ACC 504 Final Part 2

Use for the next 3 questions: On January 1, 20X8, Parent Company acquired 90 percent ownership of Subsidiary Corporation, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 10 percent of the book value of Subsidiary Corporation. On Mar 17, 20X8, Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the entire inventory to an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8. What amount of sales will be reported in the 20X8 consolidated income statement?

$120,000

Based on the preceding information, what amount of goodwill will be reported if the acquisition price was $195,000?

$0

What amount will be reported as investment in Stamp Corporation stock in the consolidated balance sheet immediately following the acquisition?

$0

bIll, Page, Larry, and Scott have decided to terminate their partnershio. The partnershio's balance sheet at the time thev decide to wind up is as follows: Cash Nonsn Assers 100,000 Accounts payable 300,000 Bill, Capital Page, Capital Larry, Capital Scott, Capital 400,000 100,000 25,000 110,000 100,000 65,000 400,000 During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. The partners share profits and losses in the ratio of 4:2:1:3. What amount will be paid out to bill upon liquidation or the partnership?

$0

Postage and Stamp: What amount will be reported as noncontrolling interest in the consolidated balance sheet immediately following the acquisition?

$100,000

What amount of Stamp's land will be included in the consolidated balance sheet immediately following the acquisition?

$100,000

Based on the information given above, what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?

$117,000

Based on the information given above, what amount should be reported in the December 31, 20X8, consolidated balance sheet as inventory?

$12,000

During the liquidation of the FGH partnership, a cash distribution was made to all the partners, who share profits and losses 60 percent, 20 percent, and 20 percent, respectively. Assuming that the cash distribution referred to was made properly, how much would G receive if an additional $60,000 was distributed?

$12,000

Based on the information given above, what amount of sales must be eliminated from the consolidated income statement for 20X8?

$120,000

Griffin and Rhodes formed a partnership on January 1, 20X9. Griffin contributed cash of $120,000 and Rhodes contributed land with a fair value of $160,000. The partnership assumed the mortgage on the land that amounted to $40,000 on January 1. Rhodes originally paid $90,000 for the land. On July 31, 20X9, the partnership sold the land for $190,000 Assuming Griffin and Rhodes share profits and losses equally, how much of the gain from sale of land should be credited to Griffin for financial accounting purposes?

$15,000

Use the following to answer the next 3 questions During 2017, Safeway Corp., a 90%-owned subsidiary, sold inventory upstream to its parent for $700,000; the inventory originally had cost Safeway $490,000. By the end of 2017, only one-fourth (1/4) of the inventory had been resold to unrelated parties. What is the amount of the unrealized inter-company gross profit (i.e. the amount of the elimination adjustment to ending inventory) at the end of 2017?

$157,500

Assuming the safe payments schedule was followed in the previous month, how much cash will be distributed to Lilly at the end of the second month?

$18,000

Postage and Stamp: What amount of goodwill will be reported in the consolidated balance sheet immediately following the acquisition?

$65,000

Given the above information, what amount will be paid out to Scott upon liquidation of the partnership?

$2,500

Using a safe payments schedule, how much cash will be distributed to Lilly at the end of the first month?

$24,000

Use the following information for the next 2 question. In the ABC partnership (to which Dan seeks admittance), the capital balances of Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are: Albert- 500,000 Bert- 300,000 Connell- 200,000 If no goodwill or bonus is recorded, how much should Dan invest for a 20 percent interest?

$250,000

Assuming the safe payments schedule was followed in the previous month. how much cash will be distributed to Dennis at the end of the second month?

$27,000

Tiffany is paid $56,000, and all implied goodwill is recorded. What is the total amount of goodwill recorded (not just Tiffany's portion, though this treatment is often criticized)?

$36,000

Scissor Corporation holds assets with a fair value of $150,000 and a book value of $125,000 and liabilities with a book value and fair value of $50,000. What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Paper Company pays $90,000 to acquire 75 percent ownership in Scissor and goodwill of $20,000 is reported?

