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modern advanced accounting

Questions and Answers of Modern Advanced Accounting

Problem 13A-2 (LO 5) Reconciliation of GAAP-to-tax-basis income, tax basis calculation. Fandek and Franklin formed a partnership on January 1, 20X7, and contributed assets and liabilities to the
Problem 13A-1 (LO 4, 5) Profit allocation; book and tax basis calculation. Nichols, James, and Wilson are environmental consultants who agree to consolidate their individual practices into a
Problem 13-6 (LO 3, 4) Partnership agreement, minimum capital balance. Jacobsen, Matthews, and Glorioso are partners in a law firm which specializes in personal injury and medical malpractice
Problem 13-5 (LO 3, 4) Investment decision, capital retention decision. Rodriquez is one of your tax clients and has come to you seeking your input about a potential investment opportunity. Your
Problem 13-4 (LO 4) Expert witness, economic loss measurement. A law firm that specializes in personal injury work has engaged you to assist in some litigation. The firm represents a Mr. Lawson, who
Problem 13-3 (LO 4) Decision to admit a new partner, profit allocation. Thomas and Purnell are general partners in a partnership along with four limited partners. Ten percent of partnership profit is
Problem 13-1 (LO 1) Characteristics of a partnership and proper organization form. A client is seeking your advice on how to organize a new business. The client is proposing to acquire several
Exercise A-2 (LO 5) Calculation of book and tax basis; change in interest over time. Berkshire Investments is a partnership consisting of three partners: Pearson, Ellis, and Parker.Pearson and Ellis
Exercise A-1 (LO 5) Calculation of book and tax basis. Thomas is considering joining Baker and Nap in a partnership. Baker and Nap will each contribute cash of $39,000 to the new partnership. The
Exercise 9 (LO 4) Evaluation of profit and loss allocation alternatives. Powers, Scott, and Riley intend to start a business together that will be organized as a partnership. The partners are
Exercise 8 (LO 3, 4) Interest calculation; determination of capital account balances. Xavier, Yates, and Zale are partners in a dry-cleaning business. Their partnership agreement provides that the
Exercise 7 (LO 3, 4) Profit allocation based on several factors; weighted-average interest. Gabriel and Hall are partners in a manufacturing business located in Portland, Oregon. Their profit and
Exercise 6 (LO 4) Evaluation of alternative for earning potential. A client of yours has been offered an attractive position with another company in the specialized tooling and machining industry. As
Exercise 5 (LO 4) Approaches to the allocation of profits and losses. Collins, Baker, and Lebo are partners in a business that distributes various electronic components used to control machinery in
Exercise 3 (LO 4) Possible bases for allocation of profits and losses. You are asked to provide guidance as to how to allocate profits and losses for the following two partnerships:1. Riley, Scott,
Exercise 1 (LO 1) Partnership versus corporate balance sheets and income statements. In 20X1, a new partnership purchased land on the edge of the town of Otisville. The partners erected a building
4. Assume there are two identical business entities; one is organized as a partnership and the other is organized as a corporation. How would the financial statements of the two entities differ with
3. When an individual partner contributes assets to a partnership, the partnership’s tax basis of the assets is generally not the fair value at the date of transfer. What is the logic underlying
2. Under what circumstances might a salary or bonus be more appropriate than interest on capital balances as a means of allocating profits?
1. A major issue faced by people who are starting their own business is the form of organization they should select. What are some major characteristics of a partnership that might influence their
1. Determine which of the segments are considered to be reportable and whether the guidelines regarding the number of reportable segments have been satisfied.
