Advanced Final Review

The Governmental Accounting Standards Board (GASB) requires state and local governments to prepare two sets of financial statements which include which of the following?

Fund financial statements and government-wide financial statements.

Which of the following describes proprietary funds?

Funds used to account for a government's ongoing activities that are similar to those operated by for-profit organizations.

Fiduciary funds are

Funds used to account for monies held by the government in a trustee or agency capacity.

Governmental funds are

Funds used to account for the activities of a government that are carried out primarily to provide services to citizens.

During 2020, Odyssey Co. sold inventory to its wholly-owned subsidiary, Civic Co. The inventory cost $40,000 and was sold to Lord for $58,000. For consolidation reporting purposes, when is the $18,000 intra-entity gross profit recognized?

When goods are transferred to a third party by Civic.

Under the initial value method, the parent recognizes income when

dividends are declared by the investee

Which of the following funds would be most appropriate when accounting for an activity that provides goods or services to the public for a fee that is intended to make the activity self-supporting?

enterprise fund

A necessary condition to use the equity method of reporting for an equity investment is that the investor company must

have the ability to exercise significant influence over the operating and financial policies of the investee.

Prepaid rent of $6,000 remaining at the end of the fiscal year would be classified as what category of fund balance?

nonspendable

All of the following would require use of the equity method for investments except:

valuation at fair value

Madison Township has received a donation of a rare painting worth $1,400,000. For Madison's government-wide financial statements, three criteria must be met before Madison can opt not to recognize the painting as an asset. Which of the following is not one of the three criteria? (1.) The painting is held for public exhibition, education, or research in furtherance of public service, rather than financial gain. (2.) The painting is scheduled to be sold immediately at auction. (3.) The painting is protected, kept unencumbered, cared for, and preserved.

Item 2 is not one of the three criteria

How does the partial equity method differ from the equity method?

Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.

On October 6, 2021, Ronan Corp. sold land to Bane Co., its wholly owned subsidiary. The land cost $72,400 and was sold to Bane for $96,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized?

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

A city operates a central data processing facility. The expenses of this facility would be accounted for using

an internal service fund

Prescott Inc. owned 80% of the voting common stock of Hutchins Corp. During 2021, Hutchins made several sales of inventory to Prescott. The total selling price was $190,000 and the cost was $105,000. At the end of the year, 30% of the goods were still in Prescott's inventory. Hutchins's reported net income was $320,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest in Hutchins?

$$58,900

Scott Co. paid $2,800,000 to acquire all of the common stock of Dawn Corp. on January 1, 2020. Dawn's reported earnings for 2020 totaled $512,000, and it paid $160,000 in dividends during the year. The amortization of allocations related to the investment was $28,000. Scott's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000. On the consolidated financial statements for 2020, what amount should have been shown for Equity in Subsidiary Earnings?

$0

On January 1, 2021, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: MoodyOsorioCash$180$40Receivables810180Inventories1,080280Land600360Buildings (net)1,260440Equipment (net)480100Accounts payable(450)(80)Long-term liabilities(1,290)(400)Common stock ($1 par)(330)Common stock ($20 par)(240)Additional paid-in capital(1,080)(340)Retained earnings(1,260)(340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60. If Osorio retains a separate corporate existence, what amount was recorded as the investment in Osorio?

$1,030

Pot Co. holds 90% of the common stock of Skillet Co. During 2021, 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 2021. What are consolidated sales and cost of goods sold, respectively for 2021?

$1,400,000 and $966,000.

Pot Co. holds 90% of the common stock of Skillet Co. During 2021, 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 Skillet's sales were intra-entity gross profits related to Skillet's intra-entity transfer of merchandise to Pot for $140,000. There were no intra-entity transfers from Pot to Skillet. Intra-entity transfers had the same markup as sales to outsiders. Pot still had 40% of the intra-entity gross profit remaining in ending inventory at the end of 2021. What are consolidated sales and cost of goods sold for 2021?

$1,400,000 and $974,400.

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022. What amount of consolidated net income for 2022 should be allocated to Renz's controlling interest in Sogers?

$1,628,000

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022. What amount would Renz Co. report as consolidated net income for 2022?

