FAR 3
Information regarding Stone Co.'s available-for-sale portfolio of marketable equity securities is as follows: Aggregate cost as of 12/31/Y2 $ 170,000 Market value as of 12/31/Y2 148,000 At 12/31, Year 1, Stone reported an unrealized loss of $1,500 to reduce investments to market value. This was the first such adjustment made by Stone on these types of securities. In its Year 2 statement of comprehensive income, what amount of unrealized loss should Stone report?
$20,500 = (22,000-1,500)
Sun Corp. had investments in marketable equity securities costing $650,000. On June 30, Year 2, Sun decided to hold the investments indefinitely and accordingly reclassified them from trading to available-for-sale on that date. The investments' market value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. What amount should Sun report as net unrealized loss on available-for-sale marketable equity securities in its Year 2 statement of stockholders' equity? a. $40,000 b. $45,000 c. $85,000 d. $160,000
$40,000. The 40K loss (530-490) would go to OCI because it's an "AFS" security while the $45,000 loss (575K - 530K = 45K) would be realized when the security was reclassified from Trading to AFS.
Sun Corp. had investments in marketable equity securities costing $650,000. On June 30, Year 2, Sun decided to hold the investments indefinitely and accordingly reclassified them from trading to available-for-sale on that date. The investments' market value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2. What amount of loss from investments should Sun report in its Year 2 income statement?
$45,000 - When Sun reclassed the investment, it had to realize the loss of (575K - 530K = 45K). The 40K loss (530-490) would go to OCI because it's an "AFS" security. Tricky Tricky!
On 1/10, Year 1, B purchased marketable equity securities of K and S. B classified both securities as available-for-sale assets over which it could NOT exercise significant influence. At 12/31, Year 1, the cost of each investment was greater than its fair market value. The loss on the K investment was considered permanent and that on S was considered temporary. How should Box report the effects of these investing activities in its Year 1 income statement? I. Excess of cost of Knox stock over its market value. II. Excess of cost of Scot stock over its market value.
A realized loss equal to I only.
Held to Maturity securities are reported at ____ with changes recorded in _________
Amortized cost, NO WHERE!!!! Trick question! :)
Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at:
Amortized cost.
Beach Co. determined that the decline in the FV of an investment was below the amortized cost and other than temporary. The investment was classified as AFS on Beach's books. The controller would properly record the decrease in FV under U.S. GAAP by including it where?
Earnings section of the income statement and writing down the cost basis to FV.
AFS securities are valued at: With changes reported in ______
FV Comprehensive Income (not Income Statement)
TRADING securities are valued at: ____ w/ holding gains/losses included in ______
Fair value, with holding gains and losses included in earnings.
At the end of Year 1, Lane Co. held trading securities that cost $86,000 and which had a year-end market value of $92,000. During Year 2, all of these securities were sold for $104,500. At the end of Year 2, Lane had acquired additional trading securities that cost $73,000 and which had a year-end market value of $71,000. What is the impact of these stock activities on Lane's Year 2 income statement?
Gain of $10,500. (104 sales price - 92 last recorded market price =12,500 gain)-(73-71=2k loss) = 10,500 gain
The unrealized G/L resulting from Reclassing a Held-to-maturity DEBT security to an AFS goes...
Into OCI at the date of reclass
The unrealized G/L resulting from Reclassing a Held-to-maturity security to a trading security goes...
Into earnings (IS) immediately
The unrealized G/L resulting from Reclassing a trading security -> Held-to-maturity security goes...
