1) Paggle Corporation owns 80% of Spillway Inc.’s common stock that was purchased
at its underlying book value. At the time of purchase, the book value and fair value of
Spillway’s net assets were equal. The two companies report the following information
for 2011 and 2012 .
During 2011, one company sold inventory to the other company for $50,000 which cost
the transferor $40,000. As of the end of 2011, 30% of the inventory was unsold. In
2012, the remaining inventory was resold outside the consolidated entity.
2011 Selected Data:PaggleSpillway
Sales Revenue $600,000 $320,000
Cost of Goods Sold320,000155,000
Other Expenses100,00089,000
Net Income $180,000 $76,000
Dividends Paid19,0000
2012 Selected Data:PaggleSpillway
Sales Revenue$580,000 $445,000
Cost of Goods Sold300,000180,000
Other Expenses130,000171,000
Net Income$150,000 $94,000
Dividends Paid16,0005,000
If the sale referred to above was a downstream sale, by what amount must Inventory on
the consolidated balance sheet be reduced to reflect the correct balance as of the end of
2011?
A) $3,000
B) $10,000
C) $14,000
D) $20,000
2) On December 31, 2010, Giant Corporation’s Investment in Penguin Corporation
account had a balance of $500,000. The balance consisted of 80% of Penguin’s
$625,000 stockholders’ equity on that date. Giant owns 80% of Penguin. On January 2,
2011, Penguin increased its outstanding common stock from 15,000 to 18,000 shares.
Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000
on January 2, 2011 . Giant’s percentage ownership immediately after the sale of
additional stock would be
A) 66-2/3%
B) 75%
C) 80%
D) 83-1/3%
3) Which of the following is correct? The direct sale of additional shares of stock at
book value per share to only the parent company from a subsidiary
A) decreases the parent’s interest and decreases the noncontrolling shareholders’ interest
B) decreases the parent’s interest and increases the noncontrolling shareholders’ interest
C) increases the parent’s interest and increases the noncontrolling shareholders’ interest
D) increases the parent’s interest and decreases the noncontrolling shareholders’ interest
4) The following are transactions for the city of Clinton.
a.Borrowed $100,000 by issuing a one-year, 5% note, three months before year-end.
b.Accrued interest at year end, but did not pay the interest at year end.
c.Charges for services rendered of $2,500 were billed and collected immediately.
d.Incurred salary costs of $5,000, unpaid.
Required:
Analyze the above transactions by using the accounting equation for a proprietary fund.
5) The accounting equation for the enterprise fund is
A) assets = liabilities
B) current assets + current liabilities = fund balance
C) current assets – current liabilities = net assets
D) current assets + noncurrent assets – current liabilities – noncurrent liabilities = net
assets
6) Panda Corporation purchased 100,000 previously unissued shares of Skunk
Company’s $10 par value common stock directly from Skunk for $2,200,000. Skunk’s
stockholders’ equity immediately before the investment by Panda consisted of
$3,000,000 of common stock and $4,800,000 in retained earnings. What is Panda’s
book value of equity in the net assets of Skunk?
A) $2,200,000
B) $2,500,000
C) $3,000,000
D) $3,333,000
7) A parent company acquired 100% of the outstanding common stock of another
corporation. The parent is going to use push-down accounting. The fair market value of
each of the acquired corporation’s assets is lower than its respective book value. The
fair market value of each of the acquired corporation’s liabilities is higher than its
respective book value. The acquired corporation has a deficit in the Retained Earnings
account. Which one of the following statements is correct?
A) The push-down capital account will have a credit balance after this transaction is
posted
B) The push-down capital account will have a debit balance after this transaction is
posted
C) The push-down capital account will have either a debit or a credit balance depending
upon whether the asset adjustments exceed the liability adjustments, or vice versa
D) Subsidiary Retained Earnings will have a deficit balance after this transaction is
posted
8) Alfred and Barne share profits and losses in a ratio of 2:3, respectively, after salary
allowances, interest allowances and bonus allocations. Alfred and Barne receive salary
allowances of $30,000 and $60,000, respectively, and both partners receive 10%
interest based upon the balance in their capital accounts on January 1 . Partners’
drawings are not used in determining the average capital balances. Total net income for
2011 is $180,000. If net income after deducting the interest and salary allocations is
more than $60,000, Barne receives a bonus of 5% of the original amount of net income.
AlfredBarne
January 1 capital balances$600,000$900,000
Yearly drawings ($3,000 a month)36,00036,000
If the partnership experiences a net loss of $60,000 for the year, what will be the final
net amount of profit or (loss) closed to each partner’s capital account?