$1,735,000

During January 2020, Nelson, Inc. acquired 30% of the outstanding common stock of Fuel Co. for $1,600,000. This investment gave Nelson the ability to exercise significant influence over Fuel. Fuel's assets on that date were recorded at $7,200,000 with liabilities of $3,400,000. Any excess of cost over book value of Nelson's investment was attributed to unrecorded patents having a remaining useful life of ten years. In 2020, Fuel reported net income of $650,000. For 2021, Fuel reported net income of $800,000. Dividends of $250,000 were paid in each of these two years. What was the reported balance of Nelson's Investment in Fuel Co. at December 31, 2021?

$1,793,000

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000. What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date?

$10,000

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022. The noncontrolling interest's share of the earnings of Sogers Corp. for 2022 is calculated to be

$107,000

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000. What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?

$125,000

On January 1, 2020, Archer, Incorporated, paid $100,000 for a 30% interest in Harley Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Harley having a book value of $10,000 was actually worth $40,000 with a six-year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Harley reported net income of $50,000 and paid dividends of $20,000 while in 2021 it reported net income of $75,000 and dividends of $30,000. Assume Archer has the ability to significantly influence the operations of Harley. The equity in income of Harley for 2020, is

$13,500

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the initial value method is applied. Compute the noncontrolling interest in Demers at December 31, 2019.

$135,600

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the partial equity method is applied. Compute the noncontrolling interest in Demers at December 31, 2019.

$135,600

Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the equity method has been applied?

$317,000

On January 1, 2021, Kapoor Co. sold equipment to its subsidiary, Howard Corp., for $125,000. The equipment had cost $150,000, and the balance in accumulated depreciation was $70,000. The equipment had an estimated remaining useful life of eight years and no salvage value. Both companies use straight-line depreciation. On their separate 2021 income statements, Kapoor and Howard reported depreciation expense of $86,000 and $64,000, respectively. The amount of depreciation expense on the consolidated income statement for 2021 would have been:

$144,375

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the initial value method is applied. Compute the noncontrolling interest in the net income of Demers at December 31, 2019.

$18,000

On January 1, 2021, Lee Company paid $1,870,000 for 80,000 shares of Thomas Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was necessary. Significant influence over Thomas was achieved by this acquisition. Thomas distributed a dividend of $2.00 per share during 2021 and reported net income of $720,000. What was the balance in the Investment in Thomas Co. account found in the financial records of Lee as of December 31, 2021?

$2,034,000

Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31, 2020, immediately before Boxwood acquired Tranz. Also included are the fair values for Tranz Company's net assets at that date (all amounts in thousands). BoxwoodTranz Co.Tranz Co.Book ValueBook ValueFair Value12/31/2012/31/2012/31/20Cash$870$240$240Receivables660600600Inventory1,230420580Land1,800260250Buildings (net)1,800540650Equipment (net)660380400Accounts payable(570)(240)(240)Accrued expenses(270)(60)(60)Long-term liabilities(2,700)(1,020)(1,120)Common stock ($20 par)(1,980)Common stock ($5 par)(420)Additional paid-in capital(210)(180)Retained earnings(1,170)(480)Revenues(2,880)(660)Expenses2,760620 Note: Parenthesis indicate a credit balance Assume a business combination took place at December 31, 2020. Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect this acquisition transaction. To settle a difference of opinion regarding Tranz's fair value, Boxwood promises to pay an additional $5.2 (in thousands) to the former owners if Tranz's earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands). Compute consolidated land immediately following the acquisition.

$2,050

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): CampbellNewtonRevenues$2,600$700Expenses1,880400Net income$720$300Retained earnings, 1/1$2,400$500Net income720300Dividends(270)0Retained earning, 12/31$2,850$800Cash$240$230Receivables and inventory1,200360Buildings (net)2,700650Equipment (net)2,1001,300Total assets$6,240$2,540Liabilities$1,500$720Common stock1,080400Additional paid-in capital810620Retained earnings2,850800Total liabilities & stockholders' equity$6,240$2,540 On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share. In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590. Compute the consideration transferred for this acquisition at December 31, 2021.

