The following balance sheet information is for the partnership of Abel, Boule, and
Cayman:1) Cash$ 210,000Liabilities$ 510,000
Other assets1,500,000 Abele, Capital (40%)300,000
Boule, Capital (40%)480,000
Cayman, Capital (20%) 420,000
$1,710,000$1,710,000
Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If assets on the initial balance sheet are fairly valued, Abele and Boule consent and
Dann pays Cayman $225,000 for his interest; the revised capital balances of the
partners would be
a.Abele, $315,000; Boule, $495,000; Dann, $450,000
b.Abele, $315,000; Boule, $495,000; Dann, $420,000
c.Abele, $300,000; Boule, $570,000; Dann, $450,000
d.Abele, $300,000; Boule, $480,000; Dann, $420,000
A transaction gain or loss is reported currently in the determination of income if the
purpose of the forward contract is to:2) a.hedge a net investment in a foreign entity
b.hedge an identifiable foreign currency commitment
c.speculate in foreign currency
d.none of these
3) Which of the following methods of allocating the gain or loss on an intercompany
bond retirement is the soundest conceptually?
a.The gain (loss) is allocated to the company that issued the bonds
b.The gain (loss) is allocated to the company that purchased the bonds
c.The gain (loss) is allocated to the parent company
d.The gain (loss) is allocated between the purchasing and issuing companies
4) When fresh-start reporting is used according to Statement of Position (SOP) 90-7
(now incorporated in FSB ASC topic 852), the implication is that a new firm exists.
Which of the following statements is not same comment as ta #10 correct about
fresh-start accounting?
a.Assets are reported at fair values
b.Beginning retained earnings is reported at zero
c.The fair value of the assets must be less than the post liabilities and allowed claims
d.The original owners must own less than 50% of the voting stock after reorganization
5) The “reserve for encumbrancesprior year” account represents amounts recorded by a
governmental unit for
a.anticipated expenditures in the next year
b.expenditures for which purchase orders were made in the prior year but disbursement
will be in the current year
c.excess expenditures in the prior year that will be offset against the current-year
budgeted amounts
d.unanticipated expenditures of the prior year that become evident in the current year
6) Pointe Company purchased bonds from Sentient Company on the open market at a
premium.Sentient Company is a 100% owned subsidiary of PointeCompany.Pointe
intends to hold the bonds until maturity.In a consolidated balance sheet, the difference
between the bond carrying values in the two companies would be:
a.included as a decrease to retained earnings
b.included as an increase to retained earnings
c.reported as a deferred debit to be amortized over the remaining life of the bonds
d.reported as a deferred credit to be amortized over the remaining life of the bonds
7) On January 1, 2014, Prince Company purchased an 80% interest in the common
stock of Sivet Company for $1,040,000, which was $60,000 greater than the book value
of equity acquired. The difference between implied and book value relates to the
subsidiarys land.
The following information is from the consolidated retained earnings section of the
consolidated statements workpaper for the year ended December 31, 2014:
SIVETCONSOLIDATED
COMPANYBALANCES
1/01/14 retained earnings$300,000$1,400,000
Net income220,000680,000
Dividends declared (80,000) (140,000)
12/31/14 retained earnings$440,000$1,940,000
Sivets stockholders equity includes only common stock and retained earnings.
Required:
A.Prepare the workpaper eliminating entries for a consolidated statements workpaper
on December 31, 2014. Prince uses the cost method.
B.Compute the total noncontrolling interest to be reported on the consolidated balance
sheet on December 31, 2014.
8) The ABC partnership has the following capital accounts on its books at December
31, 2014:
Credit
A, Capital$200,000
B, Capital120,000
C, Capital40,000
All liabilities have been liquidated and the cash balance is zero. None of the partners
have personal assets in excess of his personal liabilities. The partners share profits and
losses in the ratio of 3:2:5. If the noncash assets are sold for $150,000, the partners
should receive as a final payment:
a.A, $152,000;B, $88,000C, $40,000
b.A, $128,000;B, $72,000;C, $ – 0 –
c.A, $152,000;B, $88,000;C, $ – 0 –
d.A, $60,000;B, $40,000;C, $100,000
9) The following information pertains to the transfer of real estate in regards to a
troubled debt restructuring by MSG Co. to Beta Co. in full settlement of MSGs liability
to Beta:
Carrying amount of liability settled$375,000
Carrying amount of real estate transferred$250,000
Fair value of real estate transferred$275,000
What amount should Beta report as a gain or (loss) on restructuring?
