Study Set Ch 06

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What will be the amount of interest attributed to Goodman in the income distribution for 2022?

$17,313 Beginning 2021 capital balance $145,500 + 2021 Interest $14,550 (10% × $145,500) + Salary $0 + 20% of Remaining 2021 net income $31,080 − Withdrawals $18,000 = (2021 ending balance) $173,130 × 10% = $17,313

Carlson, Inc. owns 80% of Madrid, Inc. Carlson reports net income for 2021 (without consideration of its investment in Madrid, Inc.) of $1,500,000. For the same year, Madrid reports net income of $705,000. Carlson had bonds payable outstanding on January 1, 2021 with a carrying value of $1,200,000. Madrid acquired the bonds on the open market on January 3, 2021 for $1,090,000. For the year 2021, Carlson reported interest expense on the bonds in the amount of $96,000, while Madrid reported interest income of $94,000 for the same bonds. Assuming there are no excess amortizations or other intra-entity transactions, what is Carlson's share of consolidated net income?

$2,176,000 Parent's Income $1,500,000 + Loss on Bond Sale $110,000 − Bond Interest $94,000 + Bond Income $96,000 + Sub's Income to Parent $564,000 ($705,000 × 80%) = $2,176,000 Consolidated Income

Clark Co., a U.S. corporation, sold inventory on December 1, 2021, with payment of 12,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec. 1 Spot rate $1.831 Dec. 31 Spot rate $1.976 Jan. 30 Spot rate $1.768 For what amount should Sales be credited on December 1?

$21,972 December 1st Spot Rate $1.831 × £12,000 = $21,972 Sales Revenue

Akers Co. owned 8,000 shares (80%) of the outstanding 8%, $100 par, preferred stock and 70% of the outstanding common stock of Brickman Co. Assuming there are no excess amortizations or intra-entity transactions, and Brickman reports net income of $810,000, what is the noncontrolling interest in the subsidiary's income?

$235,000 $810,000 Net Income − Preferred Dividends (10,000 × $8) = $730,000 × 30% = $219,000 Noncontrolling Interest $80,000 Preferred Dividends × 20% = $16,000 Noncontrolling Interest $219,000 from Income + $16,000 Preferred Dividends = $235,000 Noncontrolling Interest in Income

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was the amount of interest attributed to Pinkman in the income distribution for 2021?

$24,150 Beginning Pinkman 2020 capital balance $175,000 + 2020 Interest $17,500 + 2020 Salary $15,000 + 40% of the 2020 Remaining net income $52,000 − 2020 Withdrawals $18,000 = $241,500 (2021 Pinkman beginning balance). Beginning capital balance $241,500 × 10% = $24,150.

A local partnership has assets of cash of $30,000 and land recorded at $700,000. All liabilities have been paid and the partners are all personally insolvent. The partners' capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000, how much cash will Mones receive in the final settlement?

$0

On June 1, Cagle Co. received a signed agreement to sell inventory for ¥650,000. The sale would take place in 90 days. Cagle 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 = $0.003986, and the 90-day forward rate was ¥1 = $0.004021. At what amount would Cagle record the Forward Contract on June 1?

$0

Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones was $1,000,000. Jones currently has 100,000 shares outstanding and a book value of $1,200,000. Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What is the adjusted book value of Jones after the sale of the shares?

$1,400,000 Beginning carrying amount $1,200,000 + Additional Shares Sold $200,000 ($10 × 20,000) = $1,400,000 Current carrying amount

Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones was $1,000,000. There was no premium paid by Webb. Jones currently has 100,000 shares outstanding and a book value of $1,200,000. Assume Jones issues 20,000 new shares of its common stock to outside parties for $15 per share. What is the adjusted book value of Jones after the stock issuance?

$1,500,000 Beginning BV $1,200,000 + Additional Shares Sold $300,000 ($15 × 20,000) = $1,500,000 Current BV

On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply: October 1, 2021 spot rate $2.00 December 31, 2021 spot rate $1.97 February 1, 2022 spot rate $2.01 What is the balance in the Foreign Currency Option account on December 31, 2021?

