1) Customers’ meter deposits which cannot be spent for normal operating purposes
would be classified as restricted cash in the balance sheet of which fund?
a.Internal Service
b.Trust
c.Agency
d.Enterprise
2) Puma Company owns 80% of the common stock of Smarte Company. Puma sells
merchandise to Smarte at 20% above cost. During 2014 and 2015, intercompany sales
amounted to $1,080,000 and $1,200,000 respectively. At the end of 2014, Smarte had
one-fifth of the goods purchased that year from Puma in its ending inventory. Smartes
2015 ending inventory contained one-fourth of that years purchases from Puma. There
were no intercompany sales prior to 2014.
Puma reported net income from its own operations of $720,000 in 2014 and $760,000
in 2015. Smarte reported net income of $400,000 in 2014 and $460,000 in 2015.
Neither company declared dividends in either year.
Required:
A.Prepare in general journal form all entries necessary on the consolidated statements
workpapers to eliminate the effects of the intercompany sales for both 2014 and 2015.
B.Calculate controlling interest in consolidated net income for 2015.
3) In years subsequent to the year of acquisition, an entry to establish reciprocity is
made under the
a.complete equity method
b.cost method
c.partial equity method
d.complete and partial equity methods
4) The goals of the International Accounting Standards Committee include all of the
following except:
a.To improve international accounting
b.To formulate a single set of auditing standards to be applied in all countries
c.To promote global acceptance of its standards
d.To harmonize accounting practices between countries
5) A firm can use which method of financing for an acquisition structured as either an
asset or stock acquisition?
a.Cash
b.Issuing Debt
c.Issuing Stock
d.All of the above
6) Gains from remeasuring a foreign subsidiarys financial statements from the local
currency, which is not the functional currency, into the parent companys currency
should be reported as a(n):
a.other comprehensive income item
b.extraordinary item (net of tax)
c.part of continuing operations
d.deferred credit
7) On a consolidated balance sheet, subsidiary preferred stock will be shown:
a.as part of consolidated stockholders equity
b.combined with any preferred stock of the parent
c.as part of the noncontrolling interest amount to the extent such balance represents
preferred stock held by the parent
d.as part of the noncontrolling interest amount to the extent such balance represents
preferred stock held by outside interests
8) The liability for general obligation long-term debt is reported in the
a.Debt Service Fund
b.Capital Projects Fund
c.Enterprise Fund
d.none of these
9) On January 1, 2013, Pound Company acquired an 80% interest in the common stock
of Sound Company on the open market for $3,000,000, the book value at that date.
On January 1, 2014, Pound Company purchased new equipment for $58,000 from
Sound Company. The equipment cost $36,000 and had an estimated life of five years as
of January 1, 2014.
During 2015, Pound Company had merchandise sales to Sound Company of $400,000;
the merchandise was priced at 25% above Pound Companys cost. Sound Company still
owes Pound Company $70,000 on open account and has 20% of this merchandise in
inventory at December 31, 2015. At the beginning of 2015, Sound Company had in
inventory $100,000 of merchandise purchased in the previous period from Pound
Company.
Required:
A.Prepare all workpaper entries necessary to eliminate the effects of the intercompany
sales on the consolidated financial statements for the year ended December 31, 2015.
B.Assume that Sound Company reports net income of $160,000 for the year ended
December 31, 2015. Calculate the amount of noncontrolling interest to be deducted
from consolidated income in the consolidated income statement for the year ended
December 31, 2015.
10) At the beginning of 2014, the City of Mauer reported an Unreserved Fund Balance
of $890,000 and a supplies inventory balance of $280,000. During the year, Mauer
purchased $360,000 in supplies and used $350,000 worth. The city will report a reserve
for supplies inventory.
Required:
a.Prepare the journal entries needed to account for the supplies under the consumption
method.
b.Prepare the necessary journal entries under the purchases method.
c.What would the December 31, 2014, balance in the Unreserved Fund Balance be
under the consumption method, assuming that the only transactions of the fund are
those involving the supplies?
11) Pine Company, a computer manufacturer, owns 90% of the outstanding stock of
Slider Company. On January 1, 2014, Pine sold computers to Slider for $500,000. The
computers, which are inventory to Pine, had a cost to Pine of $350,000. Slider
Company estimated that the computers had a useful life of six years from the date of
purchase.
Slider Company reported net income of $310,000, and Pine Company reported net
income of $870,000 from its independent operations (including sales to affiliates) for
the year ended December 31, 2014.
