1) Jabiru Corporation purchased a 20% interest in Fish Company common stock on
January 1, 2008 for $300,000. This investment was accounted for using the complete
equity method and the correct balance in the Investment in Fish account on December
31, 2010 was $440,000. The original excess purchase transaction included $60,000 for a
patent amortized at a rate of $6,000 per year. In 2011, Fish Corporation had net income
of $4,000 per month earned uniformly throughout the year and paid $20,000 of
dividends in May. If Jabiru sold one-half of its investment in Fish on August 1, 2011 for
$500,000, how much gain was recognized on this transaction?
A) $278,950
B) $280,000
C) $280,950
D) $282,000
2) Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book
value on December 31, 2010 . A summary of the stockholders’ equity for SOS at the end
of 2010 and 2011 is as follows:
12/31/1012/31/11
Capital stock, $10 par$600,000$600,000
Additional paid-in capital30,00030,000
Retained Earnings270,000420,000
Total stockholders’ equity$900,000$1,050,000
On January 1, 2012, SOS sold 10,000 new shares of its $10 par value common stock for
$45 per share.
If SOS sold the additional shares directly to Great, Great’s Investment in SOS account
after the sale would be
A) $1,350,000
B) $1,395,000
C) $1,425,000
D) $1,500,000
3) In the preparation of consolidated financial statements, which of the following
intercompany transactions must be eliminated as part of the preparation of the
consolidation working papers?
A) All revenues, expenses, gains, losses, receivables, and payables
B) All revenues, expenses, gains, and losses but not receivables and payables
C) Receivables and payables but not revenues, expenses, gains, and losses
D) Only sales revenue and cost of goods sold
4) Which of the following conditions would not indicate that two business segments
should be classified as a single operating segment?
A) They have similar amounts of intersegment revenues or expenses
B) They have a similar distribution method for products
C) They have similar production processes
D) They have similar products or services
5) A decrease in default risk on corporate bonds ________ the demand for these bonds,
and ________ the demand for default-free bonds, everything else held constant
A) increases; lowers
B) lowers; increases
C) does not change; greatly increases
D) moderately lowers; does not change
6) Which of the following represents the recording of a budget in the accounts of the
General Fund?
A) Debit Appropriations, Credit Estimated Revenues and Credit Fund Balance –
Unassigned
B) Debit Appropriations, Credit Estimated Revenues
C) Debit Estimated Revenues, Credit Appropriations, Credit Estimated Other Financing
Uses, Credit Fund Balance – Unassigned
D) Debit Estimated Other Financing Uses, Credit Appropriations and Credit Fund
Balance – Unassigned
7) When preparing consolidated financial statements, which of the following is a
subtraction in the calculation of cash flows from operating activities under the indirect
method?
A) The change in the balance sheet of the common stock account
B) Noncontrolling interest dividends paid
C) Noncontrolling interest share
D) Undistributed income of equity investees
8) Austin contributes his computer equipment to the landscaping partnership he starts
with Bentley. At what amount should the computer equipment be credited to Austin’s
partnership capital?
A) The tax basis
B) The fair value at the date of contribution
C) Austin’s original cost
D) At the amount that Bentley contributes, with the assumption that they both
contribute equally to the partnership
9) Which of the following statements is true?
A) State and local governments cannot default on their bonds
B) Bonds issued by state and local governments are called municipal bonds
C) All government issued bonds local, state, and federal are federal income tax exempt
D) The coupon payment on municipal bonds is usually higher than the coupon payment
on Treasury bonds
10) A petition commencing a case against a corporate debtor
A) can be filed only under Chapter 7 of the bankruptcy act
B) can be filed only under Chapter 11 of the bankruptcy act
C) can be filed under either Chapter 7 or Chapter 11 of the bankruptcy act
D) will be determined by the trustee whether it shall be Chapter 7 or Chapter 11 of the
bankruptcy act
11) In reference to intercompany transactions between an investor and an investee,
when the investor can significantly influence the investee, which of the following
statements is correct, assuming that the investor is using the equity method?
