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fundamentals of advanced accounting

Questions and Answers of Fundamentals Of Advanced Accounting

Rogers Company holds 80 percent of the common stock ofAndrews, Inc., and 40 percent of this subsidiary’s convertible bonds. The following consolidated financial statements are for 2008 and 2009:
The individual financial statements for these two companies for the year ending December 31, 2010, are as follows: LO4 Sales and other revenues.Mona, Inc.. . $ (500,000)Lisa Company$
On January 1, 2009, Mona, Inc., acquired 80 percent of Lisa Company’s common stock as well as 60 percent of its preferred shares. Mona paid $65,000 in cash for the preferred stock, with a call
Fred, Inc., and Herman Corporation formed a business combination on January 1, 2009, when Fred acquired a 60 percent interest in Herman’s common stock for $312,000 in cash. The book value of Herman
Pavin Stabler Investment in Pavin bonds. LO4-0-147,000 Land, buildings, and equipment (net).245,000 541,000 Trademarks.-0-Total assets..... $ 1,250,000$ 810,000 Accounts payable.. . . . $
Pavin purchases all of Stabler’s outstanding shares on January 1,2009, for $460,000 in cash. Ofthis price, $30,000 was attributed to equipment with a 10-year remaining life and $40,000 was assigned
On January 1, 2009, Abraham Company purchased 90 percent of Sparks Company’s outstanding shares. Sparks had a net book value on that date of $480,000: common stock ($10 par value) of $200,000 and
Davis, Incorporated, acquired 16,000 shares of Maxwell Company several years ago. At the present time, Maxwell is reporting $800,000 as total stockholders’ equity, which is broken down as follows:
Alice, Inc., owns 100 percent of Rughty, Inc. On Alice’s books, the Investment in Rughty account currently is shown as $731,000 although the subsidiary’s 40,000 shares have an underlying book
The following separate income statements are for Mason and its 80 percent-owned subsidiary, Dixon: LO4 Revenues.Expenses.Gain on sale of equipment . Equity earnings of subsidiary Net
Garfun, Inc., owns all of the stock of Simon, Inc. For 2009, Garfun reports income (exclusive of any investment income) of $480,000. Garfun has 80,000 shares of common stock outstanding. It also has
Primus, Inc., owns all outstanding stock of Sonston, Inc. For 2009, Primus reports income (exclu¬ sive of any investment income) of $600,000. Primus has 100,000 shares of common stock out¬
Parent Corporation owns all 30,000 shares of the common stock of Subsid, Inc. Parent has 60,000 shares of its own common stock outstanding. In 2009, Parent earns income (without any consider¬ ation
Ames Company and its 80 percent-owned subsidiary, Wallace, have the following income statements for 2009: LO4 Revenues.Cost of goods sold.Depreciation and amortization Other expenses.Gain on sale of
The following information has been taken from the consolidation worksheet of Peak and its 90 percent-owned subsidiary, Valley: LO4 Peak reports a $ 12,000 gain on the sale of a building. The building
Through the payment of $10,468,000 in cash, Drexel Company acquires voting control over Young Company. This price is paid for 60 percent of the subsidiary’s 100,000 outstanding common shares ($40
Smith, Inc., has the following stockholders’ equity accounts as of January 1, 2009: LO4 Preferred stock—$100 par, nonvoting and nonparticipating, 8 percent cumulative dividend. $ 2,000,000 Common
Hepner Corporation has the following stockholders’ equity accounts: LO4 Preferred stock (6% cumulativedividend). $500,000 Commonstock. 750,000 Additional paid-in capital.300,000 Retainedearnings.
