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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Swan Corporation acquired 90 percent of the stock of United Mining Company in a business combination recorded as a pooling of interests on January 1, 20X0. United Mining Company reports the following
Crandic Company and Modest Corporation joined together on January 1, 20X2, in a business combination treated as a pooling of interests. Simplified trial balances for the two companies on December
Summarized balance sheets for Blue Star Corporation and Select Soup Company as of December \(31,20 \times 2\), are presented below. The two companies plan to join together in a pooling of interests
Yarn Manufacturing Corporation issued stock with a par value of \(\$ 67,000\) to acquire 95 percent of the stock of Spencer Corporation in a pooling of interests completed on August 30, 20X1. On
Yam Manufacturing Corporation issued stock with a par value of \(\$ 67,000\) and a market value of \(\$ 503.500\) to purchase 95 percent of the stock of Spencer Corporation on August 30, 20X1. On
Highbeam Corporation paid \(\$ 319,500\) to purchase 90 percent ownership of Copper Company on April 1, 20X2. On January 1, 20X2, Copper Company reported the following stockholders' equity balances:
Highbeam Corporation exchanged 35,000 shares of its \(\$ 5\) par value common stock for 90 percent ownership of Copper Company on April 1, 20X2, in a business combination recorded as a pooling of
Springdale Corporation holds 75 percent of the voting shares of Holiday Services Company. During 20X7 Springdale sold inventory costing \(\$ 60,000\) to Holiday Services for \(\$ 90,000\), and
Springdale Corporation holds 75 percent of the voting shares of Holiday Services Company. During 20X7 Springdale sold inventory costing \(\$ 60.000\) to Holiday Services for \(\$ 90,000\), and
Winter Corporation owns 80 percent of the stock of Ray Guard Corporation and 90 percent of the stock of Block Company. The companies file a consolidated tax return each year and in 20X5 paid a total
Amber Corporation holds 70 percent of the voting common shares of Newtop Company, but none of its preferred shares. Summary balance sheets for the companies on December 31, 20X1, are as
Crystal Corporation owns 60 percent of the common shares of Evans Company. Balance sheet data for the companies on December 31, 20X2, are as follows:The bonds of Crystal Corporation and Evans Company
Eagle Corporation holds 80 percent of the common shares of Standard Company. The following balance sheet data are reported by the companies for December 31, 20X1:An 8 percent annual dividend is paid
Metal Corporation acquired 75 percent ownership of Ocean Company on January 1, 20X1. Consolidated balance sheets at January 1, 20X3, and December 31, 20X3, are as follows:The consolidated income
Traper Company holds 80 percent ownership of Arrow Company. The consolidated balance sheets as of December 31, 20X3, and December 31, 20X4, are as follows:The 20X4 consolidated income statement
Sun Corporation was created on January 1, 20X2, and quickly became successful. On January 1, 20X6, the owner sold 80 percent of the stock to Weatherbee Company at underlying book value. Weatherbee
Presented below are the consolidated balance sheet accounts of Brimer Inc. and its subsidiary, Dore Corporation, as of December 31, 20X6 and 20X5.1. On January \(20,20 \mathrm{X} 6\), Brimer Inc.
