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Wiley CPA Exam Review 2013 Financial Accounting And Reporting 10th Edition O. Ray Whittington - Solutions
A subsidiary was acquired for cash in a business combination on January 1, year 1. The consideration given exceeded the fair value of identifiable net assets. The acquired company owned equipment with a market value in excess of the carrying amount as of the date of combination. A consolidated
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept ofa. Reliability.b. Materiality.c. Legal entity.d. Economic entity.
On January 1, year 1, Owen Corp. purchased all of Sharp Corp.’s common stock for $1,200,000. On that date, the fair values of Sharp’s assets and liabilities equaled their carrying amounts of $1,320,000 and $320,000, respectively. During year 1, Sharp paid cash dividends of $20,000.Selected
On January 1, year 1, Palm, Inc. purchased 80% of the stock of Stone Corp. for $4,000,000 cash. Prior to the acquisition, Stone had 100,000 shares of stock outstanding. On the date of acquisition, Stone’s stock had a fair value of $52 per share. During the year Stone reported $280,000 in net
In Pard’s consolidated balance sheet, what was the carrying amount of the inventory that Spin purchased from Pard?a. $ 3,000b. $ 6,000c. $ 9,000d. $12,000
At December 31, year 1, what was the amount of Spin’s payable to Pard for intercompany sales?a. $ 3,000b. $ 6,000c. $29,000d. $32,000
What was the amount of intercompany sales from Pard to Spin during year 1?a. $ 3,000b. $ 6,000c. $29,000d. $32,000
Shep Co. has a receivable from its parent, Pep Co. Should this receivable be separately reported in Shep’s balance sheet and in Pep’s consolidated balance sheet?Shep’s balance sheet Pep’s consolidated balance sheeta. Yes Nob. Yes Yesc. No Nod. No Yes Items 28 through 30 are based on the
Wright Corp. has several subsidiaries that are included in its consolidated financial statements. In its December 31, year 1 trial balance, Wright had the following intercompany balances before eliminations:Debit Credit Current receivable due from Main Co. $ 32,000 Noncurrent receivable from Main
In a business combination accounted for as an acquisition the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported?a. As negative goodwill.b. As additional paid-in capital.c. As a reduction of the values assigned to
Company J acquired all of the outstanding common stock of Company K in exchange for cash. The acquisition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?Plant and
A subsidiary, acquired for cash in a business combination, owned inventories with a market value greater than the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference as part ofa. Deferred credits.b.
On April 1, year 1, Parson Corp. purchased 80% of the outstanding stock of Sloan Corp. for $700,000 cash. Parson determined that the fair value of the net identifiable assets was $800,000 on the date of acquisition. The fair value of Sloan’s stock at date of acquisition was $18 per share. Sloan
On November 30, year 1, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of the outstanding common stock of Shaw Co. At November 30, year 1, Shaw’s balance sheet showed a carrying amount of net assets of $3,000,000. At that date, the fair value of Shaw’s property, plant and
Stockholders’ equity including noncontrolling interests should bea. $ 80,000b. $ 85,000c. $ 90,000d. $130,000
Noncurrent liabilities should bea. $115,000b. $109,000c. $104,000d. $ 55,000
Current liabilities should bea. $50,000b. $46,000c. $40,000d. $30,000
Noncurrent assets should bea. $130,000b. $136,000c. $138,000d. $140,000
Current assets should bea. $ 90,000b. $ 99,000c. $100,000d. $102,000
With respect to the allocation of the cost of a business acquisition, ASC Topic 805 (SFAS 141[R]) requiresa. Cost to be allocated to the assets based on their carrying values.b. Cost to be allocated based on relative fair values.c. Cost to be allocated based on original costs.d. None of the
In accounting for a business combination, which of the following intangibles should not be recognized as an asset apart from goodwill?a. Trademarks.b. Lease agreements.c. Employee quality.d. Patents.
