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advanced financial accounting
Questions and Answers of
Advanced Financial Accounting
How is the amount reported as goodwill determined under the acquisition method?
Which of the following actions is likely to result in recording goodwill on Poker Company’s books?a. Poker acquires Spade’s Corporation in a business combination recorded as a merger.b. Poker
On January 1, 20X1, Portland Corporation issued 10,000 shares of common stock in exchange for all of Stockton Corporation’s outstanding stock. Condensed balance sheets of Portland and Stockton
On April 1, 20X2, Pack Company paid $800,000 for all of Sack Corporation’s issued and outstanding common stock. Sack’s recorded assets and liabilities on April 1, 20X2, were as follows:On April
Pickle Corporation issued nonvoting preferred stock with a fair market value of $4,000,000 in exchange for all the outstanding common stock of Sickle Corporation. On the date of the exchange, Sickle
Popper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Popper had purchased the equipment with a 10-year expected life 4 years earlier for
Pead Corporation established a new subsidiary and transferred to it assets with a cost of $90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The
Salt Company, a newly established subsidiary of Pepper Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in
Pout Company reports assets with a carrying value of $420,000 (including goodwill with a carrying value of $35,000) assigned to an identifiable reporting unit purchased at the end of the prior year.
Pill Company has a reporting unit and the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit’s net assets on Pill’s books is $575,000, which includes
Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale
Pester Company transferred the following assets to a newly created subsidiary, Shumby Corporation, in exchange for 40,000 shares of its $3 par value stock:Requireda. Give the journal entry in which
Pab Corporation decided to establish Sollon Company as a wholly owned subsidiary by transferring some of its existing assets and liabilities to the new entity. In exchange, Sollon issued Pab 30,000
Pagle Corporation established a subsidiary to enter into a new line of business considered to be substantially more risky than Pagle’s current business. Pagle transferred the following assets and
Incomplete Data on Creation of Subsidiary Plumb Company created Stew Company as a wholly owned subsidiary by transferring assets and accounts payable to Stew in exchange for its common stock. Stew
Acquisition in Multiple Steps Peal Corporation issued 4,000 shares of its $10 par value stock with a market value of $85,000 to acquire 85 percent of the common stock of Seed Company on August 31,
On January 1, 20X2, Prost Company acquired all of SKK Corporation’s assets and liabilities by issuing 24,000 shares of its $4 par value common stock. At that date, Prost shares were selling at $22
Plint Corporation exchanged shares of its $2 par common stock for all of Sark Company’s assets and liabilities in a planned merger. Immediately prior to the combination, Sark’s assets and
Pancor Corporation paid cash of $178,000 to acquire Sink Company’s net assets on February 1, 20X3. The balance sheet data for the two companies and fair value information for Sink immediately
Power Company purchased Sark Corporation’s net assets on January 3, 20X2, for $625,000 cash. In addition, Power incurred $5,000 of direct costs in consummating the combination. At the time of
Saspro Division is considered to be an individual reporting unit of Pabor Company. Pabor acquired the division by issuing 100,000 shares of its common stock with a market price of $7.60 each.
Pamrod Manufacturing acquired all the assets and liabilities of Stafford Industries on January 1, 20X2, in exchange for 4,000 shares of Pamrod’s$20 par value common stock. Balance sheet data for
Following are the balance sheets of Power Boogie Musical Corporation and Shoot-Toot Tuba Company as of December 31, 20X5.In preparation for a possible business combination, a team of experts from
On January 1, 20X2, Plend Corporation acquired all of Stork Corporation’s assets and liabilities by issuing shares of its common stock. Partial balance sheet data for the companies prior to the
On January 1, 20X1, Palpha Corporation acquired all of Stravo Company’s assets and liabilities by issuing shares of its $3 par value stock to the owners of Stravo Company in a business
Pintime Industries Inc. entered into a business combination agreement with Sydrolized Chemical Corporation (SCC) to ensure an uninterrupted supply of key raw materials and to realize certain
What types of investments in common stock normally are(a) accounted for using the equity method(b) carried at fair value?
When will the balance in the intercorporate investment account be the same if the investment is carried at fair value, or if the equity method of accounting is used?
How is the receipt of a dividend recorded under the equity method? When investments are carried at fair value?
How does carrying securities at fair value differ from the equity method in reporting income from nonsubsidiary investments?
How does the consolidation process change when consolidated statements are prepared after—rather than at —the date of acquisition?
How is the amount reported as consolidated retained earnings determined?
