Final Exam Flashcards
On January 1, 2011, Anderson Company purchased 40% of the voting common stock of Barney Company for $2,000,000, which approximated book value. During 2011, Barney paid dividends of $30,000 and reported a net loss of $70,000. What is the balance in the investment account on December 31, 2011?
2,000,000 + ((-70,000 - 30,000) x 40% ) = 1,960,000
On January 1, 2011, Anderson Company purchased 40% of the voting common stock of Barney Company for $2,000,000, which approximated book value. During 2011, Barney paid dividends of $30,000 and reported a net loss of $70,000. What amount of equity income would Anderson recognize in 2011 from its ownership interest in Barney?
-70,000 x 40% = -28,000 Dr.: equity in earnings 28,000 Cr.: Investment 28,000
Journal entries for the fair value option to recognize investment and dividend income
Dr.: Cash xx Cr.: Dividend income xx Dr.: Investment xx Cr.: Investment income xx (fair value increase)
What amount will be reported for consolidated retained earnings?
1,080-15 = 1,065
Dr.: service expense 15
Cr.: cash 15
Macek’s equity balances are eliminated through Entry S
What amount will be reported for consolidated additional paid-in capital?
200 + 160 - 10 = 350
Dr.: investment 760
Cr.: cash 400
Cr.: common stock 200
Cr.: APIC 160
Dr.: APIC 10
Cr.: cash 10
What amount will be reported for consolidated common stock?
1,000 + 200 = 1,200
Consolidated: Receivables, Inventory, Land?
receivables: 480 + 160 = 640
inventory: 660 + 300 = 960
land: 300 + 130 = 430
The fair value of identifiable net assets excluding goodwill of a reporting unit of Y Company is 630,000. On Y Company’s books, the carrying value of this reporting unit’s net assets is $700,000, including $60,000 goodwill.
If the fair value of the reporting unit is $650,000, what amount of the impairment loss that will be reported for this unit after the impairment test?
What amount of goodwill will be reported for this unit after the impairment test ?
Impairment Loss: 60,000 - 20,000 = 40,000
Goodwill: 650,000 - 630,000 = 20,000
X Co. acquired 70% of the common stock of Y Corp. for $1,400,000. The fair value of Y’s net assets was $1,200,000, and the book value was $950,000. The non-controlling interest shares of Y are not actively traded.
What amount of goodwill should be attributed to X and Y at the date of acquisition?
Denber Co. acquired 60% of the common stock of Kailey Corp. on January 1, 2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000. The annual amount of amortization related to this acquisition was $15,000.
What is the amount of the non-controlling interest’s share of Denber’s income for 2010?
(810,000 - 630,000 - 15,000) x 0.4 = 66,000
Denber Co. acquired 60% of the common stock of Kailey Corp. on January 1, 2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000. The annual amount of amortization related to this acquisition was $15,000.
What is the controlling interest’s share of Denber’s income for 2010?
(810,000 - 630,000 - 15,000) x 0.6 = 99,000
(equal to equity in subsidiary income when the equity method is used)
On January 1, 2010, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no active trading market for Techron stock. Techron Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $98,000 in 2010 and $126,000 in 2011 with dividend payments of $42,000 each year.
Without regard for this investment, Jannison had income of $308,000 in 2010 and $364,000 in 2011. What is the consolidated net income for 2010?
Compute the non-controlling interest in the net income of Demers at December 31, 2010
Net Income: (100,000 - 7,000) x 0.2 = 18,600
Amortization expense= (30,000 / 10) + (40,000 / 10) = 7,000
Compute the non-controlling interest in Demers at January 1, 2010.
(500,000 / 0.8) x 0.2 = 625,000 x 0.2 = 125,000
Compute the non-controlling interest in Demers at December 31, 2010
Noncontrolling interest on January 1, 2010: 125,000*
Noncontrolling interest in Sub’s income: 18,600
Noncontrolling interest in Sub’s dividend: (8,000**)
Noncontrolling interest on December 31, 2010: 135,600
*(500,000/0.8) x 0.2=625,000 x 0.2=125,000
**40,000 x 0.2
Journal Entry S?
