Final Exam

Question 1

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?

Answer 1

2,000,000 + ((-70,000 - 30,000) x 40% ) = 1,960,000

Question 2

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?

Answer 2

-70,000 x 40% = -28,000 Dr.: equity in earnings 28,000 Cr.: Investment 28,000

Question 3

Journal entries for the fair value option to recognize investment and dividend income

Answer 3

Dr.: Cash xx Cr.: Dividend income xx Dr.: Investment xx Cr.: Investment income xx (fair value increase)

Question 4

What amount will be reported for consolidated retained earnings?

Answer 4

1,080-15 = 1,065

Dr.: service expense 15

Cr.: cash 15

Macek’s equity balances are eliminated through Entry S

Question 5

What amount will be reported for consolidated additional paid-in capital?

Answer 5

200 + 160 - 10 = 350

Dr.: investment 760

Cr.: cash 400

Cr.: common stock 200

Cr.: APIC 160

Dr.: APIC 10

Cr.: cash 10

Question 6

What amount will be reported for consolidated common stock?

Answer 6

1,000 + 200 = 1,200

Question 7

Consolidated: Receivables, Inventory, Land?

Answer 7

receivables: 480 + 160 = 640
inventory: 660 + 300 = 960
land: 300 + 130 = 430

Question 8

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 ?

Answer 8

Impairment Loss: 60,000 - 20,000 = 40,000

Goodwill: 650,000 - 630,000 = 20,000

Question 9

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?

Answer 9

Question 10

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?

Answer 10

(810,000 - 630,000 - 15,000) x 0.4 = 66,000

Question 11

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?

Answer 11

(810,000 - 630,000 - 15,000) x 0.6 = 99,000

(equal to equity in subsidiary income when the equity method is used)

Question 12

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?

Answer 12

Question 13

Compute the non-controlling interest in the net income of Demers at December 31, 2010

Answer 13

Net Income: (100,000 - 7,000) x 0.2 = 18,600

Amortization expense= (30,000 / 10) + (40,000 / 10) = 7,000

Question 14

Compute the non-controlling interest in Demers at January 1, 2010.

Answer 14

(500,000 / 0.8) x 0.2 = 625,000 x 0.2 = 125,000

Question 15

Compute the non-controlling interest in Demers at December 31, 2010

Answer 15

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

Question 16

Journal Entry S?

Answer 16

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

Question 17

Journal Entry A?

Answer 17

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

Question 18

Compute the investment balance of Pell Company at December 31, 2010.

Answer 18

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

Question 19

Noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by?

Answer 19

(subsidiary’s net income – excess amortization expense - unrealized profit in ending inventory + realized profit in beginning inventory) x 20%

Question 20

Noncontrolling interest in consolidated income when the selling affiliate is a parent is calculated by?

Answer 20

(subsidiary’s net income – excess amortization expense) x 20%

Question 21

Consolidated sales for 2011?

Answer 21

Sales to outside parties: 165,000

Dr.: Sale 140,000 (Seller-Sub.)

Cr.: COGS 140,000 (Buyer-Parent)

Question 22

Unrealized intra-entity gross profit in ending inventory that should be eliminated in the consolidation process for 2011?

Answer 22

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

Question 23

COGS for 2011?

Answer 23

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

Question 24

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?

Answer 24

Transfer Price: 280,000

Book Value: 240,000*

Unrealized Gain = 40,000

*300,000 - (30,000 x 2) = 240,000

Question 25

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?

Answer 25

300,000 / 10 years = 30,000

Question 26

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?

Answer 26

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

Question 27

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?

Answer 27

Decrease 35,000\* \*Depreciation Expense: 280,000 / 8 years = 35,000

Question 28

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)?

Answer 28

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

Question 29

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)?

Answer 29

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

Question 30

Transaction: Export Sale Type of Exposure: ? Foreign Currency Appreciates: ? Foreign Currency Depreciates: ?

