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QUESTIONS PAGE-- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

Multiple Choise Questions 1:       

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1. A statutory ______________ results when one company acquires all the net assets of another company and the acquired company ceases to exist as a separate legal entity. (Points: 4)
       a. acquisition.
       b. combination.
       c. consolidation.
       d. merger.

2. Under the economic unit concept, non-controlling interest in net assets is treated as (Points: 4)
       a. a liability.
       b. an asset.
       c. stockholders' equity.
       d. an expense.


3. The parent company concept adjusts subsidiary net asset values for the (Points: 4)
       a. differences between cost and fair value.
       b. differences between cost and book value.
       c. total fair value implied by the price paid by the parent.
       d. total cost implied by the price paid by the parent.


4. SFAS 141R requires that all business combinations be accounted for using (Points: 4)
       the pooling of interests method.
       the acquisition method.
       either the acquisition or the pooling of interests methods.
       neither the acquisition nor the pooling of interests methods.


5. On May 1, 2011, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2011, follow:

On May 1, 2011, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is the amount of goodwill resulting from the business combination? (Points: 4)
       $0.
       $112,000.
       $140,000.
       $28,000.


6. Following its acquisition of the net assets of Sandy Company, Potter Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows:

Based on the preceding information, what amount of goodwill will be reported for this division if its fair value is determined to be $200,000? (Points: 4)
       $0
       $60,000
       $30,000
       $10,000

7. On the consolidated balance sheet, consolidated stockholders' equity is: (Points: 4)
       equal to the sum of the parent and subsidiary stockholders' equity.
       greater than the parent's stockholders' equity.
       less than the parent's stockholders' equity.
       equal to the parent's stockholders' equity.

8. Majority-owned subsidiaries should be excluded from the consolidated statements when: (Points: 4)
       control does not rest with the majority owner.
       the subsidiary operates under governmentally imposed uncertainty.
       a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls.
       any of these circumstances exist.


9. Which of the following is a limitation of consolidated financial statements? (Points: 4)
       Consolidated statements provide no benefit for the stockholders and creditors of the parent company.
       Consolidated statements of highly diversified companies cannot be compared with industry standards.
       Consolidated statements are beneficial only when the consolidated companies operate within the same industry.
       Consolidated statements are beneficial only when the consolidated companies operate in different industries.

10. On January 1, 2011, Polk Company and Sigler Company had condensed balance sheets as follows:

On January 2, 2011 Polk borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sigler. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land. On Polk's January 2, 2011 consolidated balance sheet, Current liabilities should be:
(Points: 4)
       $200,000.
       $184,000.
       $160,000.
       $120,000.

11. In which of the following cases would consolidation be inappropriate? (Points: 4)
       The subsidiary is in bankruptcy.
       Subsidiary's operations are dissimilar from those of the parent.
       The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor.
       Subsidiary is foreign.

12. Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment. Prior should record investment income from Sanderson during 2011 of: (Points: 4)
       $18,000.
       $60,000.
       $48,000.
       $33,600.

13. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Company's December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated work paper on December 31, 2011? (Points: 4)
       $52,000
       $65,000
       $62,000
       $108,000

14. Hall, Inc., owns 40% of the outstanding stock of Gloom Company. During 2011, Hall received a $4,000 cash dividend from Gloom. What effect did this dividend have on Hall's 2011 financial statements? (Points: 4)
       Increased total assets.
       Decreased total assets.
       Increased income.
       Decreased investment account.

15. Parkview Company acquired a 90% interest in Sutherland Company on December 31, 2010, for $320,000. During 2011 Sutherland had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Sutherland Company account at the end of 2011 of: (Points: 4)
       $335,000
       $333,500
       $313,700
       $320,000

16. In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash flows from operating activities, the amount of the non-controlling interest in consolidated income is: (Points: 4)
       combined with the controlling interest in consolidated net income.
       deducted from the controlling interest in consolidated net income.
       reported as a significant noncash investing and financing activity in the notes.
       reported as a component of cash flows from financing activities.

17. Porter Company acquired an 80% interest in Strumble Company on January 1, 2010, for $270,000 cash when Strumble Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strumble Company made $30,000 in 2010 and paid no dividends. Porter Company's separate income in 2010 was $375,000. Controlling interest in consolidated net income for 2010 is: (Points: 4)
       $405,000.
       $399,000.
       $396,000.
       $375,000.

18. Scooter Company, a 70%-owned subsidiary of Pusher Corporation, reported net income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Scooter's identifiable net assets at the date of the business combination was $45,000. The non-controlling interest in net income of Scooter for Year 3 was: (Points: 4)
       $58,500.
       $13,500.
       $27,000.
       $72,000.


