11年FA3学生期末练习题

Part 1 1 An excess of the fair value of net assets acquired in a purchase business combination over the price paid is a Reported as negative goodwill and amortized over a maximum period of 40 years b Applied to a reduction of noncash assets before negative goodwill may be reported c Applied to reduce noncurrent assets other than marketable securities to zero before negative goodwill may be reported d Applied to reduce goodwill to zero before negative goodwill may be reported 2 Fast Corporation paid 50 000 cash for the net assets of Agge Company which consisted of the following Book Value Fair Value Current assets 10 000 14 000 Plant and equipment 40 000 55 000 Liabilities assumed 10 000 9 000 40 000 60 000 The plant and equipment acquired in this business combination should be recorded at a 55 000 b 50 000 c 45 833 d 45 000 3 On April 1 Jack Company paid 800 000 for all the issued and outstanding common stock of Ann Corporation in a transaction properly accounted for as a purchase The recorded assets and liabilities of Ann Corporation on April 1 are as follow Cash 80 000 Inventory 240 000 Property and equipment net of accumulated depreciation of 320 000 480 000 Liabilities 180 000 On April 1 it was determined that the inventory of Ann had a fair value of 190 000 and the property and equipment net had a fair value of 560 000 What is the amount of goodwill resulting from the business combination a 0 b 50 000 c 150 000 d 180 000 4 Investor Company owns 40 of Alimand Corporation During the calendar year Alimand had net earnings of 100 000 and paid dividends of 10 000 Investor mistakenly recorded these transactions using the cost method rather than the equity method of accounting What effect would this have on the investment account net earnings and retained earnings respectively a Understate overstate overstate b Overstate understate understate c Overstate overstate overstate d Understate understate understate 5 An investor uses the cost method to account for an investment in common stock A portion of the dividends received this year were in excess of the investor s share of investee s earnings after the date of the investment The amount of dividends revenue that should be reported in the investor s income statement for this year would be a Zero b The total amount of dividends received this year c The portion of the dividends received this year that were in excess of the investor s share of investee s earnings after the date of investment d The portion of the dividends received this year that were not in excess of the investor s share of investee s earnings after the date of investment 6 On January 1 Grade Company paid 300 000 for 20 000 shares of Medium Company s common stock which represents a 15 investment in Medium Grade does not have the ability to exercise significant influence over Medium Medium declared and paid a dividend of 1 per share to its stockholders during the year Medium reported net income of 260 000 for the year ended December 31 The balance in Grade s balance sheet account Investment in Medium Company at December 31 should be a 280 000 b 300 000 c 319 000 d 339 000 7 On January 2 2006 Troquel Corporation bought 15 of Zafacon Corporation s capital stock for 30 000 Troquel accounts for this investment by the cost method Zafacon s net income for the years ended December 31 2006 and December 31 2007 were 10 000 and 50 000 respectively During 2007 Zafacon declared a dividend of 70 000 No dividends were declared in 2006 How much should Troquel show on its 2007 income statement as income from this investment a 1 575 b 7 500 c 9 000 d 10 500 8 Pare purchased 10 of Tot Company s 100 000 outstanding shares of common stock on January 2 for 50 000 On December 31 Pare purchased an additional 20 000 shares of Tot for 150 000 There was no goodwill as a result of either acquisition and Tot had not issued any additional stock during the year Tot reported earnings of 300 000 for the year What amount should Pare report in its December 31 balance sheet as investment in Tot a 170 000 b 200 000 c 230 000 d 290 000 9 On January 1 Point purchased 10 of Iona Company s common stock Point purchased additional shares bringing its ownership up to 40 of Iona s common stock outstanding on August 1 During October Iona declared and paid a cash dividend on all of its outstanding common stock How much income from the Iona investment should Point s income statement report a 10 of Iona s income for January 1 to July 31 plus 40 