Lebow Corp. acquired control of Wilson Corp. by purchasing stock in steps. Which of the following regarding this type of acquisition is true?a. The cost of acquisition equals the amount paid for the previously held shares plus the fair value of shares issued at the date of acquisition.b. The
Kennedy Company is acquiring Ross Company in an acquisition. What date should be used as the acquisition date for the transaction?a. The date Kennedy signs the contract to purchase the business.b. The date Kennedy obtains control of Ross.c. The date that all contingencies related to the transaction
ASC Topic 805 (SFAS 141[R]) sets forth certain steps in accounting for an acquisition. Which of the following is not one of those steps?a. Prepare pro forma financial statements prior to acquisition.b. Determine the acquisition date.c. Identify the acquirer.d. Expense the costs and general expenses
Which of the following situations would require the use of the acquisition method in a business combination?a. The acquisition of a group of assets.b. The formation of a joint venture.c. The purchase of more than 50% of a business.d. All of the above would require the use of the acquisition method.
A business combination is accounted for appropriately as an acquisition. Which of the following should be deducted in determining the combined corporation’s net income for the current period?Direct costs of acquisition General expenses related to acquisitiona. Yes Nob. Yes Yesc. No Yesd. No No
On January 1, year 1, Lake Corporation acquired 100% of the outstanding common stock of Shore Corporation for $800,000. On the date of acquisition, the fair value of Shore’s net identifiable assets is $820,000. The book value of Shore Corporation’s net assets is $760,000. In Lake’s year 1
Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unlessa. The subsidiary is a finance company.b. The fiscal year-ends of the two companies are more than three months apart.c. The investee is in bankruptcy.d. The two companies
On December 31, year 1, Neal Co. issued 100,000 shares of its $10 par value common stock in exchange for all of Frey Inc.’s outstanding stock. The fair value of Neal’s common stock on December 31, year 1, was $19 per share. The carrying amounts and fair values of Frey’s assets and liabilities
In the December 31, year 1 consolidated balance sheet, common stock should be reported ata. $3,000,000b. $3,500,000c. $4,000,000d. $5,000,000
In the December 31, year 1 consolidated balance sheet, additional paid-in capital should be reported ata. $ 950,000b. $1,300,000c. $1,450,000d. $2,900,000
On August 31, year 1, Wood Corp. issued 100,000 shares of its $20 par value common stock for the net assets of Pine, Inc., in a business combination accounted for by the acquisition method. The market value of Wood’s common stock on August 31 was $36 per share. Wood paid a fee of $160,000 to the
Which of the following expenses related to the business acquisition should be included, in total, in the determination of net income of the combined corporation for the period in which the expenses are incurred?Fees of finders and consultants Registration fees for equity securities issueda. Yes
On April 1, year 1, Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, year 1, follow:Cash $ 60,000 Inventory 180,000 Property and equipment (net of accumulated depreciation of $220,000) 320,000 Goodwill
Filigree Corporation prepares its financial statements in accordance with IFRS. Filigree acquired equipment by issuing 5,000 shares of its common stock. How should this transaction be reported on the statement of cash flows?a. As an outflow of cash from investing activities and an inflow of cash
Rice Corporation prepares its financial statements in accordance with IFRS. Rice must report amounts paid for interest on a note payable on the statement of cash flowsa. In operating activities.b. In financing activities.c. Either in operating activities or financing activities.d. Either in
Bee Co. uses the direct write-off method to account for uncollectible accounts receivable. During an accounting period, Bee’s cash collections from customers equal sales adjusted for the addition or deduction of the following amounts:Accounts written off Increase in accounts receivable balancea.
