Multiple Choice

1) Accounting for investments depends in part to the level of influence or control. What method is generally tied to influence deemed to be insignifcant?
A.  Equity Method
B.  Consolidation
C.  Full Disclosure
D.  Cost Method
2) Accounting for investments depends in part to the level of influence or control. What method is generally tied to significant influence?
A.  Consolidation
B.  Cost Method
C.  Equity Method
D.  Full Disclosure
3) Under the equity method of accounting for a stock investment, the investment initially should be recorded at
A.  proportionate share of the fair value of the investee company’s net assets
B.  cost minus any differential
C.  cost
D.  proportionate share of the book value of the investee company’s net assets
4) Byner Corporation accounts for its investment in the common stock of Yount Company under the equity method. Byner Corporation should ordinarily record a cash dividend received from Yount as
A.  additional paid-in capital
B.  reduction of the carrying value of the investment
C.  an addition to the carrying value of the investment
D.  dividend income
5) On January 1, 2007, Yang Corporation acquired 25 % of the outstanding shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of $75,000 and paid dividends of $30,000 for both 2007 and 2008. The fair value of shares held by Yang was $110,000 and $105,000 on December 31, 2007 and 2008, respectively. What amount will be reported by Yang as income from its investment in Spiel for 2008, if it used the equity method of accounting?
A.  $11,250
B.  $7,500
C.  $18,750
D.  $26,250
6) On January 1, 2009, Athlon Company acquired 30 % of the common stock of Opteron Corporation, at underlying book value. For the same year, Opteron reported net income of $55,000, which includes an extraordinary gain of $40,000. It did not pay any dividends during the year. By what amount would Athlon’s investment in Opteron Corporation increase for the year, if Athlon used the equity method?
A.  $16,500
B.  $0
C.  $4,500
D.  $12,000
7) The primary role of the International Accounting Standards Board (IASB) is to
A.  set international standards and facilitate convergence of accounting practices
B.  regulate accountancy throughout Europe
C.  ensure compliance with international accounting standards and impose sanctions for noncompliant countries or businesses
D.  All of these answers are correct.
8) The International Accounting Standards Board (IASB)
A.  works toward convergence of different countries’ accounting standards
B.  developed universal accounting standards known as the International Financial Reporting Standards
C.  All of these answers are correct.
D.  is directed by an international board of trustees from academic and professional backgrounds
9) Which of the following statements about the International Accounting Standards Board (IASB) is accurate?
A.  The IASB’s recommendations standards are primarily based on and grow out of the GAAP of the United States.
B.  The IASB’s standards have not been widely adopted in the European Union.
C.  The United States’ Financial Accounting Standards Board is collaborating with the IASB to bring about convergence based on high quality standards.
D.  Throughout the 1970s, the competing standards issued by the IASB and the International Federation of Accountants (IFAC) discouraged early adopters.
10) On March 1, 2008, Wilson Corporation sold goods for a U.S. dollar equivalent of $31,000 to a Thai company. The transaction is denominated in Thai bahts. The payment is received on May 10. The exchange rates were:

What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on May 10?
A.  Option B
B.  Option A
C.  Option C
D.  Option D
11) On December 5, 2008, Texas-based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 2009. The transaction is denominated in Saudi riyals. Imperial’s fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are:

Based on this information, what journal entry would Imperial make on January 10, 2009, to revalue foreign currency payable to equivalent U.S. dollar value?
A.  Option B
B.  Option A
C.  Option C
D.  Option D
12) Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On November 2, 2008, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of December 31, 2008, when the exchange rate has increased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint’s records at year-end for this transaction will be
A.  $387 loss
B.  $460 loss
C.  $387 gain
D.  $460 gain
13) When the local currency of the foreign subsidiary is the functional currency, a foreign subsidiary’s inventory carried at cost would be converted to U.S. dollars by
A.  remeasurement using historical exchange rates
B.  translation using historical exchange rates
C.  remeasurement using the current exchange rate
D.  translation using the current exchange rate
14) Infinity Corporation acquired 80 % of the common stock of an Egyptian company on January 1, 2008. The goodwill associated with this acquisition was $18,350. Exchange rates at various dates during 2008 follow:

