1) The steeply upward sloping yield curve in the figure above indicates that
A) short-term interest rates are expected to rise in the future
B) short-term interest rates are expected to fall moderately in the future
C) short-term interest rates are expected to fall sharply in the future
D) short-term interest rates are expected to remain unchanged in the future
2) Presented below are several figures reported for Plate Corporation and Saucer
Industries as of December 31, 2011 . Plate has owned 70% of Saucer for the past five
years, and at the time of purchase, the book value of Saucer’s assets and liabilities
equaled the fair value. The cost of the 70% investment was equal to 70% of the book
value of Saucer’s net assets. At the time of purchase, the fair values and book values of
Saucer’s assets and liabilities were equal.
Plate Saucer
Inventory$120,000$60,000
Sales200,000140,000
Cost of Goods Sold130,00080,000
Expenses40,00030,000
In 2010, Saucer sold inventory to Plate which had cost $40,000 for $60,000. 25% of
this inventory remained on hand at December 31, 2010, but was sold in 2011 . In 2011,
Saucer sold inventory to Plate which had cost $30,000 for $45,000. 40% of this
inventory remained unsold at December 31, 2011 .
Required: Calculate following balances at December 31, 2011 .
a. Consolidated Sales
b. Consolidated Cost of goods sold
c. Consolidated Expenses
d. Noncontrolling interest share of Saucer’s net income
e. Consolidated Inventory
3) On November 14, 2011, Scuby Company (a U.S. corporation) enters into a
transaction which is denominated in the Canadian dollar. Assume the exchange rate at
November 14 is $1.03, and at the December 31 year-end reporting date, the exchange
rate is $1.07. On January 27, 2012, when the transaction is settled, the exchange rate is
$1.05. At the date of settlement, which of the following is correct?
A) The historical rate = $1.05, and the spot rate at which it is settled is the same as the
current rate at $1.07
B) The historical rate = $1.03, and the spot rate at which it is settled is the same as the
current rate at $1.06
C) The historical rate = $1.05, the current rate for reporting at December 31, 2011 is
$1.07, and the spot rate at which it is settled is $1.03
D) The historical rate = $1.03, the current rate for reporting at December 31, 2011 is
$1.07, and the spot rate at which it is settled is $1.05
4) On January 1, 2011, 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:
PunchSoopy
Cash$34,000 $206,000
Accounts Receivable144,00026,000
Inventory132,00038,000
Land68,00032,000
Plant assets700,000300,000
Accum. Depreciation(240,000)(60,000)
Investment in Soopy392,000
Total assets$ 1,230,000$ 542,000
Accounts payable$206,000$142,000
Capital stock800,000300,000
Retained earnings224,000100,000
Total liabilities & equities$ 1,230,000$ 542,000
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 is the amount of total assets?
A) $1,380,000
B) $1,402,000
C) $1,470,000
D) $1,875,000
5) A primary difference between voluntary and involuntary bankruptcy petitions is that
A) creditors file the petition in an involuntary filing
B) trustees are not used in an voluntary filing
C) voluntary petitions are not subject to review by the bankruptcy court
D) the debtor corporation files the petition in an involuntary filing
6) Three factors explain the risk structure of interest rates:
A) liquidity, default risk, and the income tax treatment of a security
B) maturity, default risk, and the income tax treatment of a security
C) maturity, liquidity, and the income tax treatment of a security
D) maturity, default risk, and the liquidity of a security
7) A subsidiary has dilutive securities outstanding that include convertible bonds
payable. The bonds are convertible into the parent’s common stock. When calculating
consolidated diluted earnings per share, the convertible bonds will affect
A) the numerator of consolidated diluted EPS only
B) the denominator of consolidated diluted EPS only
C) the numerator and denominator of consolidated diluted EPS
D) None of the above will be affected
8) A highly-effective hedge of an existing asset or liability that is reported on the
balance sheet would be recorded using
A) Modified Cash Basis Accounting
B) Critical Term Hedge Analysis
C) Fair Value Hedge Accounting
D) Hedge of Net Investment in Foreign Subsidiary
9) Peregrine Corporation acquired an 80% interest in Serine Corporation in 2009 at a
time when Serine’s book values and fair values were equal to one another. On January
1, 2012, Serine sold a truck with a $55,000 book value to Peregrine for $100,000.
Peregrine is depreciating the truck over 10 years using the straight-line method. The
truck has no salvage value. Separate incomes for Peregrine and Serine for 2012 were as
follows:
Peregrine Serine
Sales$1,800,000 $1,050,000
Gain on sale of truck45,000
Cost of Goods Sold(750,000)(285,000)
Depreciation expense(450,000)(135,000)
Other expenses(180,000)(450,000)
Separate incomes$ 420,000 $ 225,000
Peregrine’s investment income from Serine for 2012 was
A) $108,000
B) $144,000
C) $147,600
D) $180,000
10) Pfadt Inc. had $600,000 par of 8% bonds payable outstanding on January 1, 2011
due January 1, 2015 with an unamortized discount of $12,000. Senat is a 90%-owned
subsidiary of Pfadt. On January 2, 2011, Senat Corporation purchased $150,000 par
value of Pfadt’s outstanding bonds for $152,000. The bonds have interest payment dates
of January 1 and July 1 . Straight-line amortization is used.