$2,050

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): CampbellNewtonRevenues$2,600$700Expenses1,880400Net income$720$300Retained earnings, 1/1$2,400$500Net income720300Dividends(270)0Retained earning, 12/31$2,850$800Cash$240$230Receivables and inventory1,200360Buildings (net)2,700650Equipment (net)2,1001,300Total assets$6,240$2,540Liabilities$1,500$720Common stock1,080400Additional paid-in capital810620Retained earnings2,850800Total liabilities & stockholders' equity$6,240$2,540 On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share. In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590. Compute the consolidated liabilities at December 31, 2021

$2,870

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): CampbellNewtonRevenues$2,600$700Expenses1,880400Net income$720$300Retained earnings, 1/1$2,400$500Net income720300Dividends(270)0Retained earning, 12/31$2,850$800Cash$240$230Receivables and inventory1,200360Buildings (net)2,700650Equipment (net)2,1001,300Total assets$6,240$2,540Liabilities$1,500$720Common stock1,080400Additional paid-in capital810620Retained earnings2,850800Total liabilities & stockholders' equity$6,240$2,540 On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share. In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590. Compute the consolidated liabilities at December 31, 2021.

$2,870

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded. What is the total amount of goodwill recognized at the date of acquisition?

$300,000

Clark Corp. owned 75% of the voting common stock of Andrew Co. On January 3, 2020, Andrew sold a parcel of land to Clark. The land had a book value of $36,000 and was sold to Clark for $52,000. Andrew's reported net income for 2020 was $123,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what is net income attributable to the noncontrolling interest?

$26,750

Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the initial value method has been applied?

$276,000

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): CampbellNewtonRevenues$2,600$700Expenses1,880400Net income$720$300Retained earnings, 1/1$2,400$500Net income720300Dividends(270)0Retained earning, 12/31$2,850$800Cash$240$230Receivables and inventory1,200360Buildings (net)2,700650Equipment (net)2,1001,300Total assets$6,240$2,540Liabilities$1,500$720Common stock1,080400Additional paid-in capital810620Retained earnings2,850800Total liabilities & stockholders' equity$6,240$2,540 On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share. In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590. Compute the consolidated buildings (net) account at December 31, 2021.

$3,290

Scott Co. paid $2,800,000 to acquire all of the common stock of Dawn Corp. on January 1, 2020. Dawn's reported earnings for 2020 totaled $512,000, and it paid $160,000 in dividends during the year. The amortization of allocations related to the investment was $28,000. Scott's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000. What is the amount of consolidated net income for the year 2020?

$3,794,000

Will Co. owned 80% of the voting common stock of Carlton Co. During 2020, Carlton made frequent sales of inventory to Will. There was deferred intra-entity gross profit of $50,000 in the beginning inventory and $30,000 of intra-entity gross profit at the end of the year. Carlton reported net income of $173,000 for 2020. Will decided to use the equity method to account for the investment. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what is the net income attributable to the noncontrolling interest for 2020?

$38,600

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000. What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?

$40,000

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance: DebitCreditCash$500Accounts receivable600Inventory900Buildings (net) (5 year life)1,600Equipment (net) (2 year life)1,000Land900Accounts payable$400Long-term liabilities (due 12/31/22)1,900Common stock1,000Additional paid-in capital700Retained earnings1,500Total$5,500$5,500 Net income and dividends reported by Clark for 2020 and 2021 follow: 20202021Net income$120$140Dividends4050 The fair value of Clark's net assets that differ from their book values are listed below: Fair ValueBuildings$1,200Equipment1,350Land1,300Long-term liabilities1,750 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. Compute goodwill, if any, at January 1, 2020.

$400

The financial statement amounts for the Atwood Company and the Franz Company as of December 31, 2021, are presented below. Also included are the fair values for Franz Company's net assets (all numbers are in thousands). AtwoodFranz Co.Franz Co.Book ValueBook ValueFair Value12/31/202112/31/202112/31/2021Cash$870$240$240Receivables660600600Inventory1,230420580Land1,800260250Buildings (net)1,800540650Equipment (net)660380400Accounts payable(570)(240)(240)Accrued expenses(270)(60)(60)Long-term liabilities(2,700)(1,020)(1,120)Common stock ($20 par)(1,980)Common stock ($5 par)(420)Additional paid-in capital(210)(180)Retained earnings 1/1/18(1,170)(480)Revenues(2,880)(660)Expenses2,760620 Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31, 2021. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. Compute consolidated goodwill at the date of the acquisition.

$450

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.

$50,000

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000. What is the total amount of excess land allocation at the acquisition date?

$50,000

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the initial value method is applied. Compute Pell's Investment in Demers at December 31, 2019.

