Reference no: EM1353060

9. What is the balance in Gale's investment in subsidiary account at the end of 2009?
A. $1,099,000
B, $1,020,000
('.$1,096,200
I). $1,098,000
1 . $1,144,400
10. At the end of 2009, the consolidation entry to eliminate Gale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co. for
A. $124,400
B. $126,000
C. $127,000
I). $76,400
!?:. $0
11. Under the equity method of accounting for an investment,
A. The investment account remains at initial value
B. Dividends received are recorded as revenue
C. Goodwill is amortized over 20 years
I).Income reported by the subsidiary increases the investment account li. Dividends received increase the investment account
12. Under the initial value method, when accounting for an investment in a subsidiary,
A. Dividends received by the subsidiary decrease the investment account
B. The investment account is adjusted to fair value at year-end
( , Income reported by the subsidiary increases the investment account I). The investment account remains at initial value 1:, Dividends received are ignored
13. According to SFAS142, which of the following statements is true?
A. Goodwill recognized in consolidation must be amortized over 20 years
B. Goodwill recognized in consolidation must be expensed in the period of acquisition
(...'. Goodwill recognized in consolidation will not be amortized but subject to an annual test for
impairment
I). Goodwill recognized in consolidation can never be written off
1'. Goodwill recognized in consolidation must be amortized over 40 years /*"*
I
CHAPTER 3 QUESTIONS
1. Which one of the following accounts would not appear on the consolidated financial
statements at the end of the first fiscal period of the combination?
A. Goodwill
B. Equipment
C. Investment in Subsidiary
1). Common Stock
H. Additional Paid-in Capital
2. Which of the following internal record-keeping methods can a parent choose to account for a
subsidiary acquired in a business combination?
A. Initial value or book value
B. Initial value, lower-of-cost-or-market-value or equity
(". Initial value, equity or partial equity
1). Initial value, equity or book value
I . Initial value, lower-of-cost-or-market-value or partial equity
3. Which one of the following varies between the equity, initial value and partial equity methods
of accounting for an investment?
A. The amount of consolidated net income
B. Total assets on the consolidated balance sheet
C. Total liabilities on the consolidated balance sheet
I). The balance in the investment account on the parent's books 1:,. The amount of consolidated cost of goods sold
4. Racer Corp. purchased all of the common stock of Tangiers Co. several years ago. Tangiers
maintained its incorporation. Balances in which of Racer's accounts would vary between the
equity method and the initial value method?
A. Goodwill, Investment in Tangiers Co. and Retained Earnings
B. Expenses, Investment in Tangiers Co. and Equity in Subsidiary Earnings
C. Investment in Tangiers Co., Equity in Subsidiary Earnings and Retained Earnings
!). Common Stock, Goodwill and Investment in Tangiers Co
I'.. Expenses, Goodwill and Investment in Tangiers Co
5. How does the partial equity method differ from the equity method?
A. In the total assets reported on the consolidated balance sheet
B, In the treatment of dividends
('. In the total liabilities reported on the consolidated balance sheet
I). Under the partial equity method, subsidiary income does not increase the balance in the
parent's investment account
1 . Under the partial equity method, the balance in the investment account is not decreased by
amortization on allocations made in the acquisition of the subsidiary
6. Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2009, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2009 and $50,000 in 2010 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2009 and $47,000 in 2010 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2010, if the equity method has been applied? A. $286,000 II $296,000 ( . $276,000 I). $344,000 !?. $300,000
FOR QUESTIONS 7, 8, 9 & 10
On January 1, 2009, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained
separate incorporation. Cale used the equity method to account for the investment. The following
information is available for Kaltop's assets, liabilities and stockholders' equity accounts:
Book fair
Value Value
Current assets $120,000 $120,000
Land 72,000 192,000
Building (twenty year life) 240,000 268,000
Equipment (ten year life) 540,000 516,000
Current liabilities 24,000 24,000
Long-term liabilities 120,000 120,000
Common stock 228,000
Additional paid-in capital 384,000
Retained earnings 216,000
Kaltop earned net income for 2009 of $126,000 and paid dividends of $48,000 during the year.
7. The 2009 total amortization of allocations is calculated to be
A, $4,000
B. $6,400
( .$(2,400) 1). $(1,000) F. $3,800
8. In Gale's accounting records, what amount would appear on December 31, 2009 for equity in
subsidiary earnings?
A. $79,000
B. $129,800
( . $126,000
D. $127,000 ,.-?--..
H, $81,800
14. Matthews Co. obtained all of the common stock of Jackson Co. on January 1, 2009. As of that date, Jackson had the following trial balance:
Debit Credit
Accounts payable $60,000
Accounts receivable $50,000
Additional paid-in capital 60,000
Buildings ? net (20-year life) 140,000
Cash and short-term investments 70,000
Common stock 300,000
Equipment ? net (8-year life) 240,000
Inventory 110,000
Land 90,000
Long-term liabilities (mature 12/31/11) 180,000
Retained earnings, 1/1/09 120,000
Supplies 20,000
Totals $720,000 $720,000
During 2009, Jackson reported net income of $96,000 while paying dividends of $12,000.