Detecto Corporation purchased 60 percent of the outstanding shares of Strand Company on January \(1,20 \mathrm{X} 1\), for \(\$ 24,000\) more than book value. The full amount of the excess payment is
Proud Corporation acquired 90 percent of the voting shares of Allied Products Company in a business combination recorded as a pooling of interests on January 1, 20X2. Proud Corporation uses the
Blackbum Corporation acquired 100 percent ownership of MDK Company on May 13, 20X0, in a business combination recorded as a pooling of interests. Trial balances for the companies on December 31,
Richardson Corporation was created to develop computer software. On January 1, 20X3. Wealthy Company acquired 90 percent of the common stock of Richardson Corporation in a business combination
Emma Inc. acquired all the outstanding \(\$ 25\) par value common stock of Steed Inc. on June 30, \(20 X 7\), in exchange for 40,000 shares of its \(\$ 25\) par value common stock. The business
Blase Company operates on a calendar-year basis, reporting the results of operations quarterly. For the first quarter of \(20 \mathrm{XI}\). Blase reported net income of \(\$ 60,000\) and paid a
Buster Products Corporation acquired 90 percent ownership of Sanford Company on October 20. 20X2. through an exchange of voting shares in a transaction recorded as a purchase. Buster Products issued
Buster Products Corporation acquired 90 percent ownership of Sanford Company on October 20, \(20 \mathrm{X} 2\), through an exchange of voting shares in a transaction qualifying as a pooling of
Pico Corporation issued 200,000 shares of its \(\$ 10\) par common stock on March 31, 20X0, to acquire all the outstanding \(\$ 25\) par value common stock of Strata Inc. The business combination
Acme Powder Corporation purchased 70 percent of the stock of Brown Company on December 31, 20X7, at underlying book value. The balance sheets of the two companies on December 31, 20X9, are as
Broom Manufacturing used cash to purchase 75 percent of the voting stock of Satellite Industries on January 1, 20X3, at underlying book value. Broom accounts for its investment in Satellite using the
Hardtack Bread Company holds 70 percent of the common shares of Custom Pizza Corporation. Trial balances for the two companies on December 31, 20X7, are as follows:At the beginning of \(20 \times
Branch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores. The balance sheets of the companies as of December 31,20X4, were as follows:The 8 percent preferred stock
Mighty Corporation holds 80 percent of the common stock of Longfellow Company. The following balance sheet data are presented for December 31, 20X7:Longfellow Company reported net income of \(\$
Select the correct answer for each of the following questions.1. 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
Select the correct answer for each of the following questions.1. During 20X3. Park Corporation recorded sales of inventory costing \(\$ 500,000\) to Small Company, its wholly owned subsidiary, on the
Select the correct answer for each of the following questions.Blue Company purchased 60 percent ownership of Kelly Corporation in 20X1. On May 10. 20X2, Kelly purchased inventory from Blue for \(\$
Select the correct answer for each of the following questions.Lorn Corporation purchased inventory from Dresser Corporation for \(\$ 120,060\) on September 20. 20X1, and resold 80 percent of the
Select the correct answer for each of the following questions.Showtime Corporation holds 80 percent of the stock of Movie Productions Inc. During 20X4, Showtime purchased an inventory of snack bar
Nordway Corporation purchased 90 percent of the voting shares of stock of Olman Company in 20X1. During 20X4, Nordway purchased 40,000 Playday doghouses for \(\$ 24\) each and sold 25,000 of the
Nordway Corporation purchased 90 percent of the voting shares of stock of Olman Company in 20X1. During 20X4, Nordway purchased 40,000 Playday doghouses for \(\$ 24\) each and sold 25,000 of the
Karlow Corporation owns 60 percent of the voting shares of Draw Company. During 20X3, Karlow produced 25.000 computer desks at a cost of \(\$ 82\) each and sold 10.000 desks to Draw Company for \(\$
Holiday Bakery owns 60 percent of the stock of Farmco Products Company. During 20X8. Farmco Products produced 100.000 bags of flour, which it sold to Holiday Bakery for \(\$ 900.000\). On December
Holiday Bakery owns 60 percent of the stock of Farmco Products. On January 1, 20X9. inventory reported by Holiday Bakery included 20.000 bags of flour purchased from Farmco Products at \(\$ 9\) per
Bass Company purchased 60 percent of the voting shares of Cooper Company for \(\$ 260,000\) on January 1. 20X2. Cooper Company reported total stockholders' equity of \(\$ 400.000\) at the time of
The price of high-quality burnwhistles fluctuates substantially from month to month. As a result, it is not uncommon for a company that deals in burnwhistles to report a substantial gain in one
Hollow Corporation purchased 70 percent of the voting stock of Surg Corporation on May 18, 20X1, at underlying book value. The companies reported the following data with respect to intercompany sales
The December 31, 20X8, balance sheets for Doorst Corporation and its 70 percent owned subsidiary Hingle Company contained the following summarized amounts:Doorst purchased the shares of Hingle
Klon Corporation owns 70 percent of the stock of Brant Company and 60 percent of the stock of Torkel Company. During 20X8, Klon sold inventory purchased in 20X7 for \(\$ 100,000\) to Brant Company
