BMGT424 - Advanced Accounting

On January 1, 2017, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when , on January 1, 2018, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2017 was $1,000,000. The book value of Cook on January 1, 2018, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income, Dividends 2017$200,000, $50,000 2018 225,000, 50,000 2019 250,000, 60,000 On April 1, 2019, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.​ What was the balance in the investment account at December 31, 2018?

$150,000 = $150,000 Balance at date of changing to equity method. $150,000 + $300,000 + ($90,000 - $2,500) - $20,000 = $517,500 Balance 2018 Year End

On January 1, 2017, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when , on January 1, 2018, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2017 was $1,000,000. The book value of Cook on January 1, 2018, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income, Dividends 2017$200,000, $50,000 2018 225,000, 50,000 2019 250,000, 60,000 ​​On April 1, 2019, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.​What is the balance in the investment account for the 15% ownership interest, at January 1, 2018?

$150,000; The fair value is the same as the carrying value so there is no adjustment to the investment account. Thus, the account is carried at the original cost of the investment.

On January 1, 2017, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2017 and 2018, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what amount of this gain should be recognized for consolidation purposes for 2017?

$2,000. Deferred Gain on Transfer $12,000 divided by 6 years remaining equals $2,000 Amortization of Gain per year.

On January 4, 2017, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike's assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book and fair values.During 2017, Bike reported net income of $500,000. For 2018, Bike reported net income of $800,000. Dividends of $300,000 were paid in each of these two years.What was the reported balance of Harley's Investment in Bike Co. at December 31, 2017?

$2,400,000 + $200,000 - $120,000 = $2,480,000

On January 4, 2017, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike's assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book and fair values.During 2017, Bike reported net income of $500,000. For 2018, Bike reported net income of $800,000. Dividends of $300,000 were paid in each of these two years.What was the reported balance of Harley's Investment in Bike Co. at December 31, 2018?

$2,480,000 + $320,000 - $120,000 = $2,680,000

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ The acquisition value attributable to the noncontrolling interest at January 1, 2019 is:

$234,000 / .90 = $260,000 × .10 = $26,000

Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2018, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2018, how much income should Yaro recognize related to this investment?

$250,000 × .30 = $75,000

In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest? Book value of subsidiary net assets. Fair value based on stock trades of the acquired company. Projections of residual income. Consideration transferred by the parent company that implies a total subsidiary value. Subsidiary cash flows discounted to present value.

Book value of subsidiary net assets.

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. Which one of the following statements would justify this conclusion? Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared. Dilty is located in the U.S. Dilty's functional currency is the dollar and Dilty is the parent. Most of the subsidiary's sales and purchases were with companies in the U.S. Dilty's other subsidiaries all had the dollar as their functional currency.

Most of the subsidiary's sales and purchases were with companies in the U.S.

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity? No ability to make decisions about the entity's activities. The right to receive potentially significant benefits of the entity. The power to direct the most significant economic performance activities. The power through voting or similar rights to direct activities, which significantly impact economic performance. The obligation to absorb potentially significant losses of the entity.

No ability to make decisions about the entity's activities.

On January 3, 2018, Matteson Corporation acquired 40 percent of the outstanding common stock of O'Toole Company for $1,160,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $820,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2018, O'Toole reported net income of $260,000 and declared cash dividends of $50,000. At December 31, 2018, what should Matteson report as its investment in O'Toole under the equity method? What is the balance in the investment account at end of year?

$1,210,000

A company has been using the equity method to account for its investment. The company sells shares and does not continue to have significant influence. Which of the following statements is true? The investor will not receive future dividends from the investee. A prospective change in accounting principle must occur. A retrospective change in accounting principle must occur. Future dividends will continue to reduce the investment account. A cumulative effect change in accounting principle must occur.

A prospective change in accounting principle must occur.

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2018, with payment of 10 million Korean won to be received on January 15, 2019. The following exchange rates applied: Date Spot Rate Forward Rate to Jan.15 December 16, 2018 $0.00092 $0.00098 December 31, 2018 0.00090 0.00093 January 15, 2019 0.00095 0.00095 ​​ Assuming a forward contract was not entered into, what would be the net impact on Car Corp.'s 2018 income statement related to this transaction?