Dr.: Common Stock 300,000
Dr.: Retained Earnings 210,000
Cr. Investment in Demers (0.8 x 510,000): 408,000
Cr. Noncontrolling interest (0.2 x 510,000): 102,000
Journal Entry A?
Dr.: Equipment 30,000
Dr.: Building 40,000
Dr.: Goodwill 45,000 (500K / 0.8 - (300K + 210K + 30K + 40K))
Cr.: Investment in Demers (0.8 x 115,000) 92,000
Cr.: Noncontrolling interest (0.2 x 115,000) 23,000
Compute the investment balance of Pell Company at December 31, 2010.
Consideration transferred (initial investment): $500,000
Increase in net income: $74,400*
Decrease in dividends received: ($32,000**)
Pell’s investment in Demers on December 31, 2010: $542,400
* (100,000-7,000) x 0.8
** 40,000 x 0.8
Noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by?
(subsidiary’s net income – excess amortization expense - unrealized profit in ending inventory + realized profit in beginning inventory) x 20%
Noncontrolling interest in consolidated income when the selling affiliate is a parent is calculated by?
(subsidiary’s net income – excess amortization expense) x 20%
Consolidated sales for 2011?
Sales to outside parties: 165,000
Dr.: Sale 140,000 (Seller-Sub.)
Cr.: COGS 140,000 (Buyer-Parent)
Unrealized intra-entity gross profit in ending inventory that should be eliminated in the consolidation process for 2011?
Gross Profit Rate = 21%
Ending Inventory = 140,000 x 0.4 = 56,000
Answer: 56,000 x 0.21 = 11,760
Dr.: COGS (Buyer-Parent) 11,760
Cr.: Inventory (Buyer-Parent) 11,760
COGS for 2011?
84,000 + 110,000 - 140,000 + 11,760* = 65,760
*Unrealized intra-entity gross profit in ending inventory:
(140,000 x 0.4) x 0.21 = 11,760
Dr.: COGS (Buyer-Parent) 11,760
Cr.: Inventory (Buyer-Parent) 11,760
Walton Corporation owns 70% of the outstanding stock of Hastings. On January 1, 2011, Walton acquired a building with a 10-year life for $300,000. Walton anticipated no salvage value, and building was to be depreciated on the straight-line basis. On January 1, 2013, Walton sold this building to Hastings for $280,000. At that time, the building has a remaining life of eight years, but still no expected salvage value.
What is the gain or loss on equipment reported by Walton for 2013?
Transfer Price: 280,000
Book Value: 240,000*
Unrealized Gain = 40,000
*300,000 - (30,000 x 2) = 240,000
Walton Corporation owns 70% of the outstanding stock of Hastings. On January 1, 2011, Walton acquired a building with a 10-year life for $300,000. Walton anticipated no salvage value, and building was to be depreciated on the straight-line basis. On January 1, 2013, Walton sold this building to Hastings for $280,000. At that time, the building has a remaining life of eight years, but still no expected salvage value.
What is the annual depreciation based on the consolidation perspective for 2013?
300,000 / 10 years = 30,000
Walton Corporation owns 70% of the outstanding stock of Hastings. On January 1, 2011, Walton acquired a building with a 10-year life for $300,000. Walton anticipated no salvage value, and building was to be depreciated on the straight-line basis. On January 1, 2013, Walton sold this building to Hastings for $280,000. At that time, the building has a remaining life of eight years, but still no expected salvage value.
What net debit or credit will be made for the year 2013 for consolidation purpose relating to the accumulated depreciation for the equipment transfer?
60,000 - 5,000* = 55,000
*Excess Depreciation
300,000 / 10 years = 30,000
280,000 / 8 years = 35,000
*Difference = 35,000 - 30,000 = 5,000
Walton Corporation owns 70% of the outstanding stock of Hastings. On January 1, 2011, Walton acquired a building with a 10-year life for $300,000. Walton anticipated no salvage value, and building was to be depreciated on the straight-line basis. On January 1, 2013, Walton sold this building to Hastings for $280,000. At that time, the building has a remaining life of eight years, but still no expected salvage value.
