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advanced financial accounting
Questions and Answers of
Advanced Financial Accounting
The following condensed balance sheet is for the partnership of Arnie, Bart, and Kurt, who share profits and losses in the ratio of 4:3:3, respectively:The partners agreed to dissolve the partnership
On December 31, 20X7, Judy is a fully vested participant in a company-sponsored pension plan. According to the plan’s administrator, Judy has at that date the nonforfeitable right to receive a lump
On December 31, 20X7, Mr. and Mrs. McManus owned a parcel of land held as an investment. They had purchased it for $95,000 in 20X0, and the mortgage on it had a principal balance of $60,000 at
Rich Drennen’s personal statement of financial condition at December 31, 20X6, shows net worth of $400,000 before consideration of employee stock options owned on that date. Information relating to
Nancy Emerson owns 50 percent of the common stock of Marks Corporation. She paid $25,000 for this stock in 20X3. At December 31, 20X8, her 50 percent stock ownership in Marks had a current value of
In a personal statement of financial condition, which of the following should be reported at estimated current values? Investments in Closely Held Business Investments in Leaseholds b. Yes Yes Yes No
Personal financial statements should include which of the following statements? Financial Condition Changes in Net Worth Cash Flows P No b. Yes Yes No No Yes Yes Yes No d. Yes Yes Yes
A business interest that constitutes a large part of an individual’s total assets should be presented in a personal statement of financial condition asa. A single amount equal to the proprietorship
Personal financial statements should report assets and liabilities ata. Historical cost.b. Historical cost and, as additional information, at estimated current values at the date of the financial
The following information pertains to Kent’s marketable equity securities:Kent sold the Zee stock in January 20X3 for $10,200. In his personal statement of financial condition at December 31, 20X3,
Personal financial statements should report an investment in life insurance at thea. Face amount of the policy less the amount of premiums paid.b. Cash value of the policy less the amount of any
Mrs. Taft owns a $150,000 insurance policy on her husband’s life. The policy’s cash value is $125,000, and there is a $50,000 loan against it. The Tafts’ personal statement of financial
Match the items in the left-hand column with the descriptions/explanations in the right-hand column. Items 1. Dissolution 2. Partner's loss Descriptions/Explanations A. Sale of partnership assets,
On January 1, 20X5, Post Company acquired an 80 percent investment in Stake Company. The acquisition cost was equal to Post’s equity in Stake’s net assets at that date. On January 1, 20X5, Post
In the January 1, 20X8, consolidated balance sheet, the amount of goodwill reported should bea. $0.b. $76,000.c. $95,000.d. $156,000.On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw
In the December 31, 20X8, consolidated balance sheet, the amount of noncontrolling interest reported should bea. $200,000.b. $239,000.c. $251,000.d. $252,000.On January 1, 20X8, Ritt Corporation
On July 1, 20X3, Barker Company purchased 20 percent of Acme Company’s outstanding common stock for $400,000 when the fair value of Acme’s net assets was $2,000,000. Barker does not have the
On January 1, 20X7, Robohn Company purchased for cash 40 percent of Lowell Company’s 300,000 shares of voting common stock for $1,800,000 when 40 percent of the underlying equity in Lowell’s net
In January 20X0, Farley Corporation acquired 20 percent of Davis Company’s outstanding common stock for $800,000. This investment gave Farley the ability to exercise significant influence over
Perez Inc. owns 80 percent of Senior Inc. During 20X2, Perez sold goods with a 40 percent gross profit to Senior. Senior sold all of these goods in 20X2. For 20X2 consolidated financial statements,
What amount should be eliminated from cost of goods sold in the combined income statement for 20X0?Nolan owns 100 percent of the capital stock of both Twill Corporation and Webb Corporation. Twill
By what amount was unadjusted revenue overstated in the combined income statement for 20X0?Nolan owns 100 percent of the capital stock of both Twill Corporation and Webb Corporation. Twill purchases
Company J acquired all of Company K’s outstanding common stock in exchange for cash. The acquisition price exceeds the fair value of net assets acquired.How should Company J determine the amounts
In the preparation of the 20X6 consolidated balance sheet, computer equipment will bea. Debited for $1,000.b. Debited for $15,000.c. Credited for $24,000.d. Debited for $40,000.On January 1, 20X4,
Income assigned to the noncontrolling interest in the 20X6 consolidated income statement will bea. $12,000.b. $14,000.c. $18,000.d. $52,000.On January 1, 20X4, Gold Company purchased a computer with
Consolidated net income for 20X6 will bea. $106,000.b. $112,000.c. $120,000.d. $130,000.
Lewis Company owns 80 percent of Tomassini Corporation’s stock. You are told that Tomassini has sold equipment to Lewis and that the following consolidation entries are needed to prepare
Income assigned to the noncontrolling interest in the 20X4 consolidated income statement should bea. $6,534.b. $8,321.c. $8,388.d. $16,826.
