1) The following information pertains to inventory held by a company at December 31,
2013.
What amount of inventory should be reported under U.S. GAAP?
A.$25,000.
B.$21,000.
C.$20,000.
D.$16,800.
E.$16,000.
2) Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with
investments of $100,000, $150,000, and $200,000, respectively. For division of income,
they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual
compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss
in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was
$150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was Nolan’s total share of net income for 2012?
A.$63,000.
B.$53,000.
C.$58,000.
D.$29,000.
E.$51,000.
3) Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during
2012. One-third of the inventory is sold by Walsh uses the equity method to account for
its investment in Fisher.
In the consolidation worksheet for 2012, which of the following choices would be a
debit entry to eliminate the intra-entity transfer of inventory?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Fisher Company.
E) Sales.
4) River Co. owned 80% of Boat Inc. The two companies filed a consolidated income
tax return and River used the initial value method to account for the investment. The
following information was available from the two companies’ financial statements:
Operating income included net unrealized gains, which are associated with transfers of
inventories between the two companies, but it did not include dividends received from a
subsidiary. The income tax rate was 30%.
What was the amount of income tax expense that should have been assigned to Boat
using the separate return method?
A.$36,000
B.$31,500
C.$33,390
D.$32,750
E.$32,660
5) Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2014. For 2014, Kailey reported revenues of $810,000 and expenses of $630,000, all
reflected evenly throughout the year. The annual amount of amortization related to this
acquisition was $15,000.
What is the amount of net income to the controlling interest for 2014?
A) $31,000.
B) $33,000.
C) $55,000.
D) $60,000.
E) $39,000.
6) Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at
a price of 250,000 pounds, with delivery and payment to be made on October 24. On
July 24, Woolsey purchased a three-month put option for 250,000 British pounds and
designated this option as a cash flow hedge of a forecasted foreign currency transaction
expected to be completed in late October. The following exchange rates apply:
What amount will Woolsey include as an option expense in net income for the period
July 24 to October 24?
A.$4,000
B.$5,000
C.$10,000
D.$12,000
E.$14,000
7) On January 1, 2012, Dawson, Incorporated, paid $100,000 for a 30% interest in
Sacco Corporation. This investee had assets with a book value of $550,000 and
liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was
actually worth $40,000 with a six year remaining life. Any goodwill associated with this
acquisition is considered to have an indefinite life. During 2012, Sacco reported income
of $50,000 and paid dividends of $20,000 while in 2013 it reported income of $75,000
and dividends of $30,000. Assume Dawson has the ability to significantly influence the
operations of Sacco.
The equity in income of Sacco for 2013, is
A) $22,500.
B) $21,000.
C) $12,000.
D) $13,500.
E) $75,000.
8) Atherton Inc., a U.S. company, expects to order goods from a foreign supplier at a
price of 100,000 lira, with delivery and payment to be made on April 17. On January
17, Atherton purchased a three-month call option on 100,000 lira and designated this
option as a cash flow hedge of a forecasted foreign currency transaction. The following
exchange rates apply:
What amount will Atherton include as an option expense in net income for the period
January 17 to April 17?
A.$4,000
B.$4,260
C.$4,340
D.$5,000
E.$5,260
9) A U.S. company’s foreign subsidiary had the following amounts in stickles (§), the
functional currency, in 2013:
The average exchange rate during 2013 was §1 = $.96. The beginning inventory was
acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired
when the exchange rate was §1 = $.90. The exchange rate at December 31, 2013 was §1
= $.84. At what amount should the foreign subsidiary’s cost of goods sold have been
reflected in the 2013 U.S. dollar income statement?
A.$11,253,600
B.$11,577,600
C.$11,520,000
D.$11,613,600
E.$11,523,600
10) Tower Company owns 85% of Hill Company. The two companies engaged in
several intra-entity transactions. Each company’s operating and dividend income for the
current time period follow, as well as the effects of unrealized gains. No income tax
accruals have been recognized within these totals. The tax rate for each company is
30%.
Under the separate return method, how much income tax expense will be assigned to
Hill?
A.$24,000.
B.$22,857.
C.$24,874.
D.$21,874.
E.$21,000.
11) Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on
January 1, 2012. Janex’s reported earnings for 2012 totaled $432,000, and it paid
$120,000 in dividends during the year. The amortization of allocations related to the
investment was $24,000. Cashen’s net income, not including the investment, was
$3,180,000, and it paid dividends of $900,000.
What is the amount of consolidated net income for the year 2012?
A) $3,180,000.
B) $3,612,000.
C) $3,300,000.
D) $3,588,000.
E) $3,420,000.
12) 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.
Compute the non-controlling interest in Gargiulo’s net income for 2014.
A) $9,400.
B) $9,375.
C) $9,425.
D) $9,325.
E) $8,485.