$.00090 - $.00092 = ($.00002) × $10,000,000 = ($200) Loss

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2018, with payment of 10 million Korean won to be received on January 15, 2019. The following exchange rates applied: Date Spot Rate Forward Rate to Jan.15 December 16, 2018 $0.00092 $0.00098 December 31, 2018 0.00090 0.00093 January 15, 2019 0.00095 0.00095 ​​ Assuming a forward contract was entered into on December 16, at what amount should the forward contract be recorded at December 31, 2018? Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

$.00098 - $.00093 = $.00005 × .9901 × $10,000,000 = $495

Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle. A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $.28 per stickle. At what amount should inventory be reported?

$.28 × §100,000 = $28,000

Belsen purchased inventory on December 1, 2017. Payment of 200,000 stickles was to be made in sixty days. Also on December 1, Belsen signed a contract to purchase §200,000 in sixty days. The spot rate was §1 = .35714, and the 60-day forward rate was §1 = $.38462. On December 31, the spot rate was §1 = .34483 and the 30-day forward rate was §1 = .38168. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1?

$0, since there is no cost, there is no value for the contract at this date. Forward Contract Not Recorded at Date of Sale

Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2018 and paid dividends of $60,000 on October 1, 2018. How much income should Gaw recognize on this investment in 2018?

$60,000 × .15 = $9,000 only dividend is considered income because 1.) no significant control

Pot Co. holds 90% of the common stock of Skillet Co. During 2018, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000.Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet for $140,000. There were no intra-entity transfers from Skillet to Pot. Intra-entity transfers had the same markup as sales to outsiders. Skillet still held 40% of the intra-entity gross profit remaining in ending inventory at the end of 2018. What are consolidated sales and cost of goods sold, respectively for 2018?

$1,400,000 and $ 966,000. Consolidated Sales = Parent's Sales ($1,120,000) + Subsidiary's Sales ($420,000) = $1,540,000 - Intra-Entity Transfers ($140,000) = $1,400,000Consolidated COGS = Parent's COGS ($840,000) + Subsidiary's COGS ($252,000) - Total Intra-Entity Inventory transfers ($140,000) + Deferred Unrecognized Gross Profit ($14,000) = $966,000

Pot Co. holds 90% of the common stock of Skillet Co. During 2018, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000.Included in the amounts for Pot's sales were Pot's sales for merchandise to Skillet for $140,000. There were no sales from Skillet to Pot. Intra-entity transfers had the same markup as sales to outsiders. Skillet had resold all of the intra-entity transfers (purchases) from Pot to outside parties during 2018. What are consolidated sales and cost of goods sold for 2018?

$1,400,000 and $952,000. Consolidated Sales = Parent's Sales $1,120,000 + Subsidiary's sales $420,000 = $1,540,000 - Intra-Entity Transfers $140,000 = $1,400,000Consolidated COGS = Parent's COGS $840,000 + Subsidiary's COGS $252,000 - Total Intra-Entity Transfers $140,000 = $952,000

On January 1, 2018, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was necessary. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2018 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2018?

$1,920,000 + ($670,000 × .45) - ($2.50 × 60,000) = $2,071,500

From a USA perspective the direct quote to the NIS currency would be....(ignore accuracy of the numbers)

$1.00 NIS = .29 USD

From a USA perspective the indirect quote to the NIS currency would be....(ignore accuracy of the numbers)

$1.00 USD = $3.50 NIS

Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: May 8 Spot rate: $1.25 May 31 Spot rate: $1.26 Jun. 7 Spot rate: $1.20 ​​ How much US $ will it cost Brisco to finally pay the payable on June 7?

