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advanced financial accounting
Questions and Answers of
Advanced Financial Accounting
The issued share capital of Edwards ple consists of 800,000 ordinary shares. There are no preference shares. Some years ago, the entity issued EUR 2m of 10 per cent convertible loan stock. The
The net income attributable to the ordinary shareholders of Frobisher plc is as follows: For many years, the entity’s issued share capital consisted of 9 million ordinary shares. However, on 1
On 1 January 2008, an entity issued EUR 4m of 7 per cent convertible loan stock. The holders of this stock may choose to convert the stock to ordinary shares on 1 January 2012, 2013 or 2014. The
Apex plc owns 55 per cent of the ordinary shares of Mitchell Ltd. Brown Ltd owns 30 per cent of the ordinary shares of Mitchell Ltd. During the accounting period under review, there are no
A parent company, P, has a 51 per cent interest in subsidiary S, a listed company. The other shareholders are dispersed and tend not to attend meetings or appoint proxies to represent them. Entity P
The balance sheet of entity H as at 31 December 2009 is shown below: On 1 January 2010, entity H acquired 80 per cent of the 30,000 EUR 1 ordinary shares in entity S$ for EUR 1.60 per share in cash
(a) Explain what is meant by the terms ‘associate’ and ‘significant influence’. (b) Explain the equity method of accounting. Also explain how this differs from the consolidation approach
Analyse the following situations: (a) A owns 60 per cent of the voting rights of B, C owns 19 per cent of the voting rights of B, and the remainder are dispersed among the public. C also is the sole
(a) Entities A and B decide to manufacture products jointly in a new territory. Entity C will undertake the manufacturing process in this territory using components supplied by entity A and entity B.
Entities A, B and C have 60 per cent, 30 per cent and 10 per cent equity interests in entity D. Entity D has 10 board members, six from entity A, three from entity B and one from entity C. Each board
Entity A has a subsidiary B, which has been struggling in recent years and requires significant investment to expand its operations. Entity A’s owners do not have sufficient financial resources
A acquires 25 per cent of the voting shares of B on 1 January 2009. The purchase consideration was EUR 10m, and A has significant influence over B. The retained earnings of B were EUR 15m at the date
A acquired 30 per cent of the issued capital of B for EUR 1m on 31 December 2007. The retained earnings at that date were EUR 2m. A appointed three directors to the board of B. A intends to hold the
The balance sheets of Fiera Ltd, Cole Ltd and Jong Ltd as at 31 July 2009 are as follows: Additional information: (a) On 31 July 2006, Fiera Ltd paid EUR 820,000 to acquire 90 per cent of the share
On December 31, 20X4, Bennett Corporation recorded the following entry on its books to adjust its investment in Stone Container Company stock from the basic equity method to the fully adjusted equity
What is a corporate joint venture? How should an investment in the common stock of a corporate joint venture normally be reported?
Power Corporation purchased 35 percent of the common stock of Snow Corporation on January 1, 20X2, by issuing 15,000 shares of its $6 par value common stock. The market price of Power's shares at the
Best Corporation acquired 25 percent of the voting common stock of Flair Company on January 1, 20X7, by issuing bonds with a par value and fair value of $170,000 and making a cash payment of $26,000.
Which of the costs incurred in completing a business combination are capitalized under the acquisition method?
Roller Corporation purchased 20 percent ownership of Steam Company on January 1, 20X5, for $70,000. On that date, the book value of Steam's reported net assets was $200,000. The excess over book
Turner Manufacturing Corporation owns 40 percent of the common shares of Straight Lace Company. If Straight Lace reports net income of $100,000 for 20X5, what factors may cause Turner to report less
Capital Corporation purchased 40 percent of Cook Company's stock on January 1, 20X4, for $136,000. On that date, Cook reported net assets of $300,000 valued at historical cost and $340,000 stated at
Brindle Company purchased 25 percent of Monroe Company's voting common stock for $162,000 on January 1, 20X4. At that date, Monroe reported assets of $690,000 and liabilities of $230,000. The book
During review of the adjusting entries to be recorded on December 31, 20X8, Grand Corporation discovered that it had inappropriately been using the cost method in accounting for its investment in
How is the total amount of income from a nonsubsidiary investment computed using the fair value method?
