1) If all partners are included in the first installment of an installment liquidation, then
in future installments
A) cash will be distributed according to the residual profit and loss sharing ratios
B) cash should not be distributed until all non-cash assets are converted into cash
C) vulnerability rankings for each partner should be prepared
D) a cash distribution plan must be prepared so that partners will know when they will
be included in cash distributions
2) A donor gives a Voluntary Health and Welfare Organization(VHWO) $1,000 cash
that is restricted for a research project. What account does the VHWO credit when the
VHWO receives the money?
A) Nonoperating Revenue
B) Permanently Restricted Revenue
C) Unrestricted Support
D) Temporarily Restricted Support
3) When preparing the consolidation workpaper for a company and its controlled
subsidiary, which of the following would be used for the entities being consolidated?
A) Post-closing trial balances
B) Adjusted trial balances
C) Unadjusted trial balances
D) The adjusted trial balance for the parent and the unadjusted trial balance for all
controlled subsidiaries
4) As default risk increases, the expected return on corporate bonds ________, and the
return becomes ________ uncertain, everything else held constant
A) increases; less
B) increases; more
C) decreases; less
D) decreases; more
5) Bertram and Ernest share profits and losses equally after salary and interest
allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000,
respectively, and both partners receive 10% interest on their average capital balances.
Average capital balances are calculated at the beginning of each month, regardless of
when additional capital contributions or permanent withdrawals are made subsequently
within the month. Partners’ drawings of $3,000 per month are not used in determining
the average capital balances. Total net income for 2011 is $240,000.
BertramErnest
January 1 capital balances$200,000$240,000
Yearly drawings ($3,000 a month)(36,000)(36,000)
Permanent withdrawals of capital:
June 3(24,000)
May 2(30,000)
Additional investments of capital:
July 380,000
October 2100,000
If the average capital for Bertram and Ernest from the above information is $224,000
and $238,000, respectively, what will be the total amount of profit allocated to salary
and interest distributions?
A) $ 93,800
B) $146,200
C) $218,200
D) $240,000
6) When the yield curve is flat or downward-sloping, it suggest that the economy is
more likely to enter
A) a recession
B) an expansion
C) a boom time
D) a period of increasing output
7) On January 1, 2011, a Voluntary Health and Welfare Organization (VHWO) receives
an unconditional promise to give $6,000. The money is not collectible until 2012 . The
VHWO estimates that 10% of pledges are uncollectible. On January 1, 2011, the
VHWO will credit
A) Unrestricted Support – Contribution, $6,000
B) Allowance for Uncollectible Contributions $600, and Unrestricted Support –
Contribution, $5,400
C) Allowance for Uncollectible Contributions $600, Temporarily Restricted Support –
Contribution, $5,400
D) Allowance for Uncollectible Contributions $600, Contribution Revenue $5,400
8) On December 31, 2010, Parminter Corporation owns an 80% interest in the common
stock of Sanchez Corporation and an 80% interest in Sanchez’s preferred stock. On
December 31, 2010, Sanchez’s stockholders’ equity was as follows:
10% preferred stock, cumulative, $10 par value $50,000
Common stock350,000
Retained earnings100,000
Total stockholders’ equity$500,000
On December 31, 2010, preferred dividends are not in arrears. Sanchez had 2011 net
income of $30,000 and only preferred dividends are declared and paid in 2011 . There
are no book value/fair value differentials associated with Parminter’s investments.
How much should the Parminter’s Investment in SanchezCommon Stock, change during
2011?
A) $5,000
B) $20,000
C) $25,000
D) $30,000
9) 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.
With respect to the bond purchase, the consolidated income statement of Pfadt
Corporation and Subsidiary for 2011 showed a gain or loss of
A) $ 4,500
B) $ 5,000
C) $10,800
D) $12,000
10) The following are transactions for the city of Salem.
a.Incurred salaries of $44,000 to be paid next month.
b.Tax bills totaling $500,000 mailed to city residents.
c.Paid salaries above.
d.Computer equipment received in the amount of $11,000, to be paid in 30 days.
Required:
Analyze the above transactions by using the accounting equation for a proprietary fund.