$1.20 × FC 2,000,000 = FC 2,400,000 A/P

Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: May 8 Spot rate: $1.25 May 31 Spot rate: $1.26 Jun. 7 Spot rate: $1.20 ​​ For what amount should Brisco's Accounts Payable be credited on May 8?​

$1.25 × FC 2,000,000 = $2,500,000 A/P

Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: May 8 Spot rate: $1.25 May 31 Spot rate: $1.26 Jun. 7 Spot rate: $1.20 ​​ How much Foreign Exchange Gain or Loss should Brisco record on May 31?

$1.26 - $1.25 = ($.01) × FC 2,000,000 = ($20,000) Loss

Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2018. Pigskin received payment of 35,000 British pounds on May 8, 2018. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (Round your answer to the nearest whole dollar amount.)

$1.43 - $1.54 = ($.11) × £35,000 = ($3,850) Loss

Norton Co., a U.S. corporation, sold inventory on December 1, 2018, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec. 1 Spot rate:$1.7241 Dec. 31 Spot rate:$1.8182 Jan. 30 Spot rate:$1.6666 What amount of foreign exchange gain or loss should be recorded on January 30?

$1.6666 - $1.8182 = ($.1516) × £10,000 = ($1,516) Loss

Norton Co., a U.S. corporation, sold inventory on December 1, 2018, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec. 1 Spot rate:$1.7241 Dec. 31 Spot rate:$1.8182 Jan. 30 Spot rate:$1.6666 What amount of foreign exchange gain or loss should be recorded on December 31?

$1.8182 - $1.7241 = $.0941 × £10,000 Gain

On January 1, 2017, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2017 and 2018, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.What amount of gain should be reported by Smeder Company relating to the equipment for 2017 prior to making consolidating entries?

$12,000. January 1, 2017 Sale Price on Transfer $84,000 - BV $72,000 = $12,000 Gain on Sale

On January 3, 2018, Matteson Corporation acquired 40 percent of the outstanding common stock of O'Toole Company for $1,160,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $820,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 2018, O'Toole reported net income of $260,000 and declared cash dividends of $50,000. At December 31, 2018, what should Matteson report as its investment in O'Toole under the equity method? How much is assigned to the patent?

$340,000

Justings Co. owned 80% of Evana Corp. During 2018, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. For purposes of the December 31, 2018 consolidated financial statements, at what amount should the land be reported?

$48,000, the original book value of the Land. Any intra-entity profit from the transfer is eliminated.

On January 4, 2017, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike's assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book and fair values.During 2017, Bike reported net income of $500,000. For 2018, Bike reported net income of $800,000. Dividends of $300,000 were paid in each of these two years.How much income did Harley report from Bike for 2017?

$500,000 × 40% = $200,000

On January 1, 2017, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when , on January 1, 2018, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2017 was $1,000,000. The book value of Cook on January 1, 2018, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income, Dividends 2017$200,000, $50,000 2018 225,000, 50,000 2019 250,000, 60,000 On April 1, 2019, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.​ What was the balance in the investment account at April 1, 2019 just before the sale of shares?

$517,500 + ($25,000 - $625) - $6,000 = $535,8752019 Beginning Investment Account Balance + (40% of 1st Quarter Income - 1st Quarter Amortization) - 1st Quarter Dividend

On January 1, 2017, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when , on January 1, 2018, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2017 was $1,000,000. The book value of Cook on January 1, 2018, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income, Dividends 2017$200,000, $50,000 2018 225,000, 50,000 2019 250,000, 60,000 On April 1, 2019, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.​ How much income did Mehan report from Cook during 2017?

$7,500 Dividends Received = 15% × (Dividends Declared $50,000)

On January 4, 2018, Watts Co. purchased 40,000 shares (40%) of the common stock of Adams Corp., paying $800,000. There was no goodwill or other cost allocation associated with the investment. Watts has significant influence over Adams. During 2018, Adams reported income of $200,000 and paid dividends of $80,000. On January 2, 2019, Watts sold 5,000 shares for $125,000. What was the balance in the investment account after the shares had been sold?

$800,000 + $80,000 - $32,000 = $848,000 - (5,000 / 40,000 × $848,000) = $742,000

On January 4, 2017, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike's assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book and fair values.During 2017, Bike reported net income of $500,000. For 2018, Bike reported net income of $800,000. Dividends of $300,000 were paid in each of these two years.How much income did Harley report from Bike for 2018?