A) ($90,000) to Alfred and $30,000 to Barne
B) ($30,000) to Alfred and ($30,000) to Barne
C) ($24,000) to Alfred and ($36,000) to Barne
D) $30,000 to Alfred and ($90,000) to Barne
9) In a Statement of Cash Flows for a proprietary fund, what are the primary categories
of cash flow activities?
A) Operating, Financing, Investing
B) Operating, Noncapital Financing, Capital and Related Financing, Investing
C) Operating, Financing, Noncapital Investing, Capital and Related Investing
D) Noncapital Operating, Capital and Related Operating, Investing, Financing
10) The unamortized excess account is
A) a contra-equity account
B) used in allocating the amounts paid for recorded balance sheet accounts that are
above or below their fair values
C) used in allocating the amounts paid for each asset and liability that are above or
below their book values, especially when numerous assets or liabilities are involved
D) the excess purchase cost that is attributable to goodwill
11) In the consolidated income statement of Wattlebird Corporation and its 85% owned
Forest subsidiary, the noncontrolling interest share was reported at $45,000. Assume the
book value and fair value of Forest’s net assets were equal at the acquisition date. What
amount of net income did Forest have for the year?
A) $52,941
B) $38,250
C) $235,000
D) $300,000
12) International accounting standards differ from U.S. Generally Accepted Accounting
Principles in that International standards
A) require that firm sale or purchase commitments are accounted for as fair value
hedges
B) require that firm sale or purchase commitments are accounted for as cash flow
hedges
C) state that firm sale or purchase commitments may not be treated as a hedged
transaction
D) permit firm sale or purchase commitments to be accounted for as either fair value
hedges or cash flow hedges
13) Rank the following claims of an organization filing Chapter 7 bankruptcy from 1 to
4 based on the following classifications. Each classification may be used more than
once.
1>Secured Claims
2>Unsecured Priority Claims
3>Unsecured Nonpriority Claims
4>Stockholders’ Claims
_____ A. Claims for wages that are less than $10,000 per individual, earned within 90
days of filing petition for bankruptcy.
_____ B. Legal fees incurred after petitioning the court for Chapter 7 .
_____ C. Claim by the accounting firm for the audit fee from the prior year-end audit
completed two months prior to the bankruptcy filing.
_____ D. Claims for employee benefit plan contributions that are less than $10,000 per
individual and relating to services rendered within 180 days of bankruptcy filing.
_____ E. Claims with a valid lien against assets of the entity.
_____ F. Claim by employee for commissions earned in 90 days prior to filing
bankruptcy petition, for the portion in excess of $10,000.
_____ G. Administrative expenses of the estate, such as trustee fees.
_____ H. Claim by a supplier for goods delivered on account.
_____ I. Interest on unsecured claims.
_____ J. Taxes owed to a government unit.
14) Which of the following will be debited to the Investment account when the equity
method is used?
A) Investee net losses
B) Investee net profits
C) Investee declaration of dividends
D) Depreciation of excess purchase cost attributable to investee equipment
15) On January 1, 2011, Parry Incorporated paid $72,000 cash for 80% of Samuel
Company’s common stock. At that time Samuel had $40,000 capital stock and $30,000
retained earnings. The book values of Samuel’s assets and liabilities were equal to fair
values, and any excess amount is allocated to goodwill. Samuel reported net income of
$18,000 during 2011 and declared $5,000 of dividends on December 31, 2011 . At the
time the dividends were declared, Parry recorded a receivable for the amount they
expected to receive the following month. A summary of the balance sheets of Parry and
Samuel are shown below.
Required:
Complete the consolidated balance sheet working papers for Parry Corporation and
Subsidiary at December 31, 2011 .
16) During the Great Depression years 1930-1933 there was a very high rate of
business failures and defaults, we would expect the risk premium for ________ bonds
to be very high
A) US Treasury
B) corporate Aaa
C) municipal
D) corporate Baa
17) Thoroughgood County has a municipal golf course and tennis club which is funded
by the membership fees it charges. The club also has 6% bonds outstanding amounting
to $20,000,000 on which it pays interest semi-annually. The club had the following
transactions.
1>An addition to the golf clubhouse was added for $2,000,000, funded out of
operations.
2>The following expenses were incurred and paid: $80,000 wages; $10,000 payroll
taxes; $45,000 water bill; and $12,000 equipment repair.
3>Interest on the bonds was paid amounting to $600,000.
4>$5,000,000 of operating cash excess was repaid to the general fund for a previous
loan.
5> Depreciation of $500,000 was recorded for the buildings.
Required:
Prepare the necessary journal entries for each of the above transactions for the
Enterprise Fund.
18) Peking County incurred the following transactions during 2011:
1>Marketable securities were donated to support the county’s bike and nature trails. The
donor acquired the securities for $35,000 ten years earlier; however, their current
market value was $200,000. The donor specified that all income from the securities be
used for the trails. The principal is to be held intact for an indefinite period of time.
