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modern advanced accounting
Modern Advanced Accounting 10th Edition E. John Larsen - Solutions
6. Differentiate between a working paper for consolidated balance sheet and a consolidated balance sheet.
5. Are eliminations for the preparation of consolidated financial statements entered in the accounting records of the parent company or of the subsidiary? Explain.
4. In a business combination resulting in a parent–subsidiary relationship, the identifiable net assets of the subsidiary must be reflected in the consolidated balance sheet at their current fair values on the date of the business combination. Does this require the subsidiary to enter the current
3. The controller of Pastor Corporation, which has just become the parent of Sexton Company in a business combination, inquires if a consolidated income statement is required for the year ended on the date of the combination. What is your reply? Explain.
2. The use of consolidated financial statements for reporting to stockholders is common.Under some conditions, certain subsidiaries may be excluded from consolidation. List the conditions under which subsidiaries sometimes are excluded from consolidated financial statements.
1. Discuss the similarities and dissimilarities between consolidated financial statements for a parent company and its subsidiaries and combined financial statements for the home office and branches of a single legal entity.
8. In the balance sheet of a combined enterprise on the date of a business combination, unallocated negative goodwill is displayed:a. In stockholders’ equity.b. In a note to financial statements.c. As an offset to total assets.d. As a deferred credit.e. In some other manner.
6. The term survivor is associated with a business combination accomplished through:a. A statutory merger.b. A statutory consolidation.c. An acquisition of common stock.d. An acquisition of assets.
5. In a “bargain purchase” business combination, the excess of the current fair value of the combinee’s identifiable net assets over the cost to the combinor is:a. Credited to the combinor’s Negative Goodwill ledger account.b. Offset against the balance of the combinor’s Investment in
3. A target company’s defense against an unfriendly takeover that involves the disposal of one or more profitable business segments of the target is termed:a. Pac-man defenseb. Scorched earthc. Shark repellentd. Poison pill
2. The cost of a combinee in a business combination includes all the following except:a. Legal fees and finder’s fee.b. Cost of registering and issuing debt securities issued to effect the combination.c. Amount of consideration.d. Contingent consideration that is determinable.
10. What combinee intangible assets other than goodwill are to be given accounting recognition in a business combination?
9. Define the term preacquisition contingencies.
8. How is the total cost of a combinee allocated in a business combination?
7. Define contingent consideration in a business combination.
6. Goodwill often is recognized in business combinations. Explain the meaning of goodwill and negative goodwill.
5. State how each of the following out-of-pocket costs of a merger business combination is accounted for by the combinor:a. Printing costs for proxy statement mailed to combinor’s stockholders in advance of special meeting to ratify terms of the merger.b. Legal fees for negotiating the merger.c.
4. How is the combinor in a business combination determined?
3. Identify two methods that may be used, individually or jointly, to determine an appropriate price to pay for a combinee in a business combination.
2. Differentiate between a statutory merger and a statutory consolidation.
1. Define business combination.
Hartman, Inc., established Reno Branch on January 2, 2005. During 2005, Hartman’s home office shipped merchandise to Reno Branch that cost $300,000. Billings were made at prices marked up 20% above home office cost. Freight costs of $15,000 were paid by the home office. Sales by the branch were
Langley, Inc., operates a number of branches as well as a home office. Each branch stocks a complete line of merchandise obtained almost entirely from the home office. The branches also handle their billing, approve customer credit, and make cash collections.Each branch has its own bank account,
The management of Windsor Company, which has several branches as well as a home office, is planning to sell the net assets of Southwark Branch to an unrelated business enterprise.As controller of Windsor, you are asked by the board of directors if you can prepare separate financial statements for
Kevin Carter, CPA, a member of the IMA, the FEI, and the AICPA (see Chapter 1), is the newly hired controller of Oilers, Inc., a closely held manufacturer of replacement parts for oil well drilling equipment. Oilers distributes its products through its home office and 14 branches located near oil
The management of Longo Company, which has a June 30 fiscal year and sells merchandise at its home office and six branches, is considering closing Santee Branch because of its declining sales volume and excessive operating expenses. Longo’s contract with Lewis Hanson, manager of Santee Branch,