Opus, Incorporated, owns 90 percent of Bloom Company. On December 31, 2009, Opus acquires half of Bloom’s $500,000 in outstanding bonds. These bonds had been sold on the open market on January
Several years ago Absalom, Inc., sold $800,000 in bonds to the public. Annual cash interest of 8 percent ($64,000) was to be paid on this debt. The bonds were issued at a discount to yield 10
Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2009: LO4 Highlight Kiort Revenues and
Darges owns 51 percent of the voting stock ofWalrus, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other
On December 31,2009, PanTech Company invests $20,000 in SoftPlus, a variable interest entity In contractual agreements completed on that date, PanTech established itself as the primary benefi¬ ciary
The following describes a set of arrangements between TecPC Company and a variable interest entity (VIE) as of December 31, 2009. TecPC agrees to design and construct a new research and development
Hillsborough Country Outfitters, Inc., entered into an agreement for HCO Media LLC to exclu¬ sively conduct Hillsborough’s e-commerce initiatives through a jointly owned (50 percent each) Internet
On January 1, 2010, Russell reacquires 8,000 of the outstanding shares of its own common stock for $24 per share. None of these shares belonged to Chapman. How does this transaction affect the parent
On January 1, 2010, Russell issues 10,000 additional shares of common stock for $15 per share. Chapman does not acquire any of this newly issued stock. How does this transaction affect the parent
On January 1, 2010, Russell issues 10,000 additional shares of common stock for $25 per share. Chapman acquires 8,000 of these shares. How will this transaction affect the parent company’s
Ames owns 100 percent ofNestlum, Inc. Although the Investment in Nestlum account has a balance of $596,000, the subsidiary’s 12,000 shares have an underlying book value of only $40 per share. On
Aedion Company owns control over Breedlove, Inc. Aedion reports sales of $300,000 during 2009 and Breedlove reports $200,000. Inventory costing $20,000 was transferred from Breedlove to Aedion
On January 1, 2009, Mitchell Company has a net book value of $ 1,500,000 as follows: LO4 1,000 shares of preferred stock; par value $100 per share; cumulative, nonparticipating, nonvoting; call value
On January 1, 2009, Top Company spent a total of $4,384,000 to acquire control over Bottom Com¬ pany. This price was based on paying $424,000 for 20 percent of Bottom’s preferred stock and
Able Company possesses 80 percent of Baker Company’s outstanding voting stock. Able uses the par¬ tial equity method to account for this investment. On January 1, 2006, Able sold 9 percent bonds
Using the same information presented in problem 12, what is the noncontrolling interest’s share of the subsidiary’s net income? LO4a. $27,000.b. $28,290.c. $28,620.d. $30,000.
Ace Company reports current earnings of $400,000 while paying $40,000 in cash dividends. Byrd Company earns $100,000 in net income and distributes $10,000 in dividends. Ace has held a 70 percent
Thompkins, Inc., owns Pastimer Company, which had a bond payable outstanding on January 1, 2009, with a book value of $189,000. The parent acquired the bond on that date for $206,000. Sub¬ sequently
Rodgers, Inc., owns Ferdinal Corporation. For 2009, Rodgers reports net income (without consideration of its investment in Ferdinal) of $200,000 and the subsidiary reports $80,000. The parent had a
A parent company owns a controlling interest in a subsidiary whose stock has a book value of $31 per share. At the end of the current year, the subsidiary issues new shares entirely to outside
Thuoy Corporation is computing consolidated EPS. One of its subsidiaries has stock warrants out¬ standing. How do these convertible items affect the consolidated EPS computation? LO4a. No effect is
Net cash flows from financing activities were LO4a. $(25,000).b. $(37,000).c. $(38,000).d. $(42,000).
Net cash flows from operating activities were LO4a. $12,000.b. $20,000.c. $24,000.d. $25,000.
Warrenton, Inc., owns 80 percent ofAminable Corporation. On a consolidated income statement, the Noncontrolling Interest in the Subsidiary’s Income is reported as $37,000. Aminable paid a total
Aceton Corporation owns 80 percent of the outstanding stock of Voctax, Inc. During the current year, Voqtax made $140,000 in sales to Aceton. How does this transfer affect the consolidated statement
The parent company acquires all of a subsidiary’s common stock but only 70 percent of its preferred shares. This preferred stock pays a 7 percent annual cumulative dividend. No dividends are in
A subsidiary acquired a bond that the parent company had issued at a discount several years ago from an outside party at a premium. Which of the following statements is true? LO4a. The bond has no
A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties.