Problem 12-8 (LO 6, 7, 8) Determination of reportable segments, disclosures, ratio analysis. A U.S. multinational corporation has divided its operations into several operating segments and has
Problem 12-9 (LO 7, 8) Schedule of reportable segments and reconciliation to the consolidated company. Tress Corporation is a rapidly growing company that has diversified into a number of different
Problem 12-5 (LO 3, 4) Tax expense/benefit, ordinary and nonordinary income.The following information relates to three independent cases:Case A Case B Case C Pretax net income (loss) from continuing
Problem 12-3 (LO 3, 4) Tax expense/benefit, nonordinary items of gain/loss. During 20X8, Midway Corporation reported first six months’ pretax income of $120,000 from continuing operations and a
Problem 12-2 (LO 3, 4) Determination of various values for pretax income and the related tax effect. The following schedule relates to interim reporting for the Hughes Corporation:Chapter 12 INTERIM
Problem 12-1 (LO 2) Interim income statement, accounting for various items.Mikelson Company, a California corporation listed on the Pacific Coast Stock Exchange, budgeted activities for 20X5 as
Exercise 11 (LO 6) Determination of reportable segments, reconciliation to consolidated totals. A large diversified company divides its operations into several operating segments.Determine which of
Exercise 8 (LO 4) Tax expense/benefit traceable to nonordinary items of income.In 20X1, Riley Corporation had year-to-date income of $70,000 and projected income of $50,000 from continuing
Exercise 6 (LO 3, 4) Estimated effective annual tax rate, prior period restatement, discontinued operation. The Merlot Corporation reported a net operating loss before taxes for the first quarter of
Exercise 4 (LO 3, 4) Tax expense/benefit traceable to nonordinary items of income. Your client has no permanent or temporary differences between accounting and tax measures of income. However, the
Exercise 2 (LO 1, 2) Accounting for R&D, tax rate differences. Your client is seeking advice on each of the following interim reporting issues related to the current year:1. In the first quarter of
Exercise 1 (LO 1, 2) Cost of goods sold, interim income statement. Wert Company has sought assistance in preparing its second-quarter income statement for 20X2. Figures for sales revenue, selling
4. Why isn’t the total operating profit of all reportable segments normally equal to the consolidated operating profit?
3. Why must the tax expense or benefit traceable to nonordinary items of income be computed on an incremental basis, and why does it involve a process of ratable allocation?
Problem 11-10 (LO 6) Remeasurement of a trial balance and translation into dollars. Hanna Company, which began operations on January 1, 20X4, is a wholly owned subsidiary of a U.S. based
Problem 11-9 (LO 5, 6) Same facts as 11-8 except involve remeasurement. Useful comparison with 11-8. Assume the same facts as Problem 11-8 with the following exceptions:a. Tobac’s functional
Problem 11-8 (LO 3, 5) Translate a trial balance and prepare a consolidation worksheet. Useful comparison with 11-9. Balfour Corporation acquired 100% of Tobac, Inc., a foreign corporation, for
Problem 11-5 (LO 5) Translate a foreign branch and prepare a worksheet for combined home/branch financials. Reslin Corporation is a New York-based manufacturer of photographic supplies. On August 1,
Problem 11-4 (LO 2, 5) Adjust to U.S. GAAP and translate trial balance. Potter Corporation purchased a 100% interest in Stone Corporation, a foreign subsidiary, on January 1, 20X5, for 9,000,000
Problem 11-3 (LO 3, 5) Translate a trial balance and prepare a consolidation worksheet with excess of cost over book value traceable to equipment. Due to increasing pressures to expand globally,
Problem 11-2 (LO 3, 5) Translate a trial balance and prepare a consolidation worksheet with amortization of patents. Keltner Enterprises has acquired an 80% interest in Jacklandia (a foreign
Problem 11-1 (LO 2, 3) Adjust to U.S. GAAP and translate trial balance. On January 1, 20X8, Richter Corporation acquired an 80% interest in Morgan Company, a foreign company, for 9,000,000 FC. On the
Exercise 6 (LO 6) Remeasuring selected balances with various functional currencies. For each of the following independent cases, determine the translated value of the relevant accounts.Case A: A
Exercise 4 (LO 5) Measurement of net investment under the sophisticated equity method. On June 1, 20X8, the Auburn Company (a U.S. company) acquired a 30% interest in a foreign company which was
Exercise 3 (LO 5) Entries to record investment under the sophisticated equity method. On January 1, 20X8, Conroy Company, a U.S. company, acquired a 35% interest in Sholt Company, which is a French
Exercise 2 (LO 2, 3) Translate a trial balance, and explain how objectives of translation are achieved. Hughes Consulting formed a French company to market its climate control devices in Western
3. Explain how a German subsidiary’s year-end balance in retained earnings is expressed in dollars assuming that the German mark is the functional currency.