NO WHERE!!!! Trick question! :)
Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be: a. Expensed as incurred in the current period. b. Capitalized as another asset and amortized over five years. c. Capitalized as part of goodwill and tested annually for impairment. d. Allocated on a pro rata basis to the nonmonetary assets acquired.
a
Clark Co. had the following transactions with affiliated parties during Year 1: •Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert significant influence. •Purchases of raw materials totaling $240,000 from Kent Corp., a wholly-owned subsidiary. Kent's gross profit on the sale was $48,000. Clark had $60,000 of this inventory remaining on December 31, Year 1. Before eliminating entries, Clark had consolidated current assets of $320,000. What amount should Clark report in its December 31, Year 1, consolidated balance sheet for current assets? a. $308,000 b. $303,000 c. $320,000 d. $317,000
a
How should the acquirer recognize a bargain purchase in a business acquisition? a. As a gain in earnings at the acquisition date. b. As a deferred gain that is amortized into earnings over the estimated future periods benefited. c. As goodwill in the statement of financial position. d. As negative goodwill in the statement of financial position.
a
In a business combination accounted for as a purchase, the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported? a. As a gain, after adjusting the balance sheet, including identifiable intangible assets, to fair value. b. As positive goodwill. c. As negative goodwill. d. As a reduction of the values assigned to noncurrent assets and an extraordinary gain for any unallocated portion.
a
Jane Co. owns 90% of the common stock of Dun Corp. and 100% of the common stock of Beech Corp. On December 30, Dun and Beech each declared a cash dividend of $100,000 for the current year. What is the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech? a. $10,000 b. $190,000 c. $100,000 d. $200,000
a
Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What method for recording the investment should Louis use? a. The cost method. b. The equity method because significant influence must be assumed. c. The equity method if no other investor has more than a 40% interest. d. The equity method if it can acquire an additional 11% by year-end.
a
On January 1, Year 1, Pepper Company acquired 30% of the voting common stock of Salt, Inc. for $60 per share. Pepper was able to exercise significant influence over the affairs of Salt. Salt had 50,000 common shares outstanding on January 1, Year 1. On July 1, Year 1, Pepper sold all but 500 shares of its investment in Salt, Inc. Pepper held all 500 shares through year-end Year 1. Salt declared and paid a $1 per share common stock dividend on March 31, Year 1, and a $1.50 per share dividend on September 30, Year 1. Salt's net income was exactly $50,000 each quarter. What amount of revenue should Pepper record for the Year 1 from this investment? a. $30,750 b. $15,250 c. $15,750 d. $31,000
a
On July 1, Year 1, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share. On December 15, Year 1, Eagle paid $40,000 in dividends to its common stockholders. Eagle's net income for the year ended December 31, Year 1, was $120,000, earned evenly throughout the year. In its Year 1 income statement, what amount of income from this investment should Denver report? a. $18,000 b. $36,000 c. $6,000 d. $12,000
a
On July 2, Year 1, Wynn, Inc., purchased as an available-for-sale security a $1,000,000 face value Kean Co. 8% bond for $910,000 plus accrued interest to yield 10%. The bonds mature on January 1, Year 7, and pay interest annually on January 1. On December 31, Year 1, the bonds had a market value of $945,000. On February 13, Year 2, Wynn sold the bonds for $920,000. In its December 31, Year 1, balance sheet, what amount should Wynn report for available-for-sale investments in debt securities? a. $945,000 b. $950,000 c. $920,000 d. $910,000
a
On November 30, Year 1, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of the outstanding common stock of Shaw Co. At November 30, Year 1, Shaw's balance sheet showed a carrying amount of net assets of $3,000,000. At that date, the fair value of Shaw's property, plant and equipment exceeded its carrying amount by $400,000. In its November 30, Year 1, consolidated balance sheet, what amount should Parlor report as goodwill under U.S. GAAP? a. $350,000 b. $0 c. $400,000 d. $750,000
a
On October 1, Year 1, Pepper Inc. acquired 100% of Salt Inc. for $275,000. On that date, the carrying values of Salt Inc.'s assets and liabilities were $450,000 and $200,000, respectively. The fair values of Salt's assets and liabilities were $550,000 and $200,000, respectively. Additionally, Salt had identifiable intangible assets at the time of acquisition with a fair value of $60,000. What is the gain to be reported on Pepper's December 31, Year 1 consolidated income statement? a. $135,000 b. $0 c. $25,000 d. $75,000
a
P Co. purchased term bonds at a premium on the open market. These bonds represented 20 percent of the outstanding class of bonds issued at a discount by S Co., P's wholly owned subsidiary. P intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between the bond carrying amounts in the two companies would be: a. Included as a decrease to retained earnings. b. Included as an increase to retained earnings. c. Reported as a deferred debit to be amortized over the remaining life of the bonds. d. Reported as a deferred credit to be amortized over the remaining life of the bonds.
