Fischer Taylor Cheng 9e Practice Exam One: Chapters 1-4 Chapter 1 Business Combinations: America's Most Popular Business Activity, Bringing an End to the Controversy 1. The CEO of Megaplex Theater Company is contemplating selling the business. The cumulative earnings for the past 4 years amounted to $1,600,000. The annual earnings, based on an average rate of return on investment for this industry, would have been $230,000. If excess earnings are to be capitalized at 10%, then the implied goodwill in this transaction is. a. $680,000 b. $1,020,000 c. $1,700,000 d. $2,125,000 2. Couples Corporation purchases Players Corporation. The market value of the net assets of Players is $225,000 and the market value of priority accounts is $180,000. Which of the following purchase prices would require using allocation procedures? a. $175,000 b. $200,000 c. $225,000 d. $250,000 3. A business combination occurred halfway through the fiscal year of the acquiring firm. The stock exchanged for the interest of the combining firm far exceeded the book value of the combining firm's assets. If the transaction is considered a purchase, fixed assets would be raised to a higher market value and goodwill would be created. Net income will be higher if the transaction is accounted for as a pooling as compared to a purchase because a. Depreciation expense is higher in the purchase. b. Amortization of identifiable intangible assets with determinable lives is required in the purchase. c. Pooling will include the first half-year of the combiner's income. d. All of the above.
4. Comparative statements of an acquiring firm, which include income from periods prior to a business combination, include the income of the acquired firm under the Purchase Method Pooling Method a. No No b. No Yes c. Yes No d. Yes Yes 5. What is the amount of cash Bordeaux Company would pay for Chateau Company in order to not record any goodwill? Chateau Company Balance Sheet Assets Receivables $300,000 Inventory 200,000 Equipment 400,000 Accumulated Depreciation (150,000) Plant 850,000 Accumulated Depreciation (400,000) Fair Values: Inventory $250,000 Equipment 200,000 Plant 600,000 Bonds Payable 250,000 Total $1,200,000 ======== Liabilities and Equity Direct acquisition costs $30,000 Current liabilities $100,000 Bonds Payable 300,000 Common stock, $1 par 600,000 Paid-in capital in excess of par 50,000 Retained Earnings 150,000 Total $1,200,000 ======== a. $800,000 b. $830,000 c. $970,000 d. $1,100,000
6. If Bordeaux paid $1,100, 000 (including the direct acquisition costs) for Chateau, Bordeaux would debit the plant account for how much? Chateau Company Balance Sheet Assets Receivables $300,000 Inventory 200,000 Equipment 400,000 Accumulated Depreciation (150,000) Plant 850,000 Accumulated Depreciation (400,000) Total $1,200,000 ======== Fair Values: Inventory $250,000 Equipment 200,000 Plant 600,000 Bonds Payable 250,000 Direct acquisition costs $30,000 Liabilities and Equity Current liabilities $100,000 Bonds Payable 300,000 Common stock, $1 par 600,000 Paid-in capital in excess of par 50,000 Retained Earnings 150,000 Total $1,200,000 ======== a. $850,000 b. $600,000 c. $450,000 d. $150,000
7. If Bordeaux paid $1,000, 000 (including the direct acquisition costs) for Chateau, Bordeaux would credit the bonds payable account for how much? Chateau Company Balance Sheet Assets Receivables $300,000 Inventory 200,000 Equipment 400,000 Accumulated Depreciation (150,000) Plant 850,000 Accumulated Depreciation (400,000) Total $1,200,000 ======== Liabilities and Equity Current liabilities $100,000 Bonds Payable 300,000 Common stock, $1 par 600,000 Paid-in capital in excess of par 50,000 Retained Earnings 150,000 Total $1,200,000 ======== Fair Values: Inventory $250,000 Equipment 200,000 Plant 600,000 Bonds Payable 250,000 Direct acquisition costs $30,000 a. $400,000 b. $300,000 c. $250,000 d. $50,000