$500,000

On January 1, 2021, Doyle Corp. acquired 75% of the voting common stock of Bressant Inc. During the year, Doyle sold to Bressant for $510,000 goods that cost $380,000. At year-end, Bressant owned 20% of the goods transferred. Bressant reported net income of $215,000, and Doyle's net income was $902,000. Doyle decided to use the equity method to account for this investment. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest?

$53,750

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the partial equity method is applied. Compute Pell's Investment in Demers at December 31, 2019.

$548,000

Which of the following statements is true regarding an intra-entity transfer of land?

A loss and a gain are deferred until the land is sold to an outside party.

Prescott Inc. owned 80% of the voting common stock of Hutchins Corp. During 2021, Hutchins made several sales of inventory to Prescott. The total selling price was $190,000 and the cost was $105,000. At the end of the year, 30% of the goods were still in Prescott's inventory. Hutchins's reported net income was $320,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest in Hutchins?

$58,900

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. 202020212022Purchases by Philbin$8,000$12,000$15,000Ending inventory on Philbin's books1,2004,0003,000 Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. 202020212022Anderson's net income$70,000$85,000$94,000Dividends paid by Anderson10,00010,00015,000 Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, compute the net income attributable to the noncontrolling interest of Anderson for 2020.

$6,970

Prater Inc. owned 85% of the voting common stock of Harkin Corp. During 2021, Prater made several sales of inventory to Harkin. The total selling price was $215,000 and the cost was $105,000. At the end of the year, 40% of the goods were still in Harkin's inventory. Harkin's reported net income was $400,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest in Harkin?

$60,000

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. 202020212022Purchases by Philbin$8,000$12,000$15,000Ending inventory on Philbin's books1,2004,0003,000 Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. 202020212022Anderson's net income$70,000$85,000$94,000Dividends paid by Anderson10,00010,00015,000 Compute the equity in earnings of Anderson reported on Philbin's books for 2020.

$62,730

Scott Co. acquired 70% of Gregg Co. for $525,000 on December 31, 2019 when Gregg's book value was $580,000. The Gregg stock was not actively traded. On the date of acquisition, Gregg had equipment (with a ten-year life) that was undervalued in the financial records by $170,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid. Scott Co.Gregg Co.BookValueBookValueFairValueCurrent assets$912,000$430,000$458,000Equipment371,000290,000450,000Buildings584,000210,000210,000Liabilities(564,000)(238,000)(238,000)Revenues(1,320,000)(570,000)Expenses740,000410,000Investment incomeNot Given What amount of consolidated net income for 2020 is attributable to Scott's controlling interest?

$680,100

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded. What amount of goodwill should be attributed to the noncontrolling interest at the date of acquisition?

$75,000

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. 202020212022Purchases by Philbin$8,000$12,000$15,000Ending inventory on Philbin's books1,2004,0003,000 Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. 202020212022Anderson's net income$70,000$85,000$94,000Dividends paid by Anderson10,00010,00015,000 Compute the equity in earnings of Anderson reported on Philbin's books for 2021.

$75,870

Anderson Company, a 90% owned subsidiary of Philbin Corporation, transfers inventory to Philbin at a 25% gross profit rate. The following data are available pertaining specifically to Philbin's intra-entity purchases from Anderson. Anderson was acquired on January 1, 2020. 202020212022Purchases by Philbin$8,000$12,000$15,000Ending inventory on Philbin's books1,2004,0003,000 Assume the equity method is used. The following data are available pertaining to Anderson's income and dividends. 202020212022Anderson's net income$70,000$85,000$94,000Dividends paid by Anderson10,00010,00015,000 Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, compute the net income attributable to the noncontrolling interest of Anderson for 2021.

$8,430

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the partial equity method is applied. How much does Pell record as Income from Demers for the year ended December 31, 2019?

$80,000

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 201920202021Net income$100,000$120,000$130,000Dividends40,00050,00060,000 Assume the equity method is applied. Compute Pell's equity income from Demers for the year ended December 31, 2020.