Bond Interest Receivable for 2011 of Pfadt’s bonds on Senat’s books was
A) $5,400
B) $6,000
C) $10,800
D) $12,000
11) Patane Corporation acquired 80% of the outstanding voting common stock of
Sanlon Corporation on January 1, 2011, for $500,000. Sanlon Corporation’s
stockholders’ equity at this date consisted of $250,000 in Capital Stock and $100,000 in
Retained Earnings. The fair value of Sanlon’s assets was equal to the book value of the
assets except for land with a fair value $40,000 greater than its book value, and
marketable securities with a fair value $50,000 greater than its book value. Sanlon also
had a valuable patent with a fair value of $25,000 and a book value of zero because its
development costs were expensed as incurred. The fair value of Sanlon’s liabilities is
$10,000 higher than the $40,000 book value.
Required:
Calculate the amount of goodwill under the parent company and entity theories of
consolidation.
12) The partnership of Dolla, Earl, and Festus was dissolved on January 1, 2011 . The
balance sheet at that date is shown below:
Cash$12,000Liabilities$36,000
Other assets70,000Loan from Dolla1,000
Loan to Clara8,000Dolla, capital (20%)6,000
Earl, capital (30%)16,000
Festus, capital (50%)31,000
Total assets$90,000Total liab./equity$90,000
In January, $34,000 of the accounts receivable was collected, and an additional $6,000
was determined to be uncollectible. The remaining receivables are still expected to be
collected.
Required:
Determine how the available cash on January 31, 2011 will be distributed. (Use a safe
payments schedule.)
13) The profit and loss sharing agreement for the Mason, Nell, and Odell partnership
provides for a $15,000 salary allowance to Nell. Residual profits and losses are
allocated 5:3:2 to Mason, Nell, and Odell, respectively. In 2010, the partnership
recorded $120,000 of net income that was properly allocated to the partners’ capital
accounts. On January 25, 2011, after the books were closed for 2010, Mason discovered
that office equipment, purchased for $12,000 on December 29, 2010, was recorded as
office expense by the company bookkeeper.
Required:
Prepare the necessary correcting entry(s) for the partnership.
14) Ferb Company is a U.S.-based importer of fine fabrics. They periodically place
orders with an Italian manufacturer for bolts of fabric at a price typically set in euros.
Because they have business on an ongoing basis in euros, Ferb also enters into forward
contracts to speculate on the Euro. On September 15, Ferb entered into a 45-day
forward contract to purchase 2,000,000 euros. Ferb has a year-end of September 30 .
The forward contract cannot be settled net. Relevant exchange rates are shown below:
Required:
Prepare the journal entries to account for the forward contract for September and
October.
15) PreBuild Manufacturing acquired 100% of Shoding Industries common stock on
January 1, 2010, for $670,000 when the book values of Shoding’s assets and liabilities
were equal to their fair values and Shoding’s stockholders’ equity consisted of $380,000
of Capital Stock and $290,000 of Retained Earnings.
PreBuild’s separate income (excluding investment income from Shoding) was
$870,000, $830,000 and $960,000 in 2010, 2011 and 2012, respectively. PreBuild sold
inventory to Shoding during 2010 at a gross profit of $50,000 and 50% remained at
Shoding at the end of the year. The remaining 50% was sold in 2011 . At the end of
2011, PreBuild has $54,000 of inventory received from Shoding from a sale of
$180,000 which cost Shoding $150,000. There are no unrealized profits in the inventory
of PreBuild or Shoding at the end of 2012 . PreBuild uses the equity method in its
separate books. Select financial information for Shoding follows:
201020112012
Sales$890,000$995,000$1,020,000
Cost of Sales (420,000) (475,000) (505,000)
Gross Profit470,000520,000515,000
Operating Expenses (350,000) (380,000) (390,000)
Net Income$120,000$140,000$125,000
Required:
Prepare a schedule to determine PreBuild Manufacturing’s Consolidated net income for
2010, 2011, and 2012 .
16) On January 1, 2011, Singh Company acquired an 80 percent interest in Gonzalez
Company for $300,000. On January 1, 2011, Gonzalez’s total stockholders’ equity was
$375,000. The fair value and book value of Gonzalez’s individual assets and liabilities
were equal.
On January 2, 2011, Gonzalez Company acquired a 10 percent interest in Singh
Company for $50,000. On January 2, 2011, Singh’s total stockholders’ equity was
$500,000. The fair value and book value of Singh’s individual assets and liabilities were
equal.
For the year ending December 31, 2011, the following data is available:
Net incomeDividends
Singh Company$40,000$0
Gonzalez Company$10,000$0
The treasury stock method is used to account for the mutual stock holdings between
Singh and Gonzalez. The separate net incomes do not include investment income.
Required:
1> What is Gonzalez’s income from Singh for 2011?
2> What is Singh’s income from Gonzalez for 2011?
3> What is the noncontrolling interest share associated with Gonzalez Company for
2011?
4> Prepare the elimination entry for Gonzalez’s Investment in Singh Company.