8. If Bordeaux pays $900,000 for Chateau plus direct acquisition costs, how much would Bordeaux record for the goodwill? Chateau Company Balance Sheet Assets Receivables $300,000 Inventory 200,000 Equipment 400,000 Accumulated Depreciation (150,000) Plant 850,000 Accumulated Depreciation (400,000) Total $1,200,000 ======== Liabilities and Equity Current liabilities $100,000 Bonds Payable 300,000 Common stock, $1 par 600,000 Paid-in capital in excess of par 50,000 Retained Earnings 150,000 Total $1,200,000 ======== Fair Values: Inventory $250,000 Equipment 200,000 Plant 600,000 Bonds Payable 250,000 Direct acquisition costs $30,000 a. $100,000 b. $81,111 c. $18,889 d. $0
9. If Bordeaux pays $900,000 plus direct acquisition costs for Chateau, how much would Bordeaux record for the equipment? Chateau Company Balance Sheet Assets Receivables $300,000 Inventory 200,000 Equipment 400,000 Accumulated Depreciation (150,000) Plant 850,000 Accumulated Depreciation (400,000) Total $1,200,000 ======== Liabilities and Equity Current liabilities $100,000 Bonds Payable 300,000 Common stock, $1 par 600,000 Paid-in capital in excess of par 50,000 Retained Earnings 150,000 Total $1,200,000 ======== Fair Values: Inventory $250,000 Equipment 200,000 Plant 600,000 Bonds Payable 250,000 Direct acquisition costs $30,000 a. $182,500 b. $200,000 c. $250,000 d. $400,000
10. In a pooling of interests when the par or stated value of the shares issued exceeds the total paid-in capital of the combiner, the a. combiner's retained earnings is the first account to be reduced. b. issuer reduces its par or stated value. c. issuer's paid-in capital in excess of par or stated value is the first account to be reduced. d. combiner's total equity is increased by the amount of the excess. Chapter 2 Consolidated Statements: Date of Acquisition 1. Parrot Corp. owns 30% of Sparrow Inc. Summary financial information for 20X1 without reflecting any investment income/(loss) is: Parrott Co. Sparrow Inc. Net Income $200,000 $50,000 Dividends Paid 30,000 10,000 What is the Parrot Co. 20X1 Net Income after recording income from investments? a. $200,000 b. $203,000 c. $215,000 d. $250,000 2. Parent Co. owns 45% of subsidiary with the right to appoint 4 of Subsidiary's 7 members on the board of directors. At year-end, what form of financial statements should be produced? a. Parent should include in Net Income 45% of the dividends paid by Subsidiary. b. Parent should include in Net Income 45% of Subsidiary's net Income. c. Parent should produce consolidated financial statements. d. Subsidiary should produce consolidated financial statements.
3. Pirate Inc. issues 10,000 shares of $4 par value common stock, when the market value is $10/share, to purchase Ship Co. The book value of Ship Co.'s net assets equals their fair value. Ship had the following equity accounts: Common Stock $2 par $20,000 Paid-in Capital in Excess of Par 30,000 Retained Earnings 50,000 Pirate incurred direct acquisition costs of $10,000 and stock issuance costs of $15,000. In Pirate's recording the entry, what is the amount of the debit to Investment in Ship Co.? a. $125,000 b. $115,000 c. $110,000 d. $100,000 4. Pirate Inc. issues 10,000 shares of $4 par value common stock, when the market value is $10/share, to purchase Ship Co. The book value of Ship Co.'s net assets equals their fair value. Ship had the following equity accounts: Common Stock $2 par $20,000 Paid-in Capital in Excess of Par 30,000 Retained Earnings 50,000 Pirate incurred direct acquisition costs of $10,000 and stock issuance costs of $15,000. If Pirate were to create consolidated financial statements immediately upon acquiring Ship, what would be the appropriate elimination and adjustment entry? a. Investment in Ship Co. 110,000 Common Stock 40,000 Paid-in Capital in Excess of Par 60,000 Cash, (direct acquisition costs) 10,000 b. Common Stock 40,000 Paid-in Capital in Excess of Par 60,000 Goodwill 10,000 Investment in Ship Co. 110,000
c. Investment in Ship Co. 110,000 Common Stock 20,000 Paid-in Capital in Excess of Par 30,000 Retained Earnings 50,000 Goodwill 10,000 d. Common Stock 20,000 Paid-in Capital in Excess of Par 30,000 Retained Earnings 50,000 Goodwill 10,000 Investment in Ship Co. 110,000 5. Pug purchased Shelly by issuing common stock valued at $400,000. The book value and fair value of Shelly at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment (net) 80,000 60,000 Building (net) 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Pug acquires 100% of Shelly, what amount will be recorded as goodwill? a. $40,000 b. $80,000 c. $320,000 d. $400,000