Problem 10-7 (LO 5) Hedge a commitment to sell. On February 1, Pettit Corporation committed to sell inventory with a cost of $75,000 to a foreign company for 100,000 FC. Payment for this transaction
Problem 10-6 (LO 5) Comparison of strategies: no hedge, hedge commitment, hedge transaction. Boyd Enterprises has begun to purchase certain component parts from a foreign vendor. These purchases will
Problem 10-5 (LO 3, 5) FC bank loan, hedge of forecasted inventory purchase, impact on earnings. Wagner Corporation transacts business in a number of foreign currencies and had the following
Problem 10-4 (LO 2) Forward contract premium, hedging strategies. Jenner Corporation has recently begun to expand its international markets and has engaged in several foreign currency transactions.
Problem 10-3 (LO 5) Hedge a commitment. Vasser Corporation has an extremely strong foreign operations division, having both foreign vendors and foreign customers. Vasser bought inventory with a cost
Problem 10-2 (LO 5) Hedge forecasted transactions, forward contracts. Riker International is building a water purification system in Mexico which will sell for $1,200,000. Although most of the costs
Problem 10-1 (LO 5) FC transactions, commitments, forcasted transactions—earnings impact. Jarvis Corporation transacts business with a number of foreign vendors and customers. These transactions
Exercise 8 (LO 4) Strategy to reduce FC exchange rate risk. Stratco Manufacturing engages in a number of foreign currency transactions which have resulted in the following current balances:Cash . . .
Exercise 7 (LO 5) Hedging existing FC transaction; forecasted transaction. The Berger Corporation received delivery of equipment purchased from a foreign manufacturer on June 1. The cost of the
Exercise 6 (LO 4, 5) Hedging a commitment; forecasted transaction—forward contract vs. option. Jackson, a U.S. company, acquires a variety of raw materials from foreign vendors with amounts payable
Exercise 5 (LO 4, 5) Hedge with forward contract or loan with FC payoff. Cortez Electronics buys subassemblies from a foreign vendor. On June 1, 20X9, the company committed to acquire subassemblies
Exercise 4 (LO 3, 5) Hedge with forward contract. Stark Inc. placed an order for inventory costing 500,000 FC with a foreign vendor on April 15 when the spot rate was 1 FC $0.683.Stark received the
Exercise 3 (LO 3, 5) Measuring changes in value of FC transaction and a forward contract. Dettner Corporation purchased inventory from a foreign vendor in the amount of 75,000 FC on December 1 of the
Exercise 2 (LO 3) Equipment purchase financed with loan denominated in FC.Keller, Inc. purchased equipment, costing 5,100,000 French francs (FF) from a French vendor.The equipment was delivered on
Exercise 1 (LO 3) Sale denominated in FC. Jenkins, Inc. manufactures memory chips used in personal computers. On June 15, when 1 FC $1.10, Jenkins sold chips to a foreign customer for 550,000 FC.
4. If a forecasted purchase of equipment were to be denominated in foreign currency (FC), how would the change in value of a cash flow hedge of the forecasted transaction be accounted for?
3. Explain how a U.S. company’s commitment to purchase inventory with settlement in foreign currency (FC) might become less attractive over time and how adverse effects on earnings could be reduced.
Exercise 6 (LO 10) Value-added tax. Assuming that a 10% value-added tax is in effect, prepare a schedule to indicate how it would be calculated, assuming also that a manufacturer produces a product
Exercise 5 (LO 7, 9) The IAS. Cadbury Schweppes plc is a British company that manufactures and distributes beverages, confectioneries, and related products to customers in over 200 countries
Exercise 4 (LO 7) Differences between U.S. and non-U.S. GAAP. The SEC allows foreign registrants to file financial statements prepared on the basis of either U.S. GAAP, International Accounting
Exercise 3 (LO 2, 6) Harmonization effect. Harmonization of accounting standards through a private standard-setting process will have both advantages and disadvantages to American investors and
Exercise 1 (LO 2, 6, 8) Harmonization. The single market created by the European Union(EU) will eliminate trade barriers among its member nations. Most U.S. businesses see the EU as an opportunity
4. Using accounting for inventory as an example, explain how principles differ among countries and how harmonization may benefit an international investor.
3. What are the major objectives of the International Accounting Standards Committee (IASC)?
2. What is the goal of harmonization of accounting standards, and what approaches have been used to accomplish this goal?
