1) On May 1, 2013, the Phil Company paid $1,200,000 for 80% of the outstanding
common stock of Sage Corporation in a transaction properly accounted for as an
acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2013,
follow:
Cash$100,000
Inventory 200,000
Property & equipment (Net of accumulated depreciation) 800,000
Liabilities(160,000)
On May 1, 2013, it was determined that the inventory of Sage had a fair value of
$220,000 and the property and equipment (net) has a fair value of $1,200,000. What is
the amount of goodwill resulting from the business combination?
a.$0
b.$112,000
c.$140,000
d.$28,000
2) Company S sells equipment to its parent company (P) at a gain. In years subsequent
to the year of the intercompany sale, a workpaper entry is made under the cost method
debiting
a.Retained Earnings – P
b.Noncontrolling interest
c.Equipment
d.all of these
3) When budgeted expenditures are enacted into law, they are referred to as
a.estimated expenditures
b.encumbrances
c.appropriations
d.expenditures
The reserve for encumbrances account is properly considered to be a4) a.current
liability if payable within a year; otherwise, long-term debt
b.fixed liability
c.floating debt
d.reservation of the fund’s equity
5) When the implied value exceeds the aggregate fair values of identifiable net assets,
the residual difference is accounted for as
a.excess of implied over fair value
b.a deferred credit
c.difference between implied and fair value
d.goodwill
6) Pizza Company purchased Salt Company common stock through open-market
purchases as follows:
Acquired
Date Shares Cost
1/1/121,500$ 50,000
1/1/133,300$ 90,000
1/1/146,600$250,000
Salt Company had 12,000 shares of $20 par value common stock outstanding during the
entire period. Salt had the following retained earnings balances on the relevant dates:
January 1, 2012$ 90,000
January 1, 201330,000
January 1, 2014150,000
December 31, 2014300,000
Salt Company declared no dividends in 2012 or 2013 but did declare $60,000 of
dividends in 2014. Any difference between cost and book value is assigned to
subsidiary land. Pizza uses the equity method to account for its investment in Salt.
Required:
A.Prepare the journal entries Pizza Company will make during 2013 and 2014 to
account for its investment in Salt Company.
B.Prepare workpaper eliminating entries necessary to prepare a consolidated statements
workpaper on December 31, 2014.
7) In a partnership, interest on capital investment is accounted for as a(n)
a.return on investment
b.expense
c.allocation of net income
d.reduction of capital
The following balance sheet information is for the partnership of Professor, Mary Ann,
and Skipper:8) Cash$ 210,000Liabilities$ 510,000
Other assets1,500,000Professor, Capital (40%)300,000
Mary Ann, Capital (40%)480,000
Skipper, Capital (20%) 420,000
$1,710,000$1,710,000
Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If the assets are fairly valued on the above balance sheet and the partnership wishes to
admit Mrs. Howell as a new 1/5 partner without recording goodwill or bonus, Mrs.
Howell should invest cash or other assets of
a.$427,500
b.$240,000
c.$300,000
d.$342,000
On January 1, 2013, Pamela Company purchased 75% of the common stock of Snicker
Company. Separate balance sheet data for the companies at the combination date are
given below:9) Snicker Co.Snicker Co.
Pamela Co.Book ValuesFair Values
Cash$ 18,000$155,000$155,000
Accounts receivable108,00020,00020,000
Inventory99,00026,00045,000
Land60,00024,00045,000
Plant assets525,000225,000300,000
Acc. depreciation(180,000)(45,000)
Investment in Snicker Co. 330,000
Total assets$960,000$405,000$565,000
Accounts payable$156,000$105,000$105,000
Capital stock600,000225,000
Retained earnings 204,000 75,000
Total liabilities & equities$960,000$405,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2013.