of Iona s income for August 1 to December 31 b 40 of Iona s income for August 1 to December 31 only c 40 of Iona s income d Amount equal to dividends received from Iona 10 On January 2 Kean Company purchased a 30 interest in Pod Company for 250 000 On this date Pod s stockholders equity was 500 000 The carrying amounts of Pod s identifiable net assets approximated their fair values except for land whose fair value exceeded its carrying amount by 200 000 Pod reported net income of 100 000 and paid no dividends Kean accounts for this investment using the equity method In its December 31 balance sheet what amount should Kean report as investment in subsidiary a 210 000 b 220 000 c 270 000 d 280 00 11 On January 3 2006 Harrison Company purchases a 15 interest in Bennett Corporation s common stock for 50 000 cash Harrison accounts for the investment using the cost method Bennett s net income for 2006 is 20 000 but it declares no dividends In 2007 Bennett s net income is 80 000 and it declares dividends of 120 000 What is the correct balance of Harrison s Investment in Bennett account at December 31 2007 a 47 000 b 50 000 c 62 000 d 65 000 12 Screwsbury Corporation s stockholders equity at December 31 2006 follows in thousands Capital stock 100 par 3 000 Additional paid in capital 500 Retained earnings 500 Total stockholders equity 4 000 On January 3 2007 Screwsbury sells 10 000 shares of previously unissued 100 par common stock to Pannell Corporation for 1 400 000 On this date the recorded book values of Screwsbury s assets and liabilities equal their fair values Goodwill from Pannell s investment in Screwsbury at the date of purchase is a 0 b 50 000 c 300 000 d 400 000 13 On January 1 Leighton Company paid 300 000 for a 20 interest in Monroe Corporation s voting common stock at which time Monroe s stockholders equity consisted of 600 000 capital stock and 400 000 retained earnings Leighton was not able to exercise any influence over the operations of Monroe and accounted for its investment in Monroe using the cost method During the year Monroe had net income of 200 000 and paid dividends of 150 000 The balance of Leighton s Investment in Monroe account at December 31 is a 330 000 b 310 000 c 307 500 d 300 000 14 Consolidated statements for Porter Corporation and its 60 owned investee Spinelli Company will not be prepared under the provisions of FASB Statement No 94 if a The fiscal periods of Porter and Spinelli are more than three months apart b Porter is a major manufacturing company and Spinelli is an insurance company c Spinelli is a foreign company d Porter will spin off all Spinelli shares to Porter stockholders within the next year 15 Noncontrolling interest as it appears in a consolidated balance sheet refers to a Owners of less than 50 of the parent company s stock b Parent s interest in subsidiary companies c Interest expense on subsidiary s bonds payable d Equity in the subsidiary s net assets held by stockholders other than the parent 16 The noncontrolling interest expense that appears in the consolidated income statement is computed as follows a Consolidated net income is multiplied by the noncontrolling interest percentage b The subsidiary s income less amortization of cost book value differentials is multiplied by the noncontrolling interest percentage c Subsidiary net income is subtracted from consolidated net income d Subsidiary income determined for consolidated statement purposes is multiplied by the noncontrolling interest percentage 17 The retained earnings that appear on the consolidated balance sheet of a parent company and its 60 owned subsidiary are a The parent company s retained earnings plus 100 of the subsidiary s retained earnings b The parent company s retained earnings plus 60 of the subsidiary s retained earnings c The parent company s retained earnings d Pooled retained earnings Use the following information in answering questions 19 and 20 Apex Company acquired 70 of the outstanding stock of Nadir Corporation The separate balance sheet of Apex immediately after the acquisition and the consolidated balance sheet are as follows Apex Consolidated Current assets 106 000 146 000 Investment in Nadir cost 100 000 Goodwill 8 100 Fixed assets net 270 000 370 000 476 000 524 100 Current liabilities 15 000 28 000 Capital stock 350 000 350 000 Minority interest 35 100 Retained earnings 111 000 111 000 476 000 524 100 Of the excess payment for the investment in Nadir 10 000 was ascribed to undervaluation