19. Goodwill represents the excess of the implied value of an acquired company over the: (Points: 4)
       aggregate fair values of identifiable assets less liabilities assumed.
       aggregate fair values of tangible assets less liabilities assumed.
       aggregate fair values of intangible assets less liabilities assumed.
       book value of an acquired company.


20. The SEC requires the use of push down accounting when the ownership change is greater than: (Points: 4)
       50%
       80%
       90%
       95%

21. On January 1, 2010, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2010, consolidated balance sheet, goodwill would be reported at: (Points: 4)
       $152,000.
       $177,143.
       $80,000.
       $0.


22. Sales from one subsidiary to another are called (Points: 4)
       downstream sales.
       upstream sales.
       intersubsidiary sales.
       horizontal sales.

23. Failure to eliminate intercompany sales would result in an overstatement of consolidated (Points: 4)
       net income.
       gross profit.
       cost of sales.
       all of these.


24. In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should: (Points: 4)
       not be eliminated.
       be eliminated in full.
       be eliminated to the extent of the parent company's controlling interest in the subsidiary.
       be eliminated to the extent of the non-controlling interest in the subsidiary.

25. P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to fair value. During 2011, P sold merchandise that cost $135,000 to S for $189,000. One-third of this merchandise remained in S's inventory at December 31, 2011. S reported net income of $120,000 for 2011. P's income from S for 2011 is: (Points: 4)
       $36,000.
       $50,400.
       $54,000.
       $61,200.


26. P Company owns an 80% interest in S Company. During 2011, S sells merchandise to P for $200,000 at a profit of $40,000. On December 31, 2011, 50% of this merchandise is included in P's inventory. Income statements for P and S are summarized below:

Non-controlling interest in income for 2011 is: (Points: 4)
       $4,000.
       $19,200.
       $20,000.
       $24,000.

1. In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a gain, the non-controlling interest in consolidated income is computed by multiplying the non-controlling interest percentage by the subsidiary's reported net income: (Points: 4)
       minus the net amount of unrealized gain on the intercompany sale.
       plus the net amount of unrealized gain on the intercompany sale.
       minus intercompany gain considered realized in the current period.
       plus intercompany gain considered realized in the current period.


2. Pratt Corporation owns 100% of Stone Company's common stock. On January 1, 2011, Pratt sold equipment with a book value of $210,000 to Stone for $300,000. Stone is depreciating the equipment over a ten-year life by the straight-line method. The net adjustments to compute 2011 and 2012 consolidated income would be an increase (decrease) of: (Points: 4)       ($90,000) $0
       ($90,000) $9,000
       ($81,000) $0
       ($81,000) $9,000


3. In years subsequent to the upstream intercompany sale of non-depreciable assets, the necessary consolidated work paper entry under the cost method is to debit the (Points: 4)
       Non-controlling interest and Retained Earnings (Parent) accounts, and credit the non-depreciable asset.
       Retained Earnings (Parent) account and credit the non-depreciable asset.
       Non-depreciable asset, and credit the Non-controlling interest and Investment in Subsidiary accounts.
       No entries are necessary.


4. On January 1, 2010 S Corporation sold equipment that cost $120,000 and had a book value of $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2011? (Points: 4)
       no effect
       increase of $12,000.
       decrease of $12,000.
       increase of $3,000.


5. Parks Corporation owns 100% of Starr Company's common stock. On January 1, 2011, Parks sold equipment with a book value of $350,000 to Starr for $500,000. Starr is depreciating the equipment over a ten-year life by the straight-line method. The net adjustments to compute 2011 and 2012 consolidated income would be an increase (decrease) of
(Points: 4)
       ($150,000) $0
       ($150,000) $15,000
       ($135,000) $0
       ($135,000) $15,000


6. In January 2008, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $990,000. S Company's original cost for this equipment was $1,000,000 and had accumulated depreciation of $100,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2011 for $720,000. What amount of gain should P Company record on its books in 2011? (Points: 4)
       $30,000.
       $60,000.
       $120,000.
       $180,000.


7. In a troubled debt restructuring involving a modification of terms, the debtor's gain on restructuring: (Points: 4)
       will equal the creditor's gain on restructuring.
       will equal the creditor's loss on restructuring.
       may not equal the creditor's gain on restructuring.
       may not equal the creditor's loss on restructuring.


8. An involuntary petition filed by a firm's creditors whereby there are twelve or more creditors must be signed by at least: (Points: 4)
       two creditors.
       three creditors.
       five creditors.
       six creditors.


