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1) White Company owns 60% of Cody Company. Separate tax returns are required. For
2012, White's operating income (excluding taxes and any income from Cody) was
$300,000 while Cody reported a pretax income of $125,000. During the period, Cody
paid a total of $25,000 in cash dividends; $15,000 (60%) to White and $10,000 to the
non-controlling interest. White paid dividends of $180,000. The income tax rate for
both companies is 30%.
Compute White's deferred income taxes for 2013.
A.$6,000.
B.$2,250.
C.$3,150.
D.$11,250.
E.$21,000.
2) Strickland Company sells inventory to its parent, Carter Company, at a profit during
2012. One-third of the inventory is sold by Carter in 2012
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 Strickland Company.
E) Sales.
3) 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 Adjustment to Net Income for the period ended
October 31?
A.$6,000 positive.
B.$6,000 negative.
C.$10,000 positive.
D.$10,000 negative.
E. $14,000 positive.
4) Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2015. Several of Green's accounts have been omitted.
Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's
land was undervalued by $40,000, its buildings were overvalued by $30,000, and
equipment was undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a
16-year remaining life. There was no goodwill associated with this investment.
Compute the December 31, 2015, consolidated revenues.
A) $1,400,000.
B) $ 800,000.
C) $ 500,000.
D) $1,590,375.
E) $1,390,375.
5) Perry Company acquires 100% of the stock of Hurley Corporation on January 1,
2012, for $3,800 cash. As of that date Hurley has the following trial balance;
Compute
the amount of Hurley's land that would be reported in a December 31, 2013,
consolidated balance sheet.
A) $ 900.
B) $1,300.
C) $ 400.
D) $1,450.
E) $2,200.
6) Cayman Inc. bought 30% of Maya Company on January 1, 2013 for $450,000. The
equity method of accounting was used. The book value and fair value of the net assets
of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as
follows:
Maya reported net income of $100,000 in 2013 and $120,000 in 2014 while paying
$40,000 in dividends each year.
What is the Equity in Maya Income that should be reported by Cayman in 2014?
A) $34,200.
B) $34,800.
C) $34,500.
D) $36,000.
E) $37,800.
7) Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May
1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income
of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker
sold the land purchased from Stark in 2012 for $92,000 in 2014.
Compute income from Stark reported on Parker's books for 2014.
A) $204,300.
B) $202,500.
C) $193,500.
D) $191,700.
E) $198,000.
8) Cayman Inc. bought 30% of Maya Company on January 1, 2013 for $450,000. The
equity method of accounting was used. The book value and fair value of the net assets
of Maya on that date were $1,500,000. Maya began supplying inventory to Cayman as
follows:
Maya reported net income of $100,000 in 2013 and $120,000 in 2014 while paying
$40,000 in dividends each year.What is the Equity in Maya Income that should be
reported by Cayman in 2013?
A) $17,100.
B) $18,000.
C) $25,500.
D) $29,100.
E) $30,900.
9) 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. income statement
amount for sales for 2013
A.$364,000
B.$372,000
C.$380,000
D.$360,000
E.$404,000
10) Perez Company, a Mexican subsidiary of a U.S. company, sold equipment costing
200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on
March 1, 2013. The equipment was purchased on January 1, 2012. Relevant exchange
rates for the peso are as follows:
The financial statements for Perez are remeasured by its U.S. parent. What amount of
gain or loss would be reported in its translated income statement?
A.$1,530
B.$1,575
C.$1,590
D.$1,090
E.$1,650
11) Kennedy Company acquired all of the outstanding common stock of Hastie
Company of Canada for U.S. $350,000 on January 1, 2013, when the exchange rate for
the Canadian dollar (CAD) was U.S. $.70. The fair value of the net assets of Hastie was
equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition
consideration excess over fair value was attributed to an unrecorded patent with a
remaining life of five years. The functional currency of Hastie is the Canadian dollar.
For the year ended December 31, 2013, Hastie's trial balance net income was translated
at U.S. $25,000. The average exchange rate for the Canadian dollar during 2013 was
U.S. $.68, and the 2013 year-end exchange rate was U.S. $.65
Kennedy's share of Hastie's net income for 2013 would be
A.$18,000
B.$15,000
C.$18,200
D.$16,000
E.$18,500
12) Acker Inc. bought 40% of Howell Co. on January 1, 2012 for $576,000. The equity
method of accounting was used. The book value and fair value of the net assets of
Howell on that date were $1,440,000. Acker began supplying inventory to Howell as
follows:
Howell reported net income of $100,000 in 2012 and $120,000 in 2013 while paying
$40,000 in dividends each year.
What is the balance in Acker's Investment in Howell account at December 31, 2013?
A) $624,000.
B) $636,000.
C) $646,000.
D) $656,000.
E) $666,000.
13) Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on
September 1, 2014, and an additional 10% on January 1, 2015. Total annual
amortization of $6,000 relates to the first acquisition. George reports the following
figures for 2015:
Without regard for this investment, Keefe independently earns $300,000 in net income
during 2015.
All net income is earned evenly throughout the year.