$1,600 The fair value of the option on that date

Clark Co., a U.S. corporation, sold inventory on December 1, 2021, with payment of 12,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec. 1 Spot rate $1.831 Dec. 31 Spot rate $1.976 Jan. 30 Spot rate $1.768 What amount of foreign exchange gain or loss should be recorded on December 31?

$1,740 gain $1.976 − $1.831 = $0.145 × £12,000 = $1,740 gain

Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24, 2021. On July 24, 2021, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October, 2021. The following exchange rates apply: Option strike price $2.17 Option cost $4,000 July 24 spot rate $2.17 October 24 spot rate $2.13 October 24 option premium $0.04 What amount will Woolsey record in AOCI to close it as an adjustment to net income for the period ended October 31?

$10,000 debit $2.17 − $2.13 = $0.04 × £250,000 = $10,000 debit

Parker Corp., a U.S. company, had the following foreign currency transactions during 2021: (1.) Purchased merchandise from a foreign supplier on July 5, 2021 for the U.S. dollar equivalent of $80,000 and paid the invoice on August 3, 2021 at the U.S. dollar equivalent of $82,000. (2.) On October 1, 2021 borrowed the U.S. dollar equivalent of $872,000 evidenced by a non-interest-bearing note payable in euros on October 1, 2022. The U.S. dollar equivalent of the note amount was $860,000 on December 31, 2021, and $881,000 on October 1, 2022. What amount should be included as a foreign exchange gain or loss from the two transactions for 2021?

$10,000 gain [$80,000 − $82,000 = ($2,000) Loss] + [$872,000 − $860,000 = $12,000 Gain] = $10,000 Gain

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was Pinkman's total share of net income for 2021?

$101,310 Interest $24,150 + Salary $15,000 + 40% of the 2021 Remaining net income (calculated below) $62,160 = $101,310. Remaining net income = $240,000 − $69,600 (10% of $696,000) − $15,000 (Pinkman Salary) = $155,400 × 40% = $62,160.

Ryan Company purchased 80% of Chase Company for $270,000 when Chase's book value was $300,000. Chase has 50,000 shares outstanding and currently has a book value of $400,000. Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. After recording the acquisition of the additional shares, what adjustment is needed for Ryan's Investment in Chase account?

$12,188 decrease

Schrute Inc. had a receivable from a foreign customer that is due in the local currency of the customer (stickles). On December 31, 2021, this receivable for §200,000 was correctly included in Schrute's balance sheet at $167,000. When the receivable was collected on February 15, 2022, the U.S. dollar equivalent was $181,000. In Schrute's 2022 consolidated income statement, how much should have been reported as a foreign exchange gain?

$14,000 $181,000 − $167,000 = $14,000 Gain

A local partnership has two partners, Jim and Pam. Jim has a capital balance of $150,000 and Pam has a capital balance of $125,000. These two partners share profits and losses 60 percent (Jim) and 40 percent (Pam). Cece invests $75,000 in cash in the partnership for a 25 percent ownership. The bonus method will be used. What is Jim's capital balance after this new investment?

$142,500 Jim $150,000 + Pam $125,000 + Cash from Cece $75,000 = $350,000 × 25% = $87,500 $87,500 Cece capital balance − $75,000 Cash from Cece = $12,500 bonus $12,500 × 60% = $7,500; $150,000 − $7,500 = $142,500

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was Pinkman's capital balance at the end of 2020?

$241,500 Beginning 2020 balance $175,000 + Interest $17,500 + Salary $15,000 + 40% of the Remaining net income $52,000 − Withdrawals $18,000 = $241,500 Remaining net income: $200,000 − $55,000 (10% of $550,000) − $15,000 (Pinkman Salary) = $130,000, of which 40% is allocated to Pinkman = $52,000.

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2021, when the exchange rate for the Canadian dollar (CAD) was U.S. $0.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess over fair value was attributed to an unrecorded patent with a remaining life of five years. The functional currency of Hastie is the Canadian dollar. For the year ended December 31, 2021, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2021 was U.S. $0.68, and the 2021 year-end exchange rate was U.S. $0.65. Compute the amount of the patent reported in the consolidated balance sheet at December 31, 2021.