9. Which of the following items is not a specified priority for unsecured creditors in a bankruptcy petition? (Points: 4)
       Administration fees incurred in administering the bankrupt's estate.
       Unsecured claims for wages earned within 90 days and are less than $4,650 per employee.
       Unsecured claims of governmental units for unpaid taxes.
       Unsecured claims on credit card charges that do not exceed $3,000.


10. When a secured claim is not fully settled by the selling of the underlying collateral, the remaining portion: (Points: 4)
       of the claim cannot be collected by the creditor.
       remains as a secured claim.
       is classified as an unsecured priority claim.
       is classified as an unsecured non-priority claim.


11. Layne Corporation entered into a troubled debt restructuring agreement with their local bank. The bank agreed to accept land with a carrying amount of $360,000 and a fair value of $540,000 in exchange for a note with a carrying amount of $765,000. Ignoring income taxes, what amount should Layne report as a gain on its income statement? (Points: 4)
       $0.
       $180,000.
       $225,000.
       $405,000.


12. The final settlement with unsecured creditors is computed by dividing: (Points: 4)
       total net realizable value by total unsecured creditor claims.
       net free assets by total secured creditor claims.
       total net realizable value by total secured creditor claims.
       net free assets by total unsecured creditor claims.


13. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points: 4)
       hedge of a net investment in a foreign entity.
       hedge of an exposed asset or liability position.
       hedge of an identifiable foreign currency commitment.
       contract acquired to speculate in the movement of exchange rates.


14. On September 1, 2011, Swash Plating Company entered into two forward exchange contracts to purchase 250,000 Euros each in 90 days. The relevant exchange rates are as follows:

The first forward contract was to hedge a purchase of inventory on September 1, payable on December 1. On September 30, what amount of foreign currency transaction loss should Swash Plating report in income? (Points: 4)
       $0.
       $2,500.
       $5,000.
       $10,000.


15. Caldron Company purchased equipment for 375,000 British pounds from a supplier in London on July 3, 2011. Payment in British pounds is due on Sept. 3, 2011. The exchange rates to purchase one pound is as follows:

On its August 31, 2011, income statement, what amount should Caldron report as a foreign exchange transaction gain: (Points: 4)
       $18,750.
       $3,750.
       $11,250.
       $0.


16. The translation adjustment that results from translating the financial statements of a foreign subsidiary using the current rate method should be: (Points: 4)
       included as a separate item in the stockholders' equity section of the balance sheet.
       included in the determination of net income for the period it occurs.
       deferred and amortized over a period not to exceed forty years.
       deferred until a subsequent year when a loss occurs and offset against that loss.


17. A wholly owned subsidiary of a U.S. parent company has certain expense accounts for the year ended December 31, 2011, stated in local currency units (LCU) as follows:

Assume that the LCU is the subsidiary's functional currency and that the charges to the expense accounts occurred approximately evenly during the year. What total dollar amount should be included in the translated income statement to reflect these expenses? (Points: 4)
       $687,500
       $625,000
       $550,000
       $500,000


18. P Company acquired 90% of the outstanding common stock of S Company which is a foreign company. The acquisition was accounted for using the purchase method. In preparing consolidated statements, the paid-in capital of S Company should be converted at the: (Points: 4)
       exchange rate effective when S Company was organized.
       exchange rate effective on the date of purchase of the stock of S Company by P Company.
       average exchange rate for the period S Company stock has been upheld by P Company.
       current exchange rate.


19. When budgeted expenditures are enacted into law, they are referred to as (Points: 4)
       estimated expenditures.
       encumbrances.
       appropriations.
       expenditures.


20. The entry to record the receipt of office equipment previously encumbered includes a debit to (Points: 4)
       Office Equipment.
       Encumbrances.
       Reserve for Encumbrances.
       both Office Equipment and Reserve for Encumbrances.


21. Which of the following requires the use of the encumbrance system? (Points: 4)
       Capital projects fund
       Debt service fund
       Internal service fund
       Enterprise fund


22. The highest level of priority of pronouncements that a government entity should look to for accounting and reporting guidance is (Points: 4)
       GASB Technical Bulletins.
       GASB Concepts Statements.
       AICPA Industry Accounting Guides.
       GASB Statements.


23. All of the following are Governmental (Expendable) Fund Entities except the (Points: 4)
       Capital Projects Fund.
       Debt Service Fund.
       Internal Service Fund.
       Special Revenue Fund.


24. Fixed assets and noncurrent liabilities are accounted for in the records of (Points: 4)
       governmental funds
       expendable funds
       proprietary funds
       both governmental and expendable funds.

