WEEK 1 QUIZ 1. On January 1, 20X5, AKM Corp. paid $450,000 cash to acquire 25% of the common shares of GKM Corp. At the time of acquisition, the carrying value of GKMs common shares was $500,000, and its retained earnings were $1,200,000. The fair values of the identifiable net assets (INA) approximated their carrying values except for a patent whose fair value was $20,000 higher than its carrying value. The patent has a five-year remaining useful life, and straight-line depreciation is used. GKM paid dividends of $40,000 in 20X5 and reported net income of $120,000.

What amount would be reported on AKMs income statement related to its investment in GKM for 20X5?

a) Investment income of $19,000

b) Investment income of $26,000

c) Investment income of $29,000

d) Investment income of $31,000

2. On January 1, 20X5, KMA Corp. paid $400,000 cash to acquire 40% of the common shares of JDL Corp. At the time of acquisition, the carrying value of JDLs common shares was $250,000, and its retained earnings were $400,000. The fair values of the INA approximated their carrying values except for equipment whose fair value was $15,000 higher than its carrying value. The equipment has a six-year remaining useful life, and straight-line depreciation is used. The investment was found to be impaired by the amount of $8,000 by the end of 20X5. JDL paid dividends of $10,000 in 20X5 and reported net income of $120,000.

What amount would be reported in KMAs investment in JDL account at December 31, 20X5, assuming the equity method is used?

a) $435,000

b) $436,000

c) $439,000

d) $443,000 Advanced Financial Reporting Week 1 Quiz 2 / 3 3. On January 1, 20X4, JVE Corp

3. On January 1, 20X4, JVE Corp. paid $1,000,000 cash to acquire 35% of the common shares of PG Corp. At the time of acquisition, the carrying amount of PGs common shares was $900,000, and its retained earnings were $1,500,000. The fair values of the identifiable net assets (INA) approximated their carrying values except for the following

: The fair value of machinery was estimated to be $400,000; the net book value was $450,000. Other information follows:

The remaining useful life of machinery at the date of acquisition was five years, and the estimated residual value was $0. Both companies depreciate their equipment on a straight-line basis.

PGs net income for the years ended December 31, 20X4, and December 31, 20X5, was $125,000 and $135,000, respectively.

On September 1, 20X4, PG declared and paid $75,000 of dividends on its common shares; no other dividends have been declared since.

The investment in the associate was not impaired.

On January 1, 20X6, JVE reduced its ownership stake in PG to 25%. Cash proceeds realized from the sale of the shares was $330,000.

What is the amount of gain to be reported on the partial disposal of PGs common shares on January 1, 20X6?

a) $16,286

b) $23,786

c) $24,786

d) $37,714

The equipment and patents both have a remaining useful life of five years at the date of acquisition. Straight-line depreciation and amortization is used. Assume that the investment has not been impaired.

4. What is the amount of goodwill using the fair value enterprise (FVE) method at July 1, 20X5?

a) $ 43,200

b) $ 44,000

c) $ 54,000

d) $258,000

5. What amount would be reported for patents on the consolidated SFP at July 1, 20X5?

a) $100,000

b) $164,400

c) $182,400

d) $203,000

Use the following information to answer Questions 4 and 5. Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on July 1, 20X5. Immediately before the acquisition, Pappy and Sappy reported the following: Statements of financial position As at July 1, 20X5 Pappy Sappy Book value Book value Fair value Cash $500,000 $245,000 $245,000 Investments at amortized cost 7,000 24,000 26,000 Accounts receivable 60,000 40,000 40,000 Inventory 120,000 45,000 55,000 Equipment (net) 290,000 80,000 72,000 Patents 10,000 90,000 193,000 Total assets $987.000 $524.000 $160,000 75,000 Current liabilities Bonds payable Common shares Retained earnings Total liabilities and equity $ 95,000 0 400,000 492.000 $987,000 $160,000 70,000 180,000 114.000 $524.000 Use the following information to answer Questions 4 and 5. Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on July 1, 20X5. Immediately before the acquisition, Pappy and Sappy reported the following: Statements of financial position As at July 1, 20X5 Pappy Sappy Book value Book value Fair value Cash $500,000 $245,000 $245,000 Investments at amortized cost 7,000 24,000 26,000 Accounts receivable 60,000 40,000 40,000 Inventory 120,000 45,000 55,000 Equipment (net) 290,000 80,000 72,000 Patents 10,000 90,000 193,000 Total assets $987.000 $524.000 $160,000 75,000 Current liabilities Bonds payable Common shares Retained earnings Total liabilities and equity $ 95,000 0 400,000 492.000 $987,000 $160,000 70,000 180,000 114.000 $524.000