In a business combination, which of the following will occur?
A) All identifiable assets and liabilities are recorded at fair value at the date of
acquisition.
B) All identifiable assets and liabilities are recorded at book value at the date of
acquisition.
C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book
value of the net assets acquired.
D) None of the above is correct.
Assume Paris’s inventory account had a book value of $40,000 and a fair value of
$44,000 on January 1, 2014. Using the parent company theory, what was the amount
reported on the consolidated balance sheet for inventories on January 1, 2014?
A) $65,000
B) $66,000
C) $69,000
D) $70,000
Salter has a 2014 net loss of $200,000. No dividends are declared or paid in 2014. What
is the change in Pardy’s Investment in Salter for the year ending December 31, 2014?
A) $ 50,000
B) $ 70,000
C) $140,000
D) $210,000
For internal decision-making purposes, Dashwood Corporation’s operating segments
have been identified as follows:
Revenues of the segments are external, with the exception of tools, which sold
$400,000 to other segments, and Appliances, which sold $200,000 to other segments.
Required:
1. In applying the “revenue” test to identify reporting segments, what is the test value
for Dashwood Corporation?
2. Using the “revenue” test, which of Dashwood’s operating segments will also be
reportable segments?
Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was
then dissolved. Salt had no liabilities. The fair values of Salt’s assets were $3,750,000.
Salt’s only non-current assets were land and buildings with book values of $100,000
and $520,000, respectively, and fair values of $180,000 and $730,000, respectively. At
what value will the buildings be recorded by Pepper?
A) $730,000
B) $520,000
C) $210,000
D) $0
According to FASB Statement 141R, which one of the following items may not be
accounted for as an intangible asset apart from goodwill?
A) A production backlog
B) A valuable employee workforce
C) Noncontractual customer relationships
D) Employment contracts
Under the entity theory, what amount of goodwill was reported on the consolidated
balance sheet at December 31, 2014?
A) $185,000
B) $191,250
C) $193,000
D) $200,000
Assume that Pansy has significant influence and uses the equity method of accounting
for its investment in Sunflower. The balance in the Investment in Sunflower account at
December 31, 2015 was
A) $78,200.
B) $80,000.
C) $81,800.
D) $83,300.
In the business combination of Polka and Spot
A) the costs of registering and issuing the securities are included as part of the purchase
price for Spot.
B) the salaries of Polka’s employees assigned to the merger are treated as expenses.
C) all of the costs except those of registering and issuing the securities are included in
the purchase price of Spot.
D) only the accounting and legal fees are included in the purchase price of Spot.
Assuming a present value factor of 1 for simplicity, what is the fair value of this
forward contract on January 31?
A) $-0-
B) $ 60 asset
C) $160 liability
D) $200 liability
Pali Corporation exchanges 200,000 shares of newly issued $10 par value common
stock with a fair market value of $40 per share for all the outstanding $5 par value
common stock of Shingle Incorporated, which continues on as a legal entity. Fair value
approximated book value for all assets and liabilities of Shingle. Pali paid the following
costs and expenses related to the business combination:
Required: Prepare the journal entries relating to the above acquisition and payments
incurred by Pali, assuming all costs were paid in cash.
A summary balance sheet for the partnership of Maddy, Nelson and Olsen on December
31, 2014 is shown below. Partners Maddy, Nelson and Olsen allocate profit and loss in
their respective ratios of 9:6:10.
The partners agree to admit Poosh for a one-tenth interest. The fair market value for
partnership land is $180,000, and the fair market value of the inventory is $150,000.
Required:
1.Record the entry to revalue the partnership assets prior to the admission of Poosh.
2.Calculate how much Poosh will have to invest to acquire a 10% interest.
3.Assume the partnership assets are not revalued. If Poosh paid $200,000 to the
partnership in exchange for a 10% interest, what is the bonus that is allocated to each
partner’s capital account?
