Plummet Corporation reported the book value of its net assets at $400,000 when Zenith
Corporation acquired 100 percent ownership. The fair value of Plummet’s net assets
was determined to be $510,000 on that date.
Based on the preceding information, what amount will be recorded by Zenith as its
investment in Plummet, if it paid $500,000 for the acquisition?
A. $610,000
B. $400,000
C. $500,000
D. $510,000
Sky Corporation owns 75 percent of Earth Company’s stock. On July 1, 20X8, Sky sold
a building to Earth for $33,000. Sky had purchased this building on January 1, 20X6,
for $36,000. The building’s original eight-year estimated total economic life remains
unchanged. Both companies use straight-line depreciation. The equipment’s residual
value is considered negligible.
Based on the information provided, in the preparation of the 20X9 consolidated income
statement, depreciation expense will be:
A. debited for $750 in the consolidating entries.
B. credited for $750 the consolidating entries.
C. credited for $1500 in the consolidating entries.
D. debited for $1500 in the consolidating entries.
Big Corporation receives management consulting services from its 92 percent owned
subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the
year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by
year-end. Small’s labor cost and other associated costs for the employees providing
services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported
$2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of receivable/payable should be
eliminated in the 20X8 consolidated financial statements?
A. $125,432
B. $7,900
C. $5,560
D. $140,000
On January 1, 20X7, Servant Company purchased a machine with an expected
economic life of five years. On January 1, 20X9, Servant sold the machine to Master
Corporation and recorded the following entry:
Master Corporation holds 75 percent of Servant’s voting shares. Servant reported net
income of $50,000, and Master reported income from its own operations of $100,000 for
20X9. There is no change in the estimated economic life of the equipment as a result of the
intercorporate transfer.
Based on the preceding information, consolidated net income for 20X9 will be:
A. $150,000.
B. $100,000.
C. $148,000.
D. $130,000.
What amount should be reported as expenditures for the current fiscal year when
accounting for inventories of supplies under the purchase method and under the
consumption method?
A. Option A
B. Option B
C. Option C
D. Option D
Pursuing an inorganic growth strategy, Wilson Company acquired Venus Company’s net
assets and assigned them to four separate reporting divisions. Wilson assigned total
goodwill of $134,000 to the four reporting divisions as given below:
Based on the preceding information, what amount of goodwill will be reported for
Alpha at year-end?
A. $0
B. $20,000
C. $30,000
D. $10,000
On December 31, 20X1, Oak Corporation acquired 100 percent ownership of Cherry
Corporation. On that date, Cherry reported assets and liabilities with books values of
$450,000 and $200,000, respectively, common stock outstanding of $150,000, and
retained earnings of $100,000. The book values and fair values of Cherry’s assets and
liabilities were identical except for land which had increased in value by $15,000 and
inventories which had decreased by $5,000.
Based on the preceding information, what amount of differential is implicit in the
acquisition if the acquisition price was $280,000?
A. $10,000
B. $20,000
C. $25,000
D. $30,000
Which of the following items is optional information for a special-purpose
governmental entity when issuing financial reports?
A. Management’s Discussion and Analysis
B. Footnotes to the financial repots
C. Supplementary Information to the financial reports
D. All of the above are required.
On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company’s
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial
balances of the two companies are as follows:
Based on the preceding information, what amount would be reported as total
stockholder’s equity in the consolidated balance sheet at December 31, 20X9?
A. $412,000
B. $394,000
C. $542,000
D. $348,000
A donor agrees to contribute $5,000 per year at the end of each of the next five years to
a voluntary health and welfare organization. The donor did not place any use
restrictions on the amount pledged. The stream of the payments is discounted at 6
percent. The first payment of $5,000 is received at the end of the first year. The present
value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
Based on the preceding information, the journal entry to recognize present value at the
time the pledge is received includes:
A. a credit to Pledges Receivable—Temporarily Restricted for $25,000.
B. a debit to Contributions—Temporarily Restricted for $21,062.
C. a debit to Pledges Receivable—Temporarily Restricted for $21,062.
D. a credit to Contributions—Temporarily Restricted for $25,000.
Which of the following presents the results of actions taken against accountants,
brokers, and other participants for filing false or misleading statements?