$800,000 × 40% = $320,000

On January 1, 2017, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when , on January 1, 2018, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2017 was $1,000,000. The book value of Cook on January 1, 2018, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income, Dividends 2017$200,000, $50,000 2018 225,000, 50,000 2019 250,000, 60,000 On April 1, 2019, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.​ How much of Cook's net income did Mehan report for the year 2019?

(First Quarter Income × 40%) + (2nd thru 4th Qtr Income × 30%) = ($250,000/4 × 40%) + [($250,000/4 × 30%) × 3] = $25,000 + ($18,750 × 3) = $25,000 + $56,250 = $81,250

Which of the following statements is true concerning variable interest entities (VIEs)? 1) The role of the VIE equity investors can be fairly minor. 2) A VIE may be created specifically to benefit the business enterprise that established it with low-cost financing. 3) VIE governing agreements often limit activities and decision-making. 4) VIEs usually have a very limited business activity compared to a self-sustaining entity.

1, 2, 3, and 4.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Buildings account?

2019 BV - 2020 Excess Amortization of = Reduction $1,600 decrease.

In accounting, the term translation refers to: The calculation of gains or losses from hedging transactions. The procedure required to identify a company's functional currency. The calculation of gains or losses from all transactions for the year. A procedure to prepare a foreign subsidiary's financial statements for consolidation. The calculation of exchange rate gains or losses on individual transactions in foreign currencies.

A procedure to prepare a foreign subsidiary's financial statements for consolidation.

Which of the following is not an indication of significant influence? Technical reliance between the two companies Sharing of key employees A 30% interest where one other shareholder holds 70% Sitting on the board of directors of the investee company

A 30% interest where one other shareholder holds 70%

When using the current rate method, the translation adjustment from translating a foreign subsidiary's financial statements should be shown as

A component of stockholders' equity in the consolidated balance sheet.

Which statement is true regarding a foreign currency option? A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future. A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate on the future date. A foreign currency option gives the holder the obligation to only buy foreign currency in the future. A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future. A foreign currency option gives the holder the obligation to only sell foreign currency in the future.

A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future.

A company has been using the fair-value method to account for its investment. The company now has the ability to significantly influence the investee and the equity method has been deemed appropriate. Which of the following statements is true? A retrospective change in accounting principle must occur. A prospective change in accounting principle must occur. Future dividends will continue to be recorded as revenue. The investor will not receive future dividends from the investee. A cumulative effect change in accounting principle must occur.

A prospective change in accounting principle must occur.

When an investor sells shares of its investee company, which of the following statements is true? Any gain or loss is reported as part of comprehensive income. An recognized gain or loss is reported as the difference between selling price and original cost. A recognized gain or loss is reported as the difference between selling price and carrying value. A recognized gain or loss is reported as the difference between selling price and original cost. An unrealized gain or loss is reported as the difference between selling price and carrying value.

A recognized gain or loss is reported as the difference between selling price and carrying value.

An investor should always use the equity method to account for an investment if: A) It has the ability to exercise significant influence over the operating policies of the investee. B) The investment was made primarily to earn a return on excess cash. C) It owns 30% of an investee's stock. D) It does not have the ability to exercise significant influence over the operating policies of the investee. E) It has a controlling interest (more than 50%) of an investee's stock.

A) It has the ability to exercise significant influence over the operating policies of the investee.

Under the current rate method, which accounts are translated using current exchange rates?

All assets and liabilities.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2019, what net adjustment is necessary for Hogan's Patent account?

Attributed Fair Value Patent $11,000 - Amortization for 2019 $2,200 = $8,800

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2020, what net adjustment is necessary for Hogan's Patent account?

Attributed Fair Value Patent $11,000 - Amortization for 2019 & 2020 $4,400 = $6,600

Frankfurter Company, a U.S. company, had a ruble receivable from exports to Russia and a euro payable resulting from imports from Italy. Frankfurter recorded foreign exchange loss related to both its ruble receivable and euro payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? Ruble Euro A)IncreaseDecrease B)DecreaseDecrease C)DecreaseIncrease D)No changeDecrease E)IncreaseIncrease

C)Decrease Increase

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory. Compute consolidated cost of goods sold.