A summary balance sheet for the Akerly, Baskin, and Crow partnership on December
31, 2014 is shown below. Partners Akerly, Baskin, and Crow allocate profit and loss in
their respective ratios of 3:2:1. The partnership agreed to pay partner Baskin $500,000
for his partnership interest upon his retirement from the partnership on January 1, 2015.
The partnership financials on January 1, 2015 are:
Required:
Prepare the journal entry to reflect Baskin’s retirement from the partnership:
1.Assuming a bonus to Baskin.
2.Assuming a revaluation of total partnership capital based on excess payment.
3.Assuming goodwill equal to the excess payment is recorded.
Plane Corporation, a U.S. company, owns 100% of Shipp Corporation, a Libyan
company. Shipp’s equipment was acquired on the following dates (amounts are stated in
Libyan dinars):
Jan. 01, 2014 Purchased equipment for 40,000 dinars
Jul. 01, 2014 Purchased equipment for 80,000 dinars
Jan. 01, 2015 Purchased equipment for 50,000 dinars
Jul. 01, 2015 Sold equipment purchased on Jan. 01, 2014 for 35,000 dinars
Exchange rates for the Libyan dinars on various dates are:
Shipp’s equipment has an estimated 5-year life with no salvage value and is depreciated
using the straight-line method, calculating depreciation expense on a monthly basis.
Shipp’s functional currency is the U.S. dollar, but the company uses the Libyan dinar as
its reporting currency.
Required:
1. Determine the value of Shipp’s equipment account on December 31, 2015 in U.S.
dollars.
2. Determine Shipp’s depreciation expense for 2015 in U.S. dollars.
3. Determine the gain or loss from the sale of equipment on July 1, 2015 in U.S. dollars.
On December 31, 2013, Peris Company acquired Shanta Company’s outstanding stock
by paying $400,000 cash and issuing 10,000 shares of its own $30 par value common
stock, when the market price was $32 per share. Peris paid legal and accounting fees
amounting to $35,000 in addition to stock issuance costs of $8,000. Shanta is dissolved
on the date of the acquisition. Balance sheet information for Peris and Shanta
immediately preceding the acquisition is shown below, including fair values for
Shanta’s assets and liabilities.
Required: Determine the consolidated balances which Peris would present on their
consolidated balance sheet for the following accounts.
Cash
Inventory
Construction Permits
Goodwill
Notes Payable
Common Stock
Additional Paid in Capital
Retained Earnings
Leotronix Corporation estimates its income by calendar quarter as follows for 2014:
Required:
Determine Leotronix’s estimated effective tax rate.
The partnership of May, Novem, and Octo was dissolved. By August 1, 2014, all assets
had been converted into cash and all partnership liabilities were paid. The partnership
balance sheet on August 1, 2014 (with partner residual profit and loss sharing
percentages) was as follows:
The value of partners’ personal assets and liabilities on August 1, 2014 were as follows:
Required:
Prepare the final statement of partnership liquidation.
For internal decision-making purposes, Elom Corporation’s operating segments have
been identified as follows:
Corporate assets are typically allocated back evenly to the segments for internal
analysis purposes.
Required:
1. In applying the “asset” test to identify reporting segments, what is the test value for
Elom Corporation?
2. Using the “asset” test, which of Elom’s operating segments will also be reporting
segments?
The City of Electri entered the following transactions during 2014:
1.Borrowed $120,000 for a six-month term, to be paid upon receipt of property tax
payments which were previously billed.
2.Used the funds borrowed to purchase a new fire truck. The truck is expected to have a
15-year useful life, and a $5,000 residual value.
3.Received $90,000 cash from a state grant. Funds are restricted for the purchase of a
second fire truck.
4.Used the grant funds received to purchase a second fire truck. The truck is expected to
have a 15-year useful life, and a $5,000 residual value.
5.Nonreciprocal transfer of $50,000 to the Debt Service Fund to be used toward
repayment of the note.
Required:
Prepare the journal entries in the General Fund for the transactions.