2 exam 1
1 (20 points)
January 2, 2013 Piron Corporation issued 100,000 new shares of its $5
par value common stock valued at $19 a share for all of Seana
Corporation’s outstanding common shares.Piron paid $15,000 to
register and issue shares. Piron also paid $20,000 for the
direct combination costs of the accountants. The fair value and
book value of Seana’s identifiable assets and liabilities
were the same. Summarized balance sheet information for both
companies just before the acquisition on January 2, 2013 is as
current assets 500,000 500,000
assets-net 4,000,000 1,500,000
assets $5,320,000 $2,770,000
payable $1,000,000 $300,000
payable 1,300,000 660,000
stock, $5 par 2,000,000 500,000
paid-in capital 1,000,000 100,000
earnings 20,000 1,210,000
liabilities & equities $5,320,000 $2,770,000
1: Prepare Piron’s general journal entry for the acquisition
of Seana, assuming that Seana survives as a separate legal entity.
2: Prepare Piron’s general journal entry for the acquisition
of Seana, assuming that Seana will dissolve as a separate legal
2 (20 points) Question 2 Und
Corporation saw the potential for vertical integration and purchased
a 15% interest in Syrup Corp. on January 1, 2013, for
$150,000. At that date, Syrup’s stockholders’
equity included $200,000 of $10 par value common stock, $300,000 of
additional paid in capital, and $500,000 retained earnings. The
companies began to work together and realized improved sales by both
parties. On December 31, 2014, Pancake paid $250,000 for an
additional 20% interest in Syrup Corp. Both of Pancake’s
investments were made when Syrup’s book values equaled their
fair values. Syrup’s net income and dividends for 2013
and 2014 were as follows:
income $220,000 $330,000
1: Prepare journal entries for Pancake Corporation to account for its
investment in Syrup Corporation for 2013 and 2014.
2: Calculate the balance of Pancake’s investment in Syrup at
December 31, 2014.
3 (20 points) Question 3 Und
January 1, 2013, Pailor Inc. purchased 40% of the outstanding
stock of Saska Company for $300,000. At that time, Saska’s
stockholders’ equity consisted of $270,000 common stock and
$330,000 of retained earnings. Saska Corporation reported net
income of $360,000 for 2013. The allocation of the $60,000
excess of cost over book value acquired is shown below, along with
information relating to the useful lives of the items:
receivables (collected in 2013) $(5,000)
inventories (sold in 2013) 16,000
building (4 years’ useful life remaining at January 1, 2013)
patent (6 years’ economic life remaining at January 1, 2013)
accounts payable (paid in 2013) (4,000)
of excess allocated to identifiable assets and liabilities 57,000
cost over book value acquired $60,000
Pailor’s investment income from Saska for 2013.
4 (20 points) Question 4 Und
July 1, 2014, Polliwog Incorporated paid cash for 21,000 shares of
Salamander Company’s $10 par value stock when it was trading
at $22 per share. At that time, Salamander’s total
stockholders’ equity was $597,000, and they had 30,000 shares
of stock outstanding, both before and after the purchase. The
book value of Salamander’s net assets is believed to
approximate the fair values.
1: Prepare the journal entry that Polliwog would record at the date
of acquisition on their general ledger.
2: Calculate the balance of the goodwill that would be recorded on
Polliwog’s general ledger, on Salamander’s general
ledger, and in the consolidated financial statements.
5 (20 points) Question 5 Und
January 1, 2014, Pinnead Incorporated paid $300,000 for an 80%
interest in Shalle Company. At that time, Shalle’s total
book value was $300,000. Patents were undervalued in the amount
of $10,000. Patents had a 5 year remaining useful life, and any
remaining excess value was attributed to goodwill. The income
statements for the year ended December 31, 2014 of Pinnead and Shalle
are summarized below:
from Shalle 78,400
of sales (100,000) (100,000)
1: Calculate the goodwill that will appear in the consolidated
balance sheet of Pinnead and Subsidiary at December 31, 2014.
2: Calculate consolidated net income for 2014.
3: Calculate the noncontrolling interest share for 2014.