$90,400

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance: DebitCreditCash$500Accounts receivable600Inventory900Buildings (net) (5 year life)1,600Equipment (net) (2 year life)1,000Land900Accounts payable$400Long-term liabilities (due 12/31/22)1,900Common stock1,000Additional paid-in capital700Retained earnings1,500Total$5,500$5,500 Net income and dividends reported by Clark for 2020 and 2021 follow: 20202021Net income$120$140Dividends4050 The fair value of Clark's net assets that differ from their book values are listed below: Fair ValueBuildings$1,200Equipment1,350Land1,300Long-term liabilities1,750 Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. Compute the amount of Clark's inventory that would be reported in a January 1, 2020, consolidated balance sheet.

$900

Scott Co. paid $2,800,000 to acquire all of the common stock of Dawn Corp. on January 1, 2020. Dawn's reported earnings for 2020 totaled $512,000, and it paid $160,000 in dividends during the year. The amortization of allocations related to the investment was $28,000. Scott's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000. On the consolidated financial statements for 2020, what amount should have been shown for consolidated dividends?

$950,000

Milton Co. owned all of the voting common stock of Walker Co. On January 3, 2020, Milton sold equipment to Walker for $140,000. The equipment cost Clemente $165,000. At the time of the transfer, the balance in accumulated depreciation was $45,000. The equipment had a remaining useful life of five years and a $0 salvage value. Both entities use the straight-line method of depreciation. At what amount should the equipment (net of depreciation) be included in the consolidated balance sheet dated December 31, 2020?

$96,000

What are the two proprietary fund types? (1) Internal service funds. (2) Investment trust funds. (3) Enterprise funds. (4) Agency funds.

1 and 3

When a city received a private donation of $1,000,000 stipulating that the principal donation would be preserved but allowing the interest income to be spent on building a city park with access for disabled children, which fund should the money be recorded in?

A permanent fund.

Which of the following examples accurately describes a difference in the types of business combinations?

A statutory merger requires the dissolution of the acquired company while a statutory consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity.

Under the modified accrual basis of accounting, expenditures generally are not recognized until:

An obligation is incurred that will be paid from currently available financial resources.

Which item is not included on the government-wide Statement of Activities?

Assets

The term "current financial resources" refers to

Assets that are available to be used for current expenditures.

Trapper City issued 30-year bonds for the purpose of building a new City Hall. The proceeds of the bonds are deposited in the General Fund. For the governmental fund financial statements, in what fund will Bonds Payable appear?

Bonds Payable do not appear in governmental fund financial statements.

A statutory merger is a(n)

Business combination in which only one of the two companies continues to exist as a legal corporation.

At the date of an acquisition which is not a bargain purchase, the acquisition method

Consolidates all subsidiary assets and liabilities at fair value.

Using the acquisition method for a business combination, goodwill is generally calculated as the:

Cost of the investment less the subsidiary's fair value at acquisition date.

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method, how should stock issuance costs and direct combination costs be treated?

Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital.

All of the following statements regarding the investment account using the equity method are true except:

Dividends received are reported as revenue.

A city starts a solid waste landfill during 2020. When the landfill was opened the city estimated that it would fill to capacity within 6 years and that the cost to cover the facility would be $1.8 million which will not be paid until the facility is closed. At the end of 2020, the facility was 15% full, and at the end of 2021 the facility was 35% full. On government-wide financial statements, which of the following are the appropriate amounts to present in the financial statements for 2021?

Expense will be $360,000 and liability will be $630,000.

Which of the following statements is false regarding government-wide financial statements?

Government-wide financial statements focus on the short-term instead of the long-term.

Which group of financial statements is prepared using the "modified accrual accounting" approach?

Governmental fund financial statements.

What are the broad classifications of funds for a governmental entity such as a city?

Governmental, proprietary, and fiduciary funds.

What is the primary difference between: (i) accounting for a business combination when the subsidiary is dissolved; and (ii) accounting for a business combination when the subsidiary retains its incorporation?

If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company.

Under the equity method of accounting for an investment:

Income reported by the subsidiary increases the investment account.

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

Initial value, equity, or partial equity.

Madison Township has received a donation of a rare painting worth $1,400,000. For Madison's government-wide financial statements, three criteria must be met before Madison can opt not to recognize the painting as an asset. Which of the following is not one of the three criteria? (1.) The painting is held for public exhibition, education, or research in furtherance of public service, rather than financial gain. (2.) The painting is scheduled to be sold immediately at auction. (3.) The painting is protected, kept unencumbered, cared for, and preserved.

Item 2 is not one of the three criteria.

