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fundamentals of advanced accounting

Questions and Answers of Fundamentals Of Advanced Accounting

Does cumulative preferred stock in the capital structure of an investee affect the way that an investor company accounts for its 30% common stock interest? Explain.
Is there any difference in computing goodwill impairment losses for a controlled subsidiary company versus an equity method investment?
Explain the reporting differences for ongoing goodwill impairment losses versus reporting an initial impairment loss upon adoption of SFAS 142.
General questions EXERCISE
Indicators of an investor company’s inability to exercise significant influence over an investee are provided in FASB Interpretation No.
Which of the following is not included among those indicators?a Surrender of significant stockholder rights by agreement b Concentration of majority ownership c Failure to obtain representation on
A 20% common stock interest in an investee company:a Must be accounted for under the equity method b Is accounted for by the cost method because over 20% is required for the application of the equity
The cost of a 25% interest in the voting stock of an investee that is recorded in the investment account includes:a Cash disbursed, the book value of other assets given or securities issued, and
The underlying equity of an investment at acquisition:a Is recorded in the investment account under the equity method b Minus the cost of the investment is assigned to goodwill or negative goodwill c
Jarret Corporation is a 25%-owned equity investee of Marco Corporation. During the current year, Marco receives $12,000 in dividends from Jarret. How does the $12,000 dividend affect Marco’s
[AICPA adapted] General problems
Investor Company owns 40% of Alimand Corporation. During the calendar year, Alimand had net earnings of $100,000 and paid dividends of $10,000. Investor mistakenly recorded these transactions using
The corporation exercises control over an affiliate in which it holds a 40% common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how would this affect the
An investor uses the cost method to account for an investment in common stock. A portion of the dividends received this year were in excess of the investor’s share of investee’s earnings after
On January 1 Grade Company paid $300,000 for 20,000 shares of Medium Company’s common stock, which rep¬ resents a 15% investment in Medium. Grade does not have the ability to exercise significant
The balance in Grade’s balance sheet account “Investment in Medium Company” at December 31 should be a $280,000 b $300,000 c $319,000 d $339,000
On January 2, 2006, Troquel Corporation bought 15% of Zafacon Corporation’s capital stock for $30,000. Troquel accounts for this investment by the cost method. Zafacon’s net income for the years
Pare purchased 10% of Tot Company’s 100,000 outstanding shares of common stock on January 2 for $50,000. On December 31, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no
On January 1, Point purchased 10% of Iona Company’s common stock. Point purchased additional shares, bringing its ownership up to 40% of Iona’s common stock outstanding, on August i. During
In allocating the excess of investment cost over book value acquired of a subsidiary, are the amounts allo¬ cated to identifiable assets and liabilities (land and notes payable, for example)
If the fair value of a subsidiary corporation’s land was $ 100,000 and its book value was $90,000 when the parent company acquired its 100% interest for cash, at what amount would the land be
Define or explain the terms parent company, subsidiary company, affiliated companies, and associated companies.
How should the parent company’s investment in subsidiary account be classified in a consolidated balance sheet? In the parent company’s separate balance sheet?
Name some reciprocal accounts that might be found in the separate records of a parent company and its subsidiaries.
Why are reciprocal amounts eliminated in the preparation of consolidated financial statements?
How does the stockholders’ equity of the parent company that uses the equity method of accounting differ from the consolidated stockholders’ equity of the parent company and its subsidiaries?
Is noncontrolling interest expense an expense? Explain.
Describe how the total noncontrolling interest at the end of an accounting period is determined.
What special procedures are required to consolidate the statements of a parent company that reports on a calendar-year basis and a subsidiary whose fiscal year ends on October 31?
