ACC440
FINAL EXAM SET 2 (June 2013 updated)
1) The
equity method of accounting for a stock investments requires that an investor
recognize its share of earnings in the period in which the
A.
investment is sold
B.
investment declares a dividend
C.
investment pays a dividend
D. earnings
are reported by the investment on that company’s financial statements
2) Which of
the following observations is consistent with the equity method of accounting?
A. It is
used when the investor lacks the ability to exercise significant influence over
the investee.
B. It may
be used in place of consolidation.
C. Its
primary use is in reporting nonsubsidiary investments.
D. Dividends
declared by the investee are treated as income by the investor.
3) Under
the cost method of accounting for a stock investment, the differential
A. is
written off
B. is not
amortized or written off
C. is
amortized
D. is
written down if related to limited-life assets
4) Byner
Corporation accounts for its investment in the common stock of Yount Company
under the equity method. Byner Corporation should ordinarily record a cash
dividend received from Yount as
A. additional
paid-in capital
B. an
addition to the carrying value of the investment
C. dividend
income
D. reduction
of the carrying value of the investment
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 balance in investment in
Spiel on December 31, 2008, if it used the equity method of accounting?
A. $118,750
B. $100,000
C. $122,500
D. $111,250
6) 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?
A. $11,250
B. $7,500
C. $26,250
D. $18,750
7) Which of
the following statements about the International Accounting Standards Board
(IASB) is accurate?
A. The
IASB’s recommendations standards are primarily based on and grow out of the
GAAP of the United States.
B. The
IASB’s standards have not been widely adopted in the European Union.
C. Throughout
the 1970s, the competing standards issued by the IASB and the International
Federation of Accountants (IFAC) discouraged early adopters.
D. The
United States’ Financial Accounting Standards Board is collaborating with the
IASB to bring about convergence based on high quality standards.
8) The
principal objective of the IASB foundation is to
A. bring
about convergence of national accounting standards and International Financial
Recording Standards (IFRS)
B. eliminate
GAAP
C. enforce
all GAAP standards
D. overlay
GAAP and International Financial Recording Standards (IFRS) to require dual
reporting
9) The
primary role of the International Accounting Standards Board (IASB) is to
A. set
international standards and facilitate convergence of accounting practices
B. regulate
accountancy throughout Europe
C. ensure
compliance with international accounting standards and impose sanctions for
noncompliant countries or businesses
D. All of
these answers are correct.
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?
A. Option B
B. Option A
C. Option D
D. Option C
11) Mint
Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign
entity is located. On November 2, 2008, Mint sold confectionary items to a
foreign company at a price of LCU 23,000 when the direct exchange rate was 1
LCU = $1.08. The account has not been settled as of December 31, 2008, when the
exchange rate has increased to 1 LCU = $1.10. The foreign exchange gain or loss
on Mint's records at year-end for this transaction will be
A. $387
loss
B. $460
loss
C. $460
gain
D. $387
gain
12) 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?
A. Option B
B. Option A
C. Option D
D. Option C
13) The
balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on
December 31, 2008, before any necessary year-end adjustment relating to the
following:
(1)
Newsprint had a $15,000 debit resulting from the restatement in dollars of the
accounts of its wholly owned foreign subsidiary for the year ended December 31,
2008.
(2)
Newsprint had an account payable to an unrelated foreign supplier, payable in
the supplier's local currency unit (LCU) on January 15, 2009. The U.S.
dollar–equivalent of the payable was $50,000 on the December 1, 2008, invoice
date and $53,000 on December 31, 2008.
In
Newsprint's 2008 consolidated income statement, what amount should be included
as foreign exchange loss in computing net income, if the LCU is the functional
currency and the translation method is appropriate?
A. $13,000
B. $28,000
C. $8,000
D. $25,000
14)
Infinity Corporation acquired 80 % of the common stock of an Egyptian company
on January 1, 2008. The goodwill associated with this acquisition was $18,350.
Exchange rates at various dates during 2008 follow:
Goodwill
suffered an impairment of 20 % during the year. If the functional currency is
the Egyptian Pound, how much goodwill impairment loss should be reported on
Infinity's consolidated statement of income for 2008?