An upstream sale of inventory is a sale:

Made by the investee to the investor.

Under modified accrual accounting, revenues should be recognized when they are

Measurable and available to be used.

Which of the following statements is true concerning an intra-entity transfer of a depreciable asset?

Net income attributable to the noncontrolling interest is affected only when the transfer is upstream.

Town Co. appropriately uses the equity method to account for its investment in Country Corp. As of the end of 2021, Country's common stock had suffered a significant decline in fair value, which is expected to recover over the next several months. How should Town account for the decline in value?

No accounting because the decline in fair value is temporary.

Palmer Corp. owned 80% of the outstanding common stock of Creed Inc. On January 1, 2019, Palmer acquired a building with a ten-year life for $450,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2021, Palmer sold this building to Creed for $412,000. 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 2021? EventGeneral JournalDebitCreditA)Accumulated Depreciation6,500Depreciation Expense6,500B)Accumulated Depreciation5,200Depreciation Expense5,200C)Depreciation Expense6,500Accumulated Depreciation6,500D)Depreciation Expense5,200Accumulated Depreciation5,200E)Accumulated Depreciation45,000Depreciation Expense45,000

Option A - Debit Accumulated Depreciation 6,500 Credit Depreciation Expense 6,500

In an acquisition where 100% control is acquired, how would the land accounts of the parent and the land accounts of the subsidiary be reported on consolidated financial statements? ParentSubsidiaryA)Book ValueBook ValueB)Book ValueFair ValueC)Fair ValueFair ValueD)Fair ValueBook ValueE)CostCost

Option B - (Parent) Book Value (Subsidiary) Fair Value

Which statement is false regarding the Balance Sheet for Governmental Fund Financial Statements?

The Balance Sheet for Governmental Fund Financial Statements measures only long-term financial resources of the governmental entity.

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

The balance in the investment account on the parent's books.

According to GASB Concepts Statement No. 1, what are the three groups of primary users of external state and local governmental financial reports?

The citizenry, legislative and oversight bodies, and investors and creditors.

Under the initial value method, when accounting for an investment in a subsidiary,

The investment account does not change from year to year.

A city received a grant of $5,000,000 from a private agency. The money was to be used to build a new city library. In which fund should the money be recorded for the governmental fund financial statements?

a capital projects fund

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

a gain on a bargain purchase is recorded

When a city received a county grant designated for providing food and other assistance to the homeless, the money should have been recorded in

a special revenue fund

The city council adopted a plan to set aside 2% of revenues over the next three years to help build cash reserves. At the end of the fiscal year 2% of the revenues were set aside. How would those revenues be classified for fund balance reporting purposes?

committed

Which of the following is identified by the GASB as the "cornerstone" of all financial reporting in government?

accountability

Which of the following groups is considered a primary user of a state or local government's general-purpose external financial statements?

citizens

What account is debited in the general fund when equipment is received by a governmental entity?

expenditures

The only fund that should show a positive amount in its unassigned fund balance classification would be the:

general fund

After allocating cost in excess of book value, which asset or liability would not be amortized over a useful life?

goodwill

Which of the following funds would be used to account for an activity that provides centralized purchasing and sales of goods or services to other departments or agencies of the government on a cost-reimbursement basis?

internal service fund

For governmental entities, the accrual basis of accounting is used for:

internal service funds

Under the partial equity method, the parent recognizes income when

it is earned by the subsidiary

For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except:

liabilities assumed, at book value

Recognizing revenues when measurable and available for paying current obligations and expenditures when incurred describes which basis of accounting?

modified accrual

Which of the following is a fiduciary fund?

pension trust fund

Which of the following funds is most likely created with an endowed gift?

permanent fund

Which of the following is a governmental fund?

permanent fund

General fund resources that are limited as to use by constraints imposed by law through constitutional or enabling legislation would be classified within fund balance as:

restricted

The state transportation department provided $1,000,000 in state funds to be used for street widening. At the end of the fiscal year $750,000 remained unspent. How would the unspent portion be classified in fund balance?

restricted

Which of the following funds should be used if resources provided by a federal grant must be segregated and used for counseling of youthful offenders?

special revenue fund

Which of the following is not one of the categories for reporting fund balances of governmental funds?

spendable

Which of the following is a financial statement of a proprietary fund?

statement of net position