Pencil Company acquired 80 percent of Stylus Corporation’s stock on January 2, 20X3, for $72,000 cash. Summarized balance sheet data for the companies on December 31, 20X2, follow:Required Prepare
Pie Corporation acquired 80 percent of Slice Company’s common stock on December 31, 20X5, at underlying book value. The book values and fair values of Slice’s assets and liabilities were equal,
Pistol Corporation purchased 100 percent ownership of Scope Products on January 1, 20X6, for $56,000, at which time Scope Products reported retained earnings of $10,000 and capital stock outstanding
Pint Enterprises acquired 100 percent of Saloon Builders’ stock on December 31, 20X4. Balance sheet data for Pint and Saloon on January 1, 20X5, are as follows:At the date of the business
Police Corporation acquired 100 percent of Station Corporation’s voting shares on January 1, 20X3, at underlying book value. At that date, the book values and fair values of Station’s assets and
Police Corporation acquired 100 percent of Station Corporation’s voting shares on January 1, 20X3, at underlying book value. At that date, the book values and fair values of Station’s assets and
Polka Corporation acquired 100 percent of Song Company’s voting stock on January 1, 20X4, at underlying book value. Polka uses the equity method in accounting for its ownership of Song. On December
Pork Corporation acquired all the voting shares of Swine Enterprises on January 1, 20X4. Balance sheet amounts for the companies on the date of acquisition were as follows:Swine Enterprises’
Pot Inc. acquired all Seed Inc.’s outstanding $25 par common stock on December 31, 20X3, in exchange for 40,000 shares of its $25 par common stock. Pot’s common stock closed at $56.50 per share
Powder Company spent $240,000 to acquire all of Sawmill Corporation’s stock on January 1, 20X2. On December 31, 20X4, the trial balances of the two companies were as follows:Sawmill Corporation
Pretzel Corporation acquired 100 percent of Stick Company’s outstanding shares on January 1, 20X7. Balance sheet data for the two companies immediately after the purchase follow:As indicated in the
Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $203,000. The trial balances for the two companies on December 31, 20X7, included the following amounts:Additional
Problem Company owns 90 percent of Solution Dairy’s stock. The balance sheets of the two companies immediately after the Solution acquisition showed the following amounts:The fair value of the
Professor Corporation acquired 70 percent of Scholar Corporation’s common stock on December 31, 20X4, for $102,200. The fair value of the noncontrolling interest at that date was determined to be
Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for $486,000. At the time of the combination, Station reported common stock outstanding of
Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling interest was $32,000. The book value of
This problem is a continuation of P5–33. Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling
Pirate Corporation acquired 60 percent ownership of Ship Company on January 1, 20X8, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of
This problem is a continuation of P5–37. Pirate Corporation acquired 60 percent ownership of Ship Company on January 1, 20X8, at underlying book value. At that date, the fair value of the
How is the amount to be reported as cost of goods sold by the consolidated entity determined when there have been intercorporate sales during the period?
Planet Corporation acquired 90 percent of Saturn Company’s voting shares of stock in 20X1. During 20X4, Planet purchased 40,000 Playday doghouses for $24 each and sold 25,000 of them to Saturn for
Plug Products owns 80 percent of the stock of Spark Filter Company, which it acquired at underlying book value on August 30, 20X6. At that date, the fair value of the noncontrolling interest was
Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam $40,000 for a truck that Pam had purchased for $45,000 on January 1, 20X2. The truck was
Putt Corporation acquired 70 percent of Slice Company’s voting common stock on January 1, 20X3, for $158,900. Slice reported common stock outstanding of $100,000 and retained earnings of $85,000.
Purse Corporation owns 70 percent of Scarf Company’s voting shares. On January 1, 20X3, Scarf sold bonds with a par value of $600,000 at 98. Purse purchased $400,000 par value of the bonds; the
Smart Company issued $100,000 of 10 percent bonds on January 1, 20X1, at 120. The bonds mature in 10 years and pay 10 percent interest annually on December 31. Phone Corporation holds 80 percent of
Sink Corporation prepared the following summarized balance sheet on January 1, 20X1: Plumber Company acquires 80 percent of Sink Corporation’s common stock on January 1, 20X1, for $80,000. At that
The summarized balance sheet of Separate Company on January 1, 20X3, contained the following amounts:On January 1, 20X3, Point Corporation acquired 70 percent of the common shares and 60 percent of
How does the use of interperiod tax allocation procedures affect the amount of income assigned to noncontrolling shareholders in the period in which the subsidiary records unrealized intercompany
Polly Corporation owns 80 percent of Sonny Corporation’s stock and 90 percent of Daughter Company’s stock. The companies file a consolidated tax return each year and in 20X5 paid a total tax of
Poppy Corporation owns 60 percent of Seed Company’s common shares. Balance sheet data for the companies on December 31, 20X2, are as follows:The bonds of Poppy Corporation and Seed Company pay
Pear Corporation acquired 75 percent ownership of Sugar Company on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of
Punch Manufacturing Corporation owns 80 percent of the common shares of Short Retail Stores. The companies’ balance sheets as of December 31, 20X4, were as follows:Short Retail’s 8 percent
Plug Corporation holds 80 percent of Socket Company’s common stock. The following balance sheet data are presented for December 31, 20X7:Socket reported net income of $115,000 in 20X7 and paid
‘If markets are to function properly and capital is to be allocated efficiently, investors require transparency and must have confidence that financial information accurately reflects economic
Einstein once said that ‘Everything should be made as simple as possible, but not simpler’. This perfectly captures the view that accounting standards should be firmly governed by high-level
Convergence cannot be achieved if the basis for convergence is detailed rulesdriven standards as this will be difficult to roll out across different jurisdictions and cultures around the world. Do
History is primarily responsible for international differences in corporate financial reporting. Do you agree? Explain why.