Consolidated COGS = Parent's COGS $7,500,000 + Subsidiary's COGS $160,000 - Total Intra-Entity Transfer $60,000 + Deferred Unrecognized Intra-Entity Gross Profit ($15,000 X .30) $4,500 = $7,604,500

When the investment account of an investment goes to zero when using the equity method of accounting... A.) You stop recording any equity method entries B.) You report the next recorded investee loss as the percentage of ownership amount not as an ordinary loss, but as loss to Other Comprehensive Income (OCI) C.) You keep track of future losses, but do not record any of these losses when the investment is at zero; you do not record any income until all the unrecorded losses have been recouped . Then continue regular equity method procedures D.)You change prospectively to the fair value method of accounting

C.) You keep track of future losses, but do not record any of these losses when the investment is at zero; you do not record any income until all the unrecorded losses have been recouped . Then continue regular equity method procedures

Under the temporal method, which accounts are remeasured using current exchange rates?

Cash, receivables, and most liabilities.

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2018, with payment of 10 million Korean won to be received on January 15, 2019. The following exchange rates applied: Date Spot Rate Forward Rate to Jan.15 December 16, 2018 $0.00092 $0.00098 December 31, 2018 0.00090 0.00093 January 15, 2019 0.00095 0.00095 ​​ Assuming a forward contract was entered into on December 16, how would the forward contract be reflected on Car's December 31, 2018 balance sheet?

Forward contract (asset).

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.Assume the same information, except Shannon sold inventory to Patti. Compute consolidated sales.

Consolidated Sales = Parent's Sales $10,000,000 + Subsidiary's sales $200,000 = $10,200,000 - Intra-Entity Transfers $60,000 = $10,140,000

Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory.Compute consolidated sales.

Consolidated Sales = Parent's Sales $10,000,000 + Subsidiary's sales $200,000 = $10,200,000 - Intra-Entity Transfers $60,000 = $10,140,000

A U.S. company sells merchandise to a foreign company denominated in U.S. dollars. Which of the following statements is true? If the foreign currency depreciates, a foreign exchange gain will result. If the foreign currency depreciates, a foreign exchange loss will result. If the foreign currency appreciates, a foreign exchange gain will result. If the foreign currency appreciates, a foreign exchange loss will result. No foreign exchange gain or loss will result.

Correct! No foreign exchange gain or loss will result.

Bright buys 40% of Dull and begins using the equity method for the accounting of the investment in Dull. Based at the time of the purchase it is determined that of the net assets owned by Dull, equipment is over-valued when compared to book value by $20,000, and the equipment has an estimated life of 5 years. Therefore, Bright will make the following as part of their equity method accounting of their investment in Dull.

Cr Equity Income for $4,000

On January 1, 2017, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2017 and 2018, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.For consolidation purposes, what net debit or credit will be made for the year 2017 relating to the accumulated depreciation for the equipment transfer?

Credit accumulated depreciation, $46,000. Accumulated Depreciation $48,000 - Amortization of Gain for First Year $2,000 = $46,000 Credit to Accumulated Depreciation for 2017

Westmore Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling (£). The following exchange rates were in effect during 2018: Jan.1 £1=$1.60 June 30 £1=$1.64 Dec.31 £1=$1.61 Weighted average rate for the year £1=$1.59 Westmore reported sales of £1,500,000 during 2018. What amount (rounded) would have been included for this subsidiary in calculating consolidated sales?

Current rate method: £1,500,000 × $1.59 (Avg Rate) = $2,385,000

What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end? A.) Revenues and COGS must be recognized for all intra-entity sales regardless of whether the sales are upstream or downstream B.) Intra-entity sales result in gross profit overstatements regardless of amounts remaining in ending inventory C.) Gross profits must deferred indefinitely because sales among affiliates always remain in the consolidated group. D.) When intra-entity sales remain in ending inventory, control of the goods has not changed.

