Solved by verified expert :ACC 440
Final Exam
1) Under the cost method of accounting for a
stock investment, the differential
A. is written down if related to limited-life assets
B. is written off
C. is not amortized or written off
D. is amortized
2) Accounting for investments depends in part to the level of influence or
control. What method is generally tied to influence deemed to be insignificant?
A. Consolidation
B. Equity Method
C. Full Disclosure
D. Cost Method
3) Which of the following observations is consistent with the equity method of
accounting?
A. Dividends declared by the investee are treated as income by the
investor.
B. It is used when the investor lacks the ability to exercise significant
influence over the investee.
C. It may be used in place of consolidation.
D. Its primary use is in reporting no subsidiary investments.
4) On January 1, 2007, Yang Corporation acquired 25 % of the outstanding shares
of Spiel Corporation for $100,000 cash. Spiel Company reported net income of
$75,000 and paid dividends of $30,000 for both 2007 and 2008. The fair value of
shares held by Yang was $110,000 and $105,000 on December 31, 2007 and 2008,
respectively. What amount will be reported by Yang as balance in investment in
Spiel on December 31, 2008, if it used the equity method of accounting?
A. $111,250
B. $118,750
C. $100,000
D. $122,500
5) On January 1, 2007, Yang Corporation acquired 25 % of the outstanding shares
of Spiel Corporation for $100,000 cash. Spiel Company reported net income of
$75,000 and paid dividends of $30,000 for both 2007 and 2008. The fair value of
shares held by Yang was $110,000 and $105,000 on December 31, 2007 and 2008,
respectively. What amount will be reported by Yang as income from its
investment in Spiel for 2008, if it used the equity method of accounting?
6) Bista Corporation declares and distributes a cash dividend that is a result
of current earnings. How will the receipt of those dividends affect the
investment account of the investor under each of the following accounting
methods?
7) The primary role of the International Accounting Standards Board (IASB) is
to
8) Which of the following statements about the
International Accounting Standards Board (IASB) is accurate?
9) The Securities and Exchange Commission is
working prospectively towards requiring public companies in the United States
to complete their financial statements in accordance with
10) On December 5, 2008, Texas based Imperial
Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR),
to be paid on January 10, 2009. The transaction is denominated in Saudi riyals.
Imperial’s fiscal year ends on December 31, and its reporting currency is the
U.S. dollar. The exchange rates are: Based on this information, what
journal entry would Imperial make on December 31, 2008, to revalue foreign
currency payable to equivalent U.S. dollar value?
11). On September 3, 2008, Jackson Corporation purchases goods for a U.S.
dollar equivalent of $17,000 from a Swiss company. The transaction is
denominated in Swiss francs (SFr). The payment is made on October 10. The
exchange rates were September 3: 1 Swiss franc = $.85 October 10: 1 Swiss franc
= $.90 What entry is required to revalue foreign currency payable to U.S.
dollar equivalent value on October 10?
12) On March 1, 2008, Wilson Corporation sold
goods for a U.S. dollar equivalent of $31,000 to a Thai company. The
transaction is denominated in Thai bahts. The payment is received on May 10.
The exchange rates were: What entry is required to revalue foreign
currency payable to U.S. dollar equivalent value on May 10?
13) If the U.S. dollar is the currency in which the foreign affiliate’s books
and records are maintained, and the U.S. dollar is also the functional
currency,
15) When the local currency of the foreign subsidiary is the functional
currency, a foreign subsidiary’s inventory carried at cost would be converted
to U.S. dollars by
A. translation using historical exchange rates
16) On January 3, 2009, Jane Company acquired 75 % of Miller Company’s
outstanding common stock for cash. The fair value of the no controlling
interest was equal to a proportionate share of the book value of Miller
Company’s net assets at the date of acquisition. Selected balance sheet data at
December 31, 2009, are as follows:
17) Beta Company acquired 100 % of the voting common shares of Standard Video
Corporation, its bitter rival, by issuing bonds with a par value and fair value
of $150,000. Immediately prior to the acquisition, acc 440 final exam. Beta
reported total assets of $500,000, liabilities of $280,000, and stockholders’
equity of $220,000. At that date, Standard Video reported total assets of
$400,000, liabilities of $250,000, and stockholders’ equity of $150,000.