A. $3,700
B. $3,670
C. $3,680
D. $3,690
15) The
balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on
December 31, 2008, before any necessary year-end adjustment relating to the
following:
(1)
Newsprint had a $15,000 debit resulting from the restatement in dollars of the
accounts of its wholly owned foreign subsidiary for the year ended December 31,
2008.
(2)
Newsprint had an account payable to an unrelated foreign supplier, payable in
the supplier's local currency unit (LCU) on January 15, 2009. The U.S.
dollar–equivalent of the payable was $50,000 on the December 1, 2008, invoice
date and $53,000 on December 31, 2008.
In
Newsprint's 2008 consolidated income statement, what amount should be included
as foreign exchange loss in computing net income, if the U.S. dollar is the
functional currency and the remeasurement method is appropriate?
A. $10,000
B. $15,000
C. $28,000
D. $25,000
16) 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 liabilities was
reported in the consolidated balance sheet immediately after acquisition?
A. $530,000
B. $500,000
C. $660,000
D. $280,000
17) On
January 3, 2009, Jane Company acquired 75 % of Miller Company's outstanding
common stock for cash. The fair value of the noncontrolling 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:
What amount
will Jane Company report as common stock outstanding in its consolidated
balance sheet at December 31, 2009?
A. $180,000
B. $120,000
C. $264,000
D. $156,000
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 stockholders' equity was
reported in the consolidated balance sheet immediately after acquisition?
A. $150,000
B. $220,000
C. $350,000
D. $370,000
19) Tanner
Company, a subsidiary acquired for cash, owned equipment with a fair value
higher than the book value as of the date of combination. A consolidated
balance sheet prepared immediately after the acquisition would include this
difference in
A. retained
earnings
B. equipment
C. deferred
charges
D. goodwill
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. What will be the amount of net assets reported in
the consolidated balance sheet, prepared immediately following the combination?
A. $1,550,000
B. $1,830,000
C. $1,700,000
D. $1,150,000
21)
Consolidated financial statements are being prepared for Behemoth Corporation
and its two wholly-owned subsidiaries that have intercompany loans of $50,000
and intercompany profits of $100,000. How much of these intercompany loans and
profits should be eliminated?
A. b.
Intercompany loans - $50,000; intercompany profits - $0
B. d.
Intercompany loans - $0; intercompany profits - $100,000
C. c.
Intercompany loans - $50,000; intercompany profits - $100,000
D. a.
Intercompany loans - $0; intercompany profits - $0
22) 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?
A. $1,620,000
B. $2,963,000
C. $1,422,000
D. $2,765,000
23) On
January 1, 2008, Colorado Corporation acquired 75 % of Denver Company's voting
common stock for $90,000 cash. At that date, the fair value of the
noncontrolling interest was $30,000. Denvers's balance sheet at the date of
acquisition contained the following balances:
At the date
of acquisition, the reported book values of Denver's assets and liabilities
approximated fair value. Eliminating entries are being made to prepare a
consolidated balance sheet immediately following the business combination.
Based on this information, in the entry to eliminate the investment balance,
A. b.
additional paid-in-capital will be credited for $20,000
B. d.
noncontrolling interest will be debited for 30,000
C. c.
differential will be credited for $10,000
D. a.
retained earnings will be credited for $20,000
24) 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 inventory
should be eliminated in the consolidation workpaper for 2008?
A. $14,000
B. $13,000
C. $12,000
D. $15,000
25) On
January 1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company's voting
stock, at underlying book value. The fair value of the noncontrolling 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:
What amount
would be reported as total liabilities in the consolidated balance sheet at
December 31, 2009?
A. $712,000
B. $130,000
C. $318,000
D. $330,000
26) Bristle
Corporation acquired 75 % of Silver Corporation's common stock on December 31,
2008, for $300,000. The fair value of the noncontrolling 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 noncontrolling shareholders. What amount of inventory will be
included in the consolidated balance sheet immediately following the
acquisition?
A. $65,000
B. $60,000
C. $70,000
D. $0
27) On January
1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company's voting stock, at
underlying book value. The fair value of the noncontrolling 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:
What amount
would be reported as total assets in the consolidated balance sheet at December
31, 2009?
