1) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1,
2013. The book value and fair value of Vicker’s accounts on that date (prior to creating
the combination) follow, along with the book value of Bullen’s accounts:
Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value
of $500,000 for all of the outstanding shares of Vicker in an acquisition business
combination. What will be the balance in the consolidated Inventory and Land
accounts?
A) $440,000, $496,000.
B) $440,000, $520,000.
C) $425,000, $505,000.
D) $400,000, $500,000.
E) $427,000, $510,000.
2) Belsen purchased inventory on December 1, 2012 Payment of 200,000 stickles was
to be made in sixty days. Also on December 1, Belsen signed a contract to purchase
§200,000 in sixty days. The spot rate was §1 = .35714, and the 60-day forward rate was
§1 = $.38462 On December 31, the spot rate was §1 = .34483 and the 30-day forward
rate was §1 = .38168. Assume an annual interest rate of 12% and a fair value hedge.
The present value for one month at 12% is .9901
In the journal entry to record the establishment of a forward exchange contract, at what
amount should the Forward Contract account be recorded on December 1?
A.$71,428
B.$76,924
C.$588
D.$582
E.$0, since there is no cost, there is no value for the contract at this date.
3) 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.
At what amount will Inkblot be reflected in Trycker’s December 31, 2012 balance
sheet?
A) $2,400,000.
B) $2,280,000.
C) $2,480,000.
D) $2,800,000.
E) $7,000,000.
4) Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On
January 1, 2011, Dalton acquired a building with a ten-year life for $420,000. No
salvage value was anticipated and the building was to be depreciated on the straight-line
basis. On January 1, 2013, Dalton sold this building to Shrugs for $392,000. At that
time, the building had a remaining life of eight years but still no expected salvage value.
In preparing financial statements for 2013, how does this transfer affect the calculation
of Dalton’s share of consolidated net income?
A) Consolidated net income must be reduced by $44,800.
B) Consolidated net income must be reduced by $50,400.
C) Consolidated net income must be reduced by $49,000.
D) Consolidated net income must be reduced by $56,000.
E) Consolidated net income must be reduced by $34,300.
5) Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of
Gamma, Inc. all of which are domestic corporations. Information for the three
companies for the year ending December 31, 2013 follows:
What is Alpha’s accrual-based income for 2013?
A.$564,000.
B.$564,800.
C.$572,200.
D.$580,000.
E.$600,000.
6) On January 1, 2012, Mehan, Incorporated purchased 15,000 shares of Cook
Company for $150,000 giving Mehan a 15% ownership of Cook. On January 1, 2013
Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last
purchase gave Mehan the ability to apply significant influence over Cook. The book
value of Cook on January 1, 2012, was $1,000,000. The book value of Cook on January
1, 2013, was $1,150,000. Any excess of cost over book value for this second transaction
is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
On April 1, 2014, just after its first dividend receipt, Mehan sells 10,000 shares of its
investment. How much income did Mehan report from Cook during 2013?
A) $90,000.
B) $110,000.
C) $67,500.
D) $87,500.
E) $78,750.
7) A company sells a building to a bank in 2013 at a gain of $100,000 and immediately
leases the building back for period of five years. The lease is accounted for as an
operating lease. The building was originally purchased for $200,000 and currently had a
book value of $50,000 at the date of the sale.
Assume the seller of the building is a U.S. company that is preparing to convert from
U.S. GAAP to IFRS. At December 31, 2014, with regard to the sale and leaseback
accounting, what amount would reconcile stockholders’ equity from U.S. GAAP to
IFRS at December 31, 2014?
A.Increase $40,000.
B.Decrease $40,000.
C.Decrease $60,000.
D.Increase $60,000.
E.No amount would be necessary for reconciliation.
8) Pepe, Incorporated acquired 60% of Devin Company on January 1, 2012. On that
date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000
and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin
reported net income of $300,000 and $325,000 for 2012 and 2013, respectively. Pepe
uses the equity method to account for its investment in Devin.
Compute the non-controlling interest in the net income of Devin for 2012.
A) $116,400.
B) $120,400.
C) $120,000.
D) $123,200.
E) $112,000.
9) Presented below are the financial balances for the Atwood Company and the Franz
Company as of December 31, 2012, immediately before Atwood acquired Franz. Also
included are the fair values for Franz Company’s net assets at that date.
Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31, 2012. Atwood issued 50
shares of its common stock with a fair value of $35 per share for all of the outstanding
common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of
$10 (in thousands) were paid to effect this acquisition transaction. To settle a difference
of opinion regarding Franz’s fair value, Atwood promises to pay an additional $5.2 (in
thousands) to the former owners if Franz’s earnings exceed a certain sum during the
next year. Given the probability of the required contingency payment and utilizing a 4%
discount rate, the expected present value of the contingency is $5 (in thousands).
Compute consolidated revenues at date of acquisition.
A) $3,540.
B) $2,880.
C) $1,170.
D) $1,650.
E) $4,050.
10) On March 1, 2013, Mattie Company received an order to sell a machine to a
customer in England at a price of 200,000 British pounds. The machine was shipped
and payment was received on March 1, 2014. On March 1, 2013, Mattie purchased a
put option giving it the right to sell 200,000 British pounds on March 1, 2014 at a price
of $380,000. Mattie properly designates the option as a fair hedge of the pound firm
commitment. The option cost $2,000 and had a fair value of $2,200 on December 31,
2013. The following spot exchange rates apply:
Mattie’s incremental borrowing rate is 12 percent, and the present value factor for two
months at a 12 percent annual rate is .9803
What was the net impact on Mattie’s 2014 income as a result of this fair value hedge of
a firm commitment?
A.$379,760.60 decrease.
B.$8,360.60 increase.
C.$8,360.60 decrease.
D.$4,390.40 decrease.
E. $379,760.60 increase.
11) The appropriate format of the December 31, 2012 closing entry for John & Hope
Limited Liability Partnership, whose two partners had withdrawn their salaries from the
partnership during the year is:
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
12) Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent
of Gamma, Inc. all of which are domestic corporations. Information for the three
companies for the year ending December 31, 2013 follows:
What is Gamma’s accrual-based income for 2013?
A.$76,000.
B.$80,000.
C.$96,000.
D.$100,000.
E.$104,000.
13) Esposito is an Italian subsidiary of a U.S. company.
Esposito’s ending inventory is valued at the average cost for the last quarter of the year.
The following account balances are available for Esposito for 2013:
Compute the cost of goods sold for 2013 in U.S. dollars using the current rate method.
A.$376,550
B.$387,750
C.$388,800
D.$400,950
E.$409,050