Assume the same information as in question 16 except that Metcalf issues a 10 percent stock dividend instead of selling new shares of stock. How does this transaction affect the business combination?
Washburn Company owns 75 percent of Metcalf Company’s outstanding common stock. During the current year, Metcalf issues additional shares to outside parties at a price more than book value. How
Why might a subsidiary decide to issue new shares ofcommon stock to parties outside the business combination? LO4
A subsidiary has (1) a convertible preferred stock and (2) a convertible bond. How are these items factored into the computation of earnings per share for the business combination? LO4
In many cases, consolidated EPS is computed based on consolidated net income and parent company shares and convertibles. However, a different process must be used for some business combinations. When
How do noncontrolling interest balances affect the consolidated statement of cash flows? LO4
The income statement and the balance sheet are produced using a worksheet, but a consolidated statement of cash flows is not. What process is followed in preparing a consolidated statement of cash
Perkins Company acquires 90 percent of the outstanding common stock of the Butterfly Corpora¬ tion as well as 55 percent of its preferred stock. How should these preferred shares be accounted for
A parent acquires the outstanding bonds of a subsidiary company directly from an outside third party. For consolidation purposes, this transaction creates a gain of $45,000. Should this gain be
One company purchases the outstanding debt instruments ofan affiliated company on the open mar¬ ket. This transaction creates a gain that is appropriately recognized in the consolidated financial
Several years ago, Bennett, Inc., bought a portion ofthe outstanding bonds of Smith Corporation, a subsidiary organization. The acquisition was made from an outside party. In the current year, how
When a company acquires an affiliated company’s debt instruments from a third party, how is the gain or loss on extinguishment of the debt calculated? When should this balance be recognized? LO4
In question 4, why is the consolidation process simpler if the bonds had been acquired directly from the subsidiary than from a third party? LO4
A parent company acquires from a third party bonds that had been issued originally by one of its subsidiaries. What accounting problems are created by this purchase? LO4
When is a sponsoring firm required to consolidate the financial statements of a VIE with its own financial statements? LO4
What are variable interests in an entity and how might they provide financial control over an entity? LO4
What is a variable interest entity (VIE)? LO4
Why would a subsidiary buy or sell more shares of its own stock after coming under the control of a parent company? What effect do such transac¬ tions have on consolidated financial statements? LO4
How are basic and diluted earnings per share computed for business combinations? LO4
What effect does a business combina¬ tion have on the consolidated state¬ ment of cash flows? LO4
What impact does a subsidiary's pre¬ ferred stock have on the consolidation process? LO4
How do intercompany debt and related interest affect the consolida¬ tion process in the year of acquisition as well as in succeeding periods? LO4
When a company buys an affiliate's debt instrument from an outside party, the reciprocal balances (investment and debt, interest revenue and expense, etc.) usually do not agree. LO4
What is a variable interest entity and when must such an entity be consoli¬ dated? How are consolidated values determined for variable interest entities? LO4
On February 1, Piscina Corporation completed a combination with Swimwear Company accounted for as a pooling of interests. At that date, Swimwear’s account balances were as
Flaherty Company entered into a business combination with Steeley Company in March 2001. The combination was accounted for as a pooling of interests. Registration fees were incurred in issuing common
How would equipment obtained in a business combination have been recorded under each of the following njethods?Pooling of Interests Purchasea. Recorded valueb. Recorded valuec. Fair valued. Fair
Merrill acquires 100 percent of the outstanding voting shares of Harriss Company on January 1, 2008. To obtain these shares, Merrill pays $200,000 in cash and issues 10,000 shares of its own $ 10 par
Use the same information as presented in question (22) but assume that Arlington pays $2,020,000 in cash. An additional $20,000 is paid in direct combination costs. For each of the following
Use the same information as presented in question (22) but assume that Arlington pays cash of $2.3 million. No stock is issued. An additional $40,000 is paid in direct combination costs. For each of
Winston has the following account balances as of February 1.Inventory. $ 600,000 Land.500,000 Buildings (net) (valued at $1,000,000). 900,000 Common stock ($ 10 par value). (800,000)Retained earnings
Bakel Corporation has the following December 31 account balances:Receivables.Inventory.Land.Building.Liabilities.Common stock.Additional paid-in capital Retained earnings, 1/1 . .Revenues.Expenses.$
On December 31,2009, Pacifica, Inc., acquired 100 percent ofthe voting stock of Seguros Company. Pacifica will maintain Seguros as a wholly owned subsidiary with its own legal and accounting
On January 1, 2009, NewTune Company exchanges 15,000 shares of its common stock for all ofthe outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value.