10. Describe transfer-pricing issues and differences in tax systems.
9. Discuss the role of the International Accounting Standards Committee(IASC) and the International Federation of Accountants (IFAC).
8. Explain several approaches that characterize attempts to harmonize accounting principles.
7. Demonstrate how foreign companies listed on U.S. stock exchanges reconcile their respective accounting principles to U.S. GAAP.
6. Explain the goal of harmonization.
5. Identify the major cultural classifications that can be used to categorize accounting systems.
4. List several factors that influence the development of accounting among nations.
3. Describe major areas of interest involved in international accounting.
2. Explain why comparable accounting standards are needed.
1. Describe the international business environment.
Problem 8-11 (LO 5) Worksheet, purchase in blocks, subsidiary stock dividend, subsidiary purchase of parent shares, machinery sale, merchandise. On January 1, 20X3, Heckert Company purchased a
Problem 8-10 (LO5) Worksheet, subsidiary owns parent shares through stock swap. Assume the same facts as Problem 8-9 except that instead of acquiring parent shares for cash, the subsidiary issued
Problem 8-8 (LO 4) Worksheet, direct and indirect holdings, preferred stock, intercompany merchandise. The following diagram depicts the relationships among Ackley Company, Biernat Company, and
Problem 8-7 (LO 4) Worksheet, three-level holding, intercompany merchandise, plant assets. Shelby Corporation purchased 90% of the outstanding stock of Boehm Company on January 1, 20X1, for $600,000
Problem 8-5 (LO 2) Worksheet, two subsidiaries, subsidiary stock sales, intercompany merchandise, fixed assets, bonds. The audit of Barns Company and its subsidiaries for the year ended December 31,
Problem 8-4 (LO 2) Worksheet, subsidiary stock sale with parent purchase, intercompany merchandise. On January 1, 20X2, Mitta Corporation purchased a 60% interest (12,000 shares) in Trainer Company
Problem 8-3 (LO 2) Worksheet, subsidiary stock sale, intercompany merchandise.On January 1, 20X2, Pepka Company purchased 80% of the outstanding common stock of Smart Company for $700,000.On January
Problem 8-2 (LO 1) Stock dividend, subsidiary stock sales, cost method. On January 1, 20X1, Bear Corporation acquired a 60% interest in Keller Company and an 80% interest in Samco Company. The
Problem 8-1 (LO 1) Stock dividend, subsidiary stock sales, equity method. On January 1, 20X1, Zee Corporation purchased 8,000 shares of Thomas Company stock and 18,000 shares of Sand Company stock
Exercise 11 (LO5) Mutual Holdings—Stock Swap. Myles Corporation and its subsidiary, Dowling Corp Myles Corporation purchased a 60% interest in Dowling Corporation for $350,000 on January 1, 20X1.
Exercise 10 (LO 5) Treasury stock method. Myles Corporation and its subsidiary, Dowling Corporation, had the following trial balances as of December 31, 20X3:Myles Dowling Corporation Corporation
Exercise 9 (LO 4) Direct and indirect holdings. The following diagram depicts the investment affiliations among Companies M, N, and O:Using the facts given, determine the consolidated income of the
Exercise 8 (LO 4) Purchase of a company with a subsidiary. On January 1, 20X1, Hartland Company purchased an 80% interest in Fort Company for $120,000. The purchase price represented a $20,000 excess
Exercise 7 (LO 4) Three-level purchase, inventory and fixed asset sales. Companies A, B, and C produced the following separate internally generated net incomes during 20X5:ABC Sales . . . . . . . . .
Exercise 5 (LO 4) Three-level purchase. You have secured the following information for Companies A, B, and C concerning their internally generated net incomes (excluding subsidiary income) and
Exercise 4 (LO 3) Subsidiary treasury stock. The following comparative statements of stockholders’ equity were prepared for Nolte Corporation:Jan. 1, 20X1 Jan. 1, 20X3 Jan. 1, 20X5 Common stock
Exercise 3 (LO 2) Subsidiary sale of shares, alternative amounts purchased by parent. On January 1, 20X1, Tom Company purchased an 80% interest in Car Company for$400,000. On the purchase date, Car

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