On May 31, 2005, the unadjusted balances of the Investment in Troy Branch ledger account of the home office of Argos Company and the Home Office account of the Troy Branch of Argos Company were $380,000 debit and $140,000 credit, respectively.Additional Information 1. On May 31, 2005, the home
The home office of Gomez Company bills its only branch at a markup of 25% above home office cost for all merchandise shipped to that Perez Branch. Both the home office and the branch use the periodic inventory system. During 2005, the home office shipped merchandise to the branch at a billed price
On January 31, 2005, the unadjusted credit balance of the Allowance for Overvaluation of Inventories: Vermont Avenue Branch of the home office of Searl Company was $80,000.The branch reported a net income of $60,000 for January 2005 and an ending inventory on January 31, 2005, of $81,000, at billed
The home office of Glendale Company, which uses the perpetual inventory system, bills shipments of merchandise to the Montrose Branch at a markup of 25% on the billed price. On August 31, 2005, the credit balance of the home office’s Allowance for Overvaluation of Inventories: Montrose Branch
Tillman Textile Company has a single branch in Toledo. On March 1, 2005, the home office accounting records included an Allowance for Overvaluation of Inventories: Toledo Branch ledger account with a credit balance of $32,000. During March, merchandise costing$36,000 was shipped to the Toledo
On May 31, 2005, Portland Street Branch (the only branch) of Trapp Company reported a net income of $80,000 for May 2005, and a $240,000 ending inventory at billed price of merchandise received from the home office at a 25% markup on billed price. Prior to adjustment, the May 31, 2005, balance of
The home office of Figueroa Company ships merchandise to the Nine-Zero Branch at a billed price that includes a markup on home office cost of 25%. The Inventories ledger account of the branch, under the perpetual inventory system, showed a December 31, 2004, debit balance, $120,000; a debit for a
Prepare journal entries in the accounting records of both the home office and the Exeter Branch of Wardell Company to record each of the following transactions or events (omit explanations):a. Home office transferred cash of $5,000 and merchandise (at home office cost) of $10,000 to the branch.
Among the journal entries of the home office of Turbo Company for the month ended August 31, 2005, were the following:2005 Aug. 6 Investment in Lido Branch 10,000 Cash 10,000 To record payment of account payable of branch.14 Cash 6,000 Investment in Lido Branch 6,000 To record collection of trade
Among the journal entries for business transactions and events of the Hoover Street Branch of Usc Company during January 2005, were the following:2005 Jan. 12 Inventories 60,000 Home Office 60,000 To record the receipt of merchandise shipped Jan. 10 from the home office and billed at a markup of
On September 1, 2005, Western Company established the Eastern Branch. Separate accounting records were set up for the branch. Both the home office and the Eastern Branch use the periodic inventory system. Among the intracompany transactions were the following:Sept. 1 Home office mailed a check for
On September 1, 2005, Pasadena Company established a branch in San Marino. Following are the first three transactions between the home office and San Marino branch of Pasadena Company:Sept. 1 Home office sent $10,000 to the branch for an imprest bank account.2 Home office shipped merchandise
Partner Eng plans to withdraw from Chu, Dow & Eng LLP on July 10, 2005. Partnership assets are to be used to acquire Eng’s partnership interest. The balance sheet for the partnership on that date follows:CHU, DOW & ENG LLP Balance Sheet July 10, 2005 Assets Liabilities and Partners’ Capital
Partners Lucas and May formed Lucas & May LLP on January 2, 2005. Their capital accounts showed the following changes during:Lucas, May, Capital Capital Original investments, Jan. 2, 2005 $120,000 $180,000 Investments: May 1 15,000 July 1 15,000 Withdrawals: Nov. 1 (30,000) (75,000)Capital account
Ross & Saye LLP was organized and began operations on March 1, 2004. On that date, Roberta Ross invested $150,000, and Samuel Saye invested land and building with current fair values of $80,000 and $100,000, respectively. Saye also invested $60,000 in the partnership on November 1, 2004, because of
The condensed balance sheet of Gee & Hawe LLP on December 31, 2004, follows:GEE & HAWE LLP Balance Sheet December 31, 2004 Assets Liabilities and Partners’ Capital Current assets $100,000 Liabilities $300,000 Plant assets (net) 500,000 Louis Gee, capital 200,000 Ray Hawe, capital 100,000 Total
Among the business transactions and events of Oscar, Paul & Quinn LLP, whose partners shared net income and losses equally, for the month of January 2005, were the following:Jan. 2 With the consent of Paul and Quinn, Oscar made a $10,000 cash advance to the partnership on a 12% demand promissory