of its fixed assets The balance of the excess payment was ascribed to goodwill Current assets of Nadir included a 2 000 receivable from Apex which arose before they became related on an ownership basis The following two items relate to Nadir s separate balance sheet prepared at the time Apex acquired its 70 interest in Nadir 18 What was the total of the current assets on Nadir s separate balance sheet immediately before Apex acquired its 70 interest a 38 000 b 40 000 c 42 000 d 104 000 19 What was the total stockholders equity on Nadir s separate balance sheet at the time Apex acquired its 70 interest a 64 900 b 70 000 c 100 000 d 117 000 20 Cobb Company s current receivables from affiliated companies at December 31 2006 are 1 a 75 000 cash advance to Hill Corporation Cobb owns 30 of the voting stock of Hill and accounts for the investment by the equity method 2 a receivable of 260 000 from Vick Corporation for administrative and selling services Vick is 100 owned by Cobb and is included in Cobb s consolidated financial statements and 3 a receivable of 200 000 from Ward Corporation for merchandise sales on credit Ward is a 90 owned unconsolidated subsidiary of Cobb accounted for by the equity method In the current assets section of its December 31 2006 consolidated balance sheet Cobb should report accounts receivable from investees in the amount of a 180 000 b 255 000 c 275 000 d 535 000 21 On consolidation working papers individual stockholders equity accounts of a subsidiary are a Added to parent company stockholders equity accounts b Eliminated c Eliminated only to the extent of noncontrolling interest d Eliminated to the extent of the parent company s interest 22 On consolidation working papers investment income from a subsidiary is a Added to the investment account b Added to the parent company s beginning retained earnings c Allocated between majority and noncontrolling stockholders d Eliminated 23 On consolidation working papers the investment in consolidated subsidiary account balances are a Allocated between majority and noncontrolling interests b Always eliminated c Carried forward to the consolidated balance sheet d Eliminated when the financial statement approach is used 24 On consolidation working papers consolidated net income is determined by a Adding net income of the parent and subsidiary companies b Deducting consolidated expenses and minority interest expense from consolidated revenues c Making adjustments to the parent company s income d Subtracting noncontrolling interest expense from parent company net income 25 On consolidation working papers consolidated end of the period retained earnings is determined by a Adding beginning consolidated retained earnings and consolidated net income and subtracting parentcompany dividends b Adding end of the period retained earnings of the affiliated companies c Adjusting beginning parent company retained earnings for subsidiary profits and dividends d Adjusting the parent company s retained earnings account balance 26 On November 1 20X3 Magpie Corporation sold merchandise to William Tell Corporation a Swiss firm Magpie measures and records the account receivable from the sale at 78 000 William Tell paid for this account on November 30 20X3 Spot rates for Swiss francs on November 1 and November 30 respectively were 0 80 and 0 78 If the sale of the merchandise is denominated in francs the November 30 entry to record the receipt of payment from William Tell will include a a credit to Accounts Receivable for 76 050 b credit to Exchange Gain for 1 950 c debit to Cash for 78 000 d debit to Exchange Loss for 1 950 27 A U S firm purchases merchandise from a Canadian firm with payment due in 60 days and denominated in Canadian dollars The U S firm will report an exchange gain or loss on settlement if the transaction is a Recorded in U S dollars b Measured in U S dollars c Not hedged through a forward contract d Settled after an exchange rate change has occurred Part 2 1 Raython Corporation owns a 40 interest in the outstanding common stock of Treaton Corporation having acquired its interest for 2 400 000 on January 1 2006 when Treaton s stockholders equity was 4 000 000 The cost book value differential was allocated to inventories that were undervalued by 100 000 and sold in 2006 to equipment with a four year remaining life that was undervalued by 200 000 and to goodwill for the remainder The balance of Treaton s stockholders equity at December 31 2010 is 5 500 000 and