a
Perez, Inc. owns 80% of Senior, Inc. During Year 1, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in Year 1. For Year 1 consolidated financial statements, how should the summation of Perez and Senior's income statement items be adjusted? a. Sales and cost of goods sold should be reduced by the intercompany sales. b. No adjustment is necessary. c. Sales and cost of goods sold should be reduced by 80% of the intercompany sales. d. Net income should be reduced by 80% of the gross profit on intercompany sales.
a
Port, Inc. owns 100% of Salem Inc. On January 1, Year 1, Port sold Salem delivery equipment at a gain. Port had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Salem is using a three-year straight-line depreciation rate with no residual value for the equipment. In the consolidated income statement, Salem's recorded depreciation expense on the equipment for Year 1 will be decreased by: a. 33 1/3% of the gain on sale. b. 100% of the gain on sale. c. 20% of the gain on sale. d. 50% of the gain on sale.
a
Selected data for two subsidiaries of Dunn Corp. taken from December 31, Year 1 pre-closing trial balances are as follows: Banks Co. Debit Lamm Co. Credit Shipments to Banks $ - $150,000 Shipments from Lamm 200,000 - Intercompany inventory profit on total shipments - 50,000 Additional data relating to the December 31, Year 1 inventory are as follows: Inventory acquired from outside parties $175,000 $250,000 Inventory acquired from Lamm 60,000 - At December 31, Year 1, the inventory reported on the combined balance sheet of the two subsidiaries should be: a. $470,000 b. $425,000 c. $435,000 d. $485,000
a
Sun Co. is a wholly-owned subsidiary of Star Co. Both companies have separate general ledgers, and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct? a. Consolidated financial statements should only be prepared by Star and not by Sun. b. After consolidation, the accounts of both Star and Sun should be changed to reflect the consolidated totals for future ease in reporting. c. Consolidated financial statements should be prepared for both Star and Sun. d. After consolidation, the accounts of both Star and Sun should be combined together into one general-ledger accounting system for future ease in reporting.
a
Sun, Inc. is a wholly-owned subsidiary of Patton, Inc. On June 1, Year 1, Patton declared and paid a $1 per share cash dividend to stockholders of record on May 15, Year 1. On May 1, Year 1, Sun bought 10,000 shares of Patton's common stock for $700,000 on the open market, when the book value per share was $30. What amount of gain should Patton report from this transaction in its consolidated income statement for the year ended December 31, Year 1? a. $0 b. $390,000 c. $410,000 d. $400,000
a
A business combination is accounted for properly as an acquisition. Direct costs of combination, other than registration and issuance costs of equity securities, should be: a. Included in the acquisition cost to be allocated to identifiable assets according to their fair values. b. Deducted in determining the net income of the combined corporation for the period in which the costs were incurred. c. Capitalized as a deferred charge and amortized. d. Deducted directly from the retained earnings of the combined corporation.
b
A company reporting under IFRS holds a position in BE Corp. bonds that it classifies as available-for-sale. In the previous year, the company recorded an impairment loss related to the bonds. In the current year, the company reversed a portion of the impairment loss. How should the company account for the impairment loss reversal on its current year financial statements? a. Recognize the increase as an adjustment to the previous year's income statement. b. Recognize the reversal to the current year's income statement. c. Book the reversal to the current year's other comprehensive income. d. Book the increase as an adjustment to the previous year's other comprehensive income.
b
Anchor Co. owns 40% of Main Co.'s common stock outstanding and 75% of Main's noncumulative preferred stock outstanding. Anchor exercises significant influence over Main's operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main? a. $120,000 b. $75,000 c. $80,000 d. $225,000
b
Day Co. received dividends from its common stock investments during the year ended December 31, Year 1, as follows: •A stock dividend of 400 shares from Parr Corp. on July 25, Year 1, when the market price of Parr's shares was $20 per share. Day owns less than 1% of Parr's common stock. •A cash dividend of $15,000 from Lark Corp. in which Day owns a 25% interest. A majority of Lark's directors are also directors of Day. What amount of dividend revenue should Day report in its Year 1 income statement? a. $23,000 b. $0 c. $8,000 d. $15,000
b
Grant, Inc. acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2. Before income taxes, what amount should Grant include in its Year 1 income statement as a result of the investment? a. $50,000 b. $24,000 c. $80,000 d. $15,000
b
King Inc. owns 70% of Simmon Co.'s outstanding common stock. King's liabilities total $450,000, and Simmon's liabilities total $200,000. Included in Simmon's financial statements is a $100,000 note payable to King. What amount of total liabilities should be reported in the consolidated financial statements? a. $650,000 b. $550,000 c. $520,000 d. $590,000
b
On January 2, Year 3, Well Co. purchased 10% of Rea, Inc.'s outstanding common shares for $400,000. Well is the largest single shareholder in Rea, and Well's officers are a majority on Rea's board of directors. Rea reported net income of $500,000 for Year 3 and paid dividends of $150,000. In its December 31, Year 3, balance sheet, what amount should Well report as investment in Rea? a. $400,000 b. $435,000 c. $450,000 d. $385,000
b
Pal Corp.'s Year 1 dividend income included only part of the dividend received from its Ima Corp. investment. The balance of the dividend reduced Pal's carrying amount for its Ima investment. This reflects that Pal accounts for its Ima investment by the: a. Equity method, and its carrying amount exceeded the proportionate share of Ima's market value. b. Cost method, and only a portion of Ima's Year 1 dividends represent Pal's earnings after Pal's acquisition. c. Cost method, and its carrying amount exceeded the proportionate share of Ima's market value. d. Equity method, and Ima incurred a loss in Year 1.
b
Parker Corp. owns 80% of Smith Inc.'s common stock. During Year 1, Parker sold Smith $250,000 of inventory on the same terms as sales made to third parties. Smith sold all of the inventory purchased from Parker in Year 1. The following information pertains to Smith and Parker's sales for Year 1: Parker Smith Sales $ 1,000,000 $ 700,000 Cost of sales 400,000 350,000 $ 600,000 $ 350,000 What amount should Parker report as cost of sales in its Year 1 consolidated income statement? a. $680,000 b. $500,000 c. $430,000 d. $750,000
b
Puff Co. acquired 40% of Straw, Inc.'s voting common stock on January 2, Year 1 for $400,000. The carrying amount of Straw's net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by $100,000. The equipment has a five-year life. During Year 1, Straw reported net income of $150,000. What amount of income from this investment should Puff report in its Year 1 income statement? a. $60,000 b. $52,000 c. $56,000 d. $40,000
b
Sayon Co. issues 200,000 shares of $5 par value common stock to acquire Trask Co. in an acquisition-business combination. The market value of Sayon's common stock is $12. Legal and consulting fees incurred in relationship to the purchase are $110,000. Registration and issuance costs for the common stock are $35,000. What should be recorded in Sayon's additional paid-in capital account for this business combination? a. $1,545,000 b. $1,365,000 c. $1,400,000 d. $1,255,000
b
The following information pertains to shipments of merchandise from Home Office to Branch during Year 1: Home Office's cost of merchandise $ 160,000 Intracompany billing 200,000 Sales by Branch 250,000 Unsold merchandise at Branch on December 31, Year 1 20,000 In the combined income statement of Home Office and Branch for the year ended December 31, Year 1, what amount of the above transactions should be included in sales? a. $180,000 b. $250,000 c. $200,000 d. $230,000
b
An investor uses the cost method to account for an investment in common stock. Dividends received this year exceeded the investor's share of investee's undistributed earnings since the date of investment. The amount of dividend revenue that should be reported in the investor's income statement for this year would be: a. The portion of the dividends received this year that were in excess of the investor's share of investee's undistributed earnings since the date of investment. b. The total amount of dividends received this year. c. The portion of the dividends received this year that were not in excess of the investor's share of investee's undistributed earnings since the date of investment. d. Zero.