11) The exchange rates between the Australian dollar and the U.S. dollar were as
follows:
Jun 11$AUS = $.8328US
Jul 11$AUS = $.8356US
Aug 11$AUS = $.9111US
This chart shows a
A) strengthening Australian Dollar which makes it less expensive for Americans to buy
Australian goods
B) weakening Australian dollar which makes it less expensive for Americans to buy
Australian goods
C) strengthening Australian dollar which makes it more expensive for Americans to buy
Australian goods
D) weakening Australian dollar which makes it more expensive for Americans to buy
Australian goods
12) Pelican Corporation acquired a 25% interest in Seafare Incorporated at book value
several years ago. Seafare declared $100,000 dividends in 2010 and reported its income
for the year as follows:
Income from continuing operations$600,000
Loss on discontinued division(100,000)
Net income$500,000
Pelican’s Investment in Seafare account for 2010 should increase by
A) $ 100,000
B) $ 125,000
C) $ 150,000
D) $ 180,000
13) What is the proper disposition of a partnership loan that was made from a partner
who has a debit balance in the capital account?
A) The loan is ignored in liquidation
B) The loan is offset against the debit balance in the capital account
C) The loan is charged off to the capital accounts of all the partners in their profit and
loss sharing ratios
D) The loan is held for payment after all other capital accounts are covered
14) On January 1, 2011, Pendal Corporation purchased 25% of the outstanding common
stock of Sedda Corporation for $100,000 cash. Book value and fair value of Sedda’s
assets and liabilities at the time of acquisition are shown below.
AssetsBookFair
ValuesValues
Cash$40,000$40,000
Accounts receivable100,00090,000
Inventories40,00050,000
Equipment 180,000 210,000
$360,000$390,000
Liabilities & Equities
Accounts payable$110,000$110,000
Note payable50,00040,000
Capital stock100,000
Retained earnings 100,000
$360,000$150,000
Required:
Prepare an allocation schedule for Pendal’s investment in Sedda.
15) Which of the following bonds are considered to be default-risk free?
A) Municipal bonds
B) Investment-grade bonds
C) US Treasury bonds
D) Junk bonds
16) Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on
January 1, 2011, when Sarabet’s stockholders’ equity consisted of $250,000 Common
Stock and $50,000 Retained Earnings. The book values and fair values of Sarabet’s
assets and liabilities were equal when Pascoe acquired its interest.
The separate net incomes (excluding investment income) of Pascoe and Sarabet for
2011 were $600,000 and $100,000, respectively. Dividends declared and paid during
2011 were $250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity theory
in consolidating its financial statements with those of Sarabet.
Goodwill was reported in the December 31, 2011 consolidated balance sheet at
A) $170,000
B) $180,000
C) $200,000
D) $210,000
17) When performing a consolidation, if the balance sheet does not balance,
A) that indicates that the Investment in Subsidiary account on the parent’s books should
not be adjusted to -0-, because there is excess value represented in the investment
B) it is usually because of the noncontrolling interest, as these amounts do not appear
on the companies’ general ledgers
C) the debit and credit totals of the adjusting/eliminating columns of the consolidation
working paper should be checked to confirm that they balance, and if so, then there is
no need to check the individual line items
D) the amount that it is “off” will always equal the noncontrolling interest in the current
year net income of the subsidiary
18) What is the current annual gift amount that can be left to an individual donee,
without being subject to a federal gift tax?
A) $6,500
B) $13,000
C) $19,500
D) $26,000
19) Griffon Incorporated holds a 30% ownership in Duck Corporation. Griffon should
use the equity method under which of the following circumstances?
A) Griffon has surrendered significant stockholder rights by agreement between Griffon
and Duck
B) Griffon has been unable to secure a position on the Duck Corporation’s Board of
Directors
C) Griffon has inadequate or untimely information to apply the equity method
D) The ownership of Duck Corporation is diverse
20) Alitech Corporation is liquidating under Chapter 7 of the Bankruptcy Act. The
accounts of Alitech at the time of filing are summarized as follows:
Estimated
Realizable
Book ValueValue
Cash$10,000$10,000
Accounts receivable-net60,00050,000
Inventory110,00065,000
Land20,00035,000
Building200,000126,000
Goodwill22,000
$422,000
Accounts payable$120,000
Wages and salaries30,000
Taxes payable80,000
Accrued mortgage interest payable22,000
Mortgage payable100,000
Capital stock90,000
Deficit(20,000)
$422,000
The land and building are pledged as security for the mortgage payable as well as any
accrued interest on the mortgage. Wages and salaries were earned within 90 days of
filing the petition for bankruptcy and do not exceed $10,000 per employee. Liquidation
expenses are expected to be $30,000.
