1) Which of the following statements related to pledges is incorrect?
a.Pledges are signed commitments to contribute specific amounts of money on a future
date or in installments
b.Pledges are recorded as revenues when a promise to give is nonrevocable and
unconditional
c.Pledges are generally enforceable contracts
d.All of these are correct
2) A parent company received dividends in excess of the parent companys share of the
subsidiarys earnings subsequent to the date of the investment. How will the parent
companys investment account be affected by those dividends under each of the
following accounting methods?
Cost MethodPartial Equity Method
a.No effectNo effect
b.Decrease No effect
c.No effectDecrease
d.DecreaseDecrease
3) The main evidence of control for purposes of consolidated financial statements
involves
a.possessing majority ownership
b.having decision-making ability that is not shared with others
c.being the sole shareholder
d.having the parent company and the subsidiary participating in the same industry
4) The following related entries were recorded in sequence in the general fund of a
municipality:
1>Encumbrances15,000
Reserve for Encumbrances15,000
2>Reserve for Encumbrances15,000
Encumbrances15,000
3>Expenditures15,350
Vouchers Payable15,350
The sequence of entries indicates that
a.an adverse event was foreseen and a reserve of $15,000 was created; later the reserve
was cancelled and a liability for the item was acknowledged.
b.an order was placed for goods or services estimated to cost $15,000; the actual cost was
$15,350 for which a liability was acknowledged upon receipt.
c.encumbrances were anticipated but later failed to materialize and were reversed. A
liability of $15,350 was incurred.
d.the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged.
5) Prune Company purchased 80% of the outstanding common stock of Selma
Company on January 2, 2004, for $680,000. The composition of Selma Companys
stockholders equity on January 2, 2004, and December 31, 2014, was:
1/2/0412/31/1112/31/14
Common stock$540,000$540,000
Other contributed capital325,000325,000
Retained earnings (deficit) (60,000) 295,000
Total stockholders equity$805,000$1,160,000
During 2014, Selma Company earned $210,000 net income and declared a $60,000
dividend. Any difference between implied and book value relates to land. Prune
Company uses the cost method to record its investment in Selma Company.
Required:
A.Prepare any journal entries that Prune Company would make on its books during
2014 to record the effects of its investment in Selma Company.
B.Prepare, in general journal form, all workpaper entries needed for the preparation of a
consolidated statements workpaper on December 31, 2014.
6) The partnership of Stan, Kenney, and Cartman has been dissolved and is in the
process of liquidation. On July 1, 2014, just before the second cash distribution, the
assets and equities of the partnership along with residual profit sharing ratios were as
follows:
AssetsLiabilities and Equity
Cash$ 80,000Liabilities$ 60,000
Receivables-net20,000Stan, Capital 50%40,000
Inventories60,000Kenney, Capital 30%70,000
Equipment-net 40,000Cartman, Capital 20% 30,000
Total assets$200,000Total Lia & Equity$200,000
Assume that the available cash is distributed immediately, except for a $10,000
contingency fund that is withheld pending complete liquidation of the partnership. How
much cash should be paid to each of the partners?
StanKenneyCartman
a.$35,000$21,000$14,000
b.$5,000$3,000$4,000
c.$0$10,000$0
d.$0$6,000$4,000
7) The partnership of Peter, Paul, and Mary share profits and losses in the ratio of 4:4:2,
respectively. The partners voted to dissolve the partnership when its assets, liabilities,
and capital were as follows:
Assets
Cash$ 250,000
Other assets 1,000,000
$1,250,000
Liabilities and Capital
Liabilities$ 200,000
Peter, Capital300,000
Paul, Capital350,000
Mary, Capital 400,000
$1,250,000
The partnership will be liquidated over a prolonged period of time. As cash is available,
it will be distributed to the partners. The first sale of noncash assets having a book value
of $600,000 realized $475,000. How much cash should be distributed to each partner
after this sale?
a.Peter, $90,000;Paul, $140,000;Mary, $295,000
b.Peter, $210,000;Paul, $290,000;Mary, $145,000
c.Peter, $290,000;Paul, $210,000;Mary, $105,000
d.Peter, $150,000;Paul, $175,000;Mary, $200,000
8) A partnership in which one or more of the partners are general partners and one or
more are not is called a(n)
a.joint venture
b.general partnership
c.limited partnership
d.unlimited partnership
9) Which of the following is not a segment asset of an operating segment?
