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modern advanced accounting
Advanced Accounting 13th Global Edition Joseph H. Anthony, Bruce Bettinghaus, Floyd A. Beams, Kenneth Smith - Solutions
2. The unrealized profits in the year-end 2016 and 2017 inventories were:a $100 and $125, respectively b $80 and $100, respectively c $20 and $25, respectively d $16 and $20, respectively
1. Consolidated sales of Pam Corporation and Subsidiary for 2017 were:a $1,800 b $1,425 c $1,400 d $1,240
E 5-5 Upstream sales Pam Corporation owns an 80 percent interest in Sun Corporation acquired several years ago. Sun regularly sells merchandise to Pam at 125 percent of Sun’s cost. Gross profit data of Pam and Sun for 2017 are as follows:Pam Sun Sales $1,000 $800 Cost of goods sold 800 640 Gross
E 5-4 Upstream sales Pop Corporation owns an 80 percent interest in Son Corporation and at December 31, 2016, Pop’s investment in Son on an equity basis was equal to 80 percent of Son’s stockholders’ equity. During 2017, Son sells merchandise to Pop for$200,000, at a gross profit to Son of
3. In a consolidated income statement for Pam Corporation and Subsidiary for the year 2017, consolidated cost of sales should be:a $1,372 b $1,360 c $1,272 d $1,248
2. In a consolidated income statement for Pam Corporation and Subsidiary for the year 2017, consolidated sales should be:a $2,900 b $2,800 c $2,725 d $2,700
Pam Corporation owns 75 percent of the voting common stock of Sun Corporation, acquired at book value during 2016. Selected information from the accounts of Pam and Sun for 2017 are as follows:Pam Sun Sales $1,800 $1,000 Cost of sales 980 380 During 2017 Pam sold merchandise to Sun for $100, at a
1. The separate incomes of Pop Corporation and Son Corporation, a 100 percent–owned subsidiary of Pop, for 2017 are $2,000 and $1,000, respectively. Pop sells all of its output to Son at 150 percent of Pop’s cost of production.During 2016 and 2017, Pop’s sales to Son were $9,000 and $7,000,
What amount should Pam report as cost of sales in its 2016 consolidated income statement?a $2,250 b $2,040 c $1,500 d $1,290 E 5-3 Downstream sales
3. Pam Corporation owns 80 percent of Sun’s common stock. During 2016, Pam sold Sun $750 of inventory on the same terms as sales made to third parties. Sun sold 100 percent of the inventory purchased from Pam in 2016. The following information pertains to Sun’s and Pam’s sales for 2016:Pam
Before eliminating entries, Car had consolidated current assets of $960. What amount should Car report in its December 31, 2016, consolidated balance sheet for current assets?a $960 b $951 c $924 d $303
2. Car Company had the following transactions with affiliated parties during 2016.■ Sales of $180 to Den, with $60 gross profit. Den had $45 of this inventory on hand at year-end. Car owns a 15 percent interest in Den and does not exert significant influence.■ Purchases of raw materials
E 5-2[Based on AICPA] General problems 1. Pop, Inc., owns 80 percent of Son, Inc. During 2016, Pop sold goods with a 40 percent gross profit to Son. Son sold all of these goods in 2016. For 2016 consolidated financial statements, how should the summation of Pop and Son income statement items be
8. Sun Corporation is a 90 percent–owned subsidiary of Pam Corporation, acquired on January 1, 2016, at a price equal to book value and fair value. Pam accounts for its investment in Sun using the equity method of accounting.The only intercompany transactions between the two affiliates in 2016
7. Pop Corporation regularly sells inventory items to its subsidiary, Son Corporation. If unrealized profits in Son’s 2016 year-end inventory exceed the unrealized profits in its 2017 year-end inventory:a Combined cost of sales will be greater than consolidated cost of sales in 2016 b Combined
6. Sun Corporation regularly sells inventory items to its parent, Pam Corporation. In preparing the consolidated income statement, which of the following items would not be affected by the direction (upstream or downstream) of these intercompany sales?a Consolidated gross profit b Noncontrolling
5. Pop Corporation sells an inventory item to its subsidiary, Son Company, to be used as a plant asset by Son. The workpaper entry to eliminate intercompany profits in the year of sale will not include:a A debit to sales b A credit to cost of sales c A credit to inventories d A credit to plant
4. Sun Corporation, a 90 percent–owned subsidiary of Pam Corporation, buys half of its raw materials from Pam. The transfer price is exactly the same price as Sun pays to buy identical raw materials from outside suppliers and the same price as Pam sells the materials to unrelated customers. In
3. Pop Corporation sells inventory items for $500,000 to Son Corporation, its 80 percent–owned subsidiary. The consolidated workpaper entry to eliminate the effect of this intercompany sale will include a debit to sales for:a $500,000 b $400,000 c The amount remaining in Son’s ending inventory