a.$100,000 ordinary loss
b.$100,000 extraordinary loss
c.$125,000 ordinary loss
d.$125,000 extraordinary loss
10) P Company regularly sells merchandise to its 80%-owned subsidiary, S
Corporation. In 2013, P sold merchandise that cost $240,000 to S for $300,000. Half of
this merchandise remained in Ss December 31, 2013 inventory. During 2014, P sold
merchandise that cost $375,000 to S for $468,000. Forty percent of this merchandise
inventory remained in Ss December 31, 2014 inventory. Selected income statement
information for the two affiliates for the year 2014 is as follows:
P_S_
Sales Revenue$2,250,000$1,125,000
Cost of Goods Sold1,800,000 937,500
Gross profit$450,000$187,500
Consolidated sales revenue for P and Subsidiary for 2014 are:
a.$2,907,000
b.$3,000,000
c.$3,205,500
d.$3,375,000
11) The managers of Savage Company own 10,000 of its 100,000 outstanding common
shares. Swann Company is formed by the managers of Savage Company to take over
Savage Company in a leveraged buyout. The managers contribute their shares in
Savage Company and Swann Company then borrows $675,000 to purchase the
remaining 90,000 shares of Savage Company for $600,000; the remaining $75,000 is
used for working capital. Savage Company is then merged into Swann Company
effective January 1, 2013. Data relevant to Savage Company immediately prior to the
leveraged buyout follow:
Book ValueFair Value
Current Assets$ 90,000$ 90,000
Plant Assets255,000525,000
Liabilities (45,000) (45,000)
Stockholders’ Equity$300,000$570,000
Required:
A.Prepare journal entries on Swann Company’s books to reflect the effects of the
leveraged buyout.
B.Determine the balance of each of the following immediately after the merger:
1>Current Assets
2>Plant Assets
3>Note Payable
4>Common Stock
12) In years subsequent to the year a 90% owned subsidiary sells equipment to its
parent company at a gain, the noncontrolling interest in consolidated income is
computed by multiplying the noncontrolling interest percentage by the subsidiarys
reported net income
a.minus the net amount of unrealized gain on the intercompany sale
b.plus the net amount of unrealized gain on the intercompany sale
c.minus intercompany gain considered realized in the current period
d.plus intercompany gain considered realized in the current period
13) On January 1, 2014, Roswell Systems, a U.S.-based company, purchased a
controlling interest in Bern Management Consultants located in Bern, Switzerland. The
acquisition was treated as a purchase transaction. The 2014 financial statements stated
in Swiss francs are given below.
BERN MANAGEMENT CONSULTANTS
Comparative Balance Sheets
January 1 and December 31, 2014
Jan. 1 Dec. 31
Cash and Receivables30,00084,000
Net Property, Plant, and Equipment60,000 56,000
Totals90,000140,000
Accounts and Notes Payable45,00050,000
Common Stock30,00030,000
Retained Earnings15,000 60,000
Totals90,000140,000
BERN MANAGEMENT CONSULTANTS
Consolidated Income and Retained Earnings Statement
For the Year Ended December 31, 2014
Revenues112,000
Operating Expenses including depreciation of 5,000 francs 45,000
Net income67,000
Dividends Declared and Paid22,000
Increase in Retained Earnings45,000
Direct exchange rates for Swiss franc are:
U.S. Dollars per Franc
January 1, 2014$0.9987
December 31, 20140.9321
Average for 20140.9654
Dividend declaration and payment date0.9810
Required:
A.Translate the year-end balance sheet and income statement of the foreign subsidiary
using the current rate method of translation.
B.Prepare a schedule to verify the translation adjustment.
14) Under the acquisition method, indirect costs relating to acquisitions should be
a.included in the investment cost
b.expensed as incurred
c.deducted from other contributed capital
d.none of these
15) On January 1, 2014, Pruit Company purchased 85% of the outstanding common
stock of Salty Company for $525,000. On that date, Salty Companys stockholders
equity consisted of common stock, $150,000; other contributed capital, $60,000; and
retained earnings, $210,000. Pruit Company paid more than the book value of net assets
acquired because the recorded cost of Salty Companys land was significantly less than
its fair value.
During 2014 Salty Company earned $222,000 and declared and paid a $75,000
dividend. Pruit Company used the partial equity method to record its investment in
Salty Company.
Required:
A.Prepare the investment related entries on Pruit Companys books for 2014.
B.Prepare the workpaper eliminating entries for a workpaper on December 31, 2014.
16) On January 1, 2013, Poole Company purchased 75% of the common stock of
Swimmer Company. Separate balance sheet data for the companies at the combination
date are given below:
Swimmer Co.Swimmer Co.