6. Pug purchased Shelly by issuing common stock valued at $400,000. The book value and fair value of Shelly at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment (net) 80,000 60,000 Building (net) 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Pug uses push-down accounting, what is amount of retained earnings, after the acquisition, on Shelly's balance sheet. a. $260,000 b. $220,000 c. $40,000 d. $0 7. Pug purchased Shelly by issuing common stock valued at $400,000. The book value and fair value of Shelly at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment (net) 80,000 60,000 Building (net) 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Pug acquires 90% of Shelly, what amount will be recorded as Goodwill? a. $40,000 b. $720,000 c. $76,000 d. $112,000
8. Pug purchased Shelly by issuing common stock valued at $400,000. The book value and fair value of Shelly at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment (net) 80,000 60,000 Building (net) 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Pug purchased 70% of Shelly, by what amount would the inventory account increase or decrease on the consolidated balance sheet on the date of purchase? a. $7,000 b. $60,000 c. $67,000 d. $70,000 9. Pug purchased Shelly by issuing common stock valued at $400,000. The book value and fair value of Shelly at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment (net) 80,000 60,000 Building (net) 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 Assuming the book value of Pug's equipment (net) on the date of acquisition is $100,000 and Pug purchased 80% of Shelly, what would be the balance for the Equipment (net) on the consolidated balance sheet on the date of purchase? a. $180,000 b. $160,000 c. $164,000 d. $116,000
10. Pug purchased Shelly by issuing common stock valued at $400,000. The book value and fair value of Shelly at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment (net) 80,000 60,000 Building (net) 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 Assume the fair value of Shelly's equipment is $110,000 instead of $60,000 and Pug acquires 90% of Shelly for an acquisition cost of $300,000. What is the adjustment to the net building account on the date of acquisition? a. Increase of $3,000 b. Decrease of $2,917 c. Increase of $2,700 d. Decrease of $3,000
Chapter 3 Consolidated Statements: Subsequent to Acquisition 1. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000
In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. What is the 12/31/X1 balance in the Investment in Sanders account if Perry uses the Cost method to account for its subsidiary investments? a. $400,000 b. $449,400 c. $463,000 d. $470,000 2. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are:
Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. For 20X1, what amount is recorded by Perry as "Income from Subsidiary" using the Equity Method? a. $0 b. $49,400 c. $63,000 d. $90,000
3. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ======
Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. What is the 12/31/X1 balance in the Investment in Sanders account if Perry uses the Equity method to account for its subsidiary investments? a. $400,000 b. $449,400 c. $463,000 d. $470,000
4. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. What is the 12/31/X1 balance in
the Investment in Sanders Account if Perry uses the Sophisticated Equity method to account for its subsidiary investments? a. $400,000 b. $449,400 c. $463,000 d. $470,000 5. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ======
Year 20X1 information from related income statement accounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. For 20X1, what amount is recorded by Perry as "Income from Subsidiary" using the Cost Method? a. $0 b. $49,400 c. $63,000 d. $90,000
6. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. If on 12/31/X1 Perry and
Sanders had inventory balances of $120,000 and $65,000 respectively. What is the amount of consolidated cost of goods sold? a. $185,000 b. $641,000 c. $650,000 d. $659,000 7. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ======
Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. At 12/31/X1 Perry and Sanders had equipment balances of $200,000 and $80,000 respectively. What is the amount of consolidated equipment on that date? a. $260,000 b. $262,000 c. $268,000 d. $280,000 8. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000
Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. What is the amount reported as consolidated dividends declared? a. $50,000 b. $53,000 c. $77,000 d. $80,000 9. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is:
Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. What is the amount of the Patent that will be reported on the 12/31/X1 consolidated balance sheet if Perry uses the cost method to account for its investment in Sanders? a. $0 b. $68,400 c. $76,000 d. $77,600
10. Perry acquired Sanders for $400,000 on 12/31/X0. The book value and fair value of Sanders at the time of acquisition was: Book Value Fair Value Cash $30,000 $30,000 Accounts Receivable 50,000 50,000 Inventory 60,000 70,000 Equipment 80,000 60,000 Building 200,000 250,000 Accounts Payable 100,000 100,000 Common Stock 100,000 If Perry acquired 90% of Sanders, with the excess associated with a patent. The Determination and Distribution schedule is: Investment Price $400,000 Book Value of Net Assets purchased: Common Stock $100,000 $320,000 % Acquired 90% 288,000 Excess $112,000 Inventory $10,000 x 90% $9,000 Equipment $(20,000) x 90% (18,000) Building $50,000 x 90% 45,000 36,000 Patent $76,000 ====== Year 20X1 information from related income statement acounts are: Perry Sanders Sales $1,500,000 $500,000 Cost of Goods Sold 450,000 200,000 Operating Expenses 550,000 200,000 Net Income $500,000 $100,000 In addition: Dividends declared were $50,000 by Perry, and $30,000 by Sanders. Inventory was sold during 20X1. Equipment has a 3-year useful life and Building has a 15-year useful life. The Patent has a 10-year useful life. What amount will be reported
on the consolidated 12/31/X1 financial statements for Net Income if Perry uses the Sophisticated Equity Method to account for the investment? a. $500,000 b. $549,400 c. $576,400 d. $600,000
Chapter 4 Intercompany Transactions: Merchandise, Plant Assets, and Notes 1 Consider the following facts: Pollman Shells Sales $1,500,000 $500,000 Cost of Goods Sold 750,000 200,000 Operating Expenses 550,000 200,000 Net Income $200,000 ======= $100,000 ======= Inventory 12/31/X1 $120,000 $60,000 Pollman sold $300,000 of goods to Shells. Of the goods sold $60,000 were not sold on 12/31/X1. Pollman has a uniform margin on all of its sales. Shells has a uniform margin on all of its sales. What amount will be reported as consolidated sales? 2. a. $1,550,000 b. $1,700,000 c. $2,000,000 d. $2,300,000 Pollman Shells Sales $1,500,000 $500,000 Cost of Goods Sold 750,000 200,000 Operating Expenses 550,000 200,000 Net Income $200,000 ======= $100,000 ======= Inventory 12/31/X1 $120,000 $60,000 Pollman sold $300,000 of goods to Shells. Of the goods sold $60,000 were not sold on 12/31/X1. Pollman has a uniform margin on all of its sales. Shells has a uniform margin on all of its sales. What amount will be reported as consolidated cost of goods sold?
3. a. $650,000 b. $680,000 c. $800,000 d. $950,000 Pollman Shells Sales $1,500,000 $500,000 Cost of Goods Sold 750,000 200,000 Operating Expenses 550,000 200,000 Net Income $200,000 ======= $100,000 ======= Inventory 12/31/X1 $120,000 $60,000 Pollman sold $300,000 of goods to Shells. Of the goods sold $60,000 were not sold on 12/31/X1. Pollman has a uniform margin on all of its sales. Shells has a uniform margin on all of its sales. What amount will be reported as consolidated inventory? 4. a. $120,000 b. $150,000 c. $180,000 d. $240,000 Pollman Shells Sales $1,500,000 $500,000 Cost of Goods Sold 750,000 200,000 Operating Expenses 550,000 200,000 Net Income $200,000 ======= $100,000 ======= Inventory 12/31/X1 $120,000 $60,000 Pollman sold $300,000 of goods to Shells. Of the goods sold $60,000 were not sold on 12/31/X1. Pollman has a uniform margin on all of its sales. Shells has a uniform margin on all of its sales.
