ACCT 424 Final Exam

1. Whitley Corporation identified four operating segments: Automotive, Electrical, Lawn Equipment, and Sporting Goods. Automotive met the revenue test and the profit or loss test. Electrical met all three tests. Lawn Equipment met only the asset test. Sporting Goods did not meet any of the three tests. Which of these segments must be disclosed separately?    A. Option AB. Option BC. Option CD. Option DE. Option E2. In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must: A. present financial statements that comply with international GAAP.B. conform with U.S. GAAP or present a reconciliation to U.S. GAAP.C. have a demonstrated need for capital to be used for operations in the U.S.D. use the U.S. dollar as their reporting currency.E. use IFRS, or use foreign GAAP and provide a reconciliation to U.S. GAAP.3. When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to: A. declare personal bankruptcy.B. initiate legal proceedings against the partnership.C. contribute cash to the partnership.D. deliver a note payable to the partnership with specific payment terms.E. None of the above. The partner has no legal responsibility to cover the capital deficit balance.4. Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2011. Pigskin received payment of 35,000 British pounds on May 8, 2011. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar) A. $10,500 lossB. $10,500 gainC. $1,750 lossD. $3,850 lossE. No gain or loss should be recognized. 5. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2011, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2011, how much income should Yaro recognize related to this investment? A. $24,000.B. $75,000.C. $99,000.D. $51,000.E. $80,000.6. In a father-son-grandson combination, which of the following statements is true? A. Companies that are solely in subsidiary positions must have their realized income computed first in the consolidation process.B. Father-son-grandson configurations never require consolidation unless one company owns 100% of at least one other member of the combined group.C. The order of the computation of realized income is not important in the consolidation process.D. The parent must have its realized income computed first in the consolidation process.E. None of the above.7. Which one of the following is a requirement that must be met before an involuntary bankruptcy petition can be filed when there are at least 12 unsecured creditors? A. The petition must be filed by all creditor(s) to whom the debtor owes at least $13,475.B. The petition must be signed by creditor(s) with unsecured debts of at least $5,000.C. The petition must be signed by a majority of the creditor(s).D. The petition must be signed by creditor(s) to whom the debtor owes more than half of its debts.E. The petition must be signed by at least three creditors with unsecured debts of at least $13,475.8. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his capital account balance was only $60,000. The four partners shared net income and losses equally. The journal entry to record the effect on John’s capital due to Danny’s withdrawal would include : A. $6,667 debit to John, Capital.B. $6,667 credit to John, Capital.C. $20,000 debit to John, Capital.D. $5,000 debit to John, Capital.E. $5,000 credit to John, Capital.9. Where should a company undergoing reorganization report the gains and losses resulting from the reorganization? A. On the statement of retained earnings.B. On the income statement, combined with the gains and losses from operations.C. On the statement of stockholders’ equity.D. On the income statement, separate from other gains and losses.E. On the statement of cash flows.10. How should the fresh start reorganization value normally be determined? A. As the sum of current replacement cost of the company’s assets.B. By discounting future cash flows for the entity that will emerge.C. As the sum of the historical cost of net assets.D. As the sum of the net realizable value of identifiable assets.E. By adjusting current cash flows for the entity as it emerges from reorganization.11. In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true? A. Parent company earnings per share equals consolidated earnings per share when the equity method is used.B. Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used.C. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value.D. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value.E. Preferred dividends are not deducted from net income for consolidated earnings per share.12. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? A. If majority control is still maintained, consolidated financial statements are still required.B. If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required.C. If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required.D. If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required.E. A gain or loss calculation must be prepared if control is lost.13. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet:   Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000.If the noncash assets were sold for $234,000, what amount of the loss would have been allocated to Bartle? A. $43,200.B. $46,800.C. $40,000.D. $42,400.E. $43,100.14. What is Form 10-K? A. A quarterly report filed with the SEC.B. An annual report filed with the SEC.C. A semiannual report filed with the SEC.D. A form filed with the SEC before the company issues stock for the first time.E. A form filed with the SEC before issuing stocks to acquire another company. 