SafeData Corporation has the following account balances and respective fair values on June 30:Book Values Fair Values Receivables$ 80,000$ 80,000 Patented technology 100,000 700,000 Customer
On June 30, 2009, Sampras Company reported the following account balances:Receivables Inventory Buildings (net) Equipment (net) Total assets$ 80,000 Current liabilities $ (10,000)70,000 Long-term
Allerton Company acquires all Deluxe Company’s assets and liabilities for cash on January 1, 2009, and subsequently formally dissolves Deluxe. At the acquisition date, the following book and fair
Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2009, for $495,000 cash. Although many of Spider’s book values approximate fair values, several of its accounts
On January 1,2009, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $200,000 in long-term liabilities and 20,000
The financial statements for Wisconsin, Inc., and Badger Company for the six-month period end¬ing June 30, 2009 follow:Wisconsin Badger Revenues.. S(900,000)$(300,000)Expenses.660,000 200,000 Net
Following are preacquisition financial balances for Parrot Company and Sun Company as of December 31. Also included are fair values for Sun Company accounts.Parrot Company Sun Company Book Values
Prycal Co. merges with InterBuy, Inc., and acquires several different categories of intangible assets including trademarks, a customer list, copyrights on artistic materials, agreements to receive
Foi the fiscal year ending December 31, how will consolidated net income of this business combination be determined if Hill acquires all of Loring’s stock?a. Hill’s income for the past year plus
Assume that Hill issues 10,000 shares of common stock with a $5 par value and a $40 fair value to obtain all of Loring’s outstanding stock. How much goodwill should be recognized?a. —0—.b.
Prior to being united in a business combination, Atkins, Inc., and Waterson Corporation had the fol¬ lowing stockholders’ equity figures:Common stock ($1 par value) Additional paid-in capital . .
On June 1,2009, Cline Co. paid $800,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying values for Renn’s assets and liabilities on June 1, follow:Cash. $150,000
Under SFAS 141R, when is a gain recognized in consolidating financial information?a. When any bargain purchase is created.b. In a combination created in the middle of a fiscal year.c. In an
Williams Company obtains all of the outstanding stock of Jaminson, Inc. In a consolidation pre¬ pared immediately after the takeover, at what value will Jaminson’s inventory be consolidated?a. At
What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?a. Expense upon acquisition.b. Capitalize as an asset.c.
What is a statutory merger?a• A merger approved by the Securities and Exchange Commission.b. An acquisition involving the purchase of both stock and assets.c. A takeover completed within one year
Cation Corporation is having liquidity problems, and as a result, it sells all of its outstanding stock to Lambert, Inc., for cash. Because of Catron’s problems, Lambert is able to acquire this
Morgan Company acquires all of the outstanding shares of Jennings, Inc., for cash. Morgan trans¬ fers consideration more than the fair value of the company’s net assets. How should the payment in
Business combinations historically were accounted for as either a purchases or a pooling of interests. Why did the FASB prohibit these methods for future combinations?
How do firms account for the ongoing research and development activities of an acquired business? How do firms account for the wide range of intangi¬ ble assets that frequently comprise a large

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