What amount of interest expense should be included in the 20X4 consolidated income statement?a. $14,000b. $18,000c. $21,000d. $27,000
What amount of gain or loss on bond retirement should be included in the 20X4 consolidated income statement?a. $4,000 gainb. $4,000 lossc. $12,000 gaind. $16,000 loss
Income assigned to the noncontrolling interest in the 20X4 consolidated income statement should bea. $6,000.b. $8,100.c. $8,400.d. $16,000.
Peace Corporation acquired 100 percent of Soft Inc. in a nontaxable transaction on December 31, 20X1. The following balance sheet information is available immediately following the
Growth in the complexity of the U.S. business environmenta. Has led to increased use of partnerships to avoid legal liability.b. Has led to increasingly complex organizational structures as
Which of the following is not an appropriate reason for establishing a subsidiary?a. The parent wishes to protect existing operations by shifting new activities with greater risk to a newly created
When an existing company creates a new subsidiary and transfers a portion of its assets and liabilities to the new entitya. The new entity records both the assets and liabilities it received at fair
When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss ifa. The fair value of the net identifiable assets held by a reporting unit
Goodwill represents the excess of the sum of the fair value of the (1) consideration given, (2) shares already owned, and (3) the noncontrolling interest over thea. Sum of the fair values assigned to
In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n)a. Expense of the combined company for the period in which the costs were incurred.b.
Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock?a. Historical cost.b. Book value.c. Cost
In a business combination in which an acquiring company purchases 100 percent of the outstanding common stock of another company, if the fair value of the net identifiable assets acquired exceeds the
A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. In exchange
On December 31, 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its $10 par common stock, with a market price of $18 a share, for all
The fair values of assets and liabilities held by three reporting units and other information related to the reporting units owned by Prover Company are as follows:Requireda. Determine the amount, if
Pumpworks Inc. and Seaworthy Rope Company agreed to merge on January 1, 20X3. On the date of the merger agreement, the companies reported the following data:Pumpworks has 10,000 shares of its $20 par
Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it carries the investment at fair value or if it uses the equity
In 20X0, Neil Company held the following investments in common stock:25,000 shares of B&K Inc.’s 100,000 outstanding shares. Neil’s level of ownership gives it the ability to exercise
An investor uses the equity method to account for an investment in common stock. Assume that (1) the investor owns less than 50 percent of the outstanding common stock of the investee, (2) the
A corporation exercises significant influence over an affiliate in which it holds a 40 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how
On January 2, 20X3, Kean Company purchased a 30 percent interest in Pod Company for $250,000. Pod reported net income of $100,000 for 20X3 and declared and paid a dividend of $10,000. Kean accounts
Investor Inc. owns 40 percent of Alimand Corporation. During the calendar year 20X5, Alimand had net earnings of $100,000 and paid dividends of $10,000.During 20X5, the market value of Alimand’s
A corporation using the equity method of accounting for its investment in a 40 percent-owned investee, which earned $20,000 and paid $5,000 in dividends, made the following entries:What effect will
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept ofa. Reliability.b. Materiality.c. Legal entity.d. Economic
Consolidated financial statements are typically prepared when one company has a controlling interest in another unlessa. The subsidiary is a finance company.b. The fiscal year-ends of the two
Penn Inc., a manufacturing company, owns 75 percent of the common stock of Sell Inc., an investment company. Sell owns 60 percent of the common stock of Vane Inc., an insurance company. In Penn’s
Variable interest entities may be established asa. Corporations.b. Trusts.c. Partnerships.d. All of the above.
An enterprise that will absorb a majority of a variable interest entity’s expected losses is called thea. Primary beneficiary.b. Qualified owner.c. Major facilitator.d. Critical management director.