What amount of inventory will be reported?
a.$125,000
b.$132,750
c.$139,250
d.$144,000
10) On January 1, 2013, Pent Company and Shelter Company had condensed balanced
sheets as follows:
Pent Shelter
Current assets $ 210,000 $ 60,000
Noncurrent assets 270,000 120,000
Total assets $480,000 $180,000
Current liabilities $ 90,000 $ 30,000
Long-term debt 150,000 -0-
Stock holders’ equity 240,000 150,000
Total liabilities & stockholders’ equity $ 480,000 $ 180,000
On January 2, 2013 Pent borrowed $180,000 and used the proceeds to purchase 90% of
the outstanding common stock of Shelter. This debt is payable in 10 equal annual
principal payments, plus interest, starting December 30, 2013. Any difference between
book value and the value implied by the purchase price relates to land.
On Pent’s January 2, 2013 consolidated balance sheet,
Noncurrent liabilities should be
a.$330,000
b.$312,000
c.$180,000
d.$162,000
11) The following account balances, among others, were included in the preclosing trial
balance of the General Fund of the City of Baxter on December 31, 2014.
Appropriations$2,350,000
Cash180,000
Due from Other Funds170,000
Due to Other Funds70,000
Encumbrances250,000
Estimated Revenue2,480,000
Expenditures2,010,000
Expenditures 2013200,000
Reserve for Encumbrances250,000
Reserve for Encumbrances 2013210,000
Revenue2,400,000
Taxes Receivable400,000
Transfers from Other Funds250,000
Transfers to Other Funds350,000
Unreserved Fund Balance280,000
Vouchers Payable270,000
Required:
a.Prepare the necessary closing entries on December 31, 2014.
b.Calculate the amount of both the unreserved fund balance and the total fund balance
in the balance sheet (1) on December 31, 2013, and (2) on December 31, 2014.
12) Park Company acquired a 90% interest in Southwestern Company on December 31,
2013, for $320,000. During 2014 Southwestern had a net income of $22,000 and paid a
cash dividend of $7,000. Applying the cost method would give a debit balance in the
Investment in Stock of Southwestern Company account at the end of 2014 of:
a.$335,000
b.$333,500
c.$313,700
d.$320,000
13) A transaction loss would result from:
a.an increase in the exchange rate applicable to an asset denominated in a foreign
currency
b.a decrease in the exchange rate applicable to a liability denominated in a foreign
currency
c.the import of merchandise when the transaction is denominated in a foreign currency
d.a decrease in the exchange rate applicable to an asset denominated in a foreign
currency
14) Many of FASBs recent pronouncements indicate a shift away from historical cost
accounting toward
a.an elevated status for the Statements of Financial Accounting Concepts
b.convergence of standards
c.fair value accounting
d.representationally faithful reporting
15) Stiff Sails Corporation, a U.S. company, operates a 100%-owned British subsidiary,
SeaBeWe Corporation. The U.S. dollar is the functional currency of the subsidiary.
Financial statements for the subsidiary for the fiscal year-end December 31, 2014, are
as follows:
SeaBeWe Corporation
Income Statement
Pounds
Sales650,000
Cost of Goods Sold
Beginning Inventory310,000
Purchases265,000
Goods Available For Sale575,000
Less: Ending Inventory285,000
Cost of Goods Sold290,000
Depreciation79,000
Selling and Admin. Expenses155,000
Income Taxes 32,000556,000
Net Income 94,000
SeaBeWe Corporation
Partial Balance Sheet
Current AssetsCurrent Liabilities
Cash155,000Notes Payable78,000
Accts. Rec.171,000Accts. Payable165,000
Inventories285,000Other Current Liab. 51,000
611,000294,000
Long-term Liab.250,000
(issued July 1, 2012)
Other Information:
1>Equipment costing 340,000 pounds was acquired July 1, 2012, and 38,000 was
acquired June 30, 2014. Depreciation for the period was as follows:
Equipment 2012 acquisitions66,000
2014 acquisitions6,000
2>The beginning inventory was acquired when the exchange rate was $1.77. The
inventory is valued on a FIFO basis. Purchases and the ending inventory were acquired
evenly throughout the period.