all changes therein are the result of income earned and dividends paid REQUIRED Determine the balance of Raython s investment in Treaton account at December 31 2010 2 Runner Company had net income of 400 000 and paid dividends of 200 000 during 2007 Runner s stockholders equity on December 31 2006 and December 31 2007 is summarized as follows in thousands December 31 2006 December 31 2007 10 cumulative preferred stock 100 par 300 300 Common stock 1 par 1 000 1 000 Additional paid in capital 2 200 2 200 Retained earnings 500 700 Stockholders equity 4 000 4 200 On January 2 2007 Nickie Corporation purchased 300 000 common shares of Runner at 4 per share and also paid 50 000 direct costs of acquiring the investment All of Runner s identifiable assets and liabilities were recorded at their fair values on this date REQUIRED Determine 1 Nickie s income from Runner for 2007 and 2 the balance of the Investment in Runner account at December 31 2007 3 The stockholders equity of Tall Corporation at December 31 2006 was 380 000 consisting of the following in thousands Capital stock 10 par 24 000 shares outstanding 240 Additional paid in capital 60 Retained earnings 80 Total stockholders equity 380 On January 1 2007 Tall Corporation which was in a tight working capital position sold 12 000 shares of previously unissued stock to River Corporation for 250 000 All of Tall s identifiable assets and liabilities were recorded at their fair values on this date except for a building with a 10 year remaining useful life that was undervalued by 60 000 During 2007 Tall Corporation reported net income of 120 000 and paid dividends of 90 000 REQUIRED Prepare all journal entries necessary for River Corporation to account for its investment in Tall for 2007 4 Earth Q Corporation paid 1 680 000 for a 30 interest in Tremor Corporation s outstanding voting stock on January 1 2006 The book values and fair values of Tremor s assets and liabilities on January 1 along with amortization data are as follows in thousands Book Value Fair Value Cash 400 400 Accounts receivable net 700 700 Inventories sold in 2006 1 000 1 200 Other current assets 200 200 Land 900 1 700 Buildings net 10 year remaining life 1 500 2 000 Equipment net 7 year remaining life 1 200 500 Total assets 5 900 6 700 Accounts payable 800 800 Other current liabilities 200 200 Bonds payable due January 1 2013 1 000 1 100 Capital stock 10 par 3 000 Retained earnings 900 Total equities 5 900 Tremor Corporation reported net income of 1 200 000 for 2006 and paid dividends of 600 000 REQUIRED 1 Prepare a schedule to allocate the investment cost book value differentials relating to Earth Q s investment in Tremor 2 Calculate Earth Q s income from Tremor for 2006 3 Determine the balance of Earth Q s Investment in Tremor account at December 31 2006 5 Sigma Corporation became a subsidiary of Provo Corporation on July 1 2006 when Provo paid 1 980 000 cash for 90 of Sigma s outstanding common stock The price paid by Provo reflected the fact that Sigma s inventories were undervalued by 50 000 and its plant assets were overvalued by 500 000 Sigma sold the undervalued inventory items during 2006 but continues to hold the overvalued plant assets that had a remaining useful life of nine years from July 1 2006 During the years 2006 through 2008 Sigma s paid in capital consisted of 1 500 000 capital stock and 500 000 additional paid in capital Sigma s retained earnings statements for 2006 2007 and 2008 were as follows in thousands Year Ended Year Ended Year Ended December 31 December 31 December 31 2006 2007 2008 Retained earnings January 1 525 600 700 Add Net income 250 300 200 Deduct Dividends declared in December 175 200 150 Retained earnings December 31 600 700 750 Provo uses the equity method in accounting for its investment in Sigma REQUIRED 1 Compute Provo Corporation s income from its investment in Sigma for 2006 2 Determine the balance of Provo Corporation s Investment in Sigma account at December 31 2007 3 Prepare the journal entries for Provo to account for its investment in Sigma for 2008 6 Publican Corporation acquired a 70 interest in Samaritan Corporation on April 1 2006 when it purchased 14 000 of Samaritan s 20 000 outstanding shares in the open market at 13 per share Additional costs of acquiring the shares consisted of 5 000 brokerage fees and 5 000 legal and consulting fees Samaritan Corporation s balance sheets on January 1 and April 1 2006 are summarized as follows in thousands January 1 2