Poole Co.Book ValuesFair Values
Cash$ 24,000$206,000$206,000
Accounts receivable144,00026,00026,000
Inventory132,00038,00060,000
Land78,00032,00060,000
Plant assets700,000300,000350,000
Acc. depreciation(240,000)(60,000)
Investment in Swimmer Co. 440,000
Total assets$1,278,000$542,000$702,000
Accounts payable$206,000$142,000$142,000
Capital stock800,000300,000
Retained earnings 272,000 100,000
Total liabilities & equities$1,278,000$542,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2013.
What amount of inventory will be reported?
a.$170,000
b.$177,000
c.$186,500
d.$192,000
17) Which of the following is a limitation of consolidated financial statements?
a.Consolidated statements provide no benefit for the stockholders and creditors of the
parent company
b.Consolidated statements of highly diversified companies cannot be compared with
industry standards
c.Consolidated statements are beneficial only when the consolidated companies operate
within the same industry
d.Consolidated statements are beneficial only when the consolidated companies operate
in different industries
18) The process of translating the accounts of a foreign entity into its functional
currency when they are stated in another currency is called:
a.verification
b.translation
c.remeasurement
d.None of these
19) If a cumulative effect type accounting change is made during the first interim period
of a year
a.no cumulative effect of the change should be included in net income of the period of
change
b.the cumulative effect of the change on retained earnings at the beginning of the year
should be included in net income of the first interim period
c.the cumulative effect of the change should be allocated to the current and remaining
interim periods of the year
d.none of these
20) Which of the following is not part of the information about foreign operations that
is required to be disclosed?
a.Revenues from external customers
b.Operating profit or loss, net income, or some other common measure of profitability
c.Capital expenditures
d.Long-lived assets
21) What is the underlying reason a governmental unit uses separate funds to account
for its transactions?
a.Governmental units are so large that it would be unduly cumbersome to account for
all transactions as a single unit
b.Because of the diverse nature of the services offered and legal provisions regarding
activities of a governmental unit, it is necessary to segregate activities by functional
nature
c.Generally accepted accounting principles require that nonbusiness entities report on a
funds basis
d.Many activities carried on by governmental units are short-lived and their inclusion in
a general set of accounts could cause undue probability of error and omission
22) Patriot Corporation owns 100% of Simon Companys common stock. On January 1,
2014, Patriot sold equipment with a book value of $350,000 to Simon for $500,000.
Simon is depreciating the equipment over a ten-year life by the straight-line method.
The net adjustments to compute 2014 and 2015 consolidated income would be an
increase (decrease) of
20142015
a.($150,000)$0
b.($150,000)$15,000
c.($135,000)$0
d.($135,000)$15,000
23) What is the method of presentation required by SFAS 160 of non-controlling
interest on a consolidated balance sheet?
a.As a deduction from goodwill from consolidation
b.As a separate item within the long-term liabilities section
c.As a part of stockholders’ equity
d.As a separate item between liabilities and stockholders’ equity
24) Simple Company, a 70%-owned subsidiary of Punter Corporation, reported net
income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3
amortization of differences between current fair values and carrying amounts of
Simple’s identifiable net assets at the date of the business combination was $45,000.
The noncontrolling interest in net income of Simple for Year 3 was
a.$58,500
b.$13,500
c.$27,000
d.$72,000
25) When the value implied by the purchase price of a subsidiary is in excess of the fair
value of identifiable net assets, the workpaper entry to allocate the difference between
implied and book value includes a
1>debit to Difference Between Implied and Book Value.
2>credit to Excess of Implied over Fair Value.
3>credit to Difference Between Implied and Book Value.
a.1
b.2
c.3
d.Both 1 and 2
26) Prime Industries acquired an 80 percent interest in Sands Company by purchasing
24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on
January 1, 2013. Sands reported net income in 2013 of $45,000 and in 2014 of $60,000
earned evenly throughout the respective years. Prime received no bold $12,000
dividends from Sands in 2013 and $18,000 in 2014. Prime uses the equity method to
record its investment.
The balance of Primes Investment in Sands account at December 31, 2014 is:
a.$105,000
b.$138,600
c.$159,000
d.$165,000
27) Under SFAS 141R, what value of the assets and liabilities is reflected in the
financial statements on the acquisition date of a business combination?
a.Carrying value
b.Fair value
c.Book value
d.Average value
28) Describe the difference between the economic entity concept and the parent
company concept approaches to the reporting of subsidiary assets and liabilities in the
consolidated financial statements on the date of the acquisition.
29) Why may it be difficult or impossible for a governmental unit to determine the total
cost of performing a particular activity or function?
30) May board designated funds ever be accounted for in the unrestricted current fund?
Explain.
31) What procedure is used in the consolidated statements workpaper to adjust the
noncontrolling interest in consolidated net assets at the be-ginningbeginning of the year
for the effects of intercompany profits?
32) Why is depreciation on fixed assets not recorded in the records of expendable fund
entities?