A) There is the presumption of arms-length bargaining between the related parties
B) As long as the investor recognizes the effects of the transaction in its financial
statements, it is not required to provide any additional disclosures
C) In reporting its share of earnings and losses of an investee, the investor must
eliminate the effect of profits and losses on the intercompany transactions until they are
realized
D) None of the above is correct
12) Petrol Company acquired an 90% interest in Seadig Corporation on January 1, 2010
. On January 1, 2011, Seadig sold a building with a book value of $120,000 to Petrol for
$150,000. The building had a remaining useful life of ten years and no salvage value.
Straight-line depreciation is used. The separate balance sheets of Petrol and Seadig on
December 31, 2011 included the following balances:
Petrol Seadig
Buildings$500,000$230,000
Accumulated Depr. – Buildings180,00079,000
The consolidated amounts for Buildings and Accumulated Depreciation – Buildings that
appeared, respectively, on the balance sheet at December 31, 2011, were
A) $700,000 and $256,000
B) $700,000 and $259,000
C) $730,000 and $256,000
D) $730,000 and $259,000
13) Which of the following long-term bonds has the highest interest rate?
A) Corporate Baa bonds
B) US Treasury bonds
C) Corporate Aaa bonds
D) Municipal bonds
14) A summary balance sheet for the Uma, Van, and Walter partnership on December
31, 2011 is shown below. Partners Uma, Van, and Walter allocate profit and loss in their
respective ratios of 4:5:7. The partnership agreed to pay Walter $227,500 for his
partnership interest upon his retirement from the partnership on January 1, 2012 . Any
payments exceeding Walter’s capital balance are treated as a bonus from partners Uma
and Van.
Assets
Cash$ 75,000
Marketable securities60,000
Inventory87,500
Land90,000
Building-net150,000
Total assets$462,500
Equities
Uma, capital$212,500
Van, capital112,500
Walter, capital137,500
Total equities$462,500
Required:
Prepare the journal entry to reflect Walter’s retirement.
15) Onoly Corporation (a U.S. manufacturer) sold parts to its customer in Hong Kong
on December 8, 2011 with payment of 500,000 Hong Kong Dollars (HKD) to be
received in sixty days on February 6, 2012. Onoly has a December 31 year end. The
following exchange rates apply:
Spot RateForward Rate to February 6
December 8, 2011$.1150$.1150
December 31, 2011$.1300$.1250
February 6, 2012$.1400$.1400
Required:
1> Assuming no forward contract is taken, what is the amount of foreign currency
exchange gain or loss that would be recorded in 2011, and in 2012?
2> Assuming a 60-day forward contract is taken on December 8 with the intent of
hedging this foreign currency transaction, and that this hedge is properly accounted for
as a cash flow hedge, what is the net effect on income to be recorded in 2011, and in
2012?
16) A private, not-for-profit university received donations of $1,000,000 cash in 2011
that were restricted to certain research projects on sustainability, with an emphasis on
reducing the campus waste. The university incurred and paid $450,000 of expenses on
this research in 2011 .
In 2011, an alumnus contributed a $700,000 endowment for energy research with all
endowment income restricted for that purpose. Income totaled $35,000 for the year.
Energy research expenses incurred and paid were $22,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
17) The balance sheet of the Addy, Bess, and Clara partnership on January 1, 2011 (the
date of partnership dissolution) was as follows:
Cash$4,000Liabilities$8,000
Other assets26,000Loan from Addy1,000
Loan to Clara2,000Addy, capital (20%)2,000
Bess, capital (40%)9,000
Clara, capital (40%)12,000
Total assets$32,000Total liab./equity$32,000
In January, other assets with a book value of $16,000 were sold for $10,000 in cash.
Required:
Determine how the available cash on January 31, 2011 will be distributed. (Use a safe
payments schedule.)
18) On January 2, 2010, Slurg Corporation paid $600,000 to acquire 20% interest in
Padwaddy Inc. At that time, the book value of Padwaddy’s stockholders’ equity included
$700,000 of common stock and $1,800,000 of retained earnings. All the excess
purchase cost over the book value acquired was attributable to a patent with an
estimated life of 10 years. Padwaddy paid $6,250 of dividends each quarter for the next
two years, and reported net income of $180,000 for 2010 and $220,000 for 2011 . Slurg
recorded all activities related to their investment using the equity method.
Required:
1>Calculate Slurg’s income from Padwaddy for 2010 .
2>Calculate Slurg’s income from Padwaddy for 2011 .
3>Determine the balance of Slurg’s Investment in Padwaddy account on December 31,
2011 .