$26,000 Patent Value CAD 50,000 − Amortization for 2021 CAD 10,000 = BV CAD 40,000 × $0.65 = $26,000 Translated

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's beginning capital balance?

$27,600 Current capital $100,000 + Cash invested by C $38,000 = $138,000 × 20% = $27,600 to C

Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones was $1,000,000. There was no premium paid by Webb. Jones currently has 100,000 shares outstanding and a book value of $1,200,000. Assume Jones issues 20,000 new shares of its common stock to outside parties for $15 per share. After acquiring the additional shares, what adjustment is needed for Webb's investment in Jones account?

$30,000 increase Adjusted acquisition-date sub. fair value Consideration transferred $990,000 Noncontrolling interest acquisition-date fair value $110,000 Increase in Jones book value $200,000 Stock issue proceeds $300,000 Subsidiary valuation basis $1,600,000 New parent ownership (90,000 shares ÷ 120,000 shares) 75% Parent's post-stock issue ownership balance $1,200,000 Parent's investment account [$990,000 + (90% × $200,000)] $1,170,000 Required adjustment—increase $30,000

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was White's capital balance at the end of 2020?

$309,000 Beginning 2020 balance $250,000 + Interest $25,000 + Salary $0 + 40% of the Remaining net income $52,000 (calculated below) − Withdrawals $18,000 = $309,000 Remaining net income: $200,000 − $55,000 (10% of $550,000) − $15,000 (Pinkman Salary) = $130,000, of which 40% is allocated to White = $52,000.

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2021, when the exchange rate for the Canadian dollar (CAD) was U.S. $0.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess over fair value was attributed to an unrecorded patent with a remaining life of five years. The functional currency of Hastie is the Canadian dollar. For the year ended December 31, 2021, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2021 was U.S. $0.68, and the 2021 year-end exchange rate was U.S. $0.65. Calculate the U.S. dollar amount allocated to the patent at January 1, 2021.

$35,000 $350,000 − FV of Assets (CAD 450,000 × $0.70) $315,000 = $35,000 Patent Value

A local partnership has assets of cash of $30,000 and land recorded at $700,000. All liabilities have been paid and the partners are all personally insolvent. The partners' capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000, what amount will Roberts receive in the final settlement?

$362,500 Capital account balances: R = $500,000; F = $300,000; M = $30,000 with Losses Shared 5:3:2 First eliminate M Balance of $30,000 in $250,000 Loss Losses now shared 5/8 and 3/8. Remaining loss to allocate = $220,000 ($250,000 - $30,000 to M). R = $500,000 - ($220,000 × 5/8) $137,500 = $362,500 F = $300,000 - ($220,000 × 3/8) $82,500 = $217,500

On March 1, 2021, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds. The machine was shipped and payment was received on March 1, 2022. On March 1, 2021, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2022 at a price of $380,000. Mattie properly designates the option as a fair hedge of the pound firm commitment. The option cost $2,000 and had a fair value of $2,200 on December 31, 2021. The following spot exchange rates apply: March 1, 2021 spot rate $1.90 December 31, 2021 spot rate $1.89 March 1, 2022 spot rate $1.84 What was the net impact on Mattie's 2022 net income including the fair value hedge of a firm commitment?

$379,800 increase [$380,000 Sales Revenue] − [$2,000 Cost of Option] + [$1,800 Adjustment from 2021 Net Income] = $379,800 Increase to 2022 Net Income

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was White's capital balance at the end of 2021?

$384,060 2021 Beginning White capital balance $309,000 + Interest $30,900 + Salary $0 + 40% of Remaining 2021 net income (see below) $62,160 − 2021 Withdrawals $18,000 = $384,060. Remaining 2021 Net Income = $240,000 − $69,600 (10% of $696,000) − $15,000 (Pinkman Salary) = $155,400 × 40% = $62,160.