D.) When intra-entity sales remain in ending inventory, control of the goods has not changed.

Norton Co., a U.S. corporation, sold inventory on December 1, 2018, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec. 1 Spot rate:$1.7241 Dec. 31 Spot rate:$1.8182 Jan. 30 Spot rate:$1.6666 ​​For what amount should Sales be credited on December 1?

December 1st Spot Rate $1.7241 × £10,000 = $17,241 Sales Revenue

On January 1, 2017, Smeder Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2017 and 2018, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes.What is the net effect on net income as a result of consolidating adjustments made in 2017 with respect to the equipment transfer?

Decrease net income by $10,000. Deferred Recognition of Gain on Transfer $12,000 - Amortization of Gain for First Year $2,000 = $10,000 Decrease in Net Income for 2017

Which of the following is not a potential loss or return of a variable interest entity? If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss. If leased asset declines below the residual value, honoring the guarantee will produce a loss. Entitles holder to residual profits. Entitles holder to receive shares of common stock. Entitles holder to benefit from increases in asset fair value.

Entitles holder to receive shares of common stock.

In a situation where the investor exercises significant influence over the investee, which of the following entries is not actually posted to the books of the investor? (I) Debit to the Investment account, and a Credit to the Equity in Investee Income account. (II) Debit to Cash (for dividends received from the investee), and a Credit to Investment Income account. (III) Debit to Cash (for dividends received from the investee), and a Credit to the Dividend Receivable. Entry II only. Entries I and II. Entry III only. Entries II and III. Entry I only.

Entry II only.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Equipment account?

FV $18,000 - BV $14,000 = Increase $4,000

The forward rate may be defined as:

The price today at which a foreign currency can be purchased or sold in the future.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Buildings account?

FV $8,000 - BV $10,000 = Reduction $2,000 decrease.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Equipment account?

Fair Value Differential $4,000 - Amortization for 2019 $1,000 = $3,000 Increase

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Equipment account?

Fair Value Differential $4,000 - Amortization for 2019 & 2020 $2,000 = $2,000 Increase

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Land account?

Fair Value Differential at Acquisition $7,000 - No Amortization = $7,000 Increase

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Land account?

Fair Value Differential at Acquisition $7,000 - No Amortization = $7,000 Increase

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Land account?

Fair Value Differential at Acquisition $7,000 - No Amortization = $7,000 Increase

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Patent account?

Fair Value Equity at Acquisition $260,000 - BV Equity $240,000 = $20,000 - Identified Net FV Increase $9,000 (Blgs + Equipt + Land) = $11,000 Excess Attributed to Patent

On June 1, CamCo received a signed agreement to sell inventory for ¥500,000. The sale would take place in 90 days. CamCo immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 =$.004167, and the 90-day forward rate was ¥1 = $.00427. At what amount would CamCo record the Forward Contract on June 1?

Forward Contract Not Recorded at Date of Sale $0

Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2018. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario held $60,000 of the goods in its inventory at the end of the year. The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2018, is:

Intra-Entity Gross Profit ($390,000 - $260,000) $130,000 X Intra-Entity Gross Profit Remaining In Ending Inventory ($60,000 / $390,000) = $20,000

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2017. Carter sells one-third of the inventory in 2017.In the consolidation worksheet for 2017, which of the following accounts would be credited to defer unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers?

Inventory.

Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2016, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2018, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. For consolidation purposes, what is the Excess Depreciation (ED entry) for this building for 2018? ​​​​​​​Event General Journal Debit Credit A)Accumulated Depreciation 7,000 Depreciation expense 7,000 B)Accumulated Depreciation 4,900 Depreciation Expense 4,900 C)Depreciation Expense 7,000 Accumulated Depreciation 7,000 D)Depreciation Expense 4,900 Accumulated Depreciation 4,900 E)Accumulated Depreciation 42,000 Depreciation Expense 42,000

Option A. Transfer Cost $392,000 / 8yrs. = $49,000 Annual Depreciation by Shrugs Dalton: Book Value of Cost ($420,000) less accumulated depreciation ($420,000 ÷ 10 years) = $42,000 Depreciation expense should be decreased by $7,000.