Answer 30

Type of Exposure: Asset Foreign Currency Appreciates: Gain Foreign Currency Depreciates: Loss

Question 31

Transaction: Import Purchase Type of Exposure: ? Foreign Currency Appreciates: ? Foreign Currency Depreciates: ?

Answer 31

Type of Exposure: Liability Foreign Currency Appreciates: Loss Foreign Currency Depreciates: Gain

Question 32

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)?

Answer 32

Question 33

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?

Answer 33

As a liability in the amount of 10,783\* 1,305,000 - 1,316,000 = (11,000) x 0.9803 = (10,783)

Question 34

What is the journal entry to recognize any forward premium or discount using the straight-line method on December 31, 2015?

Answer 34

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

Question 35

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?

Answer 35

1,315,000\* \*See Pix (Convert to Straigh-Line Method: 5,000)

Question 36

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?

Answer 36

1,319,217\* \*See Pix

Question 37

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)?

Answer 37

1,305,000\* \*Receive 5,000 more: 1,300,000 + 5,000

Question 38

Temporal Method (U.S. is functional currency) Cash and Receivables Marketable Securities Inventory at Market

Answer 38

Current

Question 39

Temporal Method (U.S. is functional currency) Inventory at Cost Prepaid Expenses Property, Plant, and Equipment Intangible Assets

Answer 39

Historical

Question 40

Temporal Method (U.S. is functional currency) Current Liabilities Long-Term Debt

Answer 40

Current

Question 41

Temporal Method (U.S. is functional currency) Deferred Income

Answer 41

Historical

Question 42

Temporal Method (U.S. is functional currency) Capital Stock Additional Paid-In Capital Dividends

Answer 42

Historical

Question 43

Temporal Method (U.S. is functional currency) Revenue Most Expenses

Answer 43

Average

Question 44

Temporal Method (U.S. is functional currency) COGS Depreciation of Property, Plant, and Equipment Amortization of Intangibles

Answer 44

Historical

Question 45

Current Rate Method (Foreign is functional currency) All Assets

Answer 45

Current

Question 46

Current Rate Method (Foreign is functional currency) All Liabilities

Answer 46

Current

Question 47

Current Rate Method (Foreign is functional currency) Capital Stock Additional Paid-In Capital Dividends

Answer 47

Historical

Question 48

Current Rate Method (Foreign is functional currency) All Income Statement

Answer 48

Average

Question 49

1. What is the new partner’s capital balance? 2. What is the original partner (Neary)’s capital balance?

Answer 49

1. $200,000 × 30% = $60,000 2. $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.

Question 50

What is the old partner (Cotton)’s capital balance after this new investment? What amount did new partner contribute to the business?

Answer 50

1. 102,000 2. 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.

Question 51

Answer 51

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.

Question 52

Prepare journal entries for the addition of capital assets in the governmental fund financial statements

Answer 52

Dr.: Expenditure-Electricity 1,000 Cr.: Vouchers Payable (AP) 1,000 Dr.: Expenditure-Ambulance 70,000 Cr.: Vouchers Payable (AP) 70,000

Question 53

Prepare journal entries for the addition of capital assets in the government-wide financial statements.

Answer 53

Dr.: Utilities Expense 1,000 Cr.: Vouchers Payable (AP) 1,000 Dr.: Ambulance 70,000 Cr.: Vouchers Payable (AP) 70,000

Question 54

Prepare journal entries for the bond issuance in the governmental fund financial statements.

Answer 54

Dr.: Cash 9,000 Cr.: Other Financing Source 9,000 - Bond Proceeds

Question 55

Prepare journal entries for the bond issuance in the government-wide financial statements.

Answer 55

Dr.: Cash 9,000 Cr.: Bond Payable 9,000

Question 56

Prepare journal entries for the payment of long-term liability in the governmental fund financial statements.

Answer 56

Question 57

Prepare journal entries for the payment of long-term liability in the government-wide financial statements.

Answer 57

Question 58

A city should record depreciation as an expense in its...?

Answer 58

Government-Wide Financial Statement