Lowyma Company LLP, a partnership of Ed Loeser, Peter Wylie, and Herman Martin, has operated successfully for many years, but Martin now plans to retire. In discussions of the settlement to be made with Martin, the point was made that inventories had been valued at last-in, first-out cost for many
George Lewis and Anna Marlin are partners of Lewis & Marlin LLP, who share net income and losses equally. They offer to admit Betty Naylor to Lewis, Marlin & Naylor LLP for a one-third interest in net assets and in net income or losses for an investment of$50,000 cash. The total capital of Lewis &
Carl Dobbs and David Ellis formed Dobbs & Ellis LLP on January 2, 2005. Dobbs invested cash of $50,000, and Ellis invested cash of $20,000 and marketable equity securities(classified as available for sale) with a current fair value of $80,000. A portion of the securities was sold at carrying amount
May Jack Julian ethically comply with the request of the partners of Nobis, Ortho & Parr LLP? Explain.Jean Rogers, CPA, is a member of the AICPA, the IMA, and the FEI (see Chapter 1); she is employed as the controller of Barnes, Egan & Harder LLP. On June 30, 2005, the end of the partnership’s
Dee, Ern & Fay LLP, whose partners share net income and losses equally, had an operating income of $30,000 for the first year of operations. However, near the end of that year, the partners learned of two unfavorable developments: (a) the bankruptcy of Sasha Company, maker of a two-year promissory
In a classroom discussion of accounting standards for limited liability partnerships, student Ronald suggested that interest on partners’ capital account balances, allocated in accordance with the partnership contract, should be recognized as an operating expense by the partnership.Instructions
The author of Modern Advanced Accounting takes the position (page 27) that salaries awarded to partners of a limited liability partnership should be recognized as operating expenses of the partnership. Some other accountants maintain that partners’ salaries should be accounted for as a step in
Macco Company (a limited partnership) was established on January 2, 2005, with the issuance of 10 units at $10,000 a unit to Malcolm Cole, the general partner, and 40 units in the aggregate to five limited partners at $10,000 a unit. The certificate for Macco provided that Cole was authorized to
On May 31, 2005, with the consent of Nunn, Owen, and Quan:1. Sam Park retired from the partnership and was paid $50,000 cash in full settlement of his interest in the partnership.2. Lois Reed was admitted to the partnership with a $20,000 cash investment for a 10%interest in the net assets of Nunn,
On August 31, 2005, Logan and Major, partners of Logan & Major Limited Liability Partnership who had capital account balances of $80,000 and $120,000, respectively, on that date and who shared net income and losses in a 2 : 3 ratio, agreed to admit Nelson to Logan, Major & Nelson Limited Liability
Floyd Austin and Samuel Bradford are partners of Austin & Bradford LLP who share net income and losses equally and have equal capital account balances. The net assets of the partnership have a carrying amount of $80,000. Jason Crade is admitted to Austin, Bradford &Crade LLP with a one-third
Lamb and Meek, partners of Lamb & Meek Limited Liability Partnership who share net income and losses 60% and 40%, respectively, had capital account balances of $70,000 and$60,000, respectively, on June 30, 2005. On that date Lamb and Meek agreed to admit Niles to Lamb, Meek & Niles Limited
Partners Arne and Bolt of Arne & Bolt LLP have capital account balances of $30,000 and$20,000, respectively, and they share net income and losses in a 3 : 1 ratio.Prepare journal entries to record the admission of Cope to Arne, Bolt & Cope LLP under each of the following conditions:a. Cope invests
On January 31, 2005, Nancy Ross and John Clemon were admitted to Logan, Marsh &Noble LLP (CPA firm), which had net assets of $120,000 prior to the admission and an income-sharing ratio of Logan, 25%; Marsh, 35%; and Noble, 40%. Ross paid $20,000 to Carl Logan for one-half of his 20% share of
Emma Neal and Sally Drew are partners of Neal & Drew LLP sharing net income or losses equally; each has a capital account balance of $200,000. Sally Drew (with the consent of Neal) sold one-fifth of her interest to her daughter Paula for $50,000, with payment to be made to Sally Drew in five annual
The partnership contract for Bates & Carter LLP provided for salaries to partners and the division of net income or losses as follows:1. Salaries of $40,000 a year to Bates and $60,000 a year to Carter.2. Interest at 12% a year on beginning capital account balances.3. Remaining net income or loss
The partnership contract of Ann, Bud & Cal LLP provides for the remuneration of partners as follows:1. Salaries of $40,000 to Ann, $35,000 to Bud, and $30,000 to Cal, to be recognized annually as operating expense of the partnership in the measurement of net income.2. Bonus of 10% of income after
The partnership contract of Jones, King & Lane LLP provided for the division of net income or losses in the following manner:1. Bonus of 20% of income before the bonus to Jones.2. Interest at 15% on average capital account balances to each partner.3. Residual income or loss equally to each