Winston Corp., a U.S. company, had the following foreign currency transactions during 2021: (1.) Purchased merchandise from a foreign supplier on July 16, 2021 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2021 at the U.S. dollar equivalent of $54,000. (2.) On October 15, 2021 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2022. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2021, and $299,000 on October 15, 2022. What amount should be included as a foreign exchange gain or loss from the two transactions for 2022?

$4,000 loss $295,000 − $299,000 = ($4,000) Loss

Brandon Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2021. Brandon received payment of 40,000 British pounds on May 8, 2021. The exchange rate was £1 = $1.56 on April 8 and £1 = 1.45 on May 8. What amount of foreign exchange gain or loss should be recognized? (Round to the nearest dollar.)

$4,400 loss $1.45 − $1.56 = ($0.11) × £40,000 = ($4,400) Loss

On January 1, 2021, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30% of Involved's preferred stock, and $1,850,000 for 80% of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: Common stock, $10 par value, 100,000 shares outstanding $1,000,000 Preferred stock, 7% fully participating, $100 par value, 10,000 shares outstanding $1,000,000 Retained earnings $2,000,000 Total stockholders' equity $4,000,000 What is the total acquisition-date fair value of Involved?

$4,812,500 Common Stock Noncontrolling Interest at Acquisition = $1,850,000 ÷ 80% = $2,312,500 Preferred Stock Noncontrolling Interest at Acquisition = $750,000 ÷ 30% = $2,500,000 $2,312,500 + $2,500,000 = $4,812,500 FV of Subsidiary at Acquisition $1,850,000 + $462,500 + $750,000 + $1,750,000 = $4,812,500

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively. What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?

$40,000

Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied: December 16, 2021 - spot rate: $0.00082 forward rate: $0.00089 December 31, 2021 - spot rate: 0.00080 forward rate: 0.00083 January 15, 2022 - spot rate: 0.00086 forward rate: 0.00086 Assuming a forward contract was not entered into, what would be the net impact on Jackson Corp.'s 2021 income statement related to this transaction?

$400 (loss) $0.00080 − $0.00082 = ($0.00002) × FC 20,000,000 = ($400) Loss

A partnership has assets of cash of $10,000 and equipment with a book value of $160,000. All liabilities have been paid. The partners' capital accounts are as follows Michael $80,000, Gregory $60,000 and Phillips $30,000. The partners share profits and losses on a 4:3:3 basis. If the equipment is sold for $100,000 and there are no liquidation expenses what amount should Gregory receive in the final settlement?

$42,000 Gregory = $60,000 - Loss on Equipment ($60,000 × 30%) $18,000 = $42,000

Nelson Co. ordered parts costing §120,000 from a foreign supplier on May 12 when the spot rate was $0.31 per stickle. A one-month forward contract was signed on that date to purchase §120,000 at a forward rate of $0.32 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $0.36 per stickle. At what amount should inventory be reported?

$43,200 $0.36 × §120,000 = $43,200

On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, $10 par value (50,000 shares outstanding) $500,000 Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding $300,000 Additional paid in capital $200,000 Retained earnings $500,000 Total stockholders' equity $1,500,000 Compute the noncontrolling interest in Smith at date of acquisition.

$486,000 Common Stock Noncontrolling Interest at Acquisition = $1,200,000 ÷ 80% = $1,500,000 × 20% = $300,000 Preferred Stock Noncontrolling Interest at Acquisition = $124,000 ÷ 40% = $310,000 × 60% = $186,000 $300,000 + $186,000 = $486,000 Noncontrolling Interest at Acquisition Date

Kearns Inc. owned all of Burke Corp. For 2021, Kearns reported net income (without consideration of its investment in Burke) of $350,000 while the subsidiary reported $127,000. There are no excess amortizations associated with this consolidation. The subsidiary had bonds payable outstanding on January 1, 2021, with a book value of $303,000. The parent acquired the bonds on that date for $285,000. During 2021, Kearns reported interest income of $32,000 while Burke reported interest expense of $29,000. What is consolidated net income for 2021?

