ACC 2532019 SP ACC253 EXAM 1[Advanced accounting]

DELAWARE COUNTY COMMUNITY COLLEGE ACC 2532019 SP ACC253 EXAM 1 Name: _______________ Date:02/20/2020 Multiple-Choice Questions (36 pts) Choose the best answer, and record your response on the line provided. Plea ...

DELAWARE COUNTY COMMUNITY COLLEGE ACC 2532019 SP ACC253 EXAM 1 Name: _______________ Date:02/20/2020 Multiple-Choice Questions (36 pts) Choose the best answer, and record your response on the line provided. Please use capital letters. B__ 1. Irving Company established a subsidiary and transferred equipment with a fair value of $125,000 to the subsidiary. Irving had purchased the equipment with a ten-year expected life four years earlier for $200,000 and has used straight-line depreciation with no expected residual value. At the time of the transfer, the subsidiary should record A) Equipment at $125,000 and no accumulated depreciation. B) Equipment at $120,000 and no accumulated depreciation. C) Equipment at $200,000 and accumulated depreciation of $80,000. D) Equipment at $125,000 and accumulated depreciation of $80,000. A__ 2. On May 1, 20X2, Jupiter Corporation paid $1,173,000 for all of Saturn Company's issued and outstanding common stock. Saturn's recorded assets and liabilities on May 1, 20X2, were as follows: Cash $ 280,000 Inventory 312,000 Property & Equipment (net of accumulated depreciation of $140,000) 790,000 Liabilities 282,000 On May 1, 20X2, it was determined that the book value of Saturn's inventory was overvalued by $12,000; the book value of property and equipment was undervalued by $35,000; and the book value and fair value of liabilities were equal. The journal entry that Jupiter will record on May 1, 20X2 will include A) a debit to the investment account for $1,173,000. B) a debit to goodwill for $50,000. C) debits to asset accounts totaling $1,405,000. D) debits to asset accounts totaling $1,265,000 _A_ 3. The Jamestown Corporation reported net income for the current year of $200,000 and paid cash dividends of $30,000. The Stadium Company holds 25 percent of the outstanding voting stock of Jamestown. However, another corporation holds the other 75 percent ownership and does not take Stadium’s wants and wishes into consideration when making financing and operating decisions for Jamestown. If before considering any transactions related to its investment in Jamestown, Stadium had income of $195,000; how much will Stadium report as income once entries are made relating to its investment in Jamestown? A) $202,500 B) $225,000 C) $245,000 D) $252,500 25%=7500 7500+195000=202500 _B_ 4. Little Company, a newly established subsidiary of Big Corporation, received assets with an original cost of $560,000, a fair value of $500,000, and a book value of $440,000 from the parent in exchange for 40,000 shares of Littles’s $8 par value common stock. Little should record additional paid-in capital of A) $0 B) $120,000 C) $180,000 D) $240,000 440000-(40000*8)=120000 _B_ 5. On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding shares of Spiel Corporation for $100,000 cash. Yang holds no influence over Spiel Company's managerial decisions. In 20X7 Spiel Company reported net income of $85,000 and paid dividends of $20,000. In 20X8 Spiel reported net income of $75,000 and paid dividends of $30,000. The fair value of shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively. By how much will Yang's income increase in 20X8 due to its investment in Spiel? A) $2,500 B) $7,500 C) $12,500 D) $26,250 For 2018 75000/100*25=18750 income Div 30000*0.25=7500???? D Investment 100K Cr Cash 100k 2017 85000*0.25=21250 20000*0.25=5000 dividends of 2017 21250+18750-7500-5000=27500 _B__ 6. On January 2, 20X5 Moon Corporation acquired 20 percent of the outstanding shares of Star Company. Star Company reported net income of $75,000 and paid dividends of $30,000 in 20X5. Star Company reported net income of $90,000 and paid dividends of $40,000 in 20X6. Moon is considered