include $17,000 of salaries payable ($11,000 to one employee and
$3,000 each to two other employees).
- Accrued expenses include $7,000 of unpaid payroll taxes.
Compute the amount of unsecured liabilities without priority.
22) Strayten Corp. is a wholly owned subsidiary of Quint Inc. Quint decided to use the
initial value method to account for this investment. During 2013, Strayten sold Quint
goods which had cost $48,000. The selling price was $64,000. Quint still had
one-eighth of the goods purchased from Strayten on hand at the end of 2013.
Required:
Prepare Consolidation Entry *G, which would have to be recorded at the end of 2013.
23) Thomas Inc. had the following stockholders' equity accounts as of January 1, 2013:
Kuried 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.
What is the controlling interest share of Thomas' net income for the year ended
December 31, 2013?
24) On January 1, 2013, Bast Co. had a net book value of $2,100,000 as follows:
Fisher Co. acquired all of the outstanding preferred shares for $148,000 and 60% of the
common stock for $1,281,000. Fisher believed that one of Bast's buildings, with a
twelve-year life, was undervalued on the company's financial records by $70,000.
Required:
What is the amount of goodwill to be recognized from this purchase?
25) Panton, Inc. acquired 18,000 shares of Glotfelty Corp. several years ago. At the
present time, Glotfelty is reporting the following stockholders' equity:
Glotfelty issues 5,000 shares of previously unissued stock to the public for $27 per
share. None of this stock is purchased by Panton.
Prepare Panton's journal entry to recognize the impact of this transaction.