When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? Parent company total assets equals consolidated total assets. Parent company net income equals controlling interest in consolidated net income. Goodwill is not recorded on the parent's books Parent company retained earnings equals consolidated retained earnings. Parent company dividends equals consolidated dividends.

Parent company total assets equals consolidated total assets.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan's total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) $10,000 $8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 ​​ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.​ In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Buildings account?

Reduction - 2019 Excess Amortization of = Reduction $1,800 decrease.

Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?

Remeasure them.

Strickland Company sells inventory to its parent, Carter Company, at a profit during 2017. Carter sells one-third of the inventory in 2017.In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate the intra-entity transfer of inventory?

Sales.

IF the foreign interest rates for a foreign currency country are higher than the doemstic country than the forward rates will be lower than today's spot rate

True

IF the foreign interest rates for a foreign currency country are lower than the domestic country than the forward rates will be higher than today's spot rate

True

On January 1, 2017, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a 15% ownership of Cook. The fair value of the 15% investment was the same as the carrying value of the investment when , on January 1, 2018, Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000. This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January 1, 2017 was $1,000,000. The book value of Cook on January 1, 2018, was $1,100,000. Any excess of cost over book value for this second transaction is assigned to a database and amortized over four years.Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the years: Net Income, Dividends 2017$200,000, $50,000 2018 225,000, 50,000 2019 250,000, 60,000 On April 1, 2019, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.​ How much income did Mehan report from Cook during 2018?

Share of net income: $225,000 × 40% = $90,000 Fair value of 40% acquired: $150,000 + $300,000 = $450,000. Book value of 40% acquired: $1,100,000 x 40% = $440,000 $450,000 - $440,000 = $10,000 attributable to database $10,000 / 4 = $2,500$90,000 - $2,500 = $87,500

A variable interest entity can take all of the following forms except a(n): Sole proprietorship Corporation. Trust. Partnership. Joint venture.

Sole proprietorship

For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?

Temporal Method.

When an investor appropriately applies the equity method, how should it account for any investee Other Comprehensive Income (OCI)? The OCI would not appear on the investor's income statement but would be a component of comprehensive income. The OCI would increase the investment. The OCI would be ignored but shown in the investor's notes to the financial statements. Under the equity method, the investor only recognizes its share of investee's income from continuing operations. The OCI would reduce the investment.

The OCI would increase the investment.

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements? The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership. The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE. The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance. The business enterprise establishing a VIE is a primary beneficiary for the VIE. The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE.

The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership.

What is a company's functional currency?

The currency of the primary economic environment in which it operates.

According to U.S. GAAP, when the local currency is the functional currency, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?

The current rate method.

In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?

The exchange rate in effect as of the balance sheet date.

All of the following would require use of the equity method for investments except: Valuation at fair value. Investor participation in the policy-making process of the investee. Interchange of managerial personnel. Material intra-entity transactions. Technological dependency.

Valuation at fair value.

On November 8, 2018, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized?

When Wood Co. sells the land to a third party.

James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James's inventory. Gross profit percentages were 20 percent for James and 30 percent for Carl. The amount of unrealized intra-entity profit in ending inventory at December 31 that should be eliminated in the consolidation process is

transfer price x Carl's GPR = intra-entity profit 250,000 x 30% = 75,000 75,000 x 40% still in inventory = 30,000 intra entity gross profit to be eliminated

Westmore Ltd. is a British subsidiary of a U.S. company. Westmore's functional currency is the pound sterling (£). The following exchange rates were in effect during 2018: Jan.1 £1=$1.60 June 30 £1=$1.64 Dec.31 £1=$1.61 Weighted average rate for the year £1=$1.59 On December 31, 2018, Westmore had accounts receivable of £280,000. What amount (rounded) would have been included for this subsidiary in calculating consolidated accounts receivable?

£280,000 × $1.61 = $450,800