15. Partnerships have alternative legal forms including all of the following except: A. General Partnership.B. Limited Partnership.C. Subchapter S Partnership.D. Limited Liability Partnership.E. Limited Liability Company.16. At the date of an acquisition which is not a bargain purchase, the acquisition method A. consolidates the subsidiary’s assets at fair value and the liabilities at book value.B. consolidates all subsidiary assets and liabilities at book value.C. consolidates all subsidiary assets and liabilities at fair value.D. consolidates current assets and liabilities at book value, long-term assets and liabilities at fair value.E. consolidates the subsidiary’s assets at book value and the liabilities at fair value.17. A company should always use the equity method to account for an investment if: A. it has the ability to exercise significant influence over the operating policies of the investee.B. it owns 30% of another company’s stock.C. it has a controlling interest (more than 50%) of another company’s stock.D. the investment was made primarily to earn a return on excess cash.E. it does not have the ability to exercise significant influence over the operating policies of the investee.18. On January 1, 2011, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.’s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2011 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011? A. $2,040,500.B. $2,212,500.C. $2,260,500.D. $2,171,500.E. $2,071,500.19. 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.D. Income reported by the subsidiary increases the investment account.E. Dividends received increase the investment account.20. Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation. At what amount should land be recorded on the partnership books? A. $20,000.B. $30,000.C. $45,000.D. $50,000.E. $200,000. 21. Sparkman Co. filed a bankruptcy petition and liquidated its noncash assets. Sparkman was paying forty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of $150,000 on land that was sold for $110,000. The total amount of payment that Bailey should have received is calculated to be A. $110,000.B. $44,000.C. $126,000.D. $150,000.E. $60,000.22. 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.C. The goodwill method.D. The proportionate method.E. The cost method.23. On January 1, 2011, Jordan Inc. acquired 30% of Nico Corp. Jordan used the equity method to account for the investment. On January 1, 2012, Jordan sold two-thirds of its investment in Nico. It no longer had the ability to exercise significant influence over the operations of Nico. How should Jordan have accounted for this change? A. Jordan should continue to use the equity method to maintain consistency in its financial statements.B. Jordan should restate the prior years’ financial statements and change the balance in the investment account as if the fair-value method had been used since 2011.C. Jordan has the option of using either the equity method or the fair-value method for 2011 and future years.D. Jordan should report the effect of the change from the equity to the fair-value method as a retrospective change in accounting principle.E. Jordan should use the fair-value method for 2012 and future years but should not make a retrospective adjustment to the investment account.24. How are assets and liabilities valued on a Statement of Financial Affairs?    A. Entry A.B. Entry B.C. Entry C.D. Entry D.E. Entry E. 25. 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.C. at the end of each year, when income is allocated to the partners.D. only when a new partner is admitted to the partnership.E. when there is any change in the individuals who make up the partnership.26. In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true? A. Negative goodwill is recorded.B. A deferred credit is recorded.C. A gain on bargain purchase is recorded.D. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit.E. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain. 27. Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.When Buckette prepared consolidated financial statements, it should include A. Shuvelle but not Tayle.B. Tayle but not Shuvelle.C. either Shuvelle or Tayle.D. Shuvelle and Tayle.E. neither Shuvelle nor Tayle.28. Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop’s preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop’s annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop’s bonds. Stoop reported income of $300,000 for 2011. Stoop’s diluted earnings per share (rounded) is calculated to be A. $5.62.B. $3.26.C. $3.11.D. $5.03.E. $4.28. 29. Darron Co. was formed on January 1, 2011 as a wholly owned foreign subsidiary of a U.S. corporation. Darron’s functional currency was the stickle (§). The following transactions and events occurred during 2011:    What was the amount of the translation adjustment for 2011? A. $293,479 increase in relative value of net assets.B. $302,137 increase in relative value of net assets.C. $300,160 increase in relative value of net assets.D. $187,418 increase in relative value of net assets.E. $270,800 increase in relative value of net assets. 30. A company that was to be liquidated had the following liabilities:    Total assets, available to pay liabilities with priority and unsecured creditors, are calculated to be what amount? A. $ 75,000.B. $270,000.C. $275,000.D. $295,000.E. $370,000. 31. On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:    Compute the fair value of the foreign currency option at December 1, 2011. A. $6,000.B. $4,500.C. $3,000.D. $7,500.E. $1,500.32. Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco’s fiscal year-end. The pertinent exchange rates were as follows:    How much US $ will it cost Brisco to finally pay the payable on June 7? A. $1,666,667.B. $2,440,000.C. $2,520,000.D. $2,500,000.E. $2,400,000.33. Parsons Company acquired 90% of Roxy Company several years ago and recorded goodwill of $200,000 at that date. During 2013 an analysis of the fair value of Roxy’s assets determined an impairment of goodwill in the amount of $50,000. What journal entry would be made by Parsons regarding the impairment of goodwill?    A. Journal entry A.B. Journal entry B.C. Journal entry C.D. Journal entry D.E. Journal entry E.