2>Computer equipment was ordered for general fund departments. The estimated cost
was $48,000.
3>The county received the computer equipment. The actual cost was $47,750, of which
$42,000 was paid to the vendor before year-end.
4>The county sold a (general government) dump truck that originally cost $55,000. The
county sold the truck at auction for $3,300. The book value of the truck at the time of
sale was $0.
5>The government leased equipment for the general government under a capital lease
agreement. The present value of the minimum lease payments was $120,000. The
county made an initial down payment of $10,000.
Required:
Prepare journal entries for each of the above transactions. Identify the appropriate fund
or funds used by Peking County.
19) Wader’s Corporation paid $120,000 for a 25% interest in Shell Company on July 1,
2010 . No information is available on the fair value of Shell’s assets and liabilities.
Assume the equity method. Shell’s trial balances at July 1, 2010 and December 31, 2010
were as follows:
DebitsDecember 31July 1
Current assets$100,000$50,000
Noncurrent assets300,000310,000
Expenses160,000120,000
Dividends (paid in June) 40,000 40,000
Total$ 600,000$ 520,000
Credits
Current Liabilities$60,000$40,000
Capital stock (no change)200,000200,000
Retained earnings Jan. 1100,000100,000
Sales 240,000 180,000
Total $600,000$520,000
Required:
1>What is Wader’s investment income from Shell for the year ending December 31,
2010?
2>Calculate Wader’s investment in Shell at year end December 31, 2010 .
20) Jefferson County had the following transactions in 2012 .
1>$27,000 in membership fees was collected at the municipal pool.
2>A county collects $130,000 in sales taxes on behalf of the cities within its
boundaries.
3>A $500,000 bond offering was issued at 102 to fund the construction of a new city
hall. The premium on the bonds was transferred to the Debt Service
Fund(nonreciprocal).
4>A private foundation contributes a stock portfolio with a fair value of $100,000 to the
county. A trust agreement specifies the earnings on the fund is to be used by the local
park which is owned and operated by a private foundation, and the principal is to be
held intact indefinitely.
5>The county sends bills out for water and sewer provided to residents, amounting to
$340,000.
Required:
Prepare the necessary journal entries for each of the above transactions for all funds
affected. Be sure to identify the fund type for each entry.
21) Pheasant Corporation owns 80% of Sal Corporation’s outstanding common stock
that was purchased at book value equal to fair value on January 1, 2005 .
Additional information:
1>Pheasant sold inventory items that cost $3,000 to Sal during 2012 for $6,000.
One-half of this merchandise was inventoried by Sal at year-end. At December 31,
2012, Sal owed Pheasant $2,000 on account from the inventory sales. No other
intercompany sales of inventory have occurred since Pheasant acquired its interest in
Sal.
2>Pheasant sold equipment with a book value of $5,000 and a 5-year useful life to Sal
for $10,000 on December 31, 2010 . The equipment remains in use by Sal and is
depreciated by the straight-line method. The equipment has no salvage value.
3>On January 2, 2012, Sal paid $10,800 for $10,000 par value of Pheasant’s 10-year,
10% bonds. These bonds were originally sold at par value, and have interest payment
dates of January 1 and July 1, and mature on January 1, 2016 . Straight-line
amortization has been applied by Sal to the Pheasant bond investment.
4>Pheasant uses the equity method in accounting for its investment in Sal.
Required:
Complete the working papers to consolidate the financial statements of Pheasant
Corporation and Sal for the year ended December 31, 2012 .
22) Richard Stands passed away at on September 2, 2011 . The probate court ruled that
most assets could be excluded from estate inventory. Ty Republic has been appointed to
serve as executor for the estate. The estate assets consisted of the following at that date:
Required:
Prepare an inventory of estate assets as of September 2, 2011 .
23) Quantex Corporation has five operating segments, as summarized below:
Required:
Determine which of the operating segments of Quantex Corporation are reportable
segments for the period shown.
24) On January 1, 2010, Starling Corporation held an 80% interest in Twig Corporation
and the investment account balance was $900,000. On January 1, 2010, Twig’s total
stockholders’ equity was $1,125,000.
During 2010, Twig uniformly earned $234,000 and paid dividends of $37,500 on April
1 and again on October 1 . On August 1, 2010, Starling sold 30% of its investment in
Twig for $262,500, thereby reducing its interest in Twig to 56%.
Required: Compute the following using the actual sales date assumption:
1> Gain or loss on sale.
2> Income from Twig for 2010 .
3> Noncontrolling interest share for 2010 .
25) Rollins Publishing has five operating segments, as summarized below:
Required:
Determine which of the operating segments of Rollins Publishing are reportable
segments for the period shown.