What is the net effect on consolidated net income in 2013 due to the equipment transfer?
Decrease 35,000*
*Depreciation Expense: 280,000 / 8 years
= 35,000
Walton Corporation owns 70% of the outstanding stock of Hastings. On January 1, 2011, Walton acquired a building with a 10-year life for $300,000. Walton anticipated no salvage value, and building was to be depreciated on the straight-line basis. On January 1, 2013, Walton sold this building to Hastings for $280,000. At that time, the building has a remaining life of eight years, but still no expected salvage value.
Journal Entry TA (Transfer Asset)?
Dr.: Building 20,000*
Dr.: Gain 40,000**
Cr.: Acc. Dep. 60,000
*300,000 - 280,000 = 20,000
**Transfer Price - Book Value:
280,000 - (300,000 - (30,000 x 2)) = 40,000
Walton Corporation owns 70% of the outstanding stock of Hastings. On January 1, 2011, Walton acquired a building with a 10-year life for $300,000. Walton anticipated no salvage value, and building was to be depreciated on the straight-line basis. On January 1, 2013, Walton sold this building to Hastings for $280,000. At that time, the building has a remaining life of eight years, but still no expected salvage value.
Journal Entry ED (Excess Depreciation)?
Dr.: Acc. Dep. 5,000*
Cr.: Dep. Expense 5,000*
Walton (Before Transfer): 300,000 / 10 = 30,000
Hastings (After Transfer): 280,000 / 8 = 35,000
*35,000 - 30,000 = 5,000
Transaction: Export Sale
Type of Exposure: ?
Foreign Currency Appreciates: ?
Foreign Currency Depreciates: ?
Type of Exposure: Asset
Foreign Currency Appreciates: Gain
Foreign Currency Depreciates: Loss
Transaction: Import Purchase
Type of Exposure: ?
Foreign Currency Appreciates: ?
Foreign Currency Depreciates: ?
Type of Exposure: Liability
Foreign Currency Appreciates: Loss
Foreign Currency Depreciates: Gain
On January 1, 2014, Allan acquires 15% of Bellevue’s outstanding common stock for $62,000. Allan classifies the investment as an available-for-sale security and records any unrealized holding gains or losses directly in owners’ equity. On January 1, 2015, Allan buys an additional 10% of Bellevue for $43,800, providing Allan the ability to significantly influence Bellevue’s decisions. In each purchase, Allan attributes any excess of cost over book value to Bellevue’s franchise agreements that had a remaining life of 10 years at January 1, 2014. Also at January 1, 2014, Bellevue reports a net book value of $280,000.
Durring the next two years, the following information is available for Bellevue:
On Allan’s December 31, 2015, balance sheet, what amount is reported for the Investment in Bellevue account (fair-value method)?
Assuming that B company designates the forward contract as a cash flow hedge of a foreign currency receivable.
Which of the following correctly describes the manner in which B company will report the forward contract December 31, 2015?
As a liability in the amount of 10,783*
1,305,000 - 1,316,000 = (11,000) x 0.9803 = (10,783)
What is the journal entry to recognize any forward premium or discount using the straight-line method on December 31, 2015?
Debit of 5,000 to discount expense*
*1.32 (Spot Rate) - 1.305 (Forward Rate) = 0.015
*0.015 x 1,000,000 = 15,000
*15,000 x 1/3 = 5,000
Assuming that B company designates the forward contract as a cash flow hedge of a foreign currency receivable.
What is the net impact on B’s net income as a result of this cash flow hedge (including sales) on December 31, 2015?
1,315,000*
*See Pix (Convert to Straigh-Line Method: 5,000)
Assuming that B company designates the forward contract as a fair value hedge of a foreign currency receivable.
What is the net impact on B’s net income as a result of this fair value hedge (including sales) on December 31, 2015?