Required:
A.Prepare in general journal form the workpaper entries necessary because of the
intercompany sales in the consolidated statements workpaper for both 2014 and 2015.
B.Calculate controlling interest in consolidated net income for 2014.
12) Board designated funds should be accounted for as
a.restricted funds
b.specific purpose funds
c.unrestricted funds
d.none of these
13) On February 5, Pryor Corporation paid $1,600,000 for all the issued and
outstanding common stock of Shaw, Inc., in a transaction properly accounted for as an
acquisition. The book values and fair values of Shaw’s assets and liabilities on February
5 were as follows
Book ValueFair Value
Cash$ 160,000$ 160,000
Receivables (net)180,000180,000
Inventory315,000300,000
Plant and equipment (net)820,000920,000
Liabilities (350,000) (350,000)
Net assets$1,125,000$1,210,000
What is the amount of goodwill resulting from the business combination?
a.$-0-
b.$475,000
c.$85,000
d.$390,000
14) Bjork, a calendar year company, has the following income before income tax
provision and estimated effective annual income tax rates for the first three quarters of
2014:
Income BeforeEstimated Effective
Income TaxAnnual Tax Rate
QuarterProvisionat the End of Quarter
First$120,00025%
Second160,00025%
Third200,00030%
Bjork’s income tax provision in its interim income statement for the third quarter should
be
a.$74,000
b.$60,000
c.$50,000
d.$144,000
15) In a business combination accounted for as an acquisition, how should the excess of
fair value of net assets acquired over the consideration paid be treated?
a.Amortized as a credit to income over a period not to exceed forty years
b.Amortized as a charge to expense over a period not to exceed forty years
c.Amortized directly to retained earnings over a period not to exceed forty years
d.Recorded as an ordinary gain
16) A newly acquired subsidiary has pre-existing goodwill on its books. The parent
companys consolidated balance sheet will:
a.treat the goodwill the same as other intangible assets of the acquired company
b.will always show the pre-existing goodwill of the subsidiary at its book value
c.not show any value for the subsidiarys pre-existing goodwill
d.do an impairment test to see if any of it has been impaired
17) Pale Company has four manufacturing divisions, each of which has been
determined to be a reportable segment. Common operating costs are appropriately
allocated on the basis of each division’s sales in relation to Pales aggregate sales. Pales
Delta division accounted for 40% of Pale’s total sales in 2014. For the year ended
December 31, 2014, Delta had sales of $5,000,000 and traceable costs of $3,600,000. In
2014, Pale incurred operating costs of $350,000 that were not directly traceable to any
of the divisions. In addition, Pale incurred interest expense of $360,000 in 2014. In
reporting supplementary segment information, how much should be shown as Delta’s
operating profit for 2014?
a.$1,400,000
b.$1,256,000
c.$1,260,000
d.$1,116,000
18) The exchange rate quoted for future delivery of foreign currency is the definition of
a(n):
a.direct exchange rate
b.indirect exchange rate
c.spot rate
d.forward exchange rate
19) With an acquisition, direct and indirect expenses are
a.expensed in the period incurred
b.capitalized and amortized over a discretionary period
c.considered a part of the total cost of the acquired company
d.charged to retained earnings when incurred
20) All of the following are true regarding American Depository Receipts (ADRs)
except:
a.Most ADRs are unsponsored, meaning that the DR bank creates a DR program
without a formal agreement with the issuing non-US company
b.An ADR is a derivative instrument traded in the US that usually represents a fixed
number of publicly traded shares of a non-US company
c.ADRs are denominated in US dollars
d.A
21) On January 1, 2013, Pamela Company purchased 75% of the common stock of
Snicker Company. Separate balance sheet data for the companies at the combination
date are given below:
Snicker Co.Snicker Co.
Pamela Co.Book ValuesFair Values
Cash$ 18,000$155,000$155,000
Accounts receivable108,00020,00020,000
Inventory99,00026,00045,000
Land60,00024,00045,000
Plant assets525,000225,000300,000
Acc. depreciation(180,000)(45,000)
Investment in Snicker Co. 330,000
Total assets$960,000$405,000$565,000
Accounts payable$156,000$105,000$105,000
Capital stock600,000225,000
Retained earnings 204,000 75,000
Total liabilities & equities$960,000$405,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2013.
What is the amount of consolidated retained earnings?
a.$204,000
b.$209,250
c.$260,250
d.$279,000
22) Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During
the first year of operation, the partnership incurs a $20,000 loss. The partners should
share the losses
a.based on their average capital balances
b.in a 2 to 1 ratio
c.equally
d.based on their ending capital balances
23) On January 1, 2013, Pamela Company purchased 75% of the common stock of
Snicker Company. Separate balance sheet data for the companies at the combination
date are given below:
Snicker Co.Snicker Co.