Herb Corporation holds 60 percent ownership of Spice Company. Each year, Spice Company purchases large quantities of a gnarl root used in producing health drinks. Spice purchased \(\$ 150,000\) of
Home Products Corporation sells a broad line of home detergent products. Home Products owns 75 percent of the stock of Level Brothers Soap Company. During 20X8, Level Brothers sold soap products to
Sweeny Corporation owns 60 percent of the shares of Bitner Company. Partial 20X2 financial data for the companies and consolidated entity were as follows:On January 1, 20X2, the inventory of Sweeny
Carroll Company sells all its output at 25 percent above cost. Pacific Corporation purchases all its inventory from Carroll Company. Selected information on the operations of the companies over the
Stem Corporation purchased 70 percent of the voting stock of Crown Corporation on January 1, 20X2, for \(\$ 465,000\). At that date, Crown reported common stock outstanding of \(\$ 200,000\) and
In preparing the consolidation workpaper for Bolger Corporation and its 60 percent owned subsidiary, Feldman Company, the following eliminating entries were proposed by the bookkeeper for Bolger
Keller Corporation acquired 75 percent of the ownership of Tropic Company on January 1, 20X1. The purchase differential paid by Keller is assigned to buildings and equipment and expensed over 10
Clean Air Products owns 80 percent of the stock of Superior Filter Company, which it acquired at underlying book value on August 30,20X6. Summarized trial balance data for the two companies as of
Ajax Corporation purchased at book value 70 percent of the ownership of Beta Corporation and 90 percent of the ownership of Cole Corporation in 20X5. There are frequent intercompany transfers among
On January 1, 20X1, Priority Corporation purchased 90 percent of the common stock of Tall Corporation at underlying book value. Priority uses the equity method in accounting for its investment in
Proud Company and Slinky Company both produce and purchase equipment for resale each period and frequently sell to each other. Since Proud Company holds 60 percent ownership of Slinky Company, the
Bell Company purchased 60 percent ownership of Troll Corporation on January 1, 20X1, for \(\$ 83,000\). On that date, Troll reported common stock outstanding of \(\$ 100,000\) and retained earnings
Crow Corporation purchased 70 percent of the voting common stock of West Company on January \(1,20 \times 7\), for \(\$ 291,200\). On that date, the book value of West Company's net assets was \(\$
Bunker Corporation owns 80 percent of the stock of Harrison Company. At the end of 20X8, Bunker Corporation and Harrison Company reported the following partial operating results and inventory
Hart Corporation purchased 70 percent of the voting common shares of Bock Company on January \(1,20 \times 2\), for \(\$ 94,000\). At that date, Bock Company had \(\$ 80,000\) of common stock
Direct Sales Corporation purchased 60 percent of the stock of Concerto Company on January 1, 20X3, for \(\$ 24.000\) in excess of the underlying book value. The difference relates to goodwill. At
Block Corporation was created on January 1, 20X0, to develop computer software. On January 1, 20X5, Foster Company purchased 90 percent of the common stock of Block Corporation at underlying book
Mega Retail Corporation purchased 80 percent of the voting shares of Dime Store Enterprises on January 1, 20X4, for \(\$ 227,200\). On that date Dime Store Enterprises reported retained earnings of
The December 31, 20X6, condensed balance sheets of Pine Corporation. and its 90 percent owned subsidiary, Slim Corporation, are presented in the accompanying worksheet.Additional information is as
Randall Corporation acquired 80 percent of the voting shares of Sharp Company on January 1 . 20X4, for \(\$ 280,000\) in cash and marketable securities. At the time of acquisition, Sharp Company
Fran Corporation acquired all the outstanding \(\$ 10\) par value voting common stock of Brey Inc. on January 1, 20X9. in exchange for 25,000 shares of its \(\$ 20\) par value voting common stock. On
Randall Corporation acquired 80 percent of the voting shares of Sharp Company on January 1, 20X4, for \(\$ 280,000\) in cash and marketable securities. At the time of acquisition, Sharp Company
On December 31, 20X7, Randall Corporation recorded the following entry on its books to adjust from the basic equity method to the fully adjusted equity method for its investment in Sharp Company
Fran Corporation acquired all the outstanding \(\$ 10\) par value voting common stock of Brey Inc. on January 1,20X9, in exchange for 25,000 shares of its \(\$ 20\) par value voting common stock. On
The trial balance data presented in Problem 7-35 can be converted to reflect use of the cost method by inserting the following amounts in place of those presented for Randall
When a bond issue has been placed directly with an affiliate, what account balances will be stated incorrectly in the consolidated statements if the intercompany bond ownership is not eliminated in
When bonds of an affiliate are purchased from a nonaffiliate during the period, what balances will be stated incorrectly in the consolidated financial statements if the intercompany bond ownership is
When a parent company sells land to a subsidiary at more than book value, the consolidation eliminating entries at the end of the period include a debit to the gain on the sale of land. When a parent
What is the effect on consolidated net income of eliminating intercompany interest income and interest expense when there has been a direct sale of bonds to an affiliate? Why?