Net cash used in investing activities during year 2 wasa. $ 80,000b. $530,000c. $610,000d. $660,000
Net cash provided by financing activities for year 2 totaleda. $140,000b. $300,000c. $500,000d. $700,000
Cash payments during year 2 on accounts payable to suppliers amounted toa. $4,670,000b. $4,910,000c. $5,000,000d. $5,150,000
Cash collected during year 2 from accounts receivable amounted toa. $5,560,000b. $5,840,000c. $6,140,000d. $6,400,000
Net cash provided by financing activities wasa. $ 20,000b. $ 45,000c. $150,000d. $205,000
Net cash used in investing activities wasa. $1,005,000b. $1,190,000c. $1,275,000d. $1,600,000
Net cash provided by operating activities wasa. $1,160,000b. $1,040,000c. $ 920,000d. $ 705,000
Which of the following should not be disclosed in an enterprise’s statement of cash flows prepared using the indirect method?a. Interest paid, net of amounts capitalized.b. Income taxes paid.c. Cash flow per share.d. Dividends paid on preferred stock.D. Example of Statement of Cash Flows The
Would the following be added back to net income when reporting operating activities’ cash flows by the indirect method?Excess of treasury stock acquisition cost over sales proceeds (cost method) Bond discount amortizationa. Yes Yesb. No Noc. No Yesd. Yes No
How should a gain from the sale of used equipment for cash be reported in a statement of cash flows using the indirect method?a. In investment activities as a reduction of the cash inflow from the sale.b. In investment activities as a cash outflow.c. In operating activities as a deduction from
In a statement of cash flows (using indirect approach for operating activities) an increase in inventories should be presented as a(n)a. Outflow of cash.b. Inflow and outflow of cash.c. Addition to net income.d. Deduction from net income.
Lino Co.’s worksheet for the preparation of its year 1 statement of cash flows included the following:December 31 January 1 Accounts receivable $29,000 $23,000 Allowance for uncollectible accounts 1,000 800 Prepaid rent expense 8,200 12,400 Accounts payable 22,400 19,400 Lino’s year 1 net
Metro, Inc. reported net income of $150,000 for year 1. Changes occurred in several balance sheet accounts during year 1 as follows:Investment in Videogold, Inc. stock, carried on the equity basis $5,500 increase Accumulated depreciation, caused by major repair to projection equipment 2,100
A company’s wages payable increased from the beginning to the end of the year. In the company’s statement of cash flows in which the operating activities section is prepared under the direct method, the cash paid for wages would bea. Salary expense plus wages payable at the beginning of the
In a statement of cash flows, which of the following would increase reported cash flows from operating activities using the direct method? (Ignore income tax considerations.)a. Dividends received from investments.b. Gain on sale of equipment.c. Gain on early retirement of bonds.d. Change from
Cash paid for selling expenses?a. $142,000b. $141,500c. $141,000d. $140,000
Cash paid for income taxes?a. $25,800b. $20,400c. $19,700d. $15,000
Cash paid for interest?a. $4,800b. $4,300c. $3,800d. $1,700
Cash paid for goods to be sold?a. $258,500b. $257,500c. $242,500d. $226,500
Cash collected from customers?a. $541,800b. $541,600c. $536,000d. $535,800
Which of the following is not disclosed on the statement of cash flows when prepared under the direct method, either on the face of the statement or in a separate schedule?a. The major classes of gross cash receipts and gross cash payments.b. The amount of income taxes paid.c. A reconciliation of
Which of the following information should be disclosed as supplemental information in the statement of cash flows?Cash flow per share Conversion of debt to equitya. Yes Yesb. Yes Noc. No Yesd. No No C. Direct or Indirect Presentation in Reporting Operating Activities
Which of the following should be reported when preparing a statement of cash flows?Conversion of long-term debt to common stock Conversion of preferred stocka. No Nob. No Yesc. Yes Yesd. Yes No
On July 1, year 1, Dewey Co. signed a twenty-year building lease that it reported as a capital lease. Dewey paid the monthly lease payments when due. How should Dewey report the effect of the lease payments in the financing activities section of its year 1 statement of cash flows?a. An inflow equal
What amount should Reve report as net cash provided by financing activities?a. $20,000b. $27,000c. $30,000d. $37,000
What amount should Reve report as net cash used in investing activities?a. $170,000b. $176,000c. $188,000d. $194,000
Fara Co. reported bonds payable of $47,000 at December 31, year 1, and$50,000 at December 31, year 2. During year 2, Fara issued $20,000 of bonds payable in exchange for equipment. There was no amortization of bond premium or discount during the year. What amount should Fara report in its year 2
In a statement of cash flows, what amount is included in financing activities for the above transaction?a. Cash payment.b. Acquisition price.c. Zero.d. Mortgage amount.