A. Financial Reporting Releases
B. Financial Reporting Interpretations
C. Accounting and Auditing Enforcement Releases
D. Staff Accounting Bulletins
Paul Corp. acquired 100 percent of Sam Inc.’s voting stock on July 1, 20X1. The
following information was available as of December 31, 20X1:
How much net income should be reported in Paul Corp’s income statement for 20X1?
A. $370,000
B. $720,000
C. $940,000
D. $1,090,000
A private, not-for-profit university should prepare which of the following financial
statements?
A. I, II, and III.
B. II, III, and IV.
C. I, II, and IV.
D. II, III, and V.
On January 1, 20X7, Jones Company acquired 90 percent of the outstanding common
stock of Smith Corporation for $1,242,000. On that date, the fair value of
noncontrolling interest was equal to $138,000. The entire differential was related to
land held by Smith. At the date of acquisition, Smith had common stock outstanding of
$520,000, additional paid-in capital of $200,000, and retained earnings of $540,000.
During 20X7, Smith sold inventory to Jones for $440,000. The inventory originally cost
Smith $360,000. By year-end, 30 percent was still in Jones’ ending inventory. During
20X8, the remaining inventory was resold to an unrelated customer. Both Jones and
Smith use perpetual inventory systems.
Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as
follows:
Assume Jones uses the cost method to account for its investment in Smith.
Required:
a. Present the worksheet consolidation entries necessary to prepare consolidated financial
statements for 20X7.
b. Present the worksheet consolidation entries necessary to prepare consolidated financial
statements for 20X8.
Hunt Co. purchased merchandise for 300,000 British pounds from a vendor in London
on November 30, 20X1. Payment in British pounds was due on January 30, 20X2. The
exchange rates to purchase one pound were as follows:
November 30, 20X1 December 31, 20X1
Spot-rate $1.65 $1.62
30-day rate 1.64 1.59
60-day rate 1.63 1.56
In its December 31, Year One, income statement, what amount should Hunt report as
foreign exchange gain?
A. $9,000
B. $12,000
C. $6,000
D. $0
All of the following stockholders’ equity accounts of a foreign subsidiary are translated
at historical exchange rates except:
A. retained earnings.
B. common stock.
C. additional paid-in capital.
D. preferred stock.
Sayer University, a not-for-profit university, earned $750,000 from bookstore revenue
and spent $250,000 for faculty research in 20X8. The $250,000 for faculty research
came from a $400,000 research grant received in the previous year. What is the effect of
these events on unrestricted net assets in 20X8?
A. Increase $500,000
B. Increase $750,000
C. Increase $1,000,000
D. Increase $1,150,000
Tecumseh Co. (Tecumseh), a publicly owned corporation, assesses performance and
makes operating decisions using the following information for its reportable segments:
Total revenues $768,000
Total profit and loss $40,600
Included in the total profit and loss are intersegment profits of $6,100. In addition,
Tecumseh has $500 of common costs for its reportable segments that are not allocated
in reports used internally. For purposes of segment reporting, Tecumseh should report
total combined segment profit of:
A. $35,000
B. $34,500
C. $40,600
D. $46,700
E. $41,100
On November 1, 20X8, Denver Company borrowed 500,000 local currency units
(LCU) from a foreign lender evidenced by an interest-bearing note due on November 1,
20X9, which is denominated in the currency of the lender. The U.S. dollar equivalent of
the note principal was as follows:
7/1/X8 (date borrowed) $100,000
12/31/X8 (Denver’s year-end) 125,000
7/1/X9 (date repaid) 140,000
In its income statement for 20X9, what amount should Denver include as a foreign
exchange gain or loss on the note principal?
A. 15,000 gain
B. 25,000 gain
C. 15,000 loss
D. 40,000 loss
Gains from remeasuring a foreign subsidiary’s financial statements from the local
currency, which is not the functional currency, into the company’s functional currency
should be reported as a(n)
A. Deferred foreign exchange gain.
B. Part of continuing operations.
C. Separate component of stockholders’ equity.
D. Extraordinary item, net of income taxes.
On August 31, 20X1, Wood Corp. issued 100,000 shares of its $20 par value common
stock for the net assets of Pine, Inc. in a business combination accounted for by the
acquisition method. The market value of Wood’s common stock on August 31 was $36
per share. Wood paid a fee of $160,000 to the consultant who arranged this acquisition.