to have significant influence over the operations of Star. If Moon reports its investment in Star as $89,000 at year end 20X6, at what amount did Moon acquire Star in January 20X5? A) $51,000 B) $70,000 C) $79,000 D) $89,000 Increase in inv in 2005 = (75k-30k)*20%=9k In 2006=(90k-40k)*20%=10k Acquisition cost = 89k-9k-10k=70k _B_ 7. On January 1, 20X7, Chicago Corporation purchased 6,000 shares of Buffalo Company’s 15,000 outstanding shares of common stock for $25 per share. Chicago uses the equity method to account for its investment in Buffalo. On December 31, 20X7, Buffalo paid $120,000 in dividends to its common stockholders and reported net income of $300,000. At December 31, 20X7 it is determined that Chicago's share of Buffalo's fair value is $152,000. By how much will Chicago's 20X7 income increase due to its investment in Buffalo? A) $48,000 B) $120,000 C) $122,000 D) $180,000 300k*40%=120k No adj for FV _B_ 8. Simmons Corporation paid $170,000 to acquire all of Bush Company’s outstanding common stock. Bush reported assets with a book value of $189,000 and a fair value of $206,000 and liabilities with a book value and fair value of $48,000 on the date of the acquisition. What amount will be recorded as goodwill by Simmons Corporation when journalizing its investment in Bush on the date of acquisition? A) $0 B) $12,000 C) $29,000 D) $36,000 If the acquirer acquires all of the assets and liabilities, these on the books of the acquiring company at their acquisition date fair values. 206000-48000=158000; 170000-158000=12000 _B_ 9. Parson Corporation bought 25 percent ownership in Saxon Company on January 1, 20X7 for $75,000. Parson uses the fair value method of accounting for its investment in Saxon. Saxon reported the following net income and paid dividends of $14,000 in each year. Year Net Income 20X7 $15,000 20X8 12,000 The fair value of Parson's investment in Saxon did not change during 20X7 but increased by $2000 in 20X8. What is the balance in Parson's Investment in Saxon Company account on December 31, 20X8? A) $77,000 B) $76,750 C) $76,500 D) $75,000 Income 25%= 3750+3000 Div 25% = 3500+3500; 75000+6750-7000+2000=76750 _D_ 10. On January 2, 20X5, Well Co. purchased 20 percent of Rea, Inc.'s outstanding common shares by issuing bonds. Well Company's journal entry on the date of acquiring Rea included a credit to bonds payable of $400,000, and a credit to premium on bonds payable for $10,000. Well is the largest single shareholder in Rea, and Well's officers are a majority on Rea's board of directors. Rea reported net income of $500,000 for 20X5, and paid dividends of $150,000. On its December 31, 20X5, balance sheet, what amount should Well report as investment in Rea? A) $410,000 B) $460,000 C) $470,000 D) $480,000 410000+100000-30000 C__ 11. On January 1, 20X4, Pony Company acquired 25% of Stallion Company's common stock at underlying book value of $200,000. Stallion has 80,000 shares of $10 par value, 6 percent cumulative preferred stock outstanding. No dividends are in arrears. Stallion reported net income of $270,000 for 20X4 and paid total dividends of $140,000. Pony uses the equity method to account for this investment. Based on the preceding information, what amount would Pony Company receive as dividends from Stallion for the year? A) $37,500 B) $35,000 C) $23,000 D) $15,000 __C 12. Jacana Corporation paid $200,000 for a 25% interest in Lilypad Corporation's common stock on January 1, 20X3, but was not able to exercise significant influence over Lilypad. During 20X4, Jacana reported income of $120,000, excluding its income from Lilypad, and paid dividends of $50,000. Lilypad reported net income of $40,000 during 20X4 and paid dividends of $20,000. Jacana should report net income for 20X4 in the amount of A) $75,000 B) $120,000 C) $125,000 D) $130,000 20000*0.25=5000; 120000+5000=125000 _D_ 13. Pinkerton Inc. owns 10% of Sable Company. In the most recent year, Sable had net earnings of $40,000 and