a.Assets used jointly by more than one segment
b.Assets directly associated with a segment
c.Assets maintained for general corporate purposes
d.Assets used exclusively by a segment
10) IFRS defines control as
a.the direct or indirect ability to determine the direction of management and policies
through ownership, contract, or otherwise
b.the power to govern the entitys financial and operating policies as to obtain benefits
from its activities
c.the power to direct the activities that impact economic performance, the obligation to
absorb expected losses, and the right to receive expected residual returns
d.having a majority of the ownership interests entitled to elect management
11) Bruges Electronics Inc. offers one model of laptop computer for £1000 and a
two-year warranty for £250. The retailer, as part of a Boxing Day promotion, offers a
limited-time offer for the laptop, including delivery and the two-year warranty for
£1,180. The cost of the computer to Bruges is £700. Any warranty repairs are assumed
to be done ratably over time. Bruges accounts for transactions using the customer
consideration model.
In the first twelve months following the sale, Bruges incurred £980 of costs servicing
the computers under warranty.
In the first twelve months, Bruges would record warranty expense of
a.£784
b.£980
c.£1,180
d.£1,380
12) The roles of the IASC Foundation include
a.establishing global standards for financial reporting
b.coordinating the filing requirements of stock exchange regulatory agencies
c.financing IASB operations
d.all of the above are roles of the IASC Foundation
13) >Gain on Sale of Land.
a.1
b.2
c.3
d.both 1 and 2
14) Consolidated net income for a parent company and its partially owned subsidiary is
best defined as the parent companys
a.recorded net income
b.recorded net income plus the subsidiarys recorded net income
c.recorded net income plus the its share of the subsidiarys recorded net income
d.income from independent operations plus subsidiarys income resulting from
transactions with outside parties
15) Pine Company owns an 80% interest in Salad Company and a 90% interest in Tuna
Company. During 2013 and 2014, intercompany sales of merchandise were made by all
three companies. Total sales amounted to $2,400,000 in 2013, and $2,700,000 in 201
The companies sold their merchandise at the following percentages above cost.
Pine15%
Salad20%
Tuna25%
The amount of merchandise remaining in the 2014 beginning and ending inventories of
the companies from these intercompany sales is shown below.
Merchandise Remaining in Beginning Inventory
PineSaladTunaTotal
Sold by
Pine$225,000$189,000$414,000
Salad$180,000216,000396,000
Tuna180,000135,000315,000
Merchandise Remaining in Ending Inventory
PineSaladTunaTotal
Sold by
Pine$207,000$138,000$345,000
Salad$144,000198,000342,000
Tuna195,000150,000345,000
Reported net incomes (from independent operations including sales to affiliates) of
Pine, Salad, and Tuna for 2014 were $3,600,000, $1,500,000, and $2,400,000,
respectively.
Required:
A.Calculate the amount noncontrolling interest to be deducted from consolidated
income in the consolidated income statement for 2014.
B.Calculate the controlling interest in consolidated net income for 2014.
16) Significant differences between IFRS and Chinese GAAP include all of the
following except:
a.Chinese GAAP allows the use of LIFO while IFRS prohibits it
b.Chinese GAAP has different related party disclosure requirements
c.Chinese GAAP follows the cost principle while IFRS allows for revaluations and
recoveries of impairment losses
d.Chinese GAAP uses the equity method of accounting for jointly controlled entities
while IFRS also allows proportionate consolidation
17) Petunia Company acquired an 80% interest in Shaman Company in 201320132013
just once. In 2014 and 2015, Sutton reported net income of $400,000 and $480,000,
respectively. During 2014, Shaman sold $80,000 of merchandise to Petunia for a
$20,000 profit. Petunia sold the merchandise to outsiders during 2015 for $140,000. For
consolidation purposes, what is the noncontrolling interests share of Shaman’s 2014 and
2015 net income?
a.$90,000 and $96,000
b.$100,000 and $76,000
c.$84,000 and $92,000
d.$76,000 and $100,000
18) The following funds were among those on Cole University’s books at April 30,
2014:
Funds to be used for acquisition of additional properties
for university purposes (unexpended at 4/30/14)$2,500,000
Funds set aside for debt service charges and for the
retirement of indebtedness on university properties5,000,000
How much of the above-mentioned funds should be included in plant funds?