3>Dividends were paid by the subsidiary on June 30 amounting to 156,000 pounds.
4>Sales were made and all expenses were incurred uniformly throughout the year.
5>Exchange rates for the pound on various dates were:
July 1, 2012$1.79
Jan. 1, 20141.75
June 30, 20141.74
Dec. 31, 20141.71
Average for 20141.73
Required:
A.Prepare a schedule to determine the translation gain or loss for 2013, assuming the
net monetary liability position on January 1, 2014, was 180,000 pounds.
B.Compute the dollar amount that each of the following would be reported at in the
2014 financial statements:
1>Cost of Goods Sold.
2>Depreciation Expense.
3>Equipment.
16) Which statement below concerning the accountability and funding of the IASC
Foundation is correct?
a.The IASC Foundation independence is assured through a system of voluntary
contributions from firms in the accounting profession
b.The IASC Foundation is not controlled by any national securities regulators
c.The SEC considers the accountability and funding mechanisms for the IASC
Foundation to be satisfactory
d.Appointments of IASC Foundation Trustees must be approved by the SEC
17) P Company acquired 90% of the outstanding common stock of S Company which is
a foreign company. The acquisition was accounted for using the purchase method. In
preparing consolidated statements, the paid-in capital of S Company should be
converted at the:
a.exchange rate effective when S Company was organized
b.exchange rate effective on the date of purchase of the stock of S Company by P
Company
c.average exchange rate for the period S Company stock has been upheld by P
Company
d.current exchange rate
18) The objective of remeasurement is to:
a.produce the same results as if the books were maintained in the currency of the
foreign entitys largest customer
b.produce the same results as if the books were maintained solely in the local currency
c.produce the same results as if the books were maintained solely in the functional
currency
d.None of the above
19) One of the differences between accounting for a governmental unit and a
commercial unit is that a governmental unit should
a.not record depreciation expense in any of its funds
b.always establish and maintain complete self-balancing accounts for each fund
c.use only the cash basis of accounting
d.use only the modified accrual basis of accounting
20) The excess of fair value over implied value must be allocated to reduce
proportionally the fair values initially assigned to
a.current assets
b.noncurrent assets
c.both current and noncurrent assets
d.none of the above
21) An interfund transfer should be reported in a governmental fund operating
statement as a(n):
a.due from (to) other funds
b.other financing source (use)
c.revenue or expenditure
d.none of the above
22) On January 1, 2013, Pale Company has $700,000 of 6%, 10-year bonds with an
unamortized discount of $28,000.Slugg Company, an 80% subsidiary, purchased
$350,000 of these bonds at 102.The gain or (loss) on the retirement of Pales bonds is:
a.$14,000 loss
b.$14,000 gain
c.$21,000 loss
d.$21,000 gain
23) For each of the following debt restructurings, indicate whether a gain is recognized
and, if so, how the gain is measured and reported. (a)Transfer of assets by the debtor to
the creditor.(b)Grant of an equity interest by the debtor to the creditor.(c)Modification
of the terms of the payable.
24) In considering interim financial reporting, how did the Accounting Principles Board
conclude that each reporting should be viewed?
a.As a ‘special” type of reporting that need not follow generally accepted accounting
principles
b.As useful only if activity is evenly spread throughout the year so that estimates are
unnecessary
c.As reporting for a basic accounting period
d.As reporting for an integral part of an annual period
25) With respect to disclosure requirements for fair value measurements, which of the
following is not be consistent with indicating negatives – I suggest bold and not
underlining one of the three levels in the hierarchy of classifying fair value
measurements?