Branch Corporation purchased 30 percent of Hardy Company's common stock on January 1, 20X5, and paid $28,000 above book value. The full amount of the additional payment was attributed to amortizable
Rod Corporation purchased 30 percent ownership of Stafford Corporation on January 1, 20X4, for $65,000, which was $10,000 above the underlying book value. Half the additional amount was attributable
When must tax allocation procedures be used in recording income tax expense under the equity method?
Special Corporation reported net income of $250,000 for 20X5 and paid dividends of $50,000. Power Company owns 40 percent of Special's shares and uses the equity method in accounting for its
Long Company owns 25 percent of Computech Company's common stock, purchased December 28, 20X3, at book value. During the two years following the acquisition of its stock by Long, Computech reported
Baltic Corporation owns 30 percent of the voting shares of Cumberland Company. Cumberland reported net income of $70,000 and paid dividends of $30,000 in 20X8. Baltic accounts for its ownership of
On January 1, 20X3, Guild Corporation reported total assets of $470,000, liabilities of $270,000, and stockholders' equity of $200,000. At that date, Bristol Corporation reported total assets of
Potter Company acquired 100 percent of the voting common shares of Stately Corporation by issuing bonds with a par value and fair value of $135,000 to Stately's existing shareholders. Immediately
Fineline Pencil Company acquired 100 percent of Smudge Eraser Corporation's stock on January 2, 20X3, for $150,000 cash. Summarized balance sheet data for the companies on December 31, 20X2, are as
Route Manufacturing acquired 80 percent of the stock of Hampton Mines Inc. in 20X3. In preparing the consolidated financial statements at the end of 20X5, Route's controller discovered that Route had
Byte Computer Corporation acquired 100 percent of Nofail Software Company's stock on January 2, 20X3, by issuing bonds with a par value of $140,000 and a fair value of $150,000 in exchange for the
Byte Computer Corporation acquired 100 percent of Nofail Software Company's common stock on January 2, 20X3, by issuing preferred stock with a par value of $6 per share and a market value of $10 per
Banner Corporation acquired all of Dwyer Company's common stock at underlying book value. At the acquisition date, the book values and fair values of all of Dwyer's assets and liabilities were equal.
Master Products acquired 100 percent ownership of LoCal Bakeries on January 1, 20X3, when the fair value of LoCal's depreciable assets was $50,000 greater than book value. The depreciable assets had
Knight Corporation owns 100 percent of Spahn Company's voting shares. During 20X6, Spahn purchased inventory items for $20,000 and sold them to Knight for $50,000. Knight continues to hold the items
River Products Corporation purchases all its inventory from its wholly owned subsidiary, Clayborn Corporation. In 20X2, Clayborn produced inventory at a cost of $10,000 and sold it to River Products
Beryl Corporation acquired 100 percent of Stargel Enterprises' common stock on December 31, 20X4. At that date, the book values and fair values of Stargel's identifiable assets and liabilities were
Potash Company acquired 100 percent of Bortz Corporation's common stock at underlying book value on December 31, 20X4, which was equal to the fair value of Bortz as a whole. Potash uses the equity
Exacto Company reported net assets of $260,000 on January 1, 20X5, and reported the following net income and dividends for the years indicated:True Corporation acquired 75 percent of Exacto's common
Bishop Enterprises acquired 100 percent of Mangle Manufacturing Company's common shares on January 1, 20X7, for $1,250,000, a price that was $55,000 in excess of the book value of the shares
How does an eliminating entry differ from an adjusting entry?