Assume the beginning inventory contained $30,000 of goods associated with intercompany sales from Pollman to Shells. What amount would be reported as consolidated cost of goods sold? 5. a. $650,000 b. $665,000 c. $680,000 d. $695,000 Pollman Shells Sales $1,500,000 $500,000 Cost of Goods Sold 750,000 200,000 Operating Expenses 550,000 200,000 Net Income $200,000 ======= $100,000 ======= Inventory 12/31/X1 $120,000 $60,000 Pollman sold $300,000 of goods to Shells. Of the goods sold $60,000 were not sold on 12/31/X1. Pollman has a uniform margin on all of its sales. Shells has a uniform margin on all of its sales. Pollman owns 90% of Shell. Assume the beginning inventory contained $30,000 of goods associated with intercompany sales from Pollman to Shells. What would be reported for the controlling interest in consolidated net income? a. $275,000 b. $285,000 c. $295,000 d. $305,000 6. Kristen Company sold inventory that cost $50,000 to its 90%-owned subsidiary, McKeon Corp., for $75,000 in 20X4. McKeon resold $60,000 of this inventory for $85,000 in 20X4. The amount of unrealized profit at the end of 20X4 is. a. $5,000 b. $10,000 c. $20,000 d. $30,000 7. On December 31, 20X1, the books of Park Company and of Sun Company carried the following balances:
Park Sun Equipment, Net $200,000 $117,500 Notes Receivable 250,000 Notes Payable 150,000 Gain on Sale of Equipment 20,000 On the January 2, 20X1 Park sold equipment with a book value of $30,000 to Sun for a $50,000. Sun signed a one-year note promising to pay Park on January 2, 20X2. This is the only note between the two companies. On that date, the equipment had a 4-year useful life. What gain on the sale of equipment will be reported in the consolidated financial statements? a. $0 b. $5,000 c. $15,000 d. $20,000 8. On December 31, 20X1, the books of Park Company and of Sun Company carried the following balances: Park Sun Equipment, Net $200,000 $117,500 Notes Receivable 250,000 Notes Payable 150,000 Gain on Sale of Equipment 20,000 On the January 2, 20X1 Park sold equipment with a book value of $30,000 to Sun for a $50,000. Sun signed a one-year note promising to pay Park on January 2, 20X2. This is the only note between the two companies. On that date, the equipment had a 4-year useful life. What amount is reported on the consolidated financial statements for equipment? a. $292,500 b. $297,500 c. $302,500 d. $317,500 9. On December 31, 20X1, the books of Park Company and of Sun Company carried the following balances: Park Sun
Equipment, Net $200,000 $117,500 Notes Receivable 250,000 Notes Payable 150,000 Gain on Sale of Equipment 20,000 On the January 2, 20X1 Park sold equipment with a book value of $30,000 to Sun for a $50,000. Sun signed a one-year note promising to pay Park on January 2, 20X2. This is the only note between the two companies. On that date, the equipment had a 4-year useful life. What amount would be reported as consolidated Notes Receivable and consolidated Notes Payable? a. $100,000 $0 b. $200,000 $100,000 c. $250,000 $150,000 d. $300,000 $200,000 10. Height Company owns 80% of the common stock of the Lois Company. Lois sold an asset with a book value of $10,000 to Height for $15,000 on January 1, 20X1. Height intended to use the asset for 5 years but sold it to an outside party for $17,000 on December 31, 20X2. If no adjustment were made for this transaction in the consolidation process, on December 31, 20X2, a. Retained earnings, controlling interest, would be overstated $2,400. b. No adjustment would be needed. c. The noncontrolling interest would be overstated $600. d. The noncontrolling interest would be overstated $3,000. Submit y our ans w ers