$492,000 Income of the Parent $350,000 + Income of the Subsidiary $127,000 − Difference in Interest Income over Interest Expense on Intra-Entity Bonds ($32,000 − $29,000) $3,000 + Gain on Bonds Purchase ($303,000 − $285,000) $18,000 = $492,000 Consolidated Net Income

Davis Company has had bonds payable of $15,000 outstanding for several years. On January 1, 2021, when there was an unamortized discount of $2,500 and a remaining life of 5 years, its 80% owned subsidiary, Jacobson Company, purchased the bonds in the open market for $18,000. The bonds pay 7% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2021.

$5,500 loss Bonds Purchase Price $18,000 − Bonds carrying amount ($15,000 − $2,500) = $5,500 Loss to Consolidated Income

On December 1, 2021, Joseph Company, a U.S. company, entered into a three-month forward contract to purchase 50,000 pesos on March 1, 2022, as a fair value hedge of a foreign currency denominated account payable. The following U.S. dollar per peso exchange rates apply: December 1, 2021 - spot rate: $0.092 forward rate: $0.105 December 31, 2021 - spot rate: 0.090 forward rate: 0.095 March 1, 2022 - spot rate: 0.089 forward rate: N/A Which of the following is included in Joseph's December 31, 2021 balance sheet for the forward contract?

$500 liability $0.105 − $0.095 = ($0.010) × MP 50,000 = ($500.00) Liability

On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36. At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What amount will Quality recognize in Sales from these transactions?

$548,000 [€400,000 × $1.36 = $544,000] (Alternate solution: [Recorded Sales (€400,000 × 1.37) − Amortized discount ((1.41 − 1.36) × €400,000) + Adjustment to close AOCI (20,000 − 4,000) = $544,000)]

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for goodwill?

$60,000 $40,000 = 20% of the partnership value as a whole after C is admitted. $40,000 ÷ 20% = $200,000 total capital of the partnership after C is admitted. However, total capital after C's investment and before goodwill = $140,000 ($50,000 + $30,000 + $20,000 + $40,000). $200,000 - $140,000 = $60,000 Goodwill.

The partnership of Gordon, Handel, and Mitchell is considering possible liquidation because partner Mitchell is personally insolvent. The partners have the following capital account balances: $120,000, $140,000, and $80,000, respectively, and share profits and losses 35%, 45%, and 20%, respectively. The partnership has $400,000 in noncash assets that can be sold for $300,000. The partnership has $20,000 cash on hand, and $80,000 in liabilities. What is the minimum that partner Mitchell's creditors would receive if they have filed a claim for $100,000?

$60,000 Mitchell = $80,000 − Loss on Non-Cash Asset Sale ($100,000 × 20%) $20,000 = $60,000

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was the remainder portion of net income allocated to White for 2021?

$62,160 Remainder of 2021 Net Income = $240,000 − $69,600 (10% of $696,000) − $15,000 (Pinkman Salary) = $155,400 × 40% = $62,160

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham $20,000. (2.) Noncontrolling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value amortization was $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?

$7,000 decrease to net income as an operating activity

Ryan Company purchased 80% of Chase Company for $270,000 when Chase's book value was $300,000. Chase has 50,000 shares outstanding and currently has a book value of $400,000. Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the new percent ownership Ryan owns in Chase?

87.5% Shares Outstanding 50,000 × 80% = 40,000 Parent's Shares 50,000 + 30,000 = 80,000 New Outstanding Shares 40,000 + 30,000 = 70,000 Parent's Shares after New Issue 70,000 ÷ 80,000 = 87.5% New Ownership Percentage

Which statement is true regarding a foreign currency option?

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

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

A gain or loss must be recognized by both parent and subsidiary companies

If a subsidiary re-acquires its outstanding shares from outside ownership for more than the noncontrolling interest valuation basis at the date of buying such treasury stock, which of the following statements is true?

Additional paid-in capital on the parent company's books will decrease

Acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition

Any gain or loss is recognized in the year of acquisition on a consolidated income statement

At the end of a partnership liquidation, how is any remaining cash distributed to the partners?

Based on the individual partners' final capital balances

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

Cash, receivables, and most liabilities

Which of the following variable interests entitles a holder to residual profits, losses, and dividends?