a.a reconciliation of beginning and ending balances
b.significant unobservable inputs
c.significant other observable inputs
d.quoted prices in active markets for identical assets or liabilities
26) The major difference between IFRS and US GAAP in accounting for inventories is
that
a.US GAAP prohibits the use of specific identification
b.IFRS requires the use of the LIFO cost flow assumption
c.US GAAP prohibits the use of the LIFO cost flow assumption
d.US GAAP allows the use of the LIFO cost flow assumption
27) A wholly owned subsidiary of a U.S. parent company has certain expense accounts
for the year ended December 31, 2014, stated in local currency units (LCU) as follows:
LCU
Depreciation of equipment (related assets
were purchased January 1, 2012)375,000
Provision for doubtful accounts250,000
Rent625,000
The exchange rates at various dates are as follows:
Dollar equivalent
of 1 LCU
December 31, 2014$0.50
Average for year ended December 31, 20140.55
January 1, 20120.40
Assume that the LCU is the subsidiary’s functional currency and that the charges to the
expense accounts occurred approximately evenly during the year. What total dollar
amount should be included in the translated income statement to reflect these expenses?
a.$687,500
b.$625,000
c.$550,000
d.$500,000
28) On January 1, 2014, Pantera Company purchased 40% of Stratton Companys
30,000 shares of voting common stock for a cash payment of $1,800,000 when 40% of
the net book value of Stratton Company was $1,740,000. The payment in excess of the
net book value was attributed to depreciable assets with a remaining useful life of six
years. As a result of this transaction Pantera has the ability to exercise significant
influence over Stratton Companys operating and financial policies. Strattons net income
for the ended December 31, 2014 was $600,000. During 2014, Stratton paid $325,000
in dividends to its shareholders.
What is the ending balance in Panteras investment account as of December 31, 2014?
a.$1,800,000
b.$1,900,000
c.$1,910,000
d.$2,030,000
29) When the acquisition price of an acquired firm is less than the fair value of the
identifiable net assets, all of the following are recorded at fair value except
a.Assumed liabilities
b.Current assets
c.Long-lived assets
d.Each of the above is recorded at fair value
30) If the operations of a firm in some foreign countries are grouped into geographic
areas, what factors should be considered in forming the groups?
31) Distinguish among a statutory merger, a statutory consolidation, and a stock
acquisition.
32) What authoritative body(s) is (are) responsible for establishing financial accounting
standards for NNOs?
33) Stein Corporation’s operations involve three industry segments, X, Y, and Z. During
2014, the operating profit (loss) of each segment was:
Operating
SegmentProfit (Loss)
X$ 600
Y8,100
Z(6,300)
Required:
Determine which of the segments are reportable segments.
34) Explain how the reciprocity calculation is modified in periods after the declaration
of a stockdividend for firms using the cost method.
35) Give several reasons why a parent company would be willing to pay more than
book value for subsidiary stock acquired.
36) To accomplish the objectives of translation, two translation methods are used
depending on the functional currency of the foreign entity. Describe the two translation
methods.
37) Consider the following: Many years ago, a student in a consolidated financial
statements class came to me and said that Grand Central (a multi-store grocery and
variety chain in Salt Lake City and surrounding towns and cities) was going to be
acquired and that I should try to buy the stock and make lots of money. I asked him how
he knew and he told me that he worked part-time for Grand Central and heard that Fred
Meyer was going to acquire it. I did not know whether the student worked in the
accounting department at Grand Central or was a custodian at one of the stores. I
thanked him for the information but did not buy the stock. Within a few weeks, the
announcement was made that Fred Meyer was acquiring Grand Central and the stock
price shot up, almost doubling. It was clear that I had missed an opportunity to make a
lot of money … I dont know to this day whether or not that would have been insider
trading. How-everHowever, I have never gone home at night and asked my wife if the
SEC called. From Dont go to jail and other good advice for accountants, by Ron Mano,
Accounting Today, October 25, 1999.
Question: Do you think this individual would have been guilty of insider trading if he
had purchased the stock in Grand Central based on this advice? Why or why not? Are
there ever instances where you think it would be wise to miss out on an opportunity to
reap benefits simply because the behavior necessitated would have been in a gray
ethical area, though not strictly illegal? Defend your position.