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2) On January 3, 2013, Austin Corp. purchased 25% of the voting common stock of
Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account
for this investment. At the time of the investment, Gainsville's total stockholders' equity
was $8,000,000. Austin gathered the following information about Gainsville's assets
and liabilities:
For all other assets and liabilities, book value and fair value were equal. Any excess of
cost over fair value was attributed to goodwill, which has not been impaired.
For 2013, what is the total amount of excess amortization for Austin's 25% investment
in Gainsville?
A) $ 27,500.
B) $ 20,000.
C) $ 30,000.
D) $120,000.
E) $ 70,000.
4) On January 4, 2012, Trycker, Inc. acquired 40% of the outstanding common stock of
Inkblot Co. for $2,400,000. This investment gave Trycker the ability to exercise
significant influence over Inkblot. Inkblot's assets on that date were recorded at
$8,000,000 with liabilities of $2,000,000. There were no other differences between
book and fair values.
During 2012, Inkblot reported net income of $500,000 and paid dividends of $300,000.
The fair value of Inkblot at December 31, 2012 is $7,000,000. Trycker elects the fair
value option for its investment in Inkblot.
How are dividends received from Inkblot reflected in Trycker's accounting records for
2012?
A) Reduce investment in Inkblot by $280,000.
B) Increase Investment in Inkblot by $280,000.
C) Reduce Investment in Inkblot by $120,000.
D) Increase Investment in Inkblot by $120,000.
E) Increase Dividend Income by $120,000.
5) On October 1, 2013, Eagle Company forecasts the purchase of inventory from a
British supplier on February 1, 2014, at a price of 100,000 British pounds. On October
1, 2013, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a
strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a
forecasted foreign currency transaction. On December 31, 2013, the option has a fair
value of $1,600. The following spot exchange rates apply:
What is the amount of Cost of Goods Sold for 2014 as a result of these transactions?
A.$200,000
B.$195,000
C.$201,000
D.$202,600
E.$203,000
6) 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
2012 consolidation worksheet with regard to unrealized gross profit of the intra-entity
transfer of merchandise?
A) $ 300.
B) $ 240.
C) $2,000.
D) $1,600.
E) $ 270.
7) On January 4, 2013, Mason Co. purchased 40,000 shares (40%) of the common stock
of Hefly Corp., paying $560,000. At that time, the book value and fair value of Hefly's
net assets was $1,400,000. The investment gave Mason the ability to exercise
significant influence over the operations of Hefly. During 2013, Hefly reported income
of $150,000 and paid dividends of $40,000. On January 2, 2014, Mason sold 10,000
shares for $150,000.
What is the gain/loss on the sale of the 10,000 shares?
A) $20,000 gain.
B) $10,000 gain.
C) $1,000 gain.
D) $1,000 loss.
E) $10,000 loss.
8) 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.
On May 1, 2012, what value is assigned to Riley's investment account?
A) $ 150,000.
B) $ 300,000.
C) $ 750,000.
D) $ 760,000.
E) $1,350,000.
9) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.
Demers reported common stock of $300,000 and retained earnings of $210,000 on that
date. Equipment was undervalued by $30,000 and buildings were undervalued by
$40,000, each having a 10-year remaining life. Any excess consideration transferred
over fair value was attributed to goodwill with an indefinite life. Based on an annual
review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the EQUITY METHOD is applied.
Compute Pell's investment account balance in Demers at December 31, 2014.
A) $580,000.
B) $574,400.
C) $548,000.
D) $542,400.
E) $541,000.
10) 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. balance sheet
amount for accumulated depreciation for 2013
A.$40,950
B.$41,850
C.$45,450
D.$42,750
E.$44,100
11) Consolidated accounts payable decreased by $7,000.
Where does the non-controlling interest in Stage's net income appear on a consolidated
statement of cash flows?
A) $30,000 added to net income as an operating activity on the consolidated statement
of cash flows.
B) $30,000 deducted from net income as an operating activity on the consolidated
statement of cash flows.
C) $30,000 increase as an investing activity on the consolidated statement of cash
flows.
D) $30,000 decrease as an investing activity on the consolidated statement of cash
flows.
E) Non-controlling interest in Stage's net income does not appear on a consolidated
statement of cash flows.
12) Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.
Demers reported common stock of $300,000 and retained earnings of $210,000 on that
date. Equipment was undervalued by $30,000 and buildings were undervalued by
$40,000, each having a 10-year remaining life. Any excess consideration transferred
over fair value was attributed to goodwill with an indefinite life. Based on an annual
review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the EQUITY METHOD is applied.
Compute Pell's investment account balance in Demers at December 31, 2015.
A) $577,200.
B) $604,000.
C) $592,800.
D) $632,800.
E) $572,000.
13) A foreign subsidiary uses the first-in first-out inventory method. The following
inventory balances are given at December 31, 2013 in local currency units (LCU):
Compute the December 31, 2013, inventory balance using the current rate method.
A.$454,400
B.$457,600
C.$596,400
D.$568,000
E.$426,000