$30,000

Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in partnership profits and losses. Shue's capital account had a net decrease of $100,000 during 20X8. During 20X8, Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the partnership. What was the net income of the Financial Brokers Partnership for 20X8?

$300,000

What amount of Stamp's buildings and equipment (net) will be included in the consolidated balance sheet immediately following the acquisition?

$300,000

Pluto & Sol: Based on the information given above, by what amount was unadjusted revenue overstated in the combined income statement for 20X8?

$31,250

Use the following for the next 2 questions: Pluto Company owns 100 percent of the capital stock of both Saturn Corporation and Sol Corporation. Saturn purchases merchandise inventory from Sol at 125 percent of Sol's cost. During 20X8, Sol sold inventory to Saturn that it had purchased for $25,000. Saturn sold all of this merchandise to unrelated customers for $56,892 during 20X8. In preparing combined financial statements for 20X8, Pluto's bookkeeper disregarded the common ownership of Saturn and Sol. What amount should be eliminated from cost of goods sold in the combined income statement for 20X8?

$31,250

What amount of goodwill will be reported if the acquisition price was $240,000?

$35,000

Use for the next 4 questions: Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock. During 20X8, Parent sold inventory purchased in 20X7 for $48.000 to Subsidiarv 1 for $60.000. Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67.000 and held $15.000 in inventory at December 31, 20X8. Based on the information given above, what amount should be reported in the 20X8 consolidated income statement as cost of goods sold?

$36,000

Use the following information for the next 4 questions. Partners Dennis and Lilly have decided to liquidate their business. The following information is available: Cash- 100,000 Inventory- 200,000 Accounts payable- 100,000 Dennis, Capital- 120,000 Lilly, Capital- 80,000 Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts pavable is paid. Durine the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month. and the liquidation is completed at the end of the second month Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the first month?

$36,000

Which of the following statements best describes accounting for a partnership?

A partnership may use federal income tax rules to account for transactions in their journals and ledger accounts.

Use the following to answer the next 3 questions. On December 31, 20X8, Polaris Corporation acquired 100 percent ownership of Star Corporation. On that date, Star reported assets and liabilities with book values of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and retained earnings of $150,000. The book values and fair values of Star's assets and liabilities were identical except for land which had increased in value by $10,000 and inventories which had decreased by $5,000. What amount of differential will appear in the consolidating entries required to prepare a consolidated balance sheet immediately after the business combination, if the acquisition price was $240,000?

$40,000

Given the above information, what amount of goodwill will be recorded if Dan invests $450,000 for a one-third interest?

$50,000

What credit should be made to cost of goods sold in the 2017 elimination journal entry as a result of the inter-company sale?

$542,500

What amount of consolidated net income will be assigned to the controlling shareholders for 20X8?

$55,000

Parent Co and Sub Co: What amount of cost of goods sold will be reported in the 20X8 consolidated income statement?

$62,000

Use the following information for the next 2 questions. The following condensed balance sheet is presented for the partnership of Finn. Gary and Eugene who share profits and losses in the ratio of 2:4:4, respectively: Cash- 70,000 Other assets- 730,000 Finn, loan- 20,000 Total- 820,000 Accounts payable- 250,000 Eugene, loan- 30,000 Finn, capital- 110,000 Gary, capital- 230,000 Eugene, capital- 200,000 Assume that the partners decide to liquidate the partnership. If the other assets are sold for $600,000, and the partner receivable is treated as a reduction to that partners capital account, how much of the available cash should be distributed to Finn?

$64,000

By what amount should sales be adjusted in the 2017 elimination journal entry as a result of the inter-company sale?

$700,000 decrease

Tiffany is paid $60,000, and no goodwill is recorded. What is the Ron's capital balance after Tiffany withdraws from the partnership?