Pamela Co.Book ValuesFair Values
Cash$ 18,000$155,000$155,000
Accounts receivable108,00020,00020,000
Inventory99,00026,00045,000
Land60,00024,00045,000
Plant assets525,000225,000300,000
Acc. depreciation(180,000)(45,000)
Investment in Snicker Co. 330,000
Total assets$960,000$405,000$565,000
Accounts payable$156,000$105,000$105,000
Capital stock600,000225,000
Retained earnings 204,000 75,000
Total liabilities & equities$960,000$405,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2013.
What amount of goodwill will be reported?
a.($20,000)
b.($25,000)
c.$25,000
d.$0
24) The noncontrolling interests share of the selling affiliates profit on intercompany
sales is considered to be realized under
a.partial elimination
b.total elimination
c.100% elimination
d.both total and 100% elimination
25) A business combination is accounted for properly as an acquisition. Which of the
following expenses related to effecting the business combination should enter into the
determination of net income of the combined corporation for the period in which the
expenses are incurred?
SecurityOverhead allocated
issue coststo the merger
a.YesYes
b.YesNo
c.NoYes
d.NoNo
26) On October 1, 2014, Pamela Company purchased 90% of the common stock of
Shingle Company for $290,000. Additional information for both companies for 2014
follows:
PAMELASHINGLE
Common stock$300,000$90,000
Other contributed capital120,00040,000
Retained Earnings, 1/1240,00050,000
Net Income260,000160,000
Dividends declared (10/31)40,0008,000
Any difference between implied and book value relates to Shingles land. Pamela uses
the cost method to record its investment in Shingle. Shingle Companys income was
earned evenly throughout the year.
Required:
A.Prepare the workpaper entries that would be made on a consolidated statements
workpaper on December 31, 2014. Use the full year reporting alternative.
B.Calculate the controlling interest in consolidated net income for 2014.
27) The appropriate exchange rate for translating a plant asset in the balance sheet of a
foreign subsidiary in which the functional currency is the U.S. dollar is the:
a.current exchange rate
b.average exchange rate for the current year
c.historical exchange rate in effect when the plant asset was acquired or the date of
acquisition, whichever is later
d.forward rate
28) Mack and Ruben are partners operating an electronics repair shop. For 2014, net
income, after salaries expense of $150,000 was $50,000. Mack and Ruben have salary
allowances of $90,000 and $60,000, respectively, and remaining profits and losses are
shared 6:4.
The division of salaries and profits in total to Mack and Ruben would be:
a.$30,000 and $20,000
b.$50,000 and $-0-
c.$120,000 and $80,000
d.$25,000 and $25,000
29) Under the cost method, the investment account is reduced when
a.there is a liquidating dividend
b.the subsidiary declares a cash dividend
c.the subsidiary incurs a net loss
d.none of these
30) Pallet Corporation owns 90% of the outstanding common stock of Stealth
Company.On January 1, 2011, Stealth Company issued $500,000, 12%, ten-year bonds.
On January 1, 2013, Pallet Corporation paid $412,000 for Stealth Company bonds with
a par value of $400,000 and a carrying value of $393,600.Both companies use the
straight-line method to amortize bond premiums and discounts.Pallet Corporation
accounts for the investment using the cost method of accounting.
The total gain or loss on the constructive retirement of the debt to be reported in the
2013 consolidated income statement is
a.$12,000 loss
b.$12,000 gain
c.$18,400 loss
d.$18,400 gain
e.$6,400 loss
31) In the year an 80% owned subsidiary sells equipment to its parent company at a
gain, the noncontrolling interest in consolidated income is calculated by multiplying the
noncontrolling interest percentage by the subsidiarys reported net income
a.plus the intercompany gain considered realized in the current period
b.plus the net amount of unrealized gain on the intercompany sale
c.minus the net amount of unrealized gain on the intercompany sale
d.minus the intercompany gain considered realized in the current period
32) All of the following are a plant fund in colleges and universities except
a.unexpended plant fund
b.funds for renewals and replacements
c.investment in plant
d.plant replacement and expansion fund
33) Under the economic entity concept, consolidated financial statements are intended
primarily for the benefit of the
a.stockholders of the parent company
b.creditors of the parent company
c.minority stockholders
d.all of the above
34) You and two of your former college friends, Freeman and Oxyman, formed a
partnership called FOB, which builds and installs fabricated swimming pools. The
business has been operating for 15 years and has become one of the top swimming pool
companies in the area. Typically, you have been providing the on-site estimates for the
pools, while your partners do most of the onsite construction. While visiting one of the
sites, you hear a conversation between one of your partners and a customer. Your
partner is explaining that the cost will increase by $10,000 because of unexpected rock
removal. You are a bit surprised by this, since you had tested the area for rocks. Later,
back at the office, you review the core-sample results done on that job, which did not
reveal any rock. You decide to talk to the partner when he returns to the office. When
the partner returns to the office, he is arguing with someone from a local bank
concerning an outstanding personal loan.