c
Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How should Band record a 2% stock dividend received from Guard? a. As dividend revenue at Guard's carrying value of the stock. b. As a reduction in the total cost of Guard stock owned. c. As a memorandum entry reducing the unit cost of all Guard stock owned. d. As dividend revenue at the market value of the stock.
c
In its financial statements, Pare, Inc. accounts for its 15% ownership of Sabe Co. as an available-for-sale security. At December 31, Year 1, Pare has a receivable from Sabe. How should the receivable be reported in Pare's December 31, Year 1, balance sheet? a. The total receivable should be offset against Sabe's payable to Pare, without separate disclosure. b. The total receivable should be included as part of the investment in Sabe, without separate disclosure. c. The total receivable should be reported separately. d. Eighty-five percent of the receivable should be reported separately, with the balance offset against Sabe's payable to Pare.
c
In its financial statements, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angles Corp. At December 31, Year 1, Pulham has a receivable from Angles. How should the receivable be reported in Pulham's Year 1 financial statements? a. The total receivable should be included as part of the investment in Angles, without separate disclosure. b. Seventy percent of the receivable should be separately reported, with the balance eliminated. c. The total receivable should be disclosed separately. d. The receivable should be eliminated.
c
Nolan owns 100% of the capital stock of both Twill Corp. and Webb Corp. Twill purchases merchandise inventory from Webb at 140% of Webb's cost. During Year 1, merchandise that cost Webb $40,000 was sold to Twill. Twill sold all of this merchandise to unrelated customers for $81,200 during Year 1. In preparing combined financial statements for Year 1, Nolan's bookkeeper disregarded the common ownership of Twill and Webb. By what amount was unadjusted revenue overstated in the combined income statement for Year 1? a. $40,000 b. $81,200 c. $56,000 d. $16,000
c
On January 1, Year 1, Dallas, Inc. acquired 80% of Style, Inc.'s outstanding common stock for $120,000. On that date, the carrying amounts of Style's assets and liabilities approximated their fair values. During Year 1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows: Dallas Style 12/31/Year 1 12/31/Year 1 1/1/Year 1 Investment in Style (equity method) $132,000 Other assets 138,000 $115,000 $100,000 $270,000 $115,000 $100,000 Common stock $50,000 $20,000 $20,000 Additional paid-in capital 80,250 44,000 44,000 Retained earnings 139,750 51,000 36,000 $270,000 $115,000 $100,000 What amount should Dallas report as its share of the earnings from subsidiary, in its Year 1 income statement? a. $20,000 b. $12,000 c. $16,000 d. $15,000
c
On January 1, Year 1, Pacific Corporation acquired 75% of Sand Corporation's 200,000 outstanding common shares for $2,850,000. On January 1, the book value of Sand's net assets was $3,000,000. Book value equaled fair value for all of Sand's assets and liabilities except land, which had a fair value of $200,000 greater than book value, and equipment, which had a fair value of $150,000 greater than book value. On January 1, Year 1, Sand had a noncompete agreement with a fair value of $300,000. What is the noncontrolling interest to be reported on Pacific Corporation's December 31, Year 1 balance sheet under U.S. GAAP? a. $750,000 b. $800,000 c. $950,000 d. $912,500
c
On January 1, Year 2, Point, Inc. purchased 10% of Iona Co.'s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona's common stock outstanding on August 1, Year 2. During October, Year 2, Iona declared and paid a cash dividend on all of its outstanding common stock. How much income from the Iona investment should Point's Year 2 income statement report? a. 40% of Iona's income for August 1 to December 31, Year 2 only. b. Amount equal to dividends received from Iona. c. 10% of Iona's income for January 1 to July 31, Year 2, plus 40% of Iona's income for August 1 to December 31, Year 2. d. 40% of Iona's Year 2 income.