paid dividends of $6,000. Pinkerton's accountant mistakenly assumed Pinkerton had considerable influence over Sable and used the equity method of accounting for the investment in Sable. Pinkerton does not have any influence over Sable. What is the impact on the investment account and Pinkerton's net earnings, respectively? A) By using the equity method, the accountant has understated the investment account and overstated the net earnings. B) By using the equity method, the accountant has overstated the investment account and understated the net earnings. C) By using the equity method, the accountant has understated the investment account and understated the net earnings. D) By using the equity method, the accountant has overstated the investment account and overstated the net earnings. _C__ 14. The fair value of net identifiable assets of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $290,000, which excludes $60,000 of reported goodwill. If the fair value of the reporting unit as a whole is $335,000, what amount of goodwill impairment will be recognized for this unit? A) $0 B) $15,000 C) $35,000 D) $45,000 Carrying value 300k; FV 335 D__ 15. On January 1, 20X1, Nelson Corporation issued 10,000 shares of common stock in exchange for all of Saddle Company's outstanding stock. Condensed balance sheets of Nelson and Saddle immediately before the combination follow: Nelson Saddle Total Assets $1,000,000 $500,000 Liabilities $ 300,000 $ 150,000 Common Stock ($10 par) 200,000 100,000 Retained Earnings 500,000 250,000 Total Liabilities & Equities $1,000,000 $500,000 Nelson's common stock had a market price $60 per share on January 1, 20X1; the market price of Saddle's stock on the same date was $50 per share. The fair value of Saddle's net identifiable assets was determined to be $570,000. Nelson's investment in Saddle's stock will be stated in Nelson's balance sheet immediately after the combination in the amount of A) $350,000 B) $500,000 C) $570,000 D) $600,000 _A_ 16. Parent Co. purchased 100 percent of Son Company on January 1, 20X1, when Parent’s retained earnings balance was $520,000 and Son’s was $150,000. For the year ending 20X1, Son reported $15,000 of net income and declared $6,000 of dividends. Parent reported $105,000 of separate operating earnings plus $15,000 of equity-method income from its 100 percent interest in Son. In 20X1, Parent declared dividends of $40,000. Based on the preceding information, what was the consolidated retained earnings balance on December 31, 20X1? A) $759,000 B) $750,000 C) $744,000 D) $600,000 RE 520 Current year earnings 105 Income recogn from co 15 Div distributed (40) 600 RE of Co opening balance 150 Net income 15 Less div distr 6 9 159 Total Re 759 __A_ 17. Prime Company acquired 100 percent 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, Prime 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 Prime in the amount of $20,000, which Prime included in its accounts receivable. Based on the preceding information, what amount of total assets was reported in the consolidated balance sheet immediately after acquisition? A) $650,000 B) $750,000 C) $880,000 D) $920,000 Reported total assets 500000+FV on investment 150000 =650000 _B_ 18. Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined to be $510,000 on that date. Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $550,000 for the acquisition? A) $0 B) $40,000 C) $110,000 D) $150,000   PROBLEM 1 (16 pts) Vander Company acquired the net assets of Howe Company for $190,000. Vander issued 5000 shares of its $1 par common stock to complete the transaction. Vander's stock was selling for $38 a share on the date of acquisition. On the date of acquisition Howe reported the following: Cost Book Value Fair Value Cash $ 65,000 $ 65,000 $ 65,000 Inventory 50,000 50,000 55,000 Equipment 95,000 70,000 85,000 Accounts Payable 35,000 35,000 35,000 Prepare the journal entry that Vander Company recorded on the date of the acquisition of Howe’s net assets. ACCOUNT DEBIT CREDIT Business purchase 190000 Liquidators of Howe Co(amount payable to Howe on acquis.) 