In determining whether or not a variable interest entity is to be consolidated, the FASB focused ona. Legal control.b. Share of profits and obligation to absorb losses.c. Frequency of intercompany
In Paint’s December 31, 20X8, consolidated balance sheet, what amount should be reported as noncontrolling interest in net assets?a. $0b. $30,000c. $45,000d. $105,000 Items 1 and 2 are based on the
In its consolidated balance sheet at December 31, 20X8, what amount should Paint report as common stock outstanding?a. $50,000b. $100,000c. $137,500d. $150,000 Items 1 and 2 are based on the
Aaron Inc. owns 80 percent of the outstanding stock of Belle Inc. Compare the total consolidated net earnings of Aaron and Belle (X) and Aaron’s operating earnings before considering the income
On October 1, X Company acquired for cash all of Y Company’s outstanding common stock. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income
Ownership of 51 percent of the outstanding voting stock of a company would usually result ina. The use of the cost method.b. The use of the lower-of-cost-or-market method.c. The use of the equity
Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Problem 3–27
Wright Corporation includes several subsidiaries in its consolidated financial statements. In its December 31, 20X2, trial balance, Wright had the following intercompany balances before consolidation
Beni Corporation acquired 100 percent of Carr Corporation’s outstanding capital stock for $430,000 cash. Immediately before the purchase, the balance sheets of both corporations reported the
As a result of Gold’s acquisition of Nugget, the consolidated balance sheet of Gold and Nugget should reflect goodwill in the amount ofa. $500,000.b. $550,000.c. $600,000.d. $650,000.Nugget
Assuming Gold uses the equity method to account for investments and that Gold’s (unconsolidated) balance sheet on December 31, 20X6, reflected retained earnings of $2,000,000, what amount of
Consolidated financial statements are being prepared for a parent and its four wholly owned subsidiaries that have intercompany loans of $100,000 and intercompany profits of $300,000. How much of
On April 1, 20X8, Plum Inc. paid $1,700,000 for all of Long Corp.’s issued and outstanding common stock. On that date, the costs and fair values of Long’s recorded assets and liabilities were as
What amount of inventory will be reported?a. $70,000b. $130,000c. $200,000d. $215,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31, 20X2. Balance
What amount of goodwill will be reported?a. $0b. $23,000c. $43,000d. $58,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31, 20X2. Balance sheet
What amount of total assets will be reported?a. $84,400b. $1,051,000c. $1,109,000d. $1,249,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31, 20X2.
What amount of total liabilities will be reported?a. $265,000b. $436,500c. $701,500d. $1,249,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31,
What amount of consolidated retained earnings will be reported?a. $547,500b. $397,500c. $347,500d. $257,500 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on
What amount of total stockholders’ equity will be reported?a. $407,500b. $547,500c. $844,000d. $1,249,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on
Price Corporation acquired 100 percent ownership of Saver Company on January 1, 20X8, for $128,000. At that date, the fair value of Saver’s buildings and equipment was $20,000 more than the book
Monsanto Company, a St. Louis–based company, is a leading provider of agricultural products for farmers. It sells seeds, biotechnology trait products, and herbicides worldwide.Requireda. How did
Explain how a deferred tax liability and a deferred tax asset conform to the definitions of a liability and an asset in the IFRS Framework.
Explain the concept of a taxable temporary difference.
Provide examples of situations where the taxable or deductible temporary difference should not be recognized.
Explain the rationale for the treatment of tax losses under IAS 12.
How may an investor use the information on deferred taxes in financial analysis of an entity?
In your opinion, is the information reported on deferred taxes relevant for decision-making? Explain.
You have been assigned to prepare the deferred tax computations for Co A for the years ended 31 December 20x2 and 20x3. The following details relate to Co A’s assets and liabilities.(a) Fixed
Company X seeks your assistance to determine its tax expense under IAS 12 Income Taxes. The accountant has provided you with a schedule below of carrying amounts of assets and liabilities and
Explain the significance of earnings per share to investors in publicly traded shares of listed companies.
Entity A reported the following basic earnings per share and diluted earnings per share: Basic EPS Diluted EPS. 20x5 $0.90 0.85 20x4 $1.00 0.80 Explain the possible reason(s) for basic earnings per
Explain why an anti-dilutive potential ordinary share is excluded from the calculation of diluted earnings per share.
Excelsior Corporation reported profit after tax of $5,000,000 for the year ended 31 December 20x3. The following information is provided for the year 20x3:(a) The number of outstanding ordinary
The accountant of Kops Ltd has just prepared the financial statements for the financial year ended 31 December 20x4. The income statement reported a consolidated profit after tax of $14,500,000
The following information pertains to First Corporation Ltd:(a) The number of ordinary shares outstanding at the beginning of 20x1 was 30,000,000.(b) On 1 April 20x0, 6,000,000 convertible preference
Gold Ltd is a publicly listed company and has to provide earnings per share information in accordance with IAS 33 Earnings per Share. The following information relates to the change in ordinary
Sapphire Ltd has a complex capital structure that includes both ordinary shares and potential ordinary shares.Sapphire Ltd reported the following net profit and dividends information for the current
Sapphire Ltd, the company in P12.8 , reported the following net profit after tax for the year ended 31 December 20x1.Required1. Determine the basic earnings per share of Sapphire Ltd for the year
Diamonds Ltd has issued share capital of 2,000,000 ordinary shares as at 31 December 20x6. Profit for the year attributable to ordinary shareholders amounted to $6.5 million. In 20x2, a total of
What “vesting assumptions” need to be made in calculating remuneration expense?
Explain the general principles in the accounting for share-based transactions.
Explain the types of vesting conditions and their significance in accounting for share-based transactions.
Explain how a share appreciation rights plan work.
Under what circumstances is it permissible to use the intrinsic value to measure remuneration expense?
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