Included in Standard’s liabilities was an account payable to Beta in the amount
of $20,000, which Beta included in its accounts receivable. What amount of
total liabilities was reported in the consolidated balance sheet immediately
after acquisition?
18) Beta Company acquired 100 % of the voting
common shares of Standard Video Corporation, its bitter rival, by issuing bonds
with a par value and fair value of $150,000. Immediately prior to the
acquisition, Beta reported total assets of $500,000, liabilities of $280,000,
and stockholders’ equity of $220,000. At that date, Standard Video reported
total assets of $400,000, liabilities of $250,000, and stockholders’ equity of
$150,000. Included in Standard’s liabilities was an account payable to Beta in
the amount of $20,000, which Beta included in its accounts receivable. What
amount of total assets did Beta report in its balance sheet immediately after
the acquisition?
19) West, Inc. holds 100 % of the common stock of Coast Company, an investment
acquired for $680,000. Immediately following the combination, West’s net assets
have a book value of $1,150,000 and a fair value of $1,390,000. The book value
and the fair value of Coast’s net assets on the date of combination are
$400,000 and $550,000, respectively. Immediately following the combination, a
consolidated balance sheet is prepared. Goodwill will be reported in the
consolidated balance sheet in the amount of
20) West, Inc. holds 100 % of the common stock of Coast Company, an investment
acquired for $680,000. Immediately following the combination, West’s net assets
have a book value of $1,150,000 and a fair value of $1,390,000. The book value
and the fair value of Coast’s net assets on the date of combination are
$400,000 and $550,000, respectively. Immediately following the combination, a
consolidated balance sheet is prepared. At what amount will West’s investment
in Coast stock be reported in the consolidated balance sheet?
21) West, Inc. holds 100 % of the common stock of Coast Company, an investment
acquired for $680,000. Immediately following the combination, West’s net assets
have a book value of $1,150,000 and a fair value of $1,390,000. The book value
and the fair value of Coast’s net assets on the date of combination are
$400,000 and $550,000, respectively. Immediately following the combination, a
consolidated balance sheet is prepared. What will be the amount of net assets
reported in the consolidated balance sheet, prepared immediately following the
combination?
22) Elvis Company purchases inventory for $70,000 on March 19, 2008, and sells
it to Graceland Corporation for $95,000 on May 14, 2008. Graceland still holds
the inventory on December 31, 2008, and determines that its market value
(replacement cost) is $82,000 at that time. Graceland writes the inventory down
from $95,000 to its lower market value of $82,000 at the end of the year. Elvis
owns 75 % of Graceland. Based on this information, what amount of cost of goods
sold should be eliminated in the consolidation work paper for 2008?
23) ABC Corporation owns 75 % of XYZ Company’s voting shares. During 2008, ABC
produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for
$90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each
prior to December 31, 2008, and sold the remainder in early 2009 for $130 each.
Both companies use perpetual inventory systems. Based on the information given
above, what amount of cost of goods sold must be eliminated from the
consolidated income statement for 2008?
24) On December 31, 2008, Melkor Corporation acquired 80 % of Sydney Company’s
common stock for $160,000. At that date, the fair value of the no controlling
interest was $40,000. Of the $75,000 differential, $10,000 related to the
increased value of Sydney’s inventory, $20,000 related to the increased value
of its land, and $25,000 related to the increased value of its equipment that
had a remaining life of 10 years from the date of combination. Sydney sold all
inventory it held at the end of 2008 during 2009. The land to which the
differential related was also sold during 2009 for a large gain. At the date of
combination, Sydney reported retained earnings of $75,000 and common stock
outstanding of $50,000. In 2009, Sydney reported net income of $60,000, but
paid no dividends. Melkor accounts for its investment in Sydney using the
equity method. What is the elimination entry made to assign income to no
controlling interest in the work paper to prepare a full set of consolidated
financial statements for the year 2009?
25) Bristle Corporation acquired 75 % of Silver
Corporation’s common stock on December 31, 2008, for $300,000. The fair value
of the no controlling interest at that date was determined to be $100,000.