1>What do you see as your duty with respect to the partnership?
2>What should you do? Explain your reasoning.
35) The computation of noncontrolling interest in net assets is made by multiplying the
noncontrolling interest percentage at the
a.beginning of the year times subsidiary stockholders equity amounts
b.beginning of the year times consolidated stockholders equity amounts
c.end of the year times subsidiary stockholders equity amounts
d.end of the year times consolidated stockholders equity amounts
36) Once a reporting unit is determined to have a fair value below its carrying value, the
goodwill impairment loss is computed by comparing the
a.fair value of the reporting unit and the fair value of the identifiable net assets
b.carrying value of the goodwill to its implied fair value
c.fair value of the reporting unit to its carrying amount (goodwill included)
d.carrying value of the reporting unit to the fair value of the identifiable net assets
37) Companies using the LIFO method may encounter a liquidation of base period
inventories at an interim date that is expected to be replaced by the end of the year. In
these cases, cost of goods sold should be charged with the
a.cost of the most recent purchases
b.average cost of the liquidated LIFO base
c.expected replacement cost of the liquidated LIFO base
d.none of these
38) Selected data for a segment of a business enterprise are to be separately reported in
accordance with SFAS No. 131 when the revenues of the segment is 10% or more of
the combined
a.net income of all segments reporting profits
b.external and internal revenue of all reportable segments
c.external revenue of all reportable segments
d.revenues of all segments reporting profits
39) On January 1, 2013, Prima Company issued 1,500 of its $20 par value common
shares with a fair value of $50 per share in exchange for 2,000 outstanding common
shares of Swatch Company in a purchase transaction. Registration costs amounted to
$1,700 paid in cash. Just prior to the acquisition, the balance sheets of the two
companies were as follows:
Any differences between the book value of equity and the value implied by the
purchase price relates to Land.
Required:
A.Prepare the journal entry on Primas books to record the exchange of stock.
B.Prepare a Computation and Allocation Schedule for the Difference between book
value and value implied by the purchase price.
C.Calculate the consolidated balance for each of the following accounts as of December
31, 2013:
1>Cash
2>Land
3>Common Stock
4>Other Contributed Capital
40) Assuming no significant inflation, gains resulting from the process of translating a
foreign entitys financial statements from the functional currency to U.S. dollars should
be included as a(n):
a.other comprehensive income item
b.extraordinary item (net of tax)
c.part of continuing operations
d.deferred credit
41) What effect do subsidiary treasury stock holdings have at the time the subsidiary is
acquired? How should the treasury stock be treated on consolidated work papers?
42) What characteristics distinguish nonbusiness organizations from profit-oriented
enterprises?
43) During a liquidation, at which point may cash be distributed to any of the partners?
44) Allocating the gain or loss on constructive bondretirement between the purchasing
and issuingcompanies is preferred conceptually. Describehow this allocation would be
made.
45) Define some defensive measures used by target firms to avoid a takeover. Are these
measures beneficial for shareholders?
46) List some of the alternative methods of calculating a bonus that may appear in a
partnership agreement.
During 2014, the City of Party Beach was involved in the following transactions:47)
1>A budget consisting of estimated revenues of $1,500,000 and appropriations for
expenditures of $1,550,000 was approved by the city council.
2>Statements of property tax assessments totaling $1,100,000 were mailed to property
owners. Experience indicates that 2% of assessed taxes will be uncollectible.
3>Equipment costing $85,000 was purchased, and old equipment was sold for $15,000
at the end of its estimated useful life.
4>The city manager signed a contract to purchase a machine costing $25,000.
5>The city received a statement from the state indicating that the city’s portion of the
state sales tax is $50,000.
6>The machine ordered in (4) above is delivered and accepted. The invoice in the
amount of $26,000 was approved for payment.
Required:
Prepare the journal entries needed to account for the preceding transactions.
48) Are all major capital facilities acquisitions ac-counted accounted for in a capital
projects fund? Explain.