In a statement of cash flows, what amount is included in investing activities for the above transaction?a. Cash payment.b. Acquisition price.c. Zero.d. Mortgage amount.
On September 1, year 1, Canary Co. sold used equipment for a cash amount equaling its carrying amount for both book and tax purposes. On September 15, year 1, Canary replaced the equipment by paying cash and signing a note payable for new equipment. The cash paid for the new equipment exceeded the
In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipmenta. Plus the gain.b. Plus the gain and less the amount of tax attributable to the gain.c. Plus both the gain and the amount of tax
In year 1, a tornado completely destroyed a building belonging to Holland Corp. The building cost $100,000 and had accumulated depreciation of $48,000 at the time of the loss. Holland received a cash settlement from the insurance company and reported an extraordinary loss of $21,000. In Holland’s
Alp, Inc. had the following activities during year 1:Acquired 2,000 shares of stock in Maybel, Inc. for $26,000. Alp intends to hold the stock as a long-term investment.Sold an investment in Rate Motors for $35,000 when the carrying value was $33,000.Acquired a $50,000, four-year certificate of
Mend Co. purchased a three-month US Treasury bill. Mend’s policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Mend’s statement of cash flows?a. As an outflow from operating
The primary purpose of a statement of cash flows is to provide relevant information abouta. Differences between net income and associated cash receipts and disbursements.b. An enterprise’s ability to generate future positive net cash flows.c. The cash receipts and cash disbursements of an
At December 31, year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank:Checking account #101 $175,000 Checking account #201 (10,000) Money market account 25,000 90-day certificate of deposit, due 2/28/Y2 50,000 180-day certificate of deposit, due 3/15/Y2 80,000
Under IFRS an equity investment may be accounted for using the equity method if the investor has significant influence over the investee. Significant influence is indicated by ownership ofa. At least 10%.b. From 20 to 50%.c. More than 50%.d. More than 70%.
Under IFRS if a company uses the fair value method for accounting for an investment any changes in fair value are recognized ina. Other comprehensive income.b. Retained earnings.c. Profit and loss.d. Revaluation surplus.
Under IFRS, investments are classified in any of the following different ways, excepta. Fair value through profit and loss.b. Held to maturity.c. Tradable.d. Available for sale.
Under IFRS any investment may be accounted for by fair value through profit and loss providinga. It is traded in an active market.b. It is an equity instrument.c. It is a debt instrument.d. The instrument matures within 2 years.
On March 1, year 1, Acadia purchased 1,000 shares of common stock of Marston Corp. for $50,000 and classified the investment as available-for-sale securities. On December 31, year 1, the Marston stock had a fair value of $53,000. Acadia Corp. prepares its financial statements in accordance with
Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How should Band record a 2% stock dividend received from Guard?a. As dividend revenue at Guard’s carrying value of the stock.b. As dividend revenue at the market value of the stock.c. As a reduction in the
In Lake’s year 3 income statement, how much should be reported for rental revenue?a. $43,000b. $48,000c. $53,000d. $53,800
In Lake’s year 3 income statement, how much should be reported for royalty revenue?a. $14,000b. $13,000c. $11,000d. $ 9,000
In Lake’s year 3 income statement, how much should be reported for dividend revenue?a. $16,000b. $ 2,400c. $ 1,000d. $ 150
Upon the death of an officer, Jung Co. received the proceeds of a life insurance policy held by Jung on the officer. The proceeds were not taxable. The policy’s cash surrender value had been recorded on Jung’s books at the time of payment. What amount of revenue should Jung report in its
An increase in the cash surrender value of a life insurance policy owned by a company would be recorded bya. Decreasing annual insurance expense.b. Increasing investment income.c. Recording a memorandum entry only.d. Decreasing a deferred charge.