1,319,217*
*See Pix
Assuming that B company designates the forward contract as a fair value hedge of a foreign currency receivable.
What is the net impact on B’s net income as a result of this fair value hedge (including sales) over the two accounting periods (in 2015 and in 2016)?
1,305,000*
*Receive 5,000 more: 1,300,000 + 5,000
Temporal Method (U.S. is functional currency)
Cash and Receivables
Marketable Securities
Inventory at Market
Current
Temporal Method (U.S. is functional currency)
Inventory at Cost
Prepaid Expenses
Property, Plant, and Equipment
Intangible Assets
Historical
Temporal Method (U.S. is functional currency)
Current Liabilities
Long-Term Debt
Current
Temporal Method (U.S. is functional currency)
Deferred Income
Historical
Temporal Method (U.S. is functional currency)
Capital Stock
Additional Paid-In Capital
Dividends
Historical
Temporal Method (U.S. is functional currency)
Revenue
Most Expenses
Average
Temporal Method (U.S. is functional currency)
COGS
Depreciation of Property, Plant, and Equipment
Amortization of Intangibles
Historical
Current Rate Method (Foreign is functional currency)
All Assets
Current
Current Rate Method (Foreign is functional currency)
All Liabilities
Current
Current Rate Method (Foreign is functional currency)
Capital Stock
Additional Paid-In Capital
Dividends
Historical
Current Rate Method (Foreign is functional currency)
All Income Statement
Average
- What is the new partner’s capital balance?
- What is the original partner (Neary)’s capital balance?
- $200,000 × 30% = $60,000
- $37,000*
*Total capital is $200,000 ($110,000 + $40,000 + $50,000) after the new investment. As Kansas’s portion is 30 percent, the capital balance becomes $60,000 ($200,000 × 30%). Because only $50,000 was paid, a bonus of $10,000 is taken from the two original partners based on their profit and loss ratios: Bolcar -$7,000 (70%) and Neary -$3,000 (30%). The reduction drops Neary’s capital balance from $40,000 to $37,000.
What is the old partner (Cotton)’s capital balance after this new investment?
What amount did new partner contribute to the business?
- 102,000
- 60,000
*Total capital is $270,000 ($120,000 + $90,000 + $60,000) after the new investment. However, the implied value of the business based on the new investment is $300,000 ($60,000 ÷ 20%). Thus, goodwill of $30,000 must be recognized with the offsetting allocation to the original partners based on their profit and loss ratio: Bishop $18,000 (60%) and Cotton $12,000 (40%). The increase raises Cotton’s capital from $90,000 to $102,000.
Costello receives a $10,000 bonus ($100,000 less $90,000 capital balance). This bonus is deducted from the two remaining partners according to their profit and loss ratio (2:3). A 60 percent (3/5) reduction is assigned to Burns which decreases that partner’s capital balance from $30,000 to $24,000.
Prepare journal entries for the addition of capital assets in the governmental fund financial statements
Dr.: Expenditure-Electricity 1,000
Cr.: Vouchers Payable (AP) 1,000
Dr.: Expenditure-Ambulance 70,000
Cr.: Vouchers Payable (AP) 70,000
Prepare journal entries for the addition of capital assets in the government-wide financial statements.
Dr.: Utilities Expense 1,000
Cr.: Vouchers Payable (AP) 1,000
Dr.: Ambulance 70,000
Cr.: Vouchers Payable (AP) 70,000
Prepare journal entries for the bond issuance in the governmental fund financial statements.
Dr.: Cash 9,000
Cr.: Other Financing Source 9,000
- Bond Proceeds
Prepare journal entries for the bond issuance in the government-wide financial statements.
Dr.: Cash 9,000
Cr.: Bond Payable 9,000
Prepare journal entries for the payment of long-term liability in the governmental fund financial statements.
Prepare journal entries for the payment of long-term liability in the government-wide financial statements.
A city should record depreciation as an expense in its…?
Government-Wide Financial Statement
