601 Final Exam Study Guide
Chapter 10 Problem - Example If the parent company pays $108,000 for a 90% interest in the subsidiary, and the fair value of the subsidiary's net assets of $100,000. How much goodwill should be reported under (1) equity theory and (2) parent company theory?
(1) entity theory -entity theory - views the assets and liabilities of the consolidated entity as belonging to the entity (not owners) -based on acquiring 100% of subsidiary's goodwill (no matter %) 108,000 for 90% SO 120,000 for 100% 120,000 Price (100,000) FV Net Assets =20,000 Goodwill 90% 18,000 Parent GW 10% 2,000 NCI GW (2) parent company theory -parent company theory views the assets and liabilities of the consolidated entity as belonging to the owners (consider %) 108,000 Price (90,000) (.9*100000) =18,000 Parent GW
Chapter 9 Problem - Example
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What is a finance lease? Operating lease?
A finance lease (also known as a capital lease in old standard - ASC840) is a lease, in substance, the long-term purchase of an asset. An operating lease is a rental agreement. These are any leases that do not meet the capitalization criteria.
What is a reportable segment? What is the criteria to determine an operating segment is a *reportable segment*?
A reportable segment is a operating segment that must be properly disclosed in the financial statements due to certain criteria. This criteria includes meeting any of the following quantitative thresholds: 1) reported revenue is >=10% of combined revenue 2) reported profit (loss) is >= 10% of combined profit (loss) 3) Assets are >=10% of combined assets These criteria are explained in 280-10-50-12
What is an operating segment?
According to FASB ASC 280-10-50-1, an operating segment is a component of a public entity that has the following characteristics - it engages in business activities from which it may recognize revenue and incur expenses; its operating results are regularly reviewed by the public entity's chief operating decision maker for resource allocation and performance assessment; its discrete financial information is available -the goal is use enterprise's internal organization so reportable operating segments will be readily evident -problems include determination of reportable segments, allocation of join costs, transfer pricing
Why do companies combine?
Companies can find it useful to combine operations and experience economies of scale. It allows companies to more quickly diversify and grow their business into new markets. It could also allow a company to eliminate competition. Reasons businesses combine 1) Tax consequences 2) Growth and diversification 3) Financial considerations 4) Competitive pressure 5) Profit and retirement
What questions help answer whether or not to consolidate?
Does the company have a variable interest in the legal entity? (No - Do Not Consol) (Yes - Continue) Does a general scope exception apply? (Yes - Apply other GAAP not ASC 810) (No - Continue) Does the business-related scope exception apply? (Yes - Go to Voting Interest Model*) (No - Continue) Is the legal entity a Variable Interest Equity? (No - Go to Voting Interest Model*) (Yes - Go to Variable Interest Model**) VOTING Interest Model Does the company own (either directly or indirectly) more than 50% of voting interest in the entity? (Yes - Consolidate) (No - Do Not Consol) VARIABLE Interest Model Is the company the primary beneficiary of the Variable Interest Entity? (Yes - Consolidate) (No - Do Not Consol)
What information should be disclosed for each operating segment?
For each operating segment there are three things that should be disclosed. First is operations in different industries, then foreign operations, and lastly, major customers. General information to disclose a) factors used to identify the entity's reportable segments (such as product, geographic, regulatory, etc) b) type of products or services from which each reportable segments derives its revenues Profit/Loss Disclosure a) entity shall disclose a measure of profit/loss and the specific segment details such as revenues from external customers, revenues from other op segments, interest revenue/expense, depreciation/depletion/amortization, unusual items, equity in the net income, income tax expense/benefit
Why do companies lease?
Leasing is one way to obtain property rights in LT assets as opposed to purchasing an asset. The choice between purchase or lease is based on strategic investment and capital structure objectives, comparative costs, availability of tax benefits. The advantages of leasing include 1) Reduces the upfront cash needed to use an asset 2) Save funds for alternative uses 3) 100% financing at fixed rates 4) Protection against obsolescence 5) Allows flexibility to the lessee's special needs 6) Frequently less costly than other forms of financing the cost of the acquisition of fixed assets 7) Allows tax advantages 8) Does not add debt to the balance sheet
Define noncontrolling interest and reporting on the Balance Sheet.