A. $712,000
B. $1,102,000
C. $742,000
D. $805,000
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 workpaper eliminating entry to remove
the effects of the intercompany sale of land in preparing the consolidated
financial statements for 2009?
A. Option A
B. Option C
C. Option B
D. Option D
29) 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 workpaper eliminating entry to remove
the effects of the intercompany sale of land in preparing the consolidated
financial statements for 2008?
A. Option A
B. Option C
C. Option B
D. Option D
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 2009 consolidated income statement, depreciation
expense will be
A. debited
for $750 in the eliminating entries
B. credited
for $1,500 in the eliminating entries
C. credited
for $750 the eliminating entries
D. debited
for $1,500 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 payments
to suppliers for 2008?
A. $292,000
B. $262,000
C. $305,000
D. $258,000
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 noncontrolling interest was equal to 20 % of Network
Corporation's book value. The following information is available:
Consolidated
net income for 2009 was $160,000.
Network
reported net income of $50,000 for 2009.
Tower paid
dividends of $30,000 in 2009.
Network
paid dividends of $10,000 in 2009.
Tower
issued common stock on February, 18, 2009, for a total of $100,000.
Consolidated
wages payable decreased by $6,000 in 2009.
Consolidated
depreciation expense for the year was $15,000.
Consolidated
accounts receivable decreased by $20,000 in 2009.
Bonds
payable of Tower with a book value of $102,000 were retired for $100,000 on
December 31, 2009.
Consolidated
amortization expense on patents was $10,000 for 2009.
Tower sold
land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June
10, 2009.
Consolidated
accounts payable decreased by $7,000 during 2009.
Total
purchases of equipment by Tower and Network during 2009 were $180,000.
Consolidated
inventory increased by $36,000 during 2009.
There were
no intercompany transfers between Tower and Network in 2009 or prior years
except for Network's payment of dividends. Tower uses the indirect method in
preparing its cash flow statement.
Based on
the preceding information, what was the change in cash balance for the
consolidated entity for 2009?
A. Increase
of $49,000
B. Increase
of $17,000
C. Decrease
of $66,000
D. Increase
of $32,000
33) 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 noncontrolling interest was equal to 20 % of Network
Corporation's book value. The following information is available:
Consolidated
net income for 2009 was $160,000.
Network
reported net income of $50,000 for 2009.
Tower paid
dividends of $30,000 in 2009.
Network
paid dividends of $10,000 in 2009.
Tower
issued common stock on February, 18, 2009, for a total of $100,000.
Consolidated
wages payable decreased by $6,000 in 2009.
Consolidated
depreciation expense for the year was $15,000.
Consolidated
accounts receivable decreased by $20,000 in 2009.
Bonds
payable of Tower with a book value of $102,000 were retired for $100,000 on
December 31, 2009.
Consolidated
amortization expense on patents was $10,000 for 2009.
Tower sold
land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June
10, 2009.
Consolidated
accounts payable decreased by $7,000 during 2009.
Total
purchases of equipment by Tower and Network during 2009 were $180,000.
Consolidated
inventory increased by $36,000 during 2009.
There were
no intercompany transfers between Tower and Network in 2009 or prior years
except for Network's payment of dividends. Tower uses the indirect method in
preparing its cash flow statement.
Based on
the preceding information, what amount will be reported in the consolidated
cash flow statement as net cash used in financing activities for 2009?
A. $32,000
B. $42,000
C. $38,000
D. $70,000
34) 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
noncontrolling 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:
Flyer's
preferred pays an 8 % annual dividend, and Kite's preferred pays a 10 %
dividend. Kite's preferred shares can be converted into 20,000 shares of common
stock at any time. Kite reported net income of $35,000 and paid a total of
$10,000 of dividends in 2008. Flyer reported income from its separate
operations of $80,000 and paid total dividends of $25,000 in 2008.
Based on
the information provided, what is the basic earnings per share for the
consolidated entity for 2008?
A. 5.04
B. 3.80
C. 5.24
D. 5.18
35) 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 2008?
A. .15
B. .07
C. .05
D. .10
36)
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 noncontrolling 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?
A. 4.46
B. 4.35
C. 4.14
D. 4.55
These questions are from updated exam : June 2013
