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CLICK FOR ANSWERS ACC 440 Final Exam 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 no subsidiary 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? 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?


7) The primary role of the International Accounting Standards Board (IASB) is to 8) Which of the following statements about the International Accounting Standards Board (IASB) is accurate? 9) The Securities and Exchange Commission is working prospectively towards requiring public companies in the United States to complete their financial statements in accordance with 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? 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? 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: What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on May 10? 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, 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 16) On January 3, 2009, Jane Company acquired 75 % of Miller Company's outstanding common stock for cash. The fair value of the no controlling 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: 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, acc 440 final exam. 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? 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? 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 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? 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? 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 work paper for 2008? 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? 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 no controlling 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 no controlling interest in the work paper to prepare a full set of consolidated financial statements for the year 2009? 25) Bristle Corporation acquired 75 % of Silver Corporation's common stock on December 31, 2008, for $300,000. The fair value of the no controlling 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 no controlling shareholders. What amount of inventory will be included in the consolidated balance sheet immediately following the acquisition? 26) Bristle Corporation acquired 75 % of Silver Corporation's common stock on December 31, 2008, for $300,000. The fair value of the no controlling 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 no controlling shareholders. What amount of land will be included in the consolidated balance sheet immediately following the acquisition? 27) On January 1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company's voting stock, at underlying book value. The fair value of the no controlling 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: 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 work paper eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 2009? 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 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. 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 received from customers during the year? 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 no controlling interest was equal to 20 % of Network Corporation's book value. The following information is available: 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? 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? 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 no controlling 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? 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 no controlling 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:


Acc 440 final exam  

Acc 440 final exam

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