Noncontrolling interest is an item on the balance sheet that represents the interest of a subsidiary that a parent company does not own. It occurs when a parent company does not own 100% of a subsidiary. This is reported on the Balance Sheet as a separate component in the Stockholder's Equity section.
Discuss the difference between a finance lease and an operating lease from a lessee's perspective.
The difference between a finance and operating lease is that a finance lease is treated as a purchase of a long-term asset while an operating lease is treated as a rental agreement.
Discuss the two theories of consolidation.
The first theory of consolidation is the entity theory. This theory emphasizes control of a group of legal entities operating as a single unit. More specifically, this theory views the assets and liabilities of the consolidated entity as belonging to the entity (not owners). Goodwill is calculated based on acquiring 100% of subsidiary's goodwill, not the percentage acquired. The second theory of consolidation is the parent company theory. This says that the purpose of consolidated statements is to provide information for parent company stockholders. The parent company theory views the assets and liabilities of the consolidated entity as belonging to the owners, so it is necessary to consider what percentage is purchased.
What are the criteria for recording a lease transaction as a finance lease according to ASC 842?
The following at the five criteria (must meet one or more to classify as a finance lease) 1)The agreement specifies that *ownership* of the asset transfers to the lessee 2) The agreement contains a purchase option that the lessee is reasonably certain to exercise (*bargain purchase option*) 3) The *lease term* is for the "major part" of the remaining economic life of the underlying asset 4)The present value of the *lease payments* equals or exceeds "substantially all" of the fair value of the underlying asset 5) The underlying asset is of such a *specialized* nature that it is expected to have no alternative use to the lessor at the end of the lease term.
What are the two principles that are used to guide the preparation of consolidated financial statements?
The two principles that guide the preparation of consolidated financial statements is (1) cannot own or owe itself and (2) cannot make a profit by selling to itself. This means that assets, liabilities, and sales must be removed when they are with affiliated entities.
What are the two classifications of leases for lessees under ASU 2016-02?
Two classifications FOR LESSEE 1) Finance Lease 2) Operating Lease FOR LESSOR 1) Sales-type lease (without or with selling profit) 2) Operating Lease
Discuss the three waves of business combinations.
Wyatt's classifications 1) Classical Era 2) Second wave 3) Third era Classical Era - 1890-1904; The main feature of this period was the holding company, a corporate structure to control the operations of the various operating units falling within its framework. The main reason for combinations at this time was the creation of vertical, fully integrated corporate complexes for the purpose of dominating the markets in which the units would operate. Second Wave - 1918-1930; Combinations were significantly smaller during this period. Most of the combinations were gradual acquisitions designed to expand the operations of the principal company. Third Era - 1945-present; Typically involve gradual acquisitions designed to strengthen a competitive position, diversify into new market areas, or stay on top of technological advances.