Costs of registering and issuing the equity securities amounted to $80,000. No goodwill
was involved in the purchase. What amount should Wood capitalize as the cost of
acquiring Pine’s net assets?
A. $3,680,000
B. $3,600,000
C. $3,760,000
D. $3,840,000
Norton Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The following information has been assembled for this
statement:
Assets Book Value Estimated Current Value
Cash $50,000 $50,000
Other current assets 120,000 110,000
Building 300,000 400,000
Land 150,000 200,000
Liabilities
Liabilities with priority $90,000
Mortgage payable (secured by Building) 150,000
Notes Payable (secured by Land) 250,000
Unsecured liabilities 350,000
What amount will be paid to the fully secured creditors and the creditors with priority?
Fully Secured Creditors Creditors with Priority
A. $150,000 $50,000
B. $150,000 $90,000
C. $350,000 $50,000
D. $400,000 $90,000
The governing board of Samaritan Hospital, which is operated by a religious
organization, designated $500,000 of cash for future expansion of the hospital. On the
hospital’s balance sheet, the cash designated for future plant expansion would be
disclosed in which of the following classes of net assets?
A. Temporarily restricted net assets
B. Unrestricted net assets
C. Plant replacement and expansion.
D. Board designated net assets
Which of the following funds should use the modified accrual basis of accounting?
A. Private-purpose trust and agency funds.
B. Capital projects and special revenue funds.
C. Internal service and enterprise funds.
D. Debt service and private-purpose trust funds.
Blue Company owns 80 percent of the common stock of White Corporation. During the
year, Blue reported sales of $1,000,000, and White reported sales of $500,000,
including sales to Blue of $80,000. The amount of sales that should be reported in the
consolidated income statement for the year is:
A. $500,000.
B. $1,300,000.
C. $1,420,000.
D. $1,500,000.
Refer to the above information. Which statement below is correct if goodwill of the old
partners is recognized upon the contribution of assets into the partnership by a new
partner?
A. B = A and D < C + A
B. B = A and D > C + A
C. B < A and D = C + A
D. B > A and D < C + A
Missoula Corporation disposed of one of its segments in the second quarter and
incurred a gain from disposal of discontinued segment of $600,000, net of taxes. What
is the effect of this gain from disposal of discontinued segment?
A. Increase net income from operations for the year by $600,000.
B. Increase second quarter net income by $600,000.
C. Increase each quarter’s net income by $150,000.
D. Increase each of the last three quarters’ net income by $200,000.
Lemon Corporation acquired 80 percent of Bricks Corporation’s common shares on
January 1, 20X7, at underlying book value. At that date, the fair value of the
noncontrolling interest was equal to 20 percent of the book value of Bricks Corporation.
Bricks prepared the following balance sheet as of December 31, 20X8:
On January 1, 20X9, Bricks declares a stock dividend of 9,000 shares on its $5 par
value common stock. The current market price per share of Bricks stock on January 1,
20X9, is $20.
Based on the preceding information, the investment elimination entry required to
prepare a consolidated balance sheet immediately after the stock dividend is issued will
include a debit to Additional Paid-In Capital for:
A. $50,000.
B. $95,000.
C. $230,000.
D. $185,000.
Which chapters of the Bankruptcy Code deal with corporations?
A. Chapters 1, 3, and 5
B. Chapter 9
C. Chapters 7 and 11
D. Chapters 12 and 13
William Corporation, which has a fiscal year ending January 31, had the following
pretax accounting income and estimated effective annual income tax rates for the first
three quarters of the year ended January 31, 20X8:
William’s income tax expenses in its interim income statement for the third quarter are:
A. $36,000.
B. $73,500.
C. $46,500.
D. $120,000.
On a debtor-in-possession income statement, which of the following items should be
reported under the heading “Reorganization Items”?
A. Sales
B. Selling expenses
C. Income tax benefit
D. Loss on disposal of assets