$74,000

Pink Inc. sells half of its 70% interest in Salmon Co. on January 1, 20X6. On that date, the fair value of Salmon as a whole is $940,000 and the carrying amount of Pink's 70% share of Salmon is $320,000. What, if any, is the gain on the sale of half of Pink's interest in Salmon?

$9,000

Partners A, B, and C share profits and losses in the ratio of 3:2:5 respectively. All non-cash assets of the partnership are liquidated at a loss, and creditors are paid in full. Allocation of the loss causes partner C to have a deficit capital balance. Assuming C is personally insolvent, C's deficit should be allocated

60% to A 40% to B

Use for the following 6 questions: Postage Corporation acquired 75 percent of Stamp Corporation's common stock on December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100.000. Stamp's balance sheet immediatelv before the combination reflected the following balances: Cash and Receivables- 40,000 Inventory- 70,000 Land- 90,000 Buildings and Equipment (net)- 250,000 Total Assets- 450,000 Accounts Payable- 30,000 Income Taxes Payable- 40,000 Bonds Payable- 100,000 Common Stock- 100,000 Retained Earnings- 180,000 Total Liabilities and Stockholders' Equity- 450,000 A careful review of the fair value of Stamp's assets and liabilities indicated that inventory, land, and buildings and equipment (net) respectively. Goodwill is assigned proportionately to Postage and the noncontrolling shareholders. What amount of Stamp's inventory will be included in the consolidated balance sheet immediately following the acquisition?

65,000

A newly created subsidiary sold all of its inventory to its parent at a profit in its first year of existence. The parent, in turn, sold all but 20 percent of the inventory to unaffiliated companies, recognizing a profit. The parent had no other sales during the year. The amount that should be reported as cost of goods sold in this year's consolidated income statement should be:

80 percent of the amount reported as cost of goods sold by the supsidlary

Assuming a current year net income of $50,000, what amount should be allocated to each partner? Partner A Partner P Partner B

A- $19,000 P- ($3,000) B- $34,000

Use the following information for the next 2 questions: The APB partnership agreement specifies that partnership net income be allocated as follows: Partner A Partner P Partner B Salary allowance $30.000 $10.000 $40,000 Interest on average capital balances % 10 % 10 % 10 Remainder % 40 % 40 % 20 Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B. Assuming a current year net income of $150,000, what amount should be allocated to each partner? Partner A Partner P Partner B

A- $59,000 P- $37,000 B- $54,000

Which of the following stockholders' equity accounts are eliminated during the consolidation process?

All of the choices: Common Stock of the subsidiary Preferred Stock of the subsidiary Additional Paid-in Capital of the subsidiary

When a new partner is admitted into a partnership and the new partner receives a capital credit less than the tangible assets contributed, explain the difference: I. The new partner's goodwill has been recognized. II. The old partners received a bonus from the new partner.

II only

When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account, which of the following explains the difference: I. The retiring partner is receiving a bonus from the other partners. II. The retiring partner's goodwill is being recognized

Either I or II

How would the retained earnings of a subsidiary acquired in a business combination usually be treated in a consolidated balance sheet prepared immediately after the acquisition?

Excluded in total

The CRT partnership has decided to terminate operations and to liquidate the partnership assets. There are no partner loans, and all partners have positive capital balances. Gains and losses on liquidation and cash distributions to partners should be allocated as follows:

Gains and losses- in profit loss ratio Cash distributions- based on capital balances

How much of the available cash should be distributed to Gary and Eugene?

Gary- $178,000 Eugene- $178,000

A partnership is a(n): I. accounting entity. I. taxable entity.

I only

When a new partner is admitted into a partnership and the new partner receives a capital credit greater than the tangible assets contributed, explain the difference: I. The new partner's goodwill is being recognized. II. The old partners' goodwill is being recognized.

I only

When is a partnership considered to be insolvent? I. When the total of all partners' capital accounts results in a debit balance. II. When at least one of the partners is personally insolvent.