In year 1, Chain, Inc. purchased a $1,000,000 life insurance policy on its president, of which Chain is the beneficiary. Information regarding the policy for the year ended December 31, year 4, follows:Cash surrender value, 1/1/Y4 $ 87,000 Cash surrender value, 12/31/Y4 108,000 Annual advance
On January 3, year 1, Falk Co. purchased 500 shares of Milo Corp. common stock for $36,000. On December 2, year 3, Falk received 500 stock rights from Milo. Each right entitles the holder to acquire one share of stock for $85. The market price of Milo’s stock was $100 a share immediately before
On March 4, year 1, Evan Co. purchased 1,000 shares of LVC common stock at $80 per share. On September 26, year 1, Evan received 1,000 stock rights to purchase an additional 1,000 shares at $90 per share. The stock rights had an expiration date of February 1, year 2. On September 30, year 1,
Stock dividends on common stock should be recorded at their fair value by the investor when the related investment is accounted for under which of the following methods?G. Stock Rights
Wood Co. owns 2,000 shares of Arlo, Inc.’s 20,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock and 1,000 shares (2%) of Arlo’s common stock. During year 2, Arlo declared and paid dividends of $240,000 on preferred stock. No dividends had been declared or paid during year
In its financial statements, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angles Corp. At December 31, year 1, Pulham has a receivable from Angles. How should the receivable be reported in Pulham’s year 1 financial statements?a. None of the receivable should be
On January 1, year 1, Point, Inc. purchased 10% of Iona Co.’s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona’s common stock outstanding on August 1, year 1. During October year 1, Iona declared and paid a cash dividend on all of its outstanding common
Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it has classified the stock as available-for-sale or uses the equity method of accounting?Available-for-sale Equitya. No Nob. Yes Yesc. Yes Nod. No Yes
An investor in common stock received dividends in excess of the investor’s share of investee’s earnings subsequent to the date of the investment. How will the investor’s investment account be affected by those dividends for each of the following investments?Available-for-sale securities
Park Co. uses the equity method to account for its January 1, year 1 purchase of Tun Inc.’s common stock. On January 1, year 1, the fair values of Tun’s FIFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park’s reported
When the equity method is used to account for investments in common stock, which of the following affects the investor’s reported investment income?Equipment amortization related to purchase Cash dividends from investeea. Yes Yesb. No Yesc. No Nod. Yes No
Pare, Inc. purchased 10% of Tot Co.’s 100,000 outstanding shares of common stock on January 2, year 1, for $50,000. On December 31, year 1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any
On January 1, year 1, Mega Corp. acquired 10% of the outstanding voting stock of Penny, Inc. On January 2, year 2, Mega gained the ability to exercise significant influence over financial and operating control of Penny by acquiring an additional 20% of Penny’s outstanding stock. The two purchases
On January 2, year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000. On this date, Pod’s stockholders’ equity was $500,000. The carrying amounts of Pod’s identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by
On January 2, year 1, Well Co. purchased 10% of Rea, Inc.’s outstanding common shares for $400,000. Well is the largest single shareholder in Rea, and Well’s officers are a majority on Rea’s board of directors. Rea reported net income of $500,000 for year 1, and paid dividends of $150,000.
On January 2, year 1, Saxe Company purchased 20% of Lex Corporation’s common stock for $150,000. Saxe Corporation intends to hold the stock indefinitely. This investment did not give Saxe the ability to exercise significant influence over Lex. During year 1 Lex reported net income of $175,000 and
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