4 exam 2
1 (20 points) Question 1 Unsaved
December 31, 2014, Paladium International purchased 70% of the
outstanding common stock of Sennex Chemical. Paladium paid
$140,000 for the shares and determined that the fair value of all
recorded Sennex assets and liabilities approximated their book
values, with the exception of a customer list that was not recorded
and had a fair value of $10,000 and an expected remaining useful life
of 5 years. At the time of purchase, Sennex had
stockholders’ equity consisting of capital stock amounting to
$20,000 and retained earnings amounting to $80,000. Any
remaining excess fair value was attributed to goodwill. The
separate financial statements at December 31, 2015 appear in the
first two columns of the consolidation workpapers shown below.
the consolidation working papers for Paladium and Sennex for the year
LIAB. & EQUITY
2 (20 points) Question 2 Unsaved
Company acquired all the voting stock of Sennett Corporation on
January 1, 2014 for $90,000 when Sennett had Capital Stock of $50,000
and Retained Earnings of $8,000. The excess of fair value over
book value was allocated as follows: (1) $5,000 to inventories (sold
in 2014), (2) $16,000 to equipment with a 4-year remaining useful
life (straight-line method of depreciation) and (3) the remainder to
statements for Packo and Sennett at the end of the fiscal year ended
December 31, 2015 (two years after acquisition) appear in the first
two columns of the partially completed consolidation working
papers. Packo has accounted for its investment in Sennett using
the equity method of accounting.
the consolidation working papers for Packo Company and Subsidiary for
the year ending December 31, 2015.
Retained Earnings 1/1
Retained Earnings 1/1
in Sennett Corp.
LIAB. & EQUITY
3 Question 3 Unsaved
Corporation paid $78,000 for a 60% interest in Schtick Inc. on
January 1, 2014, when Schtick’s Capital Stock was $80,000 and
its Retained Earnings $20,000. The fair values of Schtick’s
identifiable assets and liabilities were the same as the recorded
book values on the acquisition date. Trial balances at the end
of the year on December 31, 2014 are given below:
Receivable 24,000 30,000
in Schtick 78,000
of Goods Sold 71,500 50,000
Expenses 22,000 37,000
stock, $10 par value 100,000 80,000
Paid-in Capital 11,000
Earnings 31,000 20,000
Revenue 120,000 90,000
2014, Pommu made only two journal entries with respect to its
investment in Schtick. On January 1, 2014, it debited the
Investment in Schtick account for $78,000 and on November 1, 2014, it
credited Dividend Income for $6,000.
1: Prepare a consolidated income statement and a statement of
retained earnings for Pommu and Subsidiary for the year ended
December 31, 2014.
2: Prepare a consolidated balance sheet for Pommu and Subsidiary as
of December 31, 2014.
4 (20 points) Question 4 Unsaved
Corporation regularly purchases merchandise from their 90% owner,
Playtime Corporation. Playtime purchased the 90% interest at a
cost equal to 90% of the book value of Salli’s net assets. At
the time of acquisition, the book values and fair values of
Salli’s assets and liabilities were equal. Playtime
makes their sales to Salli at 120% of cost. In 2014, Salli
reported net income of $460,000, and made purchases totaling $172,000
from Playtime. Although Salli had no inventory on hand at the
beginning of 2014 that they had purchased from Playtime, at year end,
they had $51,600 of this merchandise in inventory.
1: Determine the unrealized profit in Salli’s inventory at
December 31, 2014.
2: Compute Playtime’s income from Salli for 2014.
5 (20 points) Question 5 Unsaved
Instruments International purchased 75% of the outstanding common
stock of Standard Systems in 1997 when the book values and fair
values of Standard’s assets and liabilities were equal. The
cost of Perry’s investment was equal to 75% of the book value
of Standard’s net assets. Separate company income
statements for Perry and Standard for the year ended December 31,
2014 are summarized as follows:
Revenue $2,400,000 $800,000
income from Standard 142,000
of Goods Sold (1,600,000) (400,000)
Income $492,000 $200,000
2014, the companies began to manage their inventory differently and
worked together to keep their inventories low at each location. In
doing so, they agreed to sell inventory to each other as needed at a
markup of 10% of cost. Perry sold merchandise that cost $100,000
to Standard for $110,000, and Standard sold inventory that cost
$80,000 to Perry for $88,000. Half of this merchandise remained
in each company’s inventory at December 31, 2014.
a consolidated income statement for Perry Corporation and Subsidiary
6 exam 3
1 (16 points)
September 1, 2014, Bylin Company purchased merchandise from Himeji
Company of Japan for 20,000,000 yen payable on October 1, 2014. The
spot rate for yen was $0.0079 on September 1, and the spot rate was
$0.0077 on October 1. The purchase was paid on October 1, 2014.
1: Did the U.S. dollar strengthen or weaken from September to
October and what are the implications for Bylin’s business?
2: What journal entry did Bylin record on September 1, 2014?
3: What journal entry did Bylin record on October 1, 2014
Corporation, a U.S. manufacturer, has a June 30 fiscal year
end. Tank sold goods to their customer in Columbia on May 27,
2014 for 18,000,000 Columbian pesos. The customer agreed