Common stock

When a partnership is insolvent and a partner has a deficit capital account balance, that partner should:

Contribute enough cash to the partnership to offset their deficit

Under the temporal method, inventory at net realizable value would be remeasured for the balance sheet at what rate?

Current rate

On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply: October 1, 2021 spot rate $2.00 December 31, 2021 spot rate $1.97 February 1, 2022 spot rate $2.01 What journal entry should Eagle prepare on October 1, 2021?

DR Foreign Currency Option 1,800 CR Cash 1,800

The appropriate format of the December 31, 2020 closing entry for John & Hope Limited Liability Partnership, whose two partners had withdrawn their salaries from the partnership during the year, is:

DR John, Capital DR Hope, Capital CR John, Drawing CR Hope, Drawing

On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, $10 par value (50,000 shares outstanding) $500,000 Preferred stock, 6% cumulative, $100 par value, 3,000 shares outstanding $300,000 Additional paid in capital $200,000 Retained earnings $500,000 Total stockholders' equity $1,500,000 The consolidation entry at date of acquisition will include (referring to Smith):

Debit Common stock $500,000 and debit Preferred stock $300,000 BV is Debited in Consolidation Entry for Acquisition-Date Preparation of Consolidated Balance Sheet

Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2019, when Cocker had the following stockholders' equity accounts. Common stock — 40,000 shares outstanding $140,000 Additional paid-in capital $105,000 Retained earnings $476,000 Total stockholders' equity $721,000 To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2022. Popper did not pay any premium when it acquired its original interest in Cocker. On January 1, 2022, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker. On January 1, 2022, Cocker reacquired 8,000 of the outstanding shares of its own common stock for $34 per share. None of these shares belonged to Popper. How would this transaction have affected the additional paid-in capital of the parent company?

Decrease it by $23,100 Adjusted acquisition-date fair value ($852,500 + $392,000) $1,244,500 Less Stock repurchase $(272,000) Adjusted fair value after stock repurchase $972,500 New parent ownership (32,000 shares ÷ 32,000 shares) 100% Fair value equivalency of parent's ownership $972,500 Parent's investment account ($682,000 + [80% × $392,000]) $995,600 Required adjustment—decrease$(23,100)

A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true?

The parent's additional paid-in capital will be decreased

forward rate

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

A historical exchange rate for common stock of a foreign subsidiary is best described as

The rate when the common stock was originally issued for the acquisition transaction

Which of the following statements is correct regarding the admission of a new partner?

The right to participate in management of the business cannot be conveyed without the consent of other existing partners

A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?

There is a negative translation adjustment

A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?

There is a positive translation adjustment

How do outstanding subsidiary stock warrants affect the calculation of consolidated earnings per share?

They will only be included in diluted earnings per share if they are dilutive

A proposed schedule of liquidation is developed

based on the underlying assumption that all future events will result in total losses

When the hybrid method is used to record the withdrawal of a partner, the partnership

revalues assets and liabilities but does not record goodwill

The disadvantages of the partnership form of business organization, compared to corporations, include

unlimited liability for the partners

The dissolution of a partnership occurs

when there is any change in the individuals who make up the partnership

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

Which of the following is not a condition of accounting for hedge derivatives?

The derivative is minimally effective in offsetting changes in the cash flows or fair value related to the hedged item

All of the following data points are needed to determine the fair value of a forward contract (at any point), except

The forward rate for a contract that has the same duration as the forward contract entered into

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

The future spot rate

What accounting transactions are not recorded by an accountant during partnership liquidation?

The initiation of legal action by creditors of the partnership

Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied: December 16, 2021 - spot rate: $0.00082 forward rate: $0.00089 December 31, 2021 - spot rate: 0.00080 forward rate: 0.00083 January 15, 2022 - spot rate: 0.00086 forward rate: 0.00086 Assuming a forward contract was entered into on December 16 as a fair value hedge, what would be the net foreign exchange gain or loss on Jackson's 2022 related to this transaction? Jackson amortizes forward points using the straight-line method. Ignore present values.