What is the objective of eliminating the effects of intercompany sales of plant assets in the preparation of consolidated financial statements?AppendixLO1
In accounting for unrealized profits and losses from intercompany sales of plant assets, does it make any difference if the parent company is the purchaser or the seller? Would your answer be
When are unrealized gains and losses from intercompany sales of land realized from the viewpoint of the selling affiliate?AppendixLO1
How is the computation of noncontrolling interest expense affected by downstream sales of land? By upstream sales of land?AppendixLO1
Consolidation working paper entries are made to eliminate 100% of the unrealized profit from the land account in downstream sales of land. Is 100% also eliminated for upstream sales of
How are unrealized gains and losses from intercompany transactions involving depreciable assets eventu¬ ally realized?AppendixLO1
Describe the computation of noncontrolling interest expense in the year of an upstream sale of deprecia¬ ble plant assets.AppendixLO1
How does a parent company eliminate the effects of unrealized gains on intercompany sales of plant assets under the equity method?AppendixLO1
What is the effect of intercompany sales of plant assets on parent-company and consolidated net income in years subsequent to the year of sale?AppendixLO1
Explain the sequence of working paper adjustments and eliminations when unrealized gains and losses on plant assets are involved. Is your answer affected by whether the intercompany transaction
What reciprocal accounts arise when one company borrows from an affiliated company?AppendixLO1
Do direct lending and borrowing transactions between affiliated companies give rise to unrealized gains or losses? To unrecognized gains or losses?Intercompany Profit Transactions—Bonds 235
What are constructive gains and losses? Describe a transaction involving a constructive gain.AppendixLO1
A company has a $1,000,000 bond issue outstanding with unamortized premium of $10,000 and unamor¬ tized issuance cost of $5,300. What is the book value of its liability? If an affiliated company
Compare a constructive gain on intercompany bonds with an unrealized gain on the intercompany sale of land.AppendixLO1
Describe the process by which constructive gains on intercompany bonds are realized and recognized on the books of the separate affiliated companies. Does recognition of a constructive gain in
If a subsidiary purchases parent-company bonds at a price in excess of their recorded book value, is the gain or loss attributed to the parent company or the subsidiary? Explain.AppendixLO1
The following information related to intercompany bond holdings was taken from the adjusted trial balances of a parent company and its 90%-owned subsidiary four years before the bond issue
Prepare a journal entry (or entries) to account for the parent-company investment income for the current year if the reported income of its 80%-owned subsidiary is $50,000 and the consolidated entity
Calculate the parent company’s income from its 75%-owned subsidiary if the reported net income of the subsidiary for the period is $100,000 and the consolidated entity has a constructive loss of
If a parent company reports interest expense of $4,300 with respect to bonds held intercompany and the subsidiary reports interest income of $4,500 for the same bonds, (a) Was there a constructive
How are intercompany receivables and payables of equity investees reported in parent-company and consolidated financial statements?AppendixLO1
Are the following statements concerning fixed assets true or false?a. Infrastructure assets need to be disclosed on the government-wide statement of net assets.b. Accrued interest is reported as a
In reconciling the fund balance for government activities to net assets in govern- ment activities (government-wide basis), which of the following items is not a rec- onciling item?a. Capital assets
Mary contributed \($40,000\) cash to her alma mater. She did not impose any restrictions on the contribution.Determine how much of the following contributions should be treated as unrestricted
David contributed \($60,000\) cash to State University. He stipulated that the money could not be used until Professor Lowgrade retired. Professor Lowgrade is not expected to retire for five
Betty pledged to give \($10,000\) to the University of Treetop by the end of the year. Determine how much of the following contributions should be treated as unrestricted revenue during the current
If the noncash assets are sold for $100,000 cash, determine the amount of cash, if any, that partner A will receive upon liquidation.The trial balance for the ABC Partnership before bankruptcy is as
If the noncash assets are sold for $50,000 cash and assuming that partners with a deficit balance cannot contribute additional assets, determine the amount of cash, if any, that partner A will
The capital balances for partners A and B are \($120,000\) and \($60,000,\) respectively. They share profits and losses in the ratio 60:40. The partnership has \($15,000\) in liabilities. Prepare a
On January 1, 2009, Stale City reported an unreserved fund balance of \($50,000. \) During the year, estimated revenues were \($400,000\) and actual revenues were \($425,000.\) Appropriations for the
Using the revenue test, determine which of the operating segments are reportable segments.Nash Consolidated is involved in four operating segments, A,B,C, and D (there are no intersegment sales). The
Using the operating profit test, determine which of the operating segments are reportable segments.Nash Consolidated is involved in four operating segments, A,B,C, and D (there are no intersegment
Using the asset test, determine which of the operating segments are reportable segments.Nash Consolidated is involved in four operating segments, A,B,C, and D (there are no intersegment sales). The
Using your answer to parts 1 through 3 and using the 75% combined revenue test, determine the number of reportable segments.Nash Consolidated is involved in four operating segments, A,B,C, and D
Bob and Tom form a partnership on January 1, 2008. Bob contributes \($50,000,\) Tom contributes \($100,000\) cash and a building worth \($200,000.\) The building is while subject to a mortgage of
Determine the amount of cash that Craig must pay if the partners do not wish to recognize any goodwill or bonus.Richard, Dave, and Luke have been operating a magazine stand for several years. They
Determine Craig's initial capital balance if he contributes $60,000 cash and the bonus method is applied.Richard, Dave, and Luke have been operating a magazine stand for several years. They share
Determine Craig's initial capital balance if he contributes $60,000 cash and the goodwill method is applied.Richard, Dave, and Luke have been operating a magazine stand for several years. They share
Indicators that the local currency is also the functional currency include all of the following excepta. The majority of the cash flows are in the local currency.b. Sales prices are determined by
Indicators that the local currency is also the functional currency for a foreign subsidiary include:a. Sales are mostly in the United States.b. There is a high volume of intercompany transactions.c.