What is the controlling interest in consolidated net income for 2015?
A) $380,000.
B) $375,200.
C) $375,800.
D) $376,000.
E) $400,000.
14) Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012,
Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard
Farms still owned 12% of the goods at the end of the year. In 2013, Gentry sold goods
with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still
owned 10% of the goods at year-end. For 2013, cost of goods sold was $5,400,000 for
Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold
for 2013?
A) $6,600,000.
B) $6,604,000.
C) $5,620,000.
D) $5,596,000.
E) $5,625,000.
15) A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the
following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to
Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of
the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman,
respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of
$52,000 in the second year.
What was the balance in Thurman's Capital account at the end of the first year?
A.$120,900.
B.$118,300.
C.$126,100.
D.$80,600.
E.$111,500.
16) Baker Corporation changed from the LIFO method to the FIFO method for
inventory valuation during 2013. Baker has an effective income tax rate of 30 percent
and 100,000 shares of common stock issued and outstanding. The following additional
information is available:
Assuming Baker makes the change in the first quarter of 2013 and that $400,000 net
income is earned during the second quarter, how much is reported as net income for the
second quarter of 2013?
A.$400,000
B.$405,200
C.$427,950
D.$894,850
E.$905,200
17) Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2012, by
issuing 11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share
fair value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration transferred over fair value
of assets and liabilities is assigned to an unrecorded patent to be amortized over ten
years.
What was consolidated net income for the year ended December 31, 2013?
18) 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. What was the balance in the investment account at December 31, 2013?
A) $517,500.
B) $537,500.
C) $520,000.
D) $540,000.
E) $211,250.
19)
Patton's operating income excludes income from the investment in Stevens, but
includes $150,000 of unrealized gains on intra-entity transfers of inventory. Patton uses
the initial value method to account for the investment in Stevens.
Assume Patton owns 90 percent of the voting stock of Stevens and they each file
separate income tax returns. What amount of total income tax would be paid?
20) On January 1, 2013, the partners of Won, Cadel, and Dax (who shared profits and
losses in the ratio of 5:3:2, respectively) decided to liquidate their partnership. The trial
balance at this date was as follows:
The partners planned a program of piecemeal conversion of the business assets to
minimize liquidation losses. All available cash, less an amount retained to provide for
future expenses, was to be distributed to the partners at the end of each month. A
summary of liquidation transactions follows:
Prepare a schedule to calculate the safe payments to be made to the partners at the end
of January.
21) The executor of Danny Mack's estate has listed the following properties at fair
value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and
Bonds $50,000, Rental Property $100,000, and Personal Property $80,000.
Additionally, the executor found $100,000 of various debts incurred before the
decedent's death. The cost of Danny Mack's funeral was $20,000.
Prepare the journal entry to record interest of $5,000 that was earned on the bonds of
the estate. Of this amount, $2,000 had been earned prior to death.
22) Bale Co. acquired Silo Inc. on December 31, 2013, in an acquisition business
combination transaction. Bale's net income for the year was $1,400,000, while Silo had
net income of $400,000 earned evenly during the year. Bale paid $100,000 in direct
combination costs, $50,000 in indirect costs, and $30,000 in stock issue costs to effect
the combination.
Required:
What is consolidated net income for 2013?
23) Dura Foundation, a voluntary health and welfare organization dedicated to finding
medical cures and supported by contributions from the general public, included the
following costs in its Statement of Functional Expenses for the year ended December
31, 2013:
What should Dura Foundation report as supporting service expenses?
24) On February 23, 2013, Cleveland, Inc. paid property taxes of $300,000 for the
calendar year 2013
Prepare the journal entry for the payment of property taxes on February 23, 2013
25) During the most recent year, an estate generated income of $26,000:
The interest income was conveyed immediately to the beneficiary stated in the
decedent's will. Dividends of $1,560 were given to the decedent's church.
Prepare a schedule to show the amount of federal income tax that must be paid.
26) The executor of the Estate of Kate Tweed discovered the following assets (at fair
value):
The will of Kate Tweed had the following provisions:
€¢ $195,000 in cash went to Victor Vickery.
€¢ All shares of PepsiCo went to Duchess Doyle.
€¢ The residence went to Louis Tweed.
€¢ All other estate assets were to be liquidated with the resulting cash going to the
Sacred Church of Liberty, Missouri.
Prepare the journal entry to record the property of the estate.
27) Salem Co. had the following account balances as of December 1, 2012:
Bellington Inc.
transferred $1.7 million in cash and 12,000 shares of its newly issued $30 par value
common stock (valued at $90 per share) to acquire all of Salem's outstanding common
stock.
Assume that Bellington paid cash of $2.8 million. No stock is issued. An additional
$50,000 is paid in direct combination costs.
Required:
For Goodwill, determine what balance would be included in a December 1, 2012
consolidation.
28) Dithers Inc. acquired all of the common stock of Bumstead Corp. on January 1,
2013. During 2013, Bumstead sold land to Dithers at a gain. No consolidation entry for
the sale of the land was made at the end of 2013. What errors will this omission cause
in the consolidated financial statements?