$700 (gain) The net effect will be a Foreign exchange gain equal to the amount of premium amortization for the period:[($0.00082 − $0.00089) × FC 20,000,000] = $1,400 Premium.$1,400 / 1 month × ½ month = $700 Amortization of premium for 2022.[($0.00086 − $0.00080) × FC 20,000,000] = $1,200 Foreign exchange gain to adjust Accounts receivable − [($0.00083 − $0.00086) × FC 20,000,000] = $600 Foreign exchange loss to adjust value of forward contract + $100 Foreign exchange gain to transfer deferred AOCI to net income and reflect current period's amortization of forward contract premium = $700 Net foreign exchange gain.

Jacoby Co. owned a controlling interest in Trimble Inc. Jacoby reported sales of $510,000 during 2021 while Trimble reported $300,000. Inventory costing $27,000 was transferred from Trimble to Jacoby (upstream) during the year for $54,000. Of this amount, 30% was still in ending inventory at year's end. Total receivables on the consolidated balance sheet were $115,000 at the first of the year and $158,000 at year-end. No intra-entity debt existed at the beginning or ending of the year. Using the direct approach, what is the consolidated amount of cash collected by the business from its customers?

$713,000 Parent's Sales $510,000 + Subsidiary's Sales $300,000 − Intra-Entity Sales $54,000 − increase in A/R $43,000 ($158,000 − $115,000) = $713,000 Consolidated Cash Collected

Ryan Company purchased 80% of Chase Company for $270,000 when Chase's book value was $300,000. Chase has 50,000 shares outstanding and currently has a book value of $400,000. Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the adjusted book value of Chase Company after the issuance of the shares?

$760,000 Beginning carrying amount $400,000 + Additional Shares Sold $360,000 ($12 × 30,000) = $760,000 Current carrying amount

On January 1, 2021, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30% of Involved's preferred stock, and $1,850,000 for 80% of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: Common stock, $10 par value, 100,000 shares outstanding $1,000,000 Preferred stock, 7% fully participating, $100 par value, 10,000 shares outstanding $1,000,000 Retained earnings $2,000,000 Total stockholders' equity $4,000,000 Assuming Involved's accounts are correctly valued within the company's financial statements, what amount of goodwill should be recognized for the Investment in Involved?

$812,500 Common Stock Noncontrolling Interest at Acquisition = $1,850,000 ÷ 80% = $2,312,500 × 20% = $462,500 Preferred Stock Noncontrolling Interest at Acquisition = $750,000 ÷ 30% = $2,500,000 × 70% = $1,750,000 (CS Parent $1,850,000) + (CS NCI $462,500) + (PS Parent $750,000) + (PS NCI $1,750,000) = $4,812,500 FV of Subsidiary at Acquisition FV $4,812,500 − carrying amount $4,000,000 = $812,500 Goodwill

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021. What was Pinkman's total share of net income for 2020?

$84,500 Interest on Pinkman's beginning balance of capital contribution ($175,000 × 10% = $17,500) + Salary ($15,000) + 40% of the Remaining net income (calculated below) ($52,000) = $84,500. Remaining net income: $200,000 − $55,000 (10% of $550,000) − $15,000 (Pinkman Salary) = $130,000, of which 40% is allocated to Pinkman = $52,000.

New bonds are issued from a parent to its subsidiary

- Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment - There will be $0 net gain or loss on the bond transaction - Interest expense needs to be eliminated on the consolidated income statement - Interest revenue needs to be eliminated on the consolidated income statement - FALSE: A net gain or loss on the bond transaction will be reported

Dividends paid by a subsidiary to the parent company

- do not appear in the consolidated statement of cash flows

Intra-entity transfers of inventory

- do not appear in the consolidated statement of cash flows - effect on preparation of statement of cash flows: because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required

To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at the balance sheet date:

1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income, 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported in OCI, 3. Recognize a loss or gain related to the hedging instrument to offset the foreign exchange gain or loss on the hedged item recognized in 1, and 4. Recognize a portion of the forward points (discount or premium) in net income with the counterpart reported in OCI.