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. 0 b. 20,000 c. 80,000 d. 100,000
a. 0 Eliminate intercompany transactions
On January 1, Year 10, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly owned subsidiary. Poe paid $1,100,000 for this machine, which had accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy that Saxe continued. In Poe's December 31, Year 10, consolidated balance sheet, this machine should be included in cost and accumulated depreciation as: Cost ; Accumulated Depreciation a. 1,100,000 ; 300,000 b. 1,100,000 ; 290,000 c. 900,000 ; 40,000 d. 850,000 ; 42,500
a. 1,100,000 ; 300,000 Shown at cost of 1,100,000 (1,100,000-100,000) ÷ 20 =50,000 =250,000 +50,000 =300,000
On January 1, Year 1, Owen Corp. acquired all of Sharp Corp.'s common stock for $1,200,000. On that date, the fair values of Sharp's assets and liabilities equaled their carrying amounts of $1,320,000 and $320,000, respectively. During Year 1, Sharp paid cash dividends of $20,000. Selected information from the separate balance sheets and income statements of Owen and Sharp as of December 31, Year 1, and for the year the ended follows: Owen ; Sharp Investment in sub 1,300,000 ; 0 Retained earnings 1,240,000 ; 540,000 Total SE 2,620,000 ; 1,100,000 Operating Income 420,000 ; 200,000 Equity in earnings of Sharp 120,000 ; 0 Net Income 400,000 ; 120,000 In Owen's December 31, Year 1, consolidated balance sheet, what amount should be reported as total retained earnings? a. 1,240,000 b. 1,360,000 c. 1,380,000 d. 1,800,000
a. 1,240,000 parent equity
Becker - Winn Co. manufactures equipment that is sold or leased. On December 31, Year 1, Winn leased equipment to Bart for a five-year period ending December 31, Year 6, at which date ownership of the leased asset will be transferred to Bart. Equal payments under the lease are $22,000 and are due on December 31 of each year. The first payment was made on December 31, Year 1. Collectibility of the remaining lease payments is reasonably assured, and Winn has no material cost uncertainties. The normal sales price of the equipment is $77,000, and cost is $60,000. For the year ended December 31, Year 1, what amount of income should Winn realize from the lease transaction? a. 17,000 b. 22,000 c. 23,000 d. 33,000
a. 17,000 77,000 - 60,000 =17,000
In the following information pertains to shipments of merchandise from Home Office to Branch during Year 1: Home Office cost of merch 160,000 Intracompany biling 200,000 Sales by Branch 250,000 Unsold merch at Branch on 12/31 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. 250,000 b. 230,000 c. 200,000 d. 180,000
a. 250,000 Sales by branch to outside parties included
Becker - Glade Co. leases computer equipment to customers under U.S. GAAP direct-financing leases. The equipment has no residual value at the end of the lease and the leases do not contain a written purchase options. Glade wishes to earn 8 percent interest on a five-year lease of equipment with a fair value of $323,400. The present value of an annuity due of $1 at 8 percent for five years is 4.312. What is the total amount of interest revenue that Glade will earn over the life of the lease? a. 51,600 b. 75,000 c. 129,360 d. 139,450
a. 51,600 323,400 = annual rent x 4.312 323,400 ÷ 4.312 = 75,000 * 5 = 375,000 - 323,400 = 51,600
When a consolidated statement of cash flows is presented, which of the following statements is true? I. In the reconciliation of net income to net cash provided by operations, total net income including any non controlling interest should be used. II. Dividends paid by a subsidiary to both the parent company and noncontrolling shareholders are reported as a use of cash. a. I only b. II only c. Both I and II d. Neither I nor II
a. I only
Becker - At the inception of a finance lease, the residual value expected to be owed at the end of the lease term should be: a. Included as part of minimum lease payments at present value b. Included as part of minimum lease payments at future value c. Included as part of minimum lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value d. Excluded from minimum lease payments
a. Included as part of minimum lease payments at present value
For a business combination, we measure all assets and liabilities of an acquired company at fair value. Fair value a. Is an exit value b. Is an entry value c. Is an appraisal value d. Can be either an exit value or an entry value depending on the circumstances
a. Is an exit value (market value) entry is cost
Becker - Jay's lease payment are made at the end of each period. Jay's liability for a finance lease would be reduced periodically by the a. Minimum lease payment less the portion of the minimum lease payment allocable to interest b. Minimum lease payment plus the amortization of the related asset c. Minimum lease payment less the amortization of the related asset d. Minimum lease payment