2. The direction of intercompany sales (upstream or downstream) does not affect consolidation workpaper procedures when the intercompany sales between affiliates are made:a At fair value b Above market value c At book value d To a 100 percent–owned subsidiary
1. Intercompany profit elimination entries in consolidation workpapers are prepared in order to:a Nullify the effect of intercompany transactions on consolidated statements b Defer intercompany profit until realized c Allocate unrealized profits between controlling and noncontrolling interests d
14. Consolidation workpaper procedures are usually based on the assumption that any unrealized profit in the beginning inventory of one year is realized through sales in the following year. If the related merchandise is not sold in the succeeding period, would the assumption result in an incorrect
13. Describe the computation of noncontrolling interest share in a year in which there is unrealized inventory profit from upstream sales in both the beginning and ending inventories of the parent.
12. Unrealized profit in the ending inventory is eliminated in consolidation workpapers by increasing cost of sales and decreasing the inventory account. How is unrealized profit in the beginning inventory reflected in the consolidation workpapers?
11. Is the effect of unrealized profit on consolidated cost of goods sold influenced by (a) the existence of a noncontrolling interest and (b) the direction of intercompany sales?
10. How is the combined cost of goods sold affected by unrealized profit in (a) the beginning inventory of the subsidiary and (b) the ending inventory of the subsidiary?
9. How does a parent adjust its investment income for unrealized profit on sales it makes to its subsidiaries (a)in the year of the sale and (b) in the year in which the subsidiaries sell the related merchandise to outsiders?
8. Under what circumstances would the direction of intercompany inventory transactions not affect the allocation of unrealized profit?
7. Would failure to eliminate unrealized profit in inventories at December 31, 2016, have any effect on consolidated net income in 2017? 2018?
6. Explain the designations upstream sales and downstream sales. Of what significance are these designations in computing parent and consolidated net income?
5. What effect does the elimination of intercompany accounts receivable and accounts payable have on consolidated working capital?
4. What effect does the elimination of intercompany sales and cost of goods sold have on consolidated net income?
3. When should the unrealized profit or loss from inventory be realized in intercompany sales transactions?
2. In eliminating unrealized profit on intercompany sales of inventory items, should gross profit or net profit be eliminated?
1. Why are intercompany transactions between a parent and its subsidiary eliminated in preparing a consolidated financial statement?
Distinguish between the terms "measured" and "denominated." LO6
Describe a foreign currency transaction. LO6
Understand some of the more common foreign currency transactions. LO6
Identify three stages of concern to accountants for foreign currency transac- tions, and explain the steps used to translate foreign currency transactions for each stage. LO6
Describe a forward exchange contract. LO6
Explain the use of forward contracts as a hedge of an unrecognized firm commitment. LO6
Identify some of the common situations in which a forward exchange contract can be used as a hedge. LO6
Describe a derivative instrument and understand how it may be used as a hedge. LO6
Explain how exchange gains and losses are reported for fair value hedges and cash flow hedges. LO6
Define currency exchange rates and distinguish between "direct" and "indirect" quotations. LO6
Explain why a firm is exposed to an added risk when it enters into a transaction that is to be settled in a foreign currency. LO6
Name the three stages of concern to the accountant in accounting for import-export transactions. Briefly explain the accounting for each stage. LO6
How should a transaction gain or loss be reported that is related to an unsettled receivable recorded when the firm's inventory was exported? LO6
Explain what is meant by the "two-transaction method" in recording exporting or importing transactions. What support is given for this method? LO6
Describe a forward exchange contract. LO6
Explain the effects on income from hedging a foreign currency exposed net asset position or net liability position. LO6
What criteria must be satisfied for a foreign currency transaction to be considered a hedge of an identifiable foreign currency commitment? LO6
How are foreign currency exchange gains and losses from hedging a forecasted transaction handled? LO6
What is a put option, and how might it be used to hedge a forecasted transaction? LO6
Define a derivative instrument, and describe the keystones identified by the FASB for the accounting for such instruments. LO6
Differentiate between forward-based derivatives. and option-based derivatives. LO6
What is the definition of hedging'^
What are the four FASB cornerstone decisions upon which FAS 133 is based?