a.$0
b.$2,500,000
c.$5,000,000
d.$7,500,000
19) The first step in preparing an advance cash distribution plan is to
a.determine the order in which partners are to participate in cash distributions
b.compute the amount of cash each partner is to receive as it becomes available for
distribution
c.allocate any gains (losses) to the partners in their profit-sharing ratio
d.determine the net capital interest of each partner
20) Using the information provided in Problem 13-5, use the temporal method instead
of the current rate method.
Required: Prepare the subsidiarys:
A.Translated workpapers (round to the nearest dollar)
B.Translated income statement
C.Translated balance sheet
21) SFAS 141R requires that the acquirer disclose each of the following for each
material business combination except the
a.name and a description of the acquiree acquired
b.percentage of voting equity instruments acquired
c.fair value of the consideration transferred
d.each of the above is a required disclosur
22) The following balance sheet accounts of a foreign subsidiary at December 31, 2014,
have been translated into U.S. dollars as follows:
Translated at
Current RatesHistorical Rates
Accounts receivable, current$ 600,000$ 660,000
Accounts receivable, long-term300,000324,000
Inventories carried at market180,000198,000
Goodwill 190,000 220,000
$1,270,000$1,402,000
What total should be included in the translated balance sheet at December 31, 2014, for
the above items? Assume the U.S. dollar is the functional currency.
a.$1,270,000
b.$1,288,000
c.$1,300,000
d.$1,354,000
23) Which of the following disclosures is not required to be presented for a firm’s
reportable segments?
a.Information about segment assets
b.Information about the bases for measurement
c.Reconciliation of segment amounts and consolidated amounts for revenue, profit or
loss, assets, and other significant items
d.All of these must be presented
24) On January 1, 2013, P Corporation purchased 75% of S Corporation for $500,000.
Ss stockholders equity on that date was equal to $600,000 and S had 40,000 shares
issued and outstanding on that date. S Corporation sold an additional 8,000 shares of
previously unissued stock on December 31, 2013.
Assume S sold the 8,000 shares to outside interests, Ps percent ownership would be:
a.56 1/4%
b.62 1/2%
c.75%
d.79 1/6%
25) Which of the following is used for current expenditures by a college?
UnrestrictedRestricted
Current FundsCurrent Funds
a.NoNo
b.NoYes
c.YesYes
d.YesNo
26) In a period in which an impairment loss occurs, SFAS No. 142 requires each of the
following note disclosures except
a.a description of the facts and circumstances leading to the impairment
b.the amount of goodwill by reporting segment
c.the method of determining the fair value of the reporting unit
d.the amounts of any adjustments made to impairment estimates from earlier periods, if
significant
27) During the years ending June 30, 2013, and June 30, 2014, Jefferson University
conducted a cancer research project financed by a $3,000,000 gift from an alumnus.
This entire amount was pledged by the donor on July 10, 2009, although he paid only
$800,000 at that date. The gift was restricted to the financing of this particular research
project. During the two-year research period, Jefferson related gift receipts and research
expenditures were as follows:
Year Ended June 30
20132014
Gift receipts1,100,0001,200,000
Cancer research restricted expenditures1,400,0001,600,000
How much gift revenue should Jefferson University report in the temporarily restricted
column of its statement of activities for the year ended June 30, 2014?
a.$3,000,000
b.$1,600,000
c.$1,200,000
d.$0
28) Pure Company acquired 80% of the outstanding common stock of Saxxon
Company on January 2, 2013 for $675,000. At that time, Saxxons total stockholders
equity amounted to $1,000,000. Saxxon Company reported net income and dividends
for the last two years as follows:
2013 2014
Reported net income$45,000$60,000
Dividends distributed 35,000 75,000
Required:
Prepare journal entries for Pure Company for 2013 and 2014 assuming Pure uses:
A.The cost method to record its investment
B.The complete equity method to record its investment. The difference between implied
value and the book value of equity acquired was attributed solely to a building, with a
20-year expected life.