Required:
1>Prepare a schedule showing the priority rankings of the creditors and the expected
payouts.
2>Billing Corporation was a supplier to Alitech Corporation and at the time of Alitech’s
bankruptcy filing, Billing’s account receivable from Alitech was $40,000. On the basis
of the estimates, how much can Billing expect to receive?
21) Powell Corporation acquired 90% of the voting stock of Santer Corporation on
January 1, 2010 for $11,700 when Santer had Capital Stock of $5,000 and Retained
Earnings of $4,000. The amounts reported on the financial statements approximated fair
value, with the exception of inventories, which were understated on the books by $500
and were sold in 2010, land which was undervalued by $1,000, and equipment with a
remaining useful life of 5 years under the straight-line method which was undervalued
by $1,500. Any remainder was assigned to goodwill.
Financial statements for Powell and Santer Corporations at the end of the fiscal year
ended December 31, 2011 appear in the first two columns of the partially completed
consolidation working papers. Powell has accounted for its investment in Santer using
the equity method of accounting. Powell Corporation owed Santer Corporation $100 on
open account at the end of the year. Dividends receivable in the amount of $450
payable from Santer to Powell is included in Powell’s net receivables.
Required:
Complete the consolidation working papers for Powell Corporation and Subsidiary for
the year ended December 31, 2011 .
22) Illiana Corporation has several accounting issues with respect to its interim
financial statements for the first quarter of calendar 2011 .
Required:
For each of the independent situations given below, state whether or not the method
proposed by Illiana is acceptable. Justify each answer with appropriate reasoning.
1>. Illiana will not perform a physical inventory at the end of the calendar quarter. It
intends to estimate the cost of sales by using the gross profit inventory method.
2> Illiana grants volume discounts to its customers based upon their total annual
purchases. The discounts are calculated on a sliding scale ranging from 1% to 8%. The
amount of discount applied will progressively increase for a customer as the cumulative
purchase total for the customer increases during the year. Illiana will use the average
rate of discounts earned for each customer in the prior year as the expected discount
rate for the current year.
3> At the beginning of the current quarter, Illiana incurred a large loss on the sale of
some of its marketable securities. It intends to distribute the loss evenly to each of the
four calendar quarters.
4> Illiana incurs maintenance costs during its year-end holiday shut down, but has
minimal maintenance costs during the rest of the year. It intends to deduct one-fourth of
the yearly estimated cost on its interim income statement.
23) Behd Company, a U.S. firm, sold some of its inventory to Edinburgo Company, a
company based in Scotland, on November 27, 2011, when the local currency unit (the
pound Sterling, “GBP”) was trading at $1.64 : 1 GBP. The sales agreement called for
Edinburgo to pay 140,000 GBP on January 26, 2012 . Additional exchange rates are
shown below:
December 31, 2011$1.7125
January 26, 2012$1.7220
Required:
Show all related journal entries for Behd Company.
24) Blue Corporation, a U.S. manufacturer, sold goods to their customer in Hungary on
December 12, 2011 for 6,000,000 Hungarian forints. The customer agreed to pay in
Hungarian forints in 30 days. When the customer wired the foreign currency to Blue on
January 11, 2012, Blue held them in their bank account until January 15 before selling
them and converting them to U.S. dollars. The following exchange rates apply:
Dec 12, 2011$0.0055
Dec 31, 2011$0.0049
Jan 11, 2012$0.0063
Jan 15, 2012$0.0059
Required:
Record the journal entries that Blue would need related to the dates listed above. If no
entry is required, state “no entry.”
25) Pool Industries paid $540,000 to purchase 75% of the outstanding stock of
Swimmin Corporation, on December 31, 2011 . Any excess fair value over the
identified assets and liabilities is attributed to goodwill. The following year-end
information was available just before the purchase:
PoolSwimmin Swimmin
BookBook Fair
ValueValueValue
Cash$756,000$80,000$80,000
Accounts Receivable260,000152,000152,000
Inventory480,000100,000120,000
Land440,000160,000140,000
Plant and equipment-net1,320,000400,000430,000
$3,256,000$892,000$922,000
Accounts Payable$880,000$22,000$22,000
Bonds Payable936,000200,000180,000
Capital stock, $10 par value400,000
Capital stock, $15 par value450,000
Additional paid-in capital400,000160,000
Retained earnings640,00060,000
$3,256,000$892,000
Required:
Prepare Pool’s consolidated balance sheet on December 31, 2011 .
