ACC 440
Final Exam
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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 nonsubsidiary
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?
A. $7,500
B. $11,250
C. $18,750
D. $26,250
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?
Fair Value
Method | Equity Method
A. Increase | Decrease
B. No Effect | Decrease
C. No Effect | No Effect
D. Decrease | No Effect
7) 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.
8) Which of
the following statements about the International Accounting Standards Board
(IASB) is accurate?
A. The IASB’s standards have not been widely
adopted in the European Union.
B. The IASB’s recommendations standards are
primarily based on and grow out of the GAAP of the United States.
C. The United States’ Financial Accounting
Standards Board is collaborating with the IASB to bring about convergence based
on high quality standards.
D. Throughout the 1970s, the competing standards
issued by the IASB and the International Federation of Accountants (IFAC)
discouraged early adopters.
9) The
Securities and Exchange Comission is working prospectively towards requiring
public companies in the United States to complete their financial statements in
accordance with
A. Technical Bulletins
B.
Generally Accepted Auditing Standards
C.
International Financial Reporting Standards
D.
Generally Accepted Accounting Principles
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 A
B. Option C
C. Option B
D. Option D
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?
A.
Option A
B. Option C
C. Option B
D. Option D
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:
March
1: 1 Baht = $ 0.031
May
10: 1 Baht = $ 0.034
What entry
is required to revalue foreign currency payable to U.S. dollar equivalent value
on May 10?
A.
Option A
B. Option C
C. Option B
D. Option D
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,
A. the
translation method should be used for restatement
B. the remeasurement method should be used for
restatement
C. either translation or remeasurement could
be used for restatement
D. no
restatement is required
14) 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. $28,000
B. $13,000
C. $25,000
D. $8,000
Based on the information provided, in
Newsprint's 2008 consolidated income statement, whatamount 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.$15,000
B.$10,000
C.$25,000
D.$28,000
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
B. remeasurement using the current exchange rate
C. remeasurement using historical exchange rates
D. translation using the current exchange rate
16) 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
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, 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.
$500,000
B.
$280,000
C.
$530,000
D.
$660,000
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 total assets did Beta
report in its balance sheet immediately after the acquisition?
A .$650,000
B. $880,000
C. $920,000
D. $750,000
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
A. $240,000
B. $130,000
C. $150,000
D. $270,000
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?
A. $0
B. $400,000
C. $440,000
D. $480,000
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?
A. $1,150,000
B. $1,700,000
C. $1,550,000
D. $1,830,000
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 workpaper for 2008?
A. $82,000
B. $70,000
C. $95,000
D. $60,000
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?
A. $2,765,000
B.
$1,620,000
C.
$1,422,000
D.
$2,963,000
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 noncontrolling 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
noncontrolling interest in the workpaper to prepare a full set of consolidated
financial statements for the year 2009?
A.
Option A
B. Option C
C. Option B
D. Option D
25) 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. $0
D. $70,000
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 land will be
included in the consolidated balance sheet immediately following the
acquisition?
A. $0
B. $10,000
C. $90,000
D. $100,000
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:
ANSWERS:
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 B
C. Option C
D. Option D
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
A. debited
for $750 in the eliminating entries.
B. credited
for $750 the eliminating entries.
C. credited
for $1500 in the eliminating entries.
D. debited
for $1500 in the eliminating entries.
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.
A. debited for $33,000
B. debited
for $36,000
C. credited
for $36,000
D. debited
for $3,000
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:
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.
ANSWERS:
Based on
the preceding information, what amount will be reported in the consolidated
cashflow statement as net cash provided by operating activities for 2009?
A. $207,000
B. $163,000
C. $180,000
D.$149,000
Based on
the preceding information, what amount will be reported in the consolidated
cashflow statement as net cash used in investing activities for 2009?
A. $180,000
B. $100,000
C. $255,000
D. $110,000
Based on the preceding information, what
amount will be reported in the consolidated cashflow statement as net cash used
in financing activities for 2009?
A.$32,000
B.$38,000
C.$42,000
D.$70,000
Based on the preceding information, what was
the change in cash balance for theconsolidated entity for 2009?
A.Increase
of $49,000
B.Decrease
of $66,000
C.Increase
of $17,000
D.Increase
of $32,000
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?
A. $133,000
B. $207,000
C.
$175,000
D.
$167,000
Based on
the preceding information, what amount will be reported by the company as cash
received from customers during the year?
A.$455,000
B.$475,000
C.$450,000
D.$425,000
Based on
the preceding information, what amount will be reported by the company as cash
payments to suppliers for 2008?
A.$292,000
B.$305,000
C.$262,000
D.$258,000
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?
A. .05
B. 15
C. 0.15
D. 0.07
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 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.4.14
C.4.35
D.4.55
Based on
the preceding information, what is the amount of earnings available to common
shareholders reported in the consolidated financial statements for the year?
A.$89,200
B.$87,000
C.$91,000
D.$82,800
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
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 a 8 percent annual dividend, and Kite's preferred pays a 10
percentdividend. Kite's preferred shares can be converted into 20,000 shares of
common stock at anytime. 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.5.24
C.3.80
D.5.18
Based on the information provided, what is the
diluted earnings per share for theconsolidated entity for 2008?
A.4.53
B.4.33
C.4.00
D.3.80