To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at initiation date requires which of the following?

1. Recognize the transaction (sale or purchase) and foreign currency denominated asset or liability 2. No entry related to forward contract (zero fair value)

What is a company's functional currency?

The currency of the primary economic environment in which it operates

Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2019, when Cocker had the following stockholders' equity accounts. Common stock — 40,000 shares outstanding $140,000 Additional paid-in capital $105,000 Retained earnings $476,000 Total stockholders' equity $721,000 To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2022. Popper did not pay any premium when it acquired its original interest in Cocker. On January 1, 2022, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker. On January 1, 2022, Cocker issued 10,000 additional shares of common stock for $21 per share. Popper did not acquire any of this newly issued stock. How would this transaction affect the additional paid-in capital of the parent company?

Decrease it by $64,720 Consideration transferred $682,000 Noncontrolling interest acquisition-date fair value $170,500 Increase in Sub book value ($1,113,000 − $721,000) $392,000 Stock issue proceeds $210,000 Subsidiary valuation basis $1,454,500 New parent ownership (32,000 shares ÷ 50,000 shares) 64% Parent's post-stock issue ownership balance $930,880 Parent's investment account ($682,000 + [80% × 392,000]) $995,600 Required adjustment — decrease $(64,720)

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Anne retires and is paid $80,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital of the remaining partners?

Donald, $55,000; Todd, $60,000

Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied: December 16, 2021 - spot rate: $0.00082 forward rate: $0.00089 December 31, 2021 - spot rate: 0.00080 forward rate: 0.00083 January 15, 2022 - spot rate: 0.00086 forward rate: 0.00086 Assuming a forward contract was entered into on December 16, how would the forward contract be reflected on Jackson's December 31, 2021 balance sheet?

Forward contract (asset)

Under the temporal method, common stock would be remeasured at what rate?

Historical rate

Under the temporal method, depreciation expense would be remeasured at what rate?

Historical rate

Under the temporal method, property, plant & equipment would be remeasured at what rate?

Historical rate

A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true?

If the foreign currency appreciates, a foreign exchange gain will result

Which of the following has most of the characteristics of a general partnership except that it significantly reduces the partners' liability?

LLP

Which of the following is a type of investment designed primarily for individuals who want the tax benefits of a partnership but who do not wish to work in a partnership or have unlimited liability?

Limited Partnership

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?

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

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham $20,000. (2.) Noncontrolling interest in Stage's net income was $30,000. (3.) Graham paid dividends of $15,000. (4.) Stage paid dividends of $10,000. (5.) Excess acquisition-date fair value over book value amortization was $6,000. (6.) Consolidated accounts receivable decreased by $8,000. (7.) Consolidated accounts payable decreased by $7,000. Where does the noncontrolling interest in Stage's net income appear on a consolidated statement of cash flows?

Noncontrolling interest in Stage's net income does not appear on a consolidated statement of cash flows

MacDonald, Inc. owns 80% of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows?

Not reported in the consolidated statement of cash flows

In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true?

Parent company earnings per share equals consolidated earnings per share when the equity method is used

Which item is not shown on the statement of partnership liquidation?

Personal assets of the partners

Duncan Inc. owned all of the outstanding stock of Brandt Co. The subsidiary had bonds payable outstanding on January 1, 2020, with a book value of $270,000. The parent acquired the bonds on that date for $291,000. Subsequently, Duncan reported interest income of $26,000 in 2020 while Brandt reported interest expense of $31,000. Consolidated financial statements were prepared for 2021. What adjustment would be required for the retained earnings balance as of January 1, 2021?

Reduction of $16,000 Bond Acquisition Price $291,000 − Bonds carrying amount $270,000 = $21,000 R/E Reduction. Intra-Entity Interest $31,000 − $26,000 = $5,000 R/E Increase $21,000 R/E Reduction − $5,000 R/E Increase = $16,000 R/E Reduction

When consolidating a foreign subsidiary, which of the following statements is true?

Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet

When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?

The allocations of excess of fair value over book value at the date of acquisition are eliminated