Silver’s balance sheet immediately before the combination reflected the
following balances: A careful review of the fair value of Silver’s assets
and liabilities indicated that inventory, land, and buildings and equipment
(net) had fair values of $65,000, $100,000, and, $300,000, respectively.
Goodwill is assigned proportionately to Bristle and the no controlling
shareholders. What amount of inventory will be included in the consolidated
balance sheet immediately following the acquisition?
26) Bristle Corporation acquired 75 % of Silver
Corporation’s common stock on December 31, 2008, for $300,000. The fair value
of the no controlling interest at that date was determined to be $100,000.
Silver’s balance sheet immediately before the combination reflected the
following balances: A careful review of the fair value of Silver’s assets
and liabilities indicated that inventory, land, and buildings and equipment
(net) had fair values of $65,000, $100,000, and, $300,000, respectively.
Goodwill is assigned proportionately to Bristle and the no controlling
shareholders. What amount of land will be included in the consolidated balance
sheet immediately following the acquisition?
27) On January 1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company’s
voting stock, at underlying book value. The fair value of the no controlling
interest was equal to 10 % of the book value of Kaiser at that date. Wilhelm
uses the equity method in accounting for its ownership of Kaiser. On December
31, 2009, the trial balances of the two companies are as follows:
28) ABC Corporation purchased land on January 1, 2006, for $50,000. On July 15,
2008, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC
owns 80 % of XYZ’s voting shares. What will be the work paper eliminating entry
to remove the effects of the intercompany sale of land in preparing the
consolidated financial statements for 2009?
29) Sky Corporation owns 75 % of Earth Company’s stock. On July 1, 2008, Sky
sold a building to Earth for $33,000. Sky had purchased this building on
January 1, 2006, for $36,000. The building’s original eight-year estimated
total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment’s residual value is considered negligible. Based on
this information, in the preparation of the 2009 consolidated income statement,
depreciation expense will be
30) Sky Corporation owns 75 % of Earth Company’s stock. On July 1, 2008, Sky
sold a building to Earth for $33,000. Sky had purchased this building on
January 1, 2006, for $36,000. The building’s original eight-year estimated
total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment’s residual value is considered negligible. Based on
this information, in the preparation of the 2008 consolidated financial
statements, building will be _____ in the eliminating entries.
31) Sigma Company develops and markets organic food products to natural foods
retailers. The following information is available for the company for the year
2008: Based on the preceding information, what amount will be reported by
the company as cash received from customers during the year?
32) Tower Corporation’s controller has just finished preparing a consolidated
balance sheet, income statement, and statement of changes in retained earnings
for the year ended December 31, 2009. Tower owns 80 % of Network Corporation’s
stock, which it acquired at underlying book value on November 1, 2006. At that
date, the fair value of the no controlling interest was equal to 20 % of
Network Corporation’s book value. The following information is available:
33) Sigma Company develops and markets organic food products to natural foods
retailers. The following information is available for the company for the year
2008: Based on the preceding information, what amount will be reported by
the company as cash flows from operating activities for 2008?
34) Company X has net income of $100,000 and
$150,000 in net income for 2008 and 2009, respectively. Weighted average number
of shares outstanding is 1,000,000 for both 2008 and 2009. What is basic
earnings per share for 2009?
35) Electric Corporation holds 80 % of Utility
Company’s voting common shares, acquired at book values, but none of its
preferred shares. At the date of acquisition, the fair value of the no
controlling interest was equal to 20 % of the book value of Utility Company.
Summary balance sheets for the companies on December 31, 2008, are as
follows: Neither of the preferred issues is convertible. Electric’s
preferred pays an 8 % annual dividend, and Utility’s preferred pays a 12 %
dividend. Utility reported net income of $30,000 and paid a total of $10,000 of
dividends in 2008. Electric reported income from its separate operations of
$70,000 and paid total dividends of $25,000 in 2008. Based on this information,
what is the consolidated earnings per share for 2008?
36) Flyer Corporation holds 90 % of Kite Company’s common shares but none of
its preferred shares. On the date of acquisition, the fair value of the no
controlling interest was equal to 10 % of the book value of Kite Company.
Summary balance sheets for the companies on December 31, 2008, are as
follows:
