1. On December 31, Year One, Giant Company acquired 100 percent of the outstanding stock of Tiny Company. On that date, Tiny was reporting inventory with a cost of $30,000 (but a fair value of $45,000) and sales for the year of $400,000. Upon acquisition, Giant produces consolidated financial statements to combine the two companies. Which of the following statements is correct about these consolidated statements? Tinys inventory is included at $30,000 but none of its revenues are included. Tinys inventory is included at $30,000 as well as its revenue of $400,000. Tinys inventory is included at $45,000 but none of its revenues are included. Tinys inventory is included at $45,000 as well as its revenue of $400,000. 2. One company purchases all of the outstanding shares of another company. The acquiring company incurs the following costs to make this purchase: $300,000 to outside accountants and attorneys as direct consolidation costs, $200,000 as a reasonable allocation of internal costs attributed to this purchase, $120,000 in stock issuance costs in connection with shares issued by the acquiring company to the owners of the acquired company. What amount of these costs should be expensed immediately as incurred? Zero $200,000 $500,000 $620,000 3. Big Company buys 80 percent of the outstanding shares of Little Company on January 1, Year One. Big paid an amount that was in excess of the underlying fair value of the subsidiary's assets and liabilities so that this was not viewed as a bargain purchase. On that date, Little held equipment worth $300,000 but with a net book value of $200,000. This equipment had a ten-year remaining life with no expected residual value. One year later, when Little still held this equipment as well as other, newly-bought pieces, Big reported a net account of $900,000 and Little reported a net account of $500,000. Assume no asset impairments have taken place. What is the consolidated balance to be reported for equipment? $1,472,000 $1,480,000 $1,490,000 $1,500,000 4. On November 1, Year One, the Abernethy Company signs a forward exchange contract to receive one million Japanese yen on February 1, Year Two, for $10,000 based on the three-month forward exchange rate at that time of $1 for 100 Japanese yen (1,000,000 x 1/100 or $10,000). On that same day, Abernethy agrees to acquire inventory for one million yen when it is delivered on February 1, Year Two. The forward exchange receivable is designated as a hedge for this commitment. On November 1, the spot (current) exchange rate is $1 for 94 Japanese yen but that rate change, by December 31, to $1 for 96 Japanese yen. As of December 31, Year One, the forward exchange rate to be paid one month in the future is $1 for 103 Japanese yen. What is the overall impact to be recognized on net income at the end of Year One? 0 $71 loss $221 gain $292 loss one is left i will post last one in few min 5. Big Company buys 80 percent of the outstanding shares of Little Company on January 1, Year One. Big paid an amount that was in excess of the underlying fair value of the subsidiary's assets and liabilities so that this was not viewed as a bargain purchase. On that date, Little had land worth $500,000 but with a book value of $300,000. Several years later, when Little still held this land as well as other parcels of land, Big reported a Land account of $1.1 million and Little reported a Land account of $700,000. Assume no asset impairments have taken place. What is the consolidated balance to be reported for land? Answer $1.66 million $1.82 million $1.96 million $2.00 million 6. On January 1, Year One, Big Company acquires 100 percent of the outstanding shares of Small Company by issuing its own stock worth $12 million. The shares of Small had been worth only $11 million in the period leading up to the acquisition but Big had to pay a premium in order to obtain all of the stock. Big paid an additional $200,000 in cash to attorneys as direct consolidation costs and another $150,000 in stock issuance costs. According to US GAAP, what should be the basis for reporting the assets and liabilities of Small within consolidated financial statements created on the date of acquisition? Answer $11,350,000 $12,000,000 $12,200,000 $12,350,000 7. On December 1, Year One, a company acquires two three-month financial instruments that qualify as derivatives. Financial instrument A was bought to serve as a fair value hedge. Financial instrument B was bought to serve as a cash flow hedge. By the end of Year One, both of these financial instruments have increased in value by $1,000. How should these gains in value be reported by the company on the Year One financial statements? Both gains are reported within net income. Both gains are reported within accumulated other comprehensive income. The gain on the fair value hedge is reported within net income whereas the gain on the cash flow hedge is reported within accumulated other comprehensive income. The gain on the fair value hedge is reported within accumulated other comprehensive income whereas the gain on the cash flow hedge is reported within net income. 8. On November 1, Year One, the Haynie Company signs a contract to receive one million Japanese yen on February 1, Year Two, for $10,000 based on the three-month forward exchange rate at that time of $1 for 100 Japanese yen (1,000,000 x 1/100 or $10,000). This contract is a derivative because its value is derived from the future value of the Japanese yen in relation to the US dollar. On December 31, Year One, the Haynie Company is producing financial statements. How is this forward exchange contract reported? It is shown as an asset or a liability at its fair value. It is shown only as an asset at its fair value. It is shown only as a liability at its fair value. It is only disclosed in the notes to the financial statements because it is a future transaction