‘Accounting is shaped by economic and political forces. It follows that increased worldwide integration of both markets and politics (driven by reductions in communications and information
Explain the purpose of accounting standards (national or international) and identify the advantages that stem from the convergence of accounting practice. Describe disadvantages, if any.
(a) Why do we need a conceptual framework when we have a comprehensive set of accounting standards such as IFRS? (b) Who are the primary users of general-purpose financial statements? (c) IASB does
(a) Illustrate the qualitative characteristics of useful financial information. Describe the factors which contribute to the achievement of each characteristic. (b) Relevance is one of the key
Under the IASB Framework, an asset is recognised ‘when it is probable that the future economic benefits will flow to the entity’. (a) Which future economic benefits does that principle refer to?
A company buys a costly item of electronic equipment that it expects will have a useful life of eight years, and it depreciates the asset over that period. By the end of the fourth year, the item of
In some countries, income tax authorities require companies to prepare accounts that conform to national laws for measuring taxable income. Are those fjnancial statements ‘general-purpose
A company’s senior financial officer says, ‘I always follow IFRSs in preparing my company’s financial statements. But the IASB Framework is a lot of conceptual theory that doesn’t affect me
An entity has incurred losses during the last four years and its current liabilities exceed its total assets. The entity was in breach of its loan covenants and has been negotiating with the related
(a) Give examples of resources that might be treated as assets in a balance sheet but normally are not. How helpful is the Framework definition of assets in making clear that they are not
Chemco Ltd. is engaged in the production of chemical products and selling them locally. The company wishes to extend its market and export some of its products. It has come to the attention of the
IAS 1 requirements (a) IAS 1 (revised) lists six ‘overall considerations’ relating to the presentation of financial statements. Explain the main requirements of IAS 1 in relation to three of
Classification of assets and liabilities (a) Distinguish between current assets and non-current assets. (b) Distinguish between current liabilities and non-current liabilities. (c) Explain why
The trial balance of Sabrina plc includes the following accounts as at 30 September 2010: Additional information: • The loss on valuation of available-for-sale investments recognised directly in
The equity section of the statement of financial position of Lorenzo pleas at 30 September 2010 is as follows (amounts in thousands of euro): Additional information: • Lorenzo plc issued 16,000
The data given below are available for ABC SpA for the year ended 31 December 2009. The following information has not yet been taken into account in the amounts shown in the trial balance: •
The following trial balance is extracted from the books of Walrus plc as at 31 March 2010: Additional information: • The company’s non-depreciable land was valued at EUR 600,000 on 31 March
(a) In what circumstances may an entity change one of its accounting policies? (b) Explain how an entity should select its accounting policy in relation to an item if there is no applicable
Harris plc began trading on 1 January 2006, preparing financial statements ended 31 December each year. During 2009, the company decided to change its accounting policy with regard to depreciation of
Whilst preparing its financial statements for the year ended 30 June 2010, Ibex plc discovers that the sales figure for the year ended 30 June 2009 had been understated by EUR 200,000 as a
(a) What is the difference between revenue and income? (b) Which criteria does IAS 18 require for recognising revenue from the sale of goods? (c) What is the basic principle for measuring revenue
(a) What is a construction contract? (b) How and why should construction contracts be combined or segmented? (c) How is the stage of completion determined? (d) What is the effect of variations and
Entity E entered into a contract in 2009 to supply video game consoles to customer G. The contract is for 50,000 game consoles at EUR 100 each. The contract contains specific instructions from
A clothing retailer sells T-shirts at a price of EUR 10 each. The T-shirts cost the retailer EUR 5 each. Customers have the right to return T-shirts within four weeks of purchase, provided that the
Entity J sells a racehorse to entity K. As part of the arrangement entity J continues to house and train the horse, determine which races the horse will enter and set stud fees for the horse. Should
Entity X distributes entity Y’s products under a distribution agreement. The terms and conditions of the contract are such that entity X: Entity Y retains product liability. Entity Y is,
A contractor is negotiating two contracts with a single customer. The customer should either accept both contracts or reject both. The first contract will be for the design of a chemical plant and
Company X is executing a gigantic project of constructing the tallest building in the country. The project is expected to take three years to complete. The company has signed a fixed price contract
Entity A is constructing a building for its customer. The construction is in the second year of a three year project.Management had originally assessed the contract to be profitable and recognised a
In 2006 entity X was invited to tender for the construction of a residential block and connected shopping arcade with common plaza and garden and play areas. Tenders were required to detail the costs
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