The partnership contract of Ray, Stan & Todd LLP provided that Ray was to receive a bonus equal to 20% of income and that the remaining income or loss was to be divided 40% each to Ray and Stan and 20% to Todd. Income of Ray, Stan & Todd LLP for 2005 (before the bonus) amounted to $127,200.Explain
Prepare a working paper to compute the division of the $48,000 net income of Webb &Yu LLP under each of the following assumptions:a. The partnership contract is silent as to sharing of net income and losses.b. Net income and losses are divided on the basis of average capital account balances (not
On January 2, 2005, Carle and Dody established Carle & Dody LLP, with Carle investing$80,000 and Dody investing $70,000 on that date. The income-sharing provisions of the partnership contract were as follows:1. Salaries of $30,000 per annum to each partner.2. Interest at 6% per annum on beginning
12. Which of the following typical expense of a corporation is not relevant for a limited liability partnership?a. Salaries expense.b. Interest expense.c. Income taxes expense.d. Pension expense.e. None of the above.
11. The income-sharing provision of the contract that established Early & Farber LLP provided that Early was to receive a bonus of 20% of income after deduction of the bonus, with the remaining income distributed 40% to Early and 60% to Farber. If income before the bonus of Early & Farber LLP was
10. Salaries to partners of a limited liability partnership typically should be accounted for as:a. A device for sharing net income.b. An operating expense of the partnership.c. Drawings by the partners from the partnership.d. Reductions of the partners’ capital account balances.
9. The partnership contract for Clark & Davis LLP provides that “net income or losses are to be distributed in the ratio of partners’ capital account balances.” The appropriate interpretation of this provision is that net income or losses should be distributed in:a. The ratio of beginning
8. According to this text, the recognition of goodwill in the accounting records of a limited liability partnership may be appropriate for:a. The admission of a new partner for a cash investment.b. The retirement of an existing partner.c. Either of the foregoing situations.d. Neither of the
7. The two partners of Adonis & Brutus LLP share net income and losses in the ratio of 7 : 3, respectively. On February 1, 2005, their capital account balances were as follows:Adonis $70,000 Brutus 60,000 Adonis and Brutus agreed to admit Cato as a partner on February 1, 2005, with a onethird
5. Which of the following is an expense of a limited liability partnership?a. Interest on partners’ capital account balances.b. Interest on loans from partners to the partnership.c. Both a and b .d. Neither a nor b .
4. The partnership contract for Gore & Haines LLP provided that Gore is to receive an annual salary of $60,000, Haines is to receive an annual salary of $40,000, and the net income or loss (after partners’ salaries expense) is to be divided equally between the two partners. Net income of Gore &
3. A large cash withdrawal by Partner Davis from Carr, Davis, Exley & Fay LLP, which is viewed by all partners as a permanent reduction of Davis’s ownership equity in the partnership, is recorded with a debit to:a. Loan Receivable from Davis.b. Davis, Drawing.c. Davis, Capital.d. Retained
2. When Andrew Davis retired from Davis, Evans & Fell LLP, he received cash in excess of his capital account balance. Under the bonus method, the excess cash received by Davis:a. Reduced the capital account balances of Evans and Fell.b. Had no effect on the capital account balances of Evans and
1. The partnership contract of Lowell & Martin LLP provided for salaries of $45,000 to Lowell and $35,000 to Martin, with any remaining income or loss divided equally.During 2005, pre-salaries income of Lowell & Martin LLP was $100,000, and both Lowell and Martin withdrew cash from the partnership
16. Differentiate between a limited liability partnership (LLP) and a limited partnership.
15. How do the financial statements of a limited partnership differ from those of a limited liability partnership?
14. A CPA firm was asked to express an auditors’ opinion on the financial statements of a limited partnership in which a corporation was the general partner. Should the financial statements of the limited partnership and the auditors’ report thereon include the financial statements of the
13. Two partners invested $2,000 each to form a limited liability partnership for the construction of a shopping center. The partnership obtained a bank loan of $800,000 to finance construction, but no payment on this loan was due for two years. Each partner withdrew $50,000 cash from the
12. A new partner admitted to a limited liability partnership often is required to invest an amount of cash larger than the carrying amount of the interest in net assets the new partner acquires. In what way might such a transaction be recorded? What is the principal argument for each method?