a. Minimum lease payment less the portion of the minimum lease payment allocable to interest
The classifications of a lease by the lessee are a. Operating and finance leases b. Operating, sales, and finance leases c. Operating and leveraged leases d. None of these answers are correct
a. Operating and finance leases
A sale of goods, denominated in a currency other than the entity's functional currency, resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between the functional currency and the currency in which the transaction was denominated changed. The resulting gain should be included as a. Other comprehensive income b. Deferred credit c. Component of income from continuing operations d. Discontinued operations
a. Other comprehensive income
Perez Inc. owns 80 percent of Senior Inc. During year 1, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in 20X2. For 20X2 consolidated financial statements, how should the summation of Perez and Senior income statement items be adjusted? a. Sales and cost of goods sold should be reduced by the intercompany sales b. Sales and cost of goods sold should be reduced by 80% of the intercompany sales c. Net income should be reduced by 80% of the gross profit on intercompany sales d. No adjustment is necessary
a. Sales and cost of goods sold should be reduced by the intercompany sales
Goodwill represents the excess of the cost of an acquired company over the a. Sum of the fair values assigned to identifiable assets acquired less liabilities assumed b. Sum of the fair values assigned to tangible assets acquired less liabilities assumed c. Sum of the fair values assigned to intangible assets acquired less liabilities assumed d. Book value of an acquired company
a. Sum of the fair values assigned to identifiable assets acquired less liabilities assumed
Becker - Which of the following is a criterion for a lease to be classified as a finance lease in the books of a lessee under U.S. GAAP? a. The lease contains a written purchase option b. The lease does not transfer ownership of the property to the lessee c. The lease term is equal to 65% or more of the estimated useful life of the leased property d. The present value of the minimum lease payments if 70% or more of the fair market value of the lease property
a. The lease contains a written purchase option
The key difference between ASC 842 and SFAS No. 13 in accounting for leases by lessees is a. The recognition of a right-of-use asset (ROU) and lease liability on the statement of financial position for those leases previously classified as operating leases under SFAS No. 13 b. Leases will be measured at their fair value by lessees c. The classification of a lease as a finance by a lessee is based on a completely new set of criteria than was used in SFAS No. 13 d. There are no major differences between the two standards in accounting for leases by lessees
a. The recognition of a right-of-use asset (ROU) and lease liability on the statement of financial position for those leases previously classified as operating leases under SFAS No. 13
Lessees prefer to account for their leases as short-term leases because: a. This decreases the amount of liability reported b. This increases their debt to total equity ratio c. This decreases the income tax expense d. This increases the amount of total assets
a. This decreases the amount of liability reported
On January 2, Year 1, Pare Co. acquired 75% of Kidd Co.'s outstanding common stock. Selected balance sheet data at December 31, Year 1, is as follows: Pare Assets - 420,000 Liabilities - 120,000 Common Stock - 100,000 Retained earnings - 200,000 Kidd Assets - 180,000 Liabilities - 60,000 Common Stock - 50,000 Retained earnings - 70,000 During Year 1, Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. In December 31, Year 1, consolidated balance sheet, what amount should Pare report as common stock? a. 50,000 b. 100,000 c. 137,500 d. 150,000
b. 100,000 same as parent
On January 2, Year 1, Pare Co. acquired 75% of Kidd Co.'s outstanding common stock. Selected balance sheet data at December 31, Year 1, is as follows: Pare Assets - 420,000 Liabilities - 120,000 Common Stock - 100,000 Retained earnings - 200,000 Kidd Assets - 180,000 Liabilities - 60,000 Common Stock - 50,000 Retained earnings - 70,000 During Year 1, Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. In December 31, Year 1, consolidated statement of retained earnings, what amount should Pare report as dividends paid? a. 5,000 b. 25,000 c. 26,250 d. 30,000