c
On January 2 of the current year, Peace Co. paid $310,000 to purchase 75% of the voting shares of Surge Co. Peace reported retained earnings of $80,000, and Surge reported contributed capital of $300,000 and retained earnings of $100,000. The purchase differential was attributed to depreciable assets with a remaining useful life of 10 years. Peace used the equity method in accounting for its investment in Surge. Surge reported net income of $20,000 and paid dividends of $8,000 during the current year. Peace reported income, exclusive of its income from Surge, of $30,000 and paid dividends of $15,000 during the current year. What amount will Peace report as dividends declared and paid in its current year's consolidated statement of retained earnings? a. $8,000 b. $21,000 c. $15,000 d. $23,000
c
On September 29, Year 1, Wall Co. paid $860,000 for all the issued and outstanding common stock of Hart Corp. On that date, the carrying amounts of Hart's recorded assets and liabilities were $800,000 and $180,000, respectively. Hart's recorded assets and liabilities had fair values of $840,000 and $140,000, respectively. In Wall's September 30, Year 1, balance sheet, what amount should be reported as goodwill? a. $20,000 b. $240,000 c. $160,000 d. $180,000
c
PDX Corp. acquired 100% of the outstanding common stock of Sea Corp. in an acquisition transaction. The cost of the acquisition exceeded the fair value of the identifiable assets and assumed liabilities. The general guidelines for assigning amounts to the inventories acquired provide for: a. Work in process to be valued at the estimated selling prices of finished goods, less both costs to complete and costs of disposal. b. Raw materials to be valued at original cost. c. Finished goods to be valued at estimated selling prices, less both costs of disposal and a reasonable profit allowance. d. Finished goods to be valued at replacement cost.
c
Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell, Inc., an investment company. Sell owns 60% of the common stock of Vane, Inc., an insurance company. In Penn's consolidated financial statements, should consolidation accounting or equity method accounting be used for Sell and Vane? a. Equity method used for Sell and consolidation used for Vane. b. Equity method used for both Sell and Vane. c. Consolidation used for both Sell and Vane. d. Consolidation used for Sell and equity method used for Vane.
c
Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, Year 1. Plack received a stock dividend of 2,000 shares on April 30, Year 1, when the market value per share was $35. Ty paid a cash dividend of $2 per share on December 15, Year 1. In its Year 1 income statement, what amount should Plack report as dividend income? a. $90,000 b. $20,000 c. $24,000 d. $94,000
c
Rowe Inc. owns 80% of Cowan Co.'s outstanding capital stock. On November 1, Rowe advanced $100,000 in cash to Cowan. What amount should be reported related to the advance in Rowe's consolidated balance sheet as of December 31? a. $20,000 b. $80,000 c. $0 d. $100,000
c
Selected information from the separate and consolidated balance sheets and income statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31, Year 1, and for the year then ended is as follows: Pare Shel Consolidated Balance sheet accounts Accounts receivable $ $52,000 $ $38,000 $ $78,000 Inventory 60,000 50,000 104,000 Income statement accounts Revenues 400,000 280,000 616,000 Cost of goods sold 300,000 220,000 462,000 Gross profit $ 100,000 $ 60,000 $ 154,000 Additional information: During Year 1, Pare sold goods to Shel at the same markup on cost that Pare uses for all sales. In Pare's consolidating worksheet, what amount of unrealized intercompany profit was eliminated? a. $64,000 b. $58,000 c. $6,000 d. $12,000
c
On both December 31, Year 1, and December 31, Year 2, K's only marketable equity security had the same market value, which was below cost. K considered the decline in value to be temporary in Year 1 but "other than temporary" in Year 2. At the end of both years the security was classified as an available-for-sale asset. K could not exercise significant influence over the investee. What should be the effects of the determination that the decline was other than temporary on K's Year 2 net available-for-sale assets AND net income?
c. No effect on net available-for-sale assets and decrease in net income.