11. Should the carrying amounts of a limited liability partnership’s assets be restated to current fair values when a partner retires or a new partner is admitted to the firm?Explain.
10. Muir and Miller operated Muir & Miller LLP for several years, sharing net income and losses equally. On January 1, 2005, they agreed to revise the income-sharing ratio to 70% for Muir and 30% for Miller, because of Miller’s desire for semiretirement. On March 1, 2005, the partnership received
9. The partnership contract of Peel & Quay LLP is brief on the sharing of net income and losses. It states: “Net income is to be divided 80% to Peel and 20% to Quay, and each partner is entitled to draw $2,000 a month.” What difficulties do you foresee in implementing this contract? Illustrate
7. Ainsley & Burton LLP admitted Paul Craig to a one-third interest in the firm for his investment of $50,000. Does this mean that Craig would be entitled to one-third of the partnership’s net income or losses?v8. Duncan and Eastwick are negotiating a partnership contract, with Duncan to
6. List at least five methods by which net income or losses of a limited liability partnership may be divided among partners.
5. List at least five items that should be included in a limited liability partnership contract.
4. Explain how partners’ salaries should be displayed in the income statement of a limited liability partnership, if at all.
3. Explain the limited liability partnership balance sheet display of loans to and from partners and the accounting for interest on such loans.
2. Some large CPA firms have thousands of staff members, and hundreds of partners, and operate on a national or an international basis. Would the professional corporation form of organization be more appropriate than the limited liability partnership form for such large organizations? Explain.
1. In the formation of a limited liability partnership, partners often invest nonmonetary assets such as land, buildings, and machinery, as well as cash. Should nonmonetary assets be recognized by the partnership at current fair value, at cost to the partners, or at some other amount? Explain.
In a September 1998 speech, former Securities and Exchange Commission Chairman Arthur Levitt used the term cookie-jar reserves to describe a “cooking the books” technique used by some publicly owned companies to manage earnings. The technique involved establishing fictitious liabilities for
You are the chief financial officer of Playthings, Inc., a newly organized, publicly owned manufacturer of toys and games. Roy Weber, the chairman of the audit committee of the company’s board of directors, asks you to consider at what point, under generally accepted accounting principles, the
Evaluate the usefulness of the ethics rules of the AICPA, FEI, and IMA in relation to the foregoing quotations.Instructions Given that CPAs are subject to oversight by state boards of accountancy, what is the incentive—if any—for CPAs in management accounting to be members of the AICPA, the
In his Meditations, the Roman emperor Marcus Aurelius Antoninus wrote as follows (Books III and VII):A man must stand erect, not be kept erect by others. . . .Be thou erect or be made erect.Instructions Evaluate the usefulness of the ethics rules of the AICPA, FEI, and IMA in relation to the
Suppose you were to participate in a debate of the following resolution:Resolved, that the following sentence from the Preamble to Section I: Principles of the AICPA Code of Professional Conduct is overly idealistic in today’s society:The Principles call for an unswerving commitment to honorable
12. The section of the American Institute of Certified Public Accountants Code of Professional Conduct that governs the performance of professional services by AICPA members is the:a. Principlesb. Rulesc. Bylawsd. Technical standards
11. According to Standards of Ethical Conduct for Members of the Institute of Management Accountants, management accountants faced with significant ethical issues should first:a. Discuss the issue with the immediate superior, except when it appears the superior is involved.b. Clarify relevant
10. Compliance with generally accepted accounting principles is required by the ethics code of the:a. AICPA only.b. AICPA and FEI.c. AICPA and IMA.d. AICPA, FEI, and IMA.
8. The Report of the National Commission on Fraudulent Financial Reporting did not include recommendations for:a. Financial institution regulators.b. Legal counsel of business enterprises.c. Educators.d. State boards of accountancy.
7. Standards of Ethical Conduct for Members of the Institute of Management Accountants deal with all of the following except:a. Competenceb. Confidentialityc. Independenced. Integritye. Objectivity
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