29) Pale Company owns 90% of the outstanding common stock of Shale Company. On
January 1, 2014, Shale Company sold equipment to Pale Company for $300,000. Shale
Company had purchased the equipment for $450,000 on January 1, 2006 and has been
depreciating it over a 10 year life by the straight-line method. The management of Pale
Company estimated that the equipment had a remaining life of 5 years on January 1,
2014. In 2014, Pale Company reported $225,000 and Shale Company reported
$150,000 in net income from their independent operations.
Required:
A.Prepare in general journal form the workpaper entries relating to the intercompany
sale of equipment that are necessary in the December 31, 2014 and 2015 consolidated
statements workpapers. Pale Company uses the cost method to record its investment in
Shale Company.
B.Calculate equity in subsidiary income for 2014 and noncontrolling interest in net
income for 2014.
30) When the parent company sells a portion of its investment in a subsidiary, the
workpaper entry to adjust for the current years income sold to noncontrolling
stockholders includes a
a.debit to Subsidiary Income Sold
b.debit to Equity in Subsidiary Income
c.credit to Equity in Subsidiary Income
d.credit to Subsidiary Income Sold
31) The stockholders equities of Penn Corporation and Simon Corporation were as
follows on January 1, 2013:
Penn Corp. Simon Corp.
Common Stock, $1 par$1,000,000$ 600,000
Other Contributed Capital 2,800,000 1,100,000
Retained Earnings 600,000 340,000
Total Stockholders Equity$4,400,000$2,040,000
On January 2, 2013 Penn Corp. issued 100,000 of its shares with a market value of $14
per share in exchange for all of Simons shares, and Simon Corp. was dissolved. Penn
Corp. paid $10,000 to register and issue the new common shares.
Required:
Prepare the stockholders equity section of Penn Corp. balance sheet after the business
combination on January 2, 2013.
32) A parents ownership percentage in a subsidiary may change for several reasons.
Identify three reasons the ownership percentage may change.
33) ASFAS No. 109and SFAS No. 141R [ASC 740 and 805] require that a deferred tax
asset or liability be recognized for likely differences between the reported values and
tax bases of assets and liabilities recognized in business combinations (for example, in
exchanges that are nontaxable to the selling shareholders). Does this decision change
the amount of consolidated net income reported in years subsequent to the business
combination? Explain.
34) On October 1, 2013, Kill Company shipped equipment to a foreign customer for a
foreign currency (FC) price of FC 3,000,000 due on January 31, 2014. All revenue
realization criteria were satisfied and accordingly the sale was recorded by Kill
Company on October 1. Simultaneously, Kill entered into a forward contract to sell
3,000,000 FCU on January 31, 2014 for $1,200,000. Payment was received from the
foreign customer on January 31, 2014. Spot rates on October 1, December 31, and
January 31 were $0.42, $0.425, and $0.435, respectively. Kill amortizes all premiums
and discounts on forward contracts and closes its books on December 31.
Required:
Prepare all journal entries relative to the above to be made by Kill during 2013 and
2014.
35) What are pro forma financial statements? What is their purpose?
36) List some of the criteria laid out by the FASB that are required for a gain or loss on
forecasted trans-actions (a cash flow hedge) to be excluded from the income statement.
If these criteria are satisfied, where are the gains or losses reported, and when (if ever)
are they shown in the income statement? What is the rationale for this treatment?
37) On December 31, 2014, Pilots Credit Union agreed to restructure a $900,000, 8%
loan receivable from Norma Corporation because of Normas financial problems. At
December 31 there was $36,000 of accrued interest for a six-month period. Terms of the
restructuring agreement are as follows:
– Reduce the loan from $900,000 to $600,000;
– Extend the maturity date by 2 years from December 31, 2014 to December 31, 2016;
– Reduce the interest rate on the loan from 8% to 6%.
Present value assumptions:
Present value of $1 for 2 years at 6% = 0.8900
Present value of $1 for 2 years at 8% = 0.8573
Present value of an ordinary annuity of $1 for 2 years at 6% = 1.8334
Present value of an ordinary annuity of $1 for 2 years at 8% = 1.7833
Required:
Compute the gain or loss that will be reported by Pilots Credit Union.
38) Discuss the three basic assumptions necessary for calculating a safe cash
distribution. How is this safe cash distribution computed?