Goodwill suffered an impairment of 20 % during the year. If the functional currency is the Egyptian Pound, how much goodwill impairment loss should be reported on Infinity’s consolidated statement of income for 2008?
A.  $3,670
B.  $3,680
C.  $3,690
D.  $3,700
15) If the U.S. dollar is the currency in which the foreign affiliate’s books and records are maintained, and the U.S. dollar is also the functional currency,
A.  the translation method should be used for restatement
B.  no restatement is required
C.  either translation or remeasurement could be used for restatement
D.  the remeasurement method should be used for restatement
16) Beta Company acquired 100 % of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders’ equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders’ equity of $150,000. Included in Standard’s liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable. What amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition?
A.  $500,000
B.  $660,000
C.  $280,000
D.  $530,000
17) Beta Company acquired 100 % of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders’ equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders’ equity of $150,000. Included in Standard’s liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable. What amount of total assets was reported in the consolidated balance sheet immediately after acquisition?
A.  $650,000
B.  $750,000
C.  $920,000
D.  $880,000
18) Beta Company acquired 100 % of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders’ equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders’ equity of $150,000. Included in Standard’s liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable. What amount of stockholders’ equity was reported in the consolidated balance sheet immediately after acquisition?
A.  $220,000
B.  $350,000
C.  $370,000
D.  $150,000
19) West, Inc. holds 100 % of the common stock of Coast Company, an investment acquired for $680,000. Immediately following the combination, West’s net assets have a book value of $1,150,000 and a fair value of $1,390,000. The book value and the fair value of Coast’s net assets on the date of combination are $400,000 and $550,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared. What will be the amount of net assets reported in the consolidated balance sheet, prepared immediately following the combination?
A.  $1,150,000
B.  $1,830,000
C.  $1,700,000
D.  $1,550,000
20) West, Inc. holds 100 % of the common stock of Coast Company, an investment acquired for $680,000. Immediately following the combination, West’s net assets have a book value of $1,150,000 and a fair value of $1,390,000. The book value and the fair value of Coast’s net assets on the date of combination are $400,000 and $550,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared. What will be the amount of total consolidated stockholders’ equity be reported in the consolidated balance sheet prepared immediately following the combination?
A.  $1,390,000
B.  $1,150,000
C.  $1,700,000
D.  $1,550,000
21) Tanner Company, a subsidiary acquired for cash, owned equipment with a fair value higher than the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference in
A.  goodwill
B.  equipment
C.  deferred charges
D.  retained earnings
22) ABC Corporation owns 75 % of XYZ Company’s voting shares. During 2008, ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for $90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior to December 31, 2008, and sold the remainder in early 2009 for $130 each. Both companies use perpetual inventory systems. Based on the information given above, what amount of cost of goods sold must be eliminated from the consolidated income statement for 2008?
A.  $2,765,000
B.  $2,963,000
C.  $1,422,000
D.  $1,620,000
23) On January 1, 2008, Colorado Corporation acquired 75 % of Denver Company’s voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was $30,000. Denvers’s balance sheet at the date of acquisition contained the following balances:

At the date of acquisition, the reported book values of Denver’s assets and liabilities approximated fair value. Eliminating entries are being made to prepare a consolidated balance sheet immediately following the business combination. Based on this information, in the entry to eliminate the investment balance,
A.  a.   retained earnings will be credited for $20,000
B.  d.   noncontrolling interest will be debited for 30,000
C.  c.    differential will be credited for $10,000
D.  b.   additional paid-in-capital will be credited for $20,000
24) Consolidated net income for a parent and its 80 % owned subsidiary should be computed by eliminating

A.  a.   all unrealized profit in downstream intercompany inventory sales, and unrealized profit in upstream intercompany inventory sales made during the current year
B.  d.   all unrealized profit in downstream intercompany sales, and the noncontrolling interest’s share of unrealized profit in upstream sales made during the current year
C.  c.    the controlling interest’s share of unrealized profit in downstream intercompany sales, and the controlling interest’s share of unrealized profit in upstream sales made during the current year
D.  b.   all unrealized profit in downstream intercompany inventory sales, and the noncontrolling interest’s share of unrealized profit in upstream inventory sales made during the current year
25) On January 1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company’s voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 % of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 2009, the trial balances of the two companies are as follows:

What amount would be reported as total liabilities in the consolidated balance sheet at December 31, 2009?
A.  $330,000
B.  $130,000
C.  $318,000
D.  $712,000
26) On January 1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company’s voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 % of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 2009, the trial balances of the two companies are as follows:

What amount would be reported as total assets in the consolidated balance sheet at December 31, 2009?
A.  $805,000
B.  $742,000
C.  $1,102,000
D.  $712,000
27) Bristle Corporation acquired 75 % of Silver Corporation’s common stock on December 31, 2008, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100,000. Silver’s balance sheet immediately before the combination reflected the following balances:

A careful review of the fair value of Silver’s assets and liabilities indicated that inventory, land, and buildings and equipment (net) had fair values of $65,000, $100,000, and, $300,000, respectively. Goodwill is assigned proportionately to Bristle and the noncontrolling shareholders. What amount of land will be included in the consolidated balance sheet immediately following the acquisition?
A.  $0
B.  $90,000
C.  $100,000
D.  $10,000
28) Sky Corporation owns 75 % of Earth Company’s stock. On July 1, 2008, Sky sold a building to Earth for $33,000. Sky had purchased this building on January 1, 2006, for $36,000. The building’s original eight-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment’s residual value is considered negligible. Based on this information, in the preparation of the 2009 consolidated income statement, depreciation expense will be
A.  debited for $750 in the eliminating entries
B.  credited for $1,500 in the eliminating entries
C.  debited for $1,500 in the eliminating entries
D.  credited for $750 the eliminating entries
29) Sky Corporation owns 75 % of Earth Company’s stock. On July 1, 2008, Sky sold a building to Earth for $33,000. Sky had purchased this building on January 1, 2006, for $36,000. The building’s original eight-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment’s residual value is considered negligible. Based on this information, in the preparation of the 2008 consolidated financial statements, building will be _____ in the eliminating entries.
A.  debited for $33,000
B.  credited for $36,000
C.  debited for $3,000
D.  debited for $36,000
30) ABC Corporation purchased land on January 1, 2006, for $50,000. On July 15, 2008, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80 % of XYZ’s voting shares. What will be the workpaper eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 2009?

A.  Option A
B.  Option C
C.  Option D
D.  Option B
31) Sigma Company develops and markets organic food products to natural foods retailers. The following information is available for the company for the year 2008:

Based on the preceding information, what amount will be reported by the company as cash received from customers during the year?
A.  $455,000
B.  $450,000
C.  $425,000
D.  $475,000
32) Sigma Company develops and markets organic food products to natural foods retailers. The following information is available for the company for the year 2008:

Based on the preceding information, what amount will be reported by the company as cash flows from operating activities for 2008?
A.  $175,000
B.  $167,000
C.  $207,000
D.  $133,000
33) Tower Corporation’s controller has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for the year ended December 31, 2009. Tower owns 80 % of Network Corporation’s stock, which it acquired at underlying book value on November 1, 2006. At that date, the fair value of the noncontrolling interest was equal to 20 % of Network Corporation’s book value. The following information is available:
Consolidated net income for 2009 was $160,000.
Network reported net income of $50,000 for 2009.
Tower paid dividends of $30,000 in 2009.
Network paid dividends of $10,000 in 2009.
Tower issued common stock on February, 18, 2009, for a total of $100,000.
Consolidated wages payable decreased by $6,000 in 2009.
Consolidated depreciation expense for the year was $15,000.
Consolidated accounts receivable decreased by $20,000 in 2009.
Bonds payable of Tower with a book value of $102,000 were retired for $100,000 on December 31, 2009.
Consolidated amortization expense on patents was $10,000 for 2009.
Tower sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June 10, 2009.
Consolidated accounts payable decreased by $7,000 during 2009.
Total purchases of equipment by Tower and Network during 2009 were $180,000.
Consolidated inventory increased by $36,000 during 2009.
There were no intercompany transfers between Tower and Network in 2009 or prior years except for Network’s payment of dividends. Tower uses the indirect method in preparing its cash flow statement.
Based on the preceding information, what was the change in cash balance for the consolidated entity for 2009?
A.  Increase of $49,000
B.  Increase of $17,000
C.  Increase of $32,000
D.  Decrease of $66,000
34) Flyer Corporation holds 90 % of Kite Company’s common shares but none of its preferred shares. On the date of acquisition, the fair value of the noncontrolling interest was equal to 10 % of the book value of Kite Company. Summary balance sheets for the companies on December 31, 2008, are as follows:

Flyer’s preferred pays an 8 % annual dividend, and Kite’s preferred pays a 10 % dividend. Kite’s preferred shares can be converted into 20,000 shares of common stock at any time. Kite reported net income of $35,000 and paid a total of $10,000 of dividends in 2008. Flyer reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 2008.
Based on the information provided, what is the diluted earnings per share for the consolidated entity for 2008?
A.  4.53
B.  4.00
C.  3.80
D.  4.33
35) Company X has net income of $100,000 and $150,000 in net income for 2008 and 2009, respectively. Weighted average number of shares outstanding is 1,000,000 for both 2008 and 2009. What is basic earnings per share for 2008?
A.  .15
B.  .07
C.  .10
D.  .05
36) Electric Corporation holds 80 % of Utility Company’s voting common shares, acquired at book values, but none of its preferred shares. At the date of acquisition, the fair value of the noncontrolling interest was equal to 20 % of the book value of Utility Company. Summary balance sheets for the companies on December 31, 2008, are as follows:

Neither of the preferred issues is convertible. Electric’s preferred pays an 8 % annual dividend, and Utility’s preferred pays a 12 % dividend. Utility reported net income of $30,000 and paid a total of $10,000 of dividends in 2008. Electric reported income from its separate operations of $70,000 and paid total dividends of $25,000 in 2008. Based on this information, what is the consolidated earnings per share for 2008?
A.  4.46
B.  4.35
C.  4.55
D.  4.14