During 2010, Jackson reported net income of $132,000 while paying dividends of $36,000.
Assume that Matthews Co. acquired the common stock of Jackson Co. for $588,000 in cash. As
of January 1, 2009, Jackson's land had a fair value of $102,000, its buildings were valued at
$188,000 and its equipment was appraised at $216,000. Any excess of consideration transferred
over fair value of assets and liabilities acquired is due to an unamortized patent to be amortized
over 10 years.
Matthews decided to use the equity method for this investment.
Required:
(A.) Prepare consolidation worksheet entries for December 31, 2009.
CHAPTER 6 QUESTIONS
1. A special purpose entity can take all of the following forms except a
A. Trust
B. Partnership
C. Joint venture
I). Corporation
1 ??;. Estate
2. All of the following are potential losses or returns of a special purpose entity except
A. Entitles holder to residual profits
B. Entitles holder to benefit from increases in asset fair value
C. Entitles holder to receive shares of common stock
1). If the special purpose entity cannot repay liabilities, honoring a debt guarantee will produce a
loss
K, If leased asset declines below the residual value, honoring the guarantee will produce a loss
3. Which of the following characteristics is not indicative of an enterprise qualifying as a
primary beneficiary with a controlling financial interest in a variable interest entity?
A. The direct ability to make decisions about the entity's activities
B. The indirect ability to make decisions about the entity's activities
(.'. The obligation to absorb the expected losses of the entity if they occur
I). No ability to make decisions about the entity's activities
1 . The right to receive the expected residual returns of the entity if they occur
4. Which of the following statements is false concerning variable interest entities (VIEs)?
A. Sometimes VIEs do not have independent management
B. Most VIEs are established for valid business purposes
(.', VIEs may be formed as a source of low-cost financing
I). VIEs have little need for voting stock
1). A VIE cannot take the form of a trust, partnership, joint venture, corporation or estate
5. Which of the following statements is true concerning variable interest entities (VIEs)?
1) The role of the VIE equity investors can be fairly minor.
2) A VIE may be created specifically to benefit its sponsoring firm with low-cost financing.
3) VIE governing agreements often limit activities and decision making.
4) VIEs usually have a well-defined and limited business activity.
A. 2 and 4
B. 2, 3 and 4
('. 1,2 and 4
I). 1,2 and 3
I). 1,2, 3 and 4
CHAPTER 14 QUESTIONS
1. Cherryhill and Hace had been partners for several years and they decided to admit Quincy to
the partnership. The accountant for the partnership believed that the dissolved partnership and
the newly formed partnership were two separate entities. What method would the accountant
have used for recording the admission of Quincy to the partnership?
A. The bonus method
B. The equity method
( . The goodwill method I). The proportionate method 1 . The cost method
2. The disadvantages of the partnership form of business organization, compared to corporations,
include
A. The legal requirements for formation
B, Unlimited liability for the partners
( . The requirement for the partnership to pay income taxes i). The extent of governmental regulation H. The complexity of operations
3. The dissolution of a partnership occurs
A. Only when the partnership sells its assets and permanently closes its books
B. Only when a partner leaves the partnership
('.At the end of each year, when income is allocated to the partners
I). Only when a new partner is admitted to the partnership
I:, When there is any change in the individuals who make up the partnership
4. The partnership of Clapton, Seidel and Thomas was insolvent and will be unable to pay
$30,000 in liabilities currently due. What recourse was available to the partnership's creditors?
A. They must present equal claims to the three partners as individuals
B. They must try obtain a payment from the partner with the largest capital account balance
C. They cannot seek remuneration from the partners as individuals
1) They may seek remuneration from any partner they choose
I ?.. They must present their claims to the three partners in the order of the partners' capital account balances

FOR QUESTIONS 5,6,7,8,9 &10
Cleary, Wasser and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2010. Each partner withdrew $1,000 for personal use every month during 2010.
5. What was Wasser's share of income for 2010?
A. $63,000
B. $53,000
C. $58,000
1), $29,000
I!. $51,000
6. What was Nolan's share of income for 2010?
A. $63,000
B, $53,000
( . $58,000
I). $29,000
H. $51,000
7. What was deary's share of income for 2010?
A, $63,000
B, $53,000
C, $58,000
I). $29,000
!. $51,000
8. What was Nolan's capital balance at the end of 2010?
A. $200,000
B. $224,000
C. $238,000
1). $246,000
1 .$254,000
9. What was Wasser's capital balance at the end of 2010?
A. $150,000
B. $160,000
C. $165,000
I). $213,000
I, $201,000 /^?> '
v ^;
10. What was Cleary's capital balance at the end of 2010?
A. $100,000
B. $117,000
('.$119,000
I). $129,000
I-. $153,000