Multiple Choise Questions 2:    

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ABC Co. has an average collection period of 60 days. Total credit sales for the year were $3,000,000. What is the balance in accounts receivable at year-end? 

MG Lighting had sales of 1,000 units at $100 per unit last year. The marketing manager projects a 10 percent decrease in unit volume this year because a 20 percent price increase is needed to pass rising costs through to customers. Returned merchandise will represent 2 percent of total sales. What is your net dollar sales projection for this year? 

GS Cookie Co. forecasts cash receipts for January and February of $9,000 and $10,000, respectively. Cash Payments of $4,000 and $5,000 are expected in these two months. GS Cookie's cash balance at the beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the year, GS Cookie has a $13,000 balance outstanding on its line of credit at the local bank. Based on its cash budget, how much of the line of credit can GS Cookie repay in January and February? 

A firm with $50,000 in fixed costs breaks even on unit sales of 10,000, how many units must the firm sell to earn $20,000 in operating profits? 

Hicks Health Clubs, Inc., expects to generate an annual EBIT of $500,000 and needs to obtain financing for $1,000,000 of assets. Their tax bracket is 40%. If the firm goes with a short-term financing plan, their rate will be 8 percent, and with a long-term financing plan their rate will be 9 percent. What much more or less will their initial annual earnings after taxes be if they choose the most conservative financing plan? 

If a firm has a break-even point of 20,000 units and the contribution margin on the firm's single product is $3.00 per unit and fixed costs are $60,000, what will the firm's net income be at sales of 30,000 units? 

If a firm has fixed costs of $30,000, a price of $4.00, and a breakeven point of 15,000 units, the variable cost per unit is: 

XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production? 

A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)? 

Kuznets Rental Center requires $1,000,000 in financing over the next two years. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, which of the following statements is true? 

EBM Corporation utilized $2 million in total assets last year to generate $5 million in sales. EBM's net profit margin was 4% and its debt ratio was 40%. What was EBM's return on equity?

A firm that has a total asset turnover of 1.6: 

A substantial portion of the increase in assets necessitated by rising sales may be automatically financed through:

A firm with a DOL = 1.6 and DFL = 1.2 has a DCL =:

A firm that has a DOL = 3 will experience what change in operating earnings if sales decrease from $100,000 to $75,000?

ABC Co. has an average collection period of 60 days. Total credit sales for the year were $3,000,000. What is the balance in accounts receivable at year-end? 

MG Lighting had sales of 1,000 units at $100 per unit last year. The marketing manager projects a 10 percent decrease in unit volume this year because a 20 percent price increase is needed to pass rising costs through to customers. Returned merchandise will represent 2 percent of total sales. What is your net dollar sales projection for this year? 

GS Cookie Co. forecasts cash receipts for January and February of $9,000 and $10,000, respectively. Cash Payments of $4,000 and $5,000 are expected in these two months. GS Cookie's cash balance at the beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the year, GS Cookie has a $13,000 balance outstanding on its line of credit at the local bank. Based on its cash budget, how much of the line of credit can GS Cookie repay in January and February? 

A firm with $50,000 in fixed costs breaks even on unit sales of 10,000, how many units must the firm sell to earn $20,000 in operating profits? 

Hicks Health Clubs, Inc., expects to generate an annual EBIT of $500,000 and needs to obtain financing for $1,000,000 of assets. Their tax bracket is 40%. If the firm goes with a short-term financing plan, their rate will be 8 percent, and with a long-term financing plan their rate will be 9 percent. What much more or less will their initial annual earnings after taxes be if they choose the most conservative financing plan? 

If a firm has a break-even point of 20,000 units and the contribution margin on the firm's single product is $3.00 per unit and fixed costs are $60,000, what will the firm's net income be at sales of 30,000 units? 

If a firm has fixed costs of $30,000, a price of $4.00, and a breakeven point of 15,000 units, the variable cost per unit is: 

XYZ Co. has forecasted June sales of 600 units and July sales of 1000 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production? 

A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)? 

Kuznets Rental Center requires $1,000,000 in financing over the next two years. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, which of the following statements is true? 

EBM Corporation utilized $2 million in total assets last year to generate $5 million in sales. EBM's net profit margin was 4% and its debt ratio was 40%. What was EBM's return on equity?

A firm that has a total asset turnover of 1.6: 

A substantial portion of the increase in assets necessitated by rising sales may be automatically financed through:

A firm with a DOL = 1.6 and DFL = 1.2 has a DCL =:

A firm that has a DOL = 3 will experience what change in operating earnings if sales decrease from $100,000 to $75,000?

QUESTIONS PAGE-- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41