What is the effect on consolidated net income of eliminating intercompany interest income and interest expense when a loss on bond retirement has been reported in a prior year's consolidated
If the bonds of an affiliate are purchased from a nonaffiliate at the beginning of the current year, how can the amount of the gain or loss on constructive retirement be computed by looking at the
When the parent company purchases the bonds of a subsidiary from a nonaffiliate for more than book value, what income statement accounts will be affected in preparing consolidated financial
When a subsidiary purchases the bonds of its parent from a nonaffiliate for less than book value, what will be the effect on consolidated net income?
How is the amount of income assigned to the noncontrolling interest affected when bonds of the subsidiary are purchased by the parent from an unaffiliated company for less than book value?
How would the relationship between interest income recorded by a subsidiary and interest expense recorded by the parent be expected to change when a direct placement of the parent's bonds with the
A subsidiary purchased bonds of the parent company from a nonaffiliate in the preceding period, and a gain on bond retirement was reported in the consolidated income statement as a result of the
A parent company purchased bonds of its subsidiary from a nonaffiliate in the preceding year, and a loss on bond retirement was reported in the consolidated income statement. How will income assigned
A parent purchases bonds of a subsidiary directly from the subsidiary. The parent later sells the bonds to a nonaffiliate. From a consolidated viewpoint, what occurs when the parent sells the bonds?
Shortly after a parent company purchased its subsidiary's bonds from a nonaffiliate, the subsidiary retired the entire issue. How is the gain or loss on bond retirement that is reported by the
Describe the consolidation procedures needed to deal with intercorporate leasing arrangements for the following types of leases: (a) operating, (b) direct financing, and (c) sales-type.
Bradley Corporation sold bonds to Flood Company in 20X2 at 90 . At the end of 20X4, Century Corporation purchased the bonds from Flood Company at 105. Bradley Corporation then retired the full bond
The controller of Snerd Corporation is experiencing difficulty in explaining the impact of several of the company's intercorporate bond transactions.\section*{Required}a. Snerd receives interest
Intercompany debt, both long-term and short-term, arises frequently. In some cases intercorporate borrowings may arise because one affiliate can borrow at a cheaper rate than others, and lending to
Lamar Corporation owns 60 percent of the voting shares of Humbolt Corporation. On January 1 . 20X2, Lamar Corporation sold \(\$ 150,000\) par value 6 percent first mortgage bonds to Humbolt for \(\$
Nettle Corporation sold \(\$ 100,000\) par value, 10 -year, first mortgage bonds to Timberline Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 12 percent, pay
Wood Corporation owns 70 percent of the voting shares of Carter Company. On January 1, 20X3, Carter Company sold bonds with a par value of \(\$ 600,000\) at 98 . Wood Corporation purchased \(\$
Stellar Corporation purchased bonds of its subsidiary from a nonaffiliate during 20X6. Although Stellar purchased the bonds at par value, a loss on bond retirement is reported in the 20X6
Select the correct answer for each of the following questions.1. [AICPA Adapted] Wagner, a holder of a \(\$ 1,000,000\) Palmer Inc. bond, collected the interest due on March 31, 20X8, and then sold
Parent Company paid a nonaffiliate \(\$ 95,000\) in \(20 \times 4\) to purchase bonds that are recorded as a liability of \(\$ 105,000\) on the books of Subsidiary Company. Parent Company owns 60
On January 1, 20X4, Passive Heating Corporation paid \(\$ 104,000\) for \(\$ 100,000\) par value, 9 percent bonds of Solar Energy Corporation. Solar Energy Corporation had issued \(\$ 300,000\) of
Able Company issued \(\$ 600,000\) of 9 percent first mortgage bonds on January 1. 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation
Able Company issued \(\$ 600,000\) of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation
Farley Corporation owns 70 percent of the stock of Snowball Enterprises. On January 1, 20X1, Farley Corporation sold \(\$ 1,000,000\) par value 7 percent, 20 -year, first mortgage bonds to Kling
Apple Corporation holds 60 percent of the voting shares of Shortway Publishing Company. Apple Corporation issued \(\$ 500,000\) of 10 percent bonds with a 10 -year maturity on January 1, 20X2, at 90.

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