190000 Cash 65000 inventory 55000 Equipment 85000 Goodwill 20000 Business purchase 190000 Acc.Payable( assets liabilities taken over from Howe) 35000 Liquidators of Howe Company 190000 Equity share capital 5000 Security premium 140000 (Issue of shares made for satisfaction of purchase consider.) 38*5000=190000 Assets 65000+55000+85000=205000 Net assets 205000-35000=170000 Goodwill: 190000-170000=20000 PROBLEM 2 (10 pts) On January 1, 20X7, Pennington Corporation acquired 25 percent of the outstanding shares of Shale Company for $100,000 cash when the fair value of Shale's net assets was $400,000. Pennington uses the fair value method to account for non-consolidated investments. On December 31, 20X7, Shale Company reported net income of $75,000 and paid dividends of $30,000. At December 31, 20X7 it was determined that the total fair value of Shale Company was $425,000. Prepare all of Pennington's necessary journal entries regarding its investment in Shale in 20X7. JOURNAL DATE ACCOUNT DEBIT CREDIT Inv in Stock 100000 Cash 100000 Inv in Stock 18750 Equity in subsidiary income (75k*25%) 18750 Cash 7500 Inv in Stock (30k*25%) 7500 PROBLEM 3 (8 pts) Hairy Company acquired all of Bald Company's common stock on January 1, 20X7 for $1,000,000. On the date of acquisition, Bald reported total assets of $1,200,000, total liabilities of $200,000, common stock of $300,000, additional paid in capital of $500,000, and retained earnings of $200,000. Give the eliminating entry that would be needed in preparing a consolidated balance sheet immediately following the acquisition. ACCOUNT the journal entry on acquis. Of Bald comm st for 1000000: DEBIT CREDIT 01/01/17 Investmnt in Bald 1000000 Cash 1000000 The eliminating entries: Comm Stock 300000 Add PIC 500000 Total Liab 200000 RE 200000 Inv in Bald Co 1000000 Initial negative Goodwill 200000 Being eliminating entry for bargain purchase is passed in books A negative goodwill of $200k arised on account of acquisition and the same is accounted for PROBLEM 4 (10 pts) On January 1, 20X7 Quick Company acquired 100 percent of Sluggish Company's stock when Sluggish reported book values as follows: assets of $1,200,000; liabilities of $450,000; common stock of $350,000; and retained earnings of $400,000. At the date of acquisition, the book values and the fair values of Sluggish's assets and liabilities were equal. For 20X7, Sluggish reported net income of $500,000, and paid dividends of $25,000. Give the eliminating entry needed on December 31, 20X7, to prepare consolidated financial statements. ACCOUNT DEBIT CREDIT 12/31/07 Profit of subsidiary company transferred: Profit and Loss from Sluggish 500000 Retained Earnings 500000 Dividend amount reduced from the cost of acquisition amt: Dividend received 25000 Cost o PROBLEM 5 (20 pts) On January 1, 20X9, Zigma Company acquired 100 percent of Standard Company's common shares at underlying book value. Zigma uses the equity method in accounting for its ownership of Standard. On December 31, 20X9, the trial balances of the two companies are as follows: After the eliminating entries are entered on the consolidation worksheet, (including the pre-acquisition depreciation entry), what amounts will be reported on the Consolidated Financial Statements of Zigma Company for year ending December 31, 20X9 for the following financial statement items: 1) Current Assets ______333000*___ *(if on 12/31/09 curr assets 238K, it is after D Investment in Sub Cr Cash 100K) 2) Depreciable Assets ______402000____(300+170 – 68 elim.entry acc depr)_ 3) Investment in Standard Co. ___100000____________ 4) Depreciation Expense ______________47000 5) Dividends Declared ___________32000 6) Long-Term Debt ____170000___________ 7) Sales ______312000_________ 8) Net Income _____105000 9) Common Stock _____________100000__ 10) Retained Earnings ____248000