What is the definition of hedge accounting}
What four categories of hedges are given in the chapter? Explain the differences between them.
For your answer to Question 3, to which categories does hedge accounting apply?
What is the FAS 107 guidance for determining the fair value of derivatives!
What is the difference between a written option and a purchased option?
Can a nonbank entity lose money on an option!
To hedge an exposed asset, should a call or put option be acquired? For an exposed liability?
What is split accounting!
In an FX forward, which party is the issuer, and who is the holder!
What is the forward rate! Why does it differ from the spot rate!
When does a premium exist on an FX forward? A discount!
How does one fulfill an FX forward?
How are the obligatioiis under FX forwards reported in the balance sheet?
What is the distinction between hedging and speculating!
How are FX forwards valued?
What is a hedge of a firm foreign-currency-denominated commitment!
What conditions must be met to qualify a forward exchange contract as the hedge of a firm foreign-currency-denominated commitment!
How do FX options differ from FX forwards!
What is meant when it is said that an FX forward is substantively two options?
What is split accounting as it applies to FX forwards!
Can hedges of forecasted transactions be given hedge accounting treatment? Give examples.
Can a domestic company hedge the forecasted net income of a foreign subsidiary?
What are competitive or strategic hedges! Give examples.
Can competitive or strategic hedges be given hedge accounting treatment?
What does the term financial instruments mean?
What does the term derivative mean?
What are four types of items from which derivatives can derive their value?
What are some of the unique contractual elements of derivatives?
What are some of the unique characteristics of derivatives?
How do option-based derivatives differ from forward-based derivatives?
What types of risks exist for derivatives?
What is credit risk? What is market risk?
1. GAAP provides indicators of an investor’s inability to exercise significant influence over an investee. Which of the following is not included among those indicators?a Surrender of significant stockholder rights by agreement b Concentration of majority ownership in another group rather than
2. A 20 percent common stock interest in an investee:a Must be accounted for under the equity method b Is accounted for by the cost method because over 20 percent is required for the application of the equity method c Is presumptive evidence of an ability to exercise significant influence over the
3. The cost of a 25 percent interest in the voting stock of an investee that is recorded in the investment account includes:a Cash disbursed and the book value of other assets given or securities issued, other than the cost of registering and issuing equity securities b Cash disbursed and the book
4. The underlying equity of an investment at acquisition:a Is recorded in the investment account under the equity method b Minus the cost of the investment is assigned to goodwill c Is equal to the fair value of the investee’s net assets times the percentage acquired d Is equal to the book value
5. Son Corporation is a 25 percent–owned equity investee of Pop Corporation. During the current year, Pop receives$12,000 in dividends from Son. How does the $12,000 dividend affect Pop’s financial position and results of operations?a Increases assets b Decreases investment c Increases income d
1. Pam Company owns 25 percent of Sun Corporation. During the year, Sun had net earnings of $450,000 and paid dividends of $28,000. Pam mistakenly recorded these transactions using the cost method rather than the equity method. What effect would this have on the investment account, net earnings,
2. A corporation exercises control over an affiliate in which it holds a 25 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how would this affect the investor?a Result in an increased current ratio b Result in increased earnings per share c
4. On January 1, Pop Company paid $600,000 for 20,000 shares of Son Company’s common stock, which represents a 15 percent investment in Son. Pop does not have the ability to exercise significant influence over Son. Son declared and paid a dividend of $2 per share to its stockholders during the
5. On January 2, 2016, Pam Corporation bought 15 percent of Sun Corporation’s capital stock for $30,000. Pam accounts for this investment using the cost method. Sun’s net income for the years ended December 31, 2016, and December 31, 2017, were $10,000 and $50,000, respectively. During 2017 Sun
6. Pam purchased 10 percent of Sun Company’s 100,000 shares of common stock on January 2 for $100,000. On December 31, Pam purchased an additional 20,000 shares of Sun for $300,000. There was no goodwill as a result of either acquisition, and Sun had not issued any additional stock during the
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