I only

When there are intercompany sales of inventory during the year and a three-part consolidation worksheet is prepared, consolidation entries related to the intercompany sales: I. Always are needed. II. Are not needed if the entire inventory is resold to unrelated parties prior to the end of the year.

I only

When a partnership is formed, noncash assets contributed by partners should be recorded. I. at their respective book values for income tax purooses II. at their respective fair values for financial accounting purposes

I, II

Which of the following accounts could be found in the PQ partnership's general ledger? I. Due from P Il. P. Drawing Ill. Loan Payable to Q

I, II, III

Which of the following are examples of intercompany balances and transactions that must be eliminated in preparing consolidated financial statements? I. Security holdings I Interest and dividen Ill. Sales and purchases

I, II, III

Use the following information to answer the next 2 questions: Smarty, a 70% owned subsidiary of Pants declares and pays total cash dividends of $10,000. In a consolidated balance sheet, what impact will the dividend have on consolidated ending retained earnings?

No effect

What amount will be distributed to Page and Larry upon liquidation of the partnership?

Page- $68,333 Larry- $79,167

Pym Particles owns 60% of Shrink Inc. During the current year, Pym sold goods with a 30% gross profit to Shrink and none remained in ending inventory of Shrink. What elimination journal entry is needed?

Sales and cost of goods sold should be reduced by 100% of the inter-company sales

Use the following information for the next 3 question, lom, Dick, and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners. They share profits and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery. All partnership liabilities have been settled and all the partners are personally insolvent. The machinery has a book value of $65.000, and the partners have capital account balances as follows: Tom, Capital 40,000 Dick, Capital 10,000 Harry, Capital 15.000 tach of the followine 3 question are independent cases What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for $45.000?

Tom- $30,000 Dick- $4,000 Harry- $11,000

Shep Company has a receivable from its parent, Pep Company. Should this receivable be reported in Shep Company's separate balance sheet? Should it be reported in the consolidated balance sheet of Pep Company and subsidiaries?

Shep's- yes Pep's consolidated- no

Use the following information for the next 3 question. In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Treat each of the following 3 questions as independent of the others: Tiffany is paid $60,000, and no goodwill is recorded. In the journal entry to record Tiffany's withdrawal:

Stella, Capital will be debited for $4,000.

When a parent owns less than 100% of a subsidiary, the noncontrolling interest shareholders are allocated their ownership percentage of income or net assets in all of the following consolidating entries except for:

The accumulated depreciation consolidation entry

All of the following are examples of how a parent company may lose control over a subsidiary and discontinue future consolidation, except:

The subsidiary issues a stock dividend or a stock split.

What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for $1,100?

Tom- $1,100 Dick- $0 Harry- $0

What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for $13,000?

Tom- $10,000 Dick- $0 Harry- $3,000

RD formed a partnership on February 10, 20X9. R contributed cash of $150,000, while D contributed inventory with a fair value of $120,000. Due to R's expertise in selling, D agreed that R should have 60 percent of the total capital of the partnership. R and D agreed to recognize goodwill. What is the total capital of the RD partnership and the capital balance of R after the goodwill is recognized?

Total capital- $300,000 R capital- $180,000

In order to avoid inequalities in the liquidation process the legal doctrine of setoff effectively treats loans from partners to the partnership as:

additional capital investments that can offset a deficit capital account balance

According to UPA 1997, during partnership liquidation, loans the partners have made to the partnership have the same status as loans from third-party creditors. As a practical matter, most loans from partners

are subordinated to third-party creditors

Consolidated net income may include the parent's separate operating income plus the parent's share of the subsidiary's reported net income:

plus the profit realized this year from upstream intercompany sales of inventory made last year

In a business combination structured as stock purchase, each of the combining entities continues to maintain its own set of books. For this stock purchase, the general ledger of the consolidated entity is

prepared in worksheet form each time consolidated statements are prepared.