A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company's consolidated balance sheet? a. No effect on either retained earnings or noncontrolling interest. b. Decreases in both retained earnings and noncontrolling interest. c. A decrease in retained earnings and no effect on noncontrolling interest. d. No effect on retained earnings and a decrease in noncontrolling interest.
d
An investor in common stock received dividends in excess of the investor's share of investee's earnings subsequent to the date of the investment. How will the investor's investment account be affected by those dividends under each of the following accounting methods? Cost method Equity method a. No effect No effect b. Decrease No effect c. No effect Decrease d. Decrease Decrease
d
At December 31, Year 1, Grey, Inc. owned 90% of Winn Corp., a consolidated subsidiary, and 20% of Carr Corp., an investee in which Grey cannot exercise significant influence. On the same date, Grey had receivables of $300,000 from Winn and $200,000 from Carr. In its December 31, Year 1 consolidated balance sheet, Grey should report accounts receivable from affiliates of: a. $340,000 b. $500,000 c. $230,000 d. $200,000
d
Combined statements may be used to present the results of operations of: Companies under common management Commonly controlled companies a. No Yes b. Yes No c. No No d. Yes Yes
d
Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unless: a. The two companies are in unrelated industries, such as manufacturing and real estate. b. The subsidiary is a finance company. c. The fiscal year-ends of the two companies are more than three months apart. d. The subsidiary is in bankruptcy.
d
For which of the following reporting units is the preparation of combined financial statements most appropriate? a. A corporation and a foreign subsidiary with nonintegrated homogeneous operations. b. A corporation and a majority-owned subsidiary with nonhomogeneous operations. c. Several corporations with related operations with some common individual owners. d. Several corporations with related operations owned by one individual.
d
On December 31, Year 1, Starlight Enterprises acquired a 90% ownership interest in Lunar Importers by purchasing 90,000 of Lunar's 100,000 voting common shares outstanding for $900,000 cash. Additional information regarding Lunar as of December 31, Year 1, follows: Book Value Fair Value Net assets $ 600,000 $ 800,000 Under the IFRS partial goodwill method, the consolidated balance sheet of Starlight Enterprises and subsidiary would report goodwill in the amount of: a. $200,000 b. $280,000 c. $360,000 d. $180,000
d
On January 1 of the current year, Barton Co. paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly-traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Barton report the bonds in its balance sheet at the end of the current year? a. $900,000 b. $1,000,000 c. $950,000 d. $1,020,000
d
Palmetto Inc. is currently using the equity method to account for its 30% investment in Royal Company. In the acquisition last year of Royal Co. common stock, Palmetto calculated $1,000,000 of goodwill. The correct accounting for this goodwill during the current year is: a. Amortization over the anticipated holding period of the Royal Company stock. b. Amortization over 40 years. c. Test for impairment at year-end. d. No accounting necessary.
d
Penn Corp. paid $300,000 for 75% of the outstanding common stock of Star Co. At that time, Star had the following condensed balance sheet: Carrying Amounts Current assets $ 40,000 Plant and equipment, net 380,000 Liabilities 200,000 Stockholders' equity 220,000 The fair value of the plant and equipment was $60,000 more than its recorded carrying amount. The fair values and carrying amounts were equal for all other assets and liabilities. What is the noncontrolling interest that Penn should report on its acquisition date consolidated balance sheet under the IFRS partial goodwill method? a. $60,000 b. $100,000 c. $55,000 d. $70,000
d