b. 25,000 Pare diviends paid
Halcomb Company's balance sheet on December 31, 2020, was as follows: Assets Cash 80,000 Trade AR (net) 160,000 Inventories 400,000 Plant assets (net) 720,000 Total assets 1,360,000 Liabilities Current liabilities 240,000 Long-term debt 400,000 Common stock, $1 par 80,000 APIC 160,000 Retained earnings 480,000 Total liabilities and Stockholders' equity 1,360,000 On Dec 31, 2020, Ruth Corp acquired all of the outstanding common stock of Halcomb for $1,200,000. On that date, the current fair value of Halcomb's inventories was $360,000 and the current fair value of Halcomb's plant assets was $800,000. The current fair values of all other identifiable assets and liabilities of Halcomb were equal to their carrying amounts. As a result of the acquisition of Halcomb by Ruth, goodwill is a. 400,000 b. 440,000 c. 480,000 d. 520,000
b. 440,000 (80,000+160,000+360,000+800,000) - (240,000+400,000) =760,000 1,200,000 - 760,000 = 440,000
Becker - Anton owns equipment originally four years ago for $325,000. On January 1, Year 5, Anton sells the equipment to Bridges for $208,000. The equipment has a remaining useful life of six years, a carrying value of $195,000, and a fair value of $202,000. Bridges has agreed to lease the equipment back to Anton for three years with annual payments of $48,375 at an implicit interest rate of 5.25 percent. The lease qualifies as a sale. When the transfer takes place, Anton will record a financing liability equal to: a. 0 b. 6,000 c. 7,000 d. 13,000
b. 6,000 Selling price 208,000 Fair value 202,000 208,000-202,000 =6,000
Becker - On January 2 of the current year, Cole Co. signed an eight-year noncancelable lease for a new machine, requiring $15,000 annual payments at the beginning of each year. The machine has a useful life of 12 years, with no salvage value. Title passes to Cole at the lease expiration date. Cole use straight-line depreciation for all of its plant assets. Aggregate lease payments have a present value on January 2 of $108,000, based on an appropriate rate of interest. For the current year, Cole should record depreciation (amortization) expense for the leased machine. a. 0 b. 9,000 c. 13,500 d. 15,000
b. 9,000 108,000 - 0 =108,000 108,000 ÷ 12 = 9,000
In a business combination that is accounted for under the acquisition method, the entity that obtains control over one or more businesses and establishes the acquisition date that control was achieved is called the a. Controller b. Acquirer c. Proprietor d. Controlling Interest
b. Acquirer
Which of the following is not one of the lease classifications tests? a. Transfer of ownership b. Collectibility c. Purchase option d. Lease term
b. Collectibility
On October 1, Company X acquired for cash all of the outstanding common stock of Company Y. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income for the year ended December 31 should include net income of a. Company X for 3 months and Company Y for 3 months b. Company X for 12 months and Company Y for 3 months c. Company X for 12 months and Company Y for 12 months d. Company X for 12 months, but no income from Company Y until Company Y distributed a dividend
b. Company X for 12 months and Company Y for 3 months
Which of the following is the best theoretical justification for consolidated financial statements? a. In form the companies are one entity; in substance they are separate b. In form the companies are separate; in substance they are one entity c. In form and substance, the companies are one entity d. In form and substance, the companies are separate
b. In form the companies are separate; in substance they are one entity
What is the primary accounting issue for lessors? a. Off-balance sheet financing b. Revenue recognition and expense allocation over the lease term c. Treating the lease in the same manner as the lessee does d. Determining whether the lease is a sales-type lease or a direct financing lease
b. Revenue recognition and expense allocation over the lease term
Becker - On January 1, Year 1, Frost Co. entered into a two-year lease agreement with Ananz Co. to lease 10 new computers. The lease term begins on January 1, Year 1, and ends on December 31, Year 2. The lease agreement requires Frost to pay Ananz two annual lease payments of $8,000. The present value of minimum lease payments if $13,000. Which of the following circumstances would require Frost to classify and account for the arrangement as a finance lease under U.S. GAAP? a. The economic life of the computers is three years. b. The fair value of the computers on January 1, Year 1 is $14,000. c. Frost does not have the option of purchasing the computers at the end of the lease term. d. Ownership of the computers remains with Ananz throughout the lease term and after the lease ends
b. The fair value of the computers on January 1, Year 1 is $14,000. 13,000/14,000 = 93%
Becker - Assuming that no direct costs are involved, what are the components of the lease receivable for a lessor involved in a direct-financing lease? a. The minimum lease payments plus any executory costs b. The minimum lease payments plus residual value c. The minimum lease payments less residual value d. The minimum lease payments less executory costs
b. The minimum lease payments plus residual value
In computing the present value of the lease payments, the lessee should a. Use the implicit rate in all cases b. Use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee c. Use its incremental borrowing rate in all cases d. Use both its incremental borrowing rate and the implicit rate of the lessor, assuming that the implicit rate is known to the lessee
b. Use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee
Strut Co. has a payable to its parent, Plane Co. In which of the following balance sheets should this payable be reported separately? Strut's BS ; Plant's consolidated BS a. Yes ; Yes b. Yes ; No c. No ; Yes d. No ; No
b. Yes ; No sub liabilities should be reflected
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. $16,000 b. $40,200 c. $56,000 d. $81,200
c. $56,000 40,000 * 1.4 =56,000
Becker - Steam Co. acquired equipment under a finance lease for six years. Minimum lease payments were $60,000 payable annually at year-end. The interest rate was 5% with an annuity factor for six years of 5.0757. The present value of the payments was equal to the fair market value of the equipment. What amount should Steam report as interest expense at the end of the first year of the lease? a. 0 b. 3,000 c. 15,227 d. 18,000
c. 15,227 60,000 * 5.0757 = 304,542 304,542 * .05 = 15,227
Bard Co. owned several subsidiaries at December 31. The following table shows each subsidiary's total liabilities, excluding intercompany transactions, and percentage of stock owned by Bard: Subsidiary Total Liabilities % Owned Brock Co. $4,000,000 70% Harlson Co. 2,000,000 48% Porter Co. 7,000,000 80% Nortin Co. 5,000,000 100% What amount should Bard include as liabilities in its consolidated balance sheet at December 31? a. 5,000,000 b. 12,000,000 c. 16,000,000 d. 18,000,000
c. 16,000,000 Brock 4,000,000 + Porter 7,000,000 + Nortin 5,000,000 =16,000,000
Becker - Farm Co. leased equipment to Union Co. on July 1, Year 1 and properly recorded the sales-type (finance) lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year was received and recorded on July 3, Year 1. Farm has purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its Year 1 income statement? a. 0 b. 5,500 c. 5,750 d. 6,750
c. 5,750 135,000 - 20,000 =115,000 115,000 x 10% x 6/12 = 5,750
Consolidated financial statements are typically prepared when one company has a controlling interest in another unless: a. The subsidiary is a finance company b. The fiscal year-ends of the company are more than three months apart c. Circumstance prevent the exercise of control d. The two company are in unrelated industries, such as real estate and manufacturing
c. Circumstance prevent the exercise of control
In an operating lease, the lessee records a. Amortization expense and lease expense b. Interest expense c. Lease expense d. Amortization expense
c. Lease expense
What was the primary accounting issue for lessees that lead to the issuance of ASU 2016-02? a. Recording interest expense on the lease obligation b. Determining whether the lease meets the 90% of fair value test c. Off-balance sheet financing d. The measurement of the leased asset under a finance lease
c. Off-balance sheet financing
The amount to be recorded as the cost of an asset under finance lease is equal to the a. Present value of the lease payments plus the present value of any unguaranteed residual value b. Carrying value of the asset on the lessor's books c. Present value of the lease payments d. Present value of the lease payments or the fair value of the asset, whichever is lower
c. Present value of the lease payments
Becker - Which of the following situations would require that a lessor not book a lease as an operating lease under U.S. GAAP? a. The lease does not contain a written purchase option b. The lessor is able to predict the collectibility of lease payments c. The lease term represents 80% of the economic life of the asset leased d. The lessor is unsure about unreimbursable costs that may be incurred in the near future
c. The lease term represents 80% of the economic life of the asset leased
Under the provisions of ASC 842, which of the following is *NOT* required in a lease modification when the lease payments are required to be remeasured? a. Any variable lease payments that are based on a rate or index will need to be remeasured b. The total lease liability is remeasured c. The remeasured lease must be subsequently recorded as an operating lease d. The lessee is generally required to use an updated discount rate
c. The remeasured lease must be subsequently recorded as an operating lease
In computing the present value of the minimum lease payments under ASC 842, the lessee should a. Use its incremental borrowing rate in all cases b. Use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee c. Use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower,m assuming that the implicit rate is known to the lessee d. Use the implicit rate in all cases
c. Use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee
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. 500,000 b. 340,000 c. 230,000 d. 200,000
d. 200,000 Winn receivable eliminated, not Carr
Becker - On January 1, Pane Corp exchanged 150,000 shares of its $20 par value common stock for all of Sky Corp's common stock. At that date, the fair value of Pane's common stock issued was equal to the book value of Sky's net assets. Both corps continued to operate as separate businesses, maintaining accounting records with years ending December 31. Pane uses the equity method to account for its investment in Sky Pane RE - 3,200,000 Sky RE - 925,000 Pane NI - 800,000 Sky NI - 275,000 Pane Dividends Paid - 750,000 What amount of RE would Pane report in it 6/30 conslidated BS?
d. 3,250,000 3,200,000 + 800,000 - 750,000 = 3,250,000
Becker - On January 1 of the current year, Tell Co. leased equipment from Swill Co. under a 9-year sales-type (finance) lease. The equipment had a cost of $400,000 and an estimated useful life of 15 years. Semiannual lease payments of $44,000 are due every January 1 and July 1. The present value of lease payments at 12% was $505,000, which equals the sales price of the equipment. Using the straight-line method, what amount should Tell recognize as depreciation expense on the equipment in the current year? a. 26,667 b. 33,667 c. 44,444 d. 56,111
d. 56,111 505,000 ÷ 9 = 56,111
In a finance lease, the lessee records a. Interest expense only b. Amortization expense only c. Lease expense only d. Amortization expense and interest expense
d. Amortization expense and interest expense
The theoretical preferred method of presenting noncontrolling interest on a consolidated balance sheet is a. As a separate item with the deferred credits section b. As a reduction from (contra to) goodwill from consolidation, if any c. By means of notes or footnotes to the balance sheet d. As a separate item within the stockholder's equity section
d. As a separate item within the stockholder's equity section
The noncontrolling interest in a subsidiary is reported in the consolidated balance sheet a. As an investment b. As a liability c. At fair value, as determined on the acquisition date d. As an element of stockholder's equity
d. As an element of stockholder's equity
Which of the following is not a consideration in segment reporting for diversified enterprises? a. Allocation of joint costs b. Transfer pricing c. Defining the segments d. Consolidation policy
d. Consolidation policy
When a parent-subsidiary relation exists, consolidated financial statements are prepared in recognition of the accounting concept of: a. Reliability b. Materiality c. Legal entity d. Economic entity
d. Economic entity
Becker - As an inducement to enter a lease, Graf Co., a lessor, granted Zep, Inc., a lessee, twelve months of free rent under a five-year operating lease. The lease was effective on January 1, Year 1, and provides for monthly lease payments to begin January 1, Year 2. Zep made the first lease payment on December 30, Year 1. In its Year 1 income statment, Graf should report lease revenue in an amount equal to: a. Zero b. Cash received during Year 1 c. One-fourth of the total cash received over the life of the lease d. One-fifth of the total cash received over the the life of the lease
d. One-fifth of the total cash received over the the life of the lease
Becker - Assuming U.S. GAAP and given no other information on the terms of the lease, the lessee will account for a lease as operating in all of the following situations, EXCEPT a. There is no written purchase option b. Ownership does not transfer at the end of the lease c. The lease term is equal to 70% of the economic life of the asset d. The present value of the minimum lease payments is equal to 95% of fair value
d. The present value of the minimum lease payments is equal to 95% of fair value