If the functional currency is the currency of a third country (not the parent's and not the local currency), the appropriate approach to converting the account balances into U.S. dollars is:a. The
Under the current method of currency translation, which of the following balance sheet accounts is translated at historical exchange rates?a. Cashb. Accounts Receivablec. Bonds Payabled. Common Stock
If SMC does not hedge the payable, raw materials will be recorded on the books on March 1, 2010 at what amount?a. 50,000 eurosb. \($72,000\)c. $70,000d. None of the above On December 1, 2009, SMC
What is the total amount of the transaction gain or loss to be included in net income?a. \($2,000\) gainb. \($2,000\) lossc. No gain or loss is recognized until the raw materials are soldd. There is
To hedge the company's accounts payable position, SMC should:a. Buy a forward contract to purchase 50,000 euros on March 1b. Buy a forward contract to sell 50,000 euros on March 1c. None of the
If SMC uses a forward contract to hedge the payable, what is the overall transaction gain or loss on the company from using the hedge?a. $2,000 gainb. $1,500 lossc. $1,500 gaind. $2,000
If the company does not hedge the commitment, at what amount is the equipment recorded on the books on November 30, 2009?a. \($300,000\) b. \($260,000\) c. \($200,000\) :d. None of the above On
If the company acquires a forward contract to hedge any unfavorable changes in fair value of the equipment, at what amount is the equipment recorded on the books on November 30, 2009? The forward
If the forward contract is acquired, what is the overall exchange gain or loss?a. \($0\)b. \($10,000\) gainc. \($10,000\) lossd. \($30,000\) gain On October 1, 2008, Short Company ordered some
Proper Company purchased the outstanding common stock of Silly Company in increments as follows:January 1, 2008, Purchased 15%June 1, 2008, Additional 20%August 1, 2008, Additional 30%September 30,
Suppose a parent company owns 90% of a particular subsidiary at the beginning of its fiscal year, but during the year the parent sells 10% of its interest, thus reducing its ownership percentage to
Sandler Company is a wholly owned subsidiary of Portnoy Company. On January 1, 2009, Sandler has \($100,000\) of 8% bonds outstanding. These bonds were issued at face value and had five years to
Company Planets Galore owns 100% of the common stock of Saturn Inc. Saturn carries 10-year 8% bonds, issued to yield 7%, on its balance sheet. On January 1 of the current year, Planets Galore bought
Company S is a wholly owned subsidiary of Company P. On January 1, 2009, Company S had \($100,000\) of 8% bonds outstanding. The bonds had five years remaining to maturity as of January 1, 2009, and
Explain how to account for the difference between implied and book value interest of an investment in preferred stock of a subsidiary.
The highest priority for payment of unsecured claims in a bankruptcy proceeding isa. Wages up to $4,650 earned within three months before the petitionb. Unpaid federal income taxesc. Administrative
Insolvency means that a debtor has more current liabilities than current assets. True or False
If an insolvent debtor has more than 12 creditors, an involuntary petition must be signed by at least 3 of those creditors.True or False
Unsecured creditors with priority will receive full satisfaction before secured creditors are paid. True or False
Either a debtor or its creditors-may file a petition for reorganization under Chapter 11 of the Reform Act.True or False
Assume that a debtor owes a creditor a \($10,000\) note payable with \($2,000\) accrued interest. Determine the amount of the gain or loss included in ordinary income and/or the amount of the gain or
Pristine Corporation owns 80% of Serendipity Inc’s common stock. During 2008, Pristine sold Serendipity $250,000 of inventory on the same terms as sales made to third parties. Serendipity sold all
Polychromasia Company sold inventory costing \($30,000\) to its subsidiary, Simply Colorful, for double its cost in 2009. Polychromasia owns 80% of Simply Colorful.Simply resold \($50,000\) of this
Skipper Company owns all the outstanding common stock of Anchorage Inc. During 2010, Skipper sells merchandise to Anchorage that is in turn sold to outsiders. None of the intercompany merchandise
Peller owns 80% of Sando Company common stock. During the fourth quarter of 2009, Sando sold inventory to Peller for $200,000. At the end of December 2009, half this inventory remained in Peller’s
Pony owns 80% of Shetland. During 2010, Shetland sold $100,000 of merchandise at a 25% gross profit to its parent. One-tenth of the goods remain unsold by Pony at the end of 2010. How much gross
Parting Ways owns all of the common stock of Smarts Inc. On January 1, 2009, Parting sold to Smarts for a \($5,000\) gain a fixed asset that Smarts will use over the next five years. How should this
Punn Corporation owns all the common stock of Prey Inc. On January 2, 2010, Punn sells a machine with a book value of \($30,000\) to Prey for \($40,000.\) Prey uses straight-line depreciation and
Price Corp. owns 80% of the common stock of Stairways to Heaven. Stairways sold an asset with a carrying value of \($10,000\) to its parent for \($15,000\) on January 1, 2006. Price intended to use
In the event of a bargain acquisition (after carefully considering the fair valuation of all subsidiary assets and liabilities), FASB requires the following accounting:a. an ordinary gain is reported

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