Ball Corporation's owners recently offered to sell 60 percent of their ownership to Timber Corporation for $450,000. Timber's business manager was told that Ball's book value was $300,000, and she
Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a negative retained earnings balance on December 31, 20X6. Jacobs Corporation purchased 80 percent of Sloan's common stock on
What is the justification for using a differential clearing account in preparing consolidated statements?
When majority ownership is acquired, what portion of the fair value of assets held by the subsidiary at acquisition is reported in the consolidated balance sheet?
Using the data presented in E5-11, prepare a solution assuming the business combination occurred prior to the effective date of FASB 141R.Data From in E5-11Canton Corporation is a majority-owned
Why are eliminating entries in the consolidation workpaper different when the parent accounts for its investment in a subsidiary using the cost method rather than the equity method? What is the major
Using the data presented in E5-13, prepare a solution assuming the business combination occurred prior to the effective date of FASB 141R.Data From in E5-13,Pioneer Corporation purchased 80 percent
Using the data presented in E5-5, prepare a solution assuming the business combination occurred prior to the effective date of FASB 141R.E5-5,Power Company owns 90 percent of Pleasantdale Dairy's
Blake Corporation purchased 100 percent of Shaw Corporation's voting shares on January 1, 20X3, at underlying book value. Blake uses the cost method in accounting for its investment in Shaw. Shaw's
Lintner Corporation purchased 80 percent of Knight Company's voting stock on January 1, 20X6, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 20
The trial balances for Blake Corporation and Shaw Corporation as of December 31, 20X4, follow:Blake acquired 100 percent ownership of Shaw on January 1, 20X3, at a cost of $150,000, which was equal
Using the data presented in P5-28, prepare a solution using the accounting procedures in effect prior to the effective date of FASB 141R.P5-28,Porter corporation acquired 70 percent of Darla
Using the data presented in P5-33, prepare a solution as if the business combination occurred prior to the effective date of FASB 141R.P5-33,Power Corporation acquired 75 percent of Best Company's
Using the data presented in P5-32, prepare a solution as if the business combination occurred prior to the effective date of FASB 141R.P5-32,Power Corporation acquired 75 percent of Best Company's
Trial balance data for Light Corporation and Star Company on December 31, 20X5, are as follows:Light acquired all of Star's shares on January 1, 20X5, for $220,000. The full differential is assigned
Trial balance data for Light Corporation and Star Company on December 31, 20X6, are as follows:Light acquired all of Star's shares on January 1, 20X5, for $220,000, which was equal to the fair value
Rapid Delivery Corporation was created on January 1, 20X2, and quickly became successful. On January 1, 20X6, the owner sold 80 percent of the stock to Samuelson Company at underlying book value. At
Master Corporation acquired 80 percent ownership of Stanley Wood Products Company on January 1, 20X1, for $160,000. On that date, the fair value of the noncontrolling interest was $40,000, and
A subsidiary sold a depreciable asset to the parent company at a profit of $1,000 in the current period. Will the income assigned to the noncontrolling interest in the consolidated income statement
In the elimination of a prior-period unrealized intercorporate gain on depreciable assets, why does the debit to Retained Earnings decrease over time?
Why is there need for an eliminating entry when an intercompany inventory transfer is made at cost?
On December 20, 20X2, Evert Corporation paid Frankle Company $180,000 for inventory that Frankle had purchased for $240,000. Frankle had not previously recognized a loss and reduced the inventory's
How do unrealized intercompany profits on an upstream sale of inventory made during the current period affect the computation of consolidated net income and income to the controlling interest?
The price of high-quality burnwhistles fluctuates substantially from month to month. As a result, it is not uncommon for a company that deals in burnwhistles to report a substantial gain in one
What effect will a subsidiary's 15 percent stock dividend have on the consolidated financial statements?
How do interperiod income tax allocation procedures affect consolidation eliminating entries in the period in which unrealized intercompany profits arise?
When a convertible bond of a subsidiary is treated as common stock in computing the subsidiary's diluted earnings per share, how is the interest on the bond treated in the computation of diluted
Match the descriptions of terms on the left with the terms on the right. Some terms may be used once, more than once, or not at all. January 1 December 31 Average for 20X5 RM 1 = $.21 RM 1 =
a. Prepare a workpaper to develop a consolidated statement of cash flows for 20X4 using the direct method of computing cash flows from operations. b. Prepare a consolidated statement of cash flows
Match the terms on the left side with the descriptions on the right. A description may be used once, more than once, or not at all. Contractual Obligations Long-term debt obligations Capital lease
The IASB Web site can be found at www.iasb.org. Access the Web site and click on the link at the top of the page for Current Projects. On the Current Projects page, click on the IASB link. You may
Explain the accounting for pledges from donors to a VHWO.
Match the transactions on the left with the effects of the transactions on the statement of activities for a voluntary health and welfare organization. A transaction may have more than one effect.
Will the expected amount of deferred income taxes be larger under the cost method or the equity method? Explain.
St. John Corporation is barely solvent and has been seeking an equity investor that would be interested in making a capital contribution so that the company would hopefully return to performance
Marshall Tool and Die Company has been experiencing significant foreign competition and a declining market. Annual net losses from operations have averaged $250,000 over the last three years. The
Cutler Manufacturing manufactures and distributes specialty piping used in the construction industry. Due to the recent contraction in the commercial construction market, the company has had
Cutler Manufacturing manufactures and distributes specialty piping used in the construction industry. Due to the recent contraction in the commercial construction market, the company has had
Record the following transactions. Identify each as a contribution, agency, or an exchange transaction, and prepare any appropriate entries.1. Private University coordinated its annual special event
Select the best answer for each of the following multiple-choice items. (Nos. 2–10 are AICPA adapted.)1. Which of the following is required as part of the complete set of financial statements for a
Transactions (a) through (e) took place in Stoney Heights Private Hospital during the year ending December 31, 2019.a. Gross revenues of $5,000,000 were earned for service to Medicare patients.b.
Record the following annuity and life income activities of Private University:1. On July 1, 2019, R. W. Fields, emeritus professor of accounting, moved out of the state. Fields donated to the
Select the best answer for each of the following multiple-choice items.1. Super Seniors is a not-for-profit organization that provides services to senior citizens. Super employs a full-time staff of
Go to the Web site of a not-for-profit organization. Are audited financial statements provided on the Web site? Is other financial information made available? Assuming you are a potential donor,
Explain the accounting for funds received by an organization acting as an agent, a trustee, or an intermediary, rather than as a donor or donee. What might be the reasoning for the differences?
Packer City’s balance sheet and statement of revenues, expenditures, and changes in fund balances are shown below for the governmental funds. Information on capital assets and long-term obligations
From the following information, prepare a statement of net position for the city of Lucas as of June 30, 2019.
From the following information, prepare a statement of net position for the city of Lucas as of June 30, 2019.
Search the Internet for a popular report of a state or city government. Evaluate the usefulness of the popular report from the perspective of the citizen. In particular, focus on financial accounting
Go to the GASBWeb site, and review the list of current projects and recently released standards. What are the most pressing issues facing the Board? In your opinion, is the Board effectively
Based on the information presented in the 2013 city of Milwaukee, Wisconsin, financial statements, list the major funds disclosed by the city. How were these funds determined? Likewise, what minimum
Based on the information presented in the 2013 city of Milwaukee, Wisconsin, financial statements, list the major funds disclosed by the city. How were these funds determined? Likewise, what minimum
Select the best answer for each of the following multiple-choice items. (Nos. 1, 2, 4, 6, 9, and 10 are AICPA adapted.)1. Which of the following statements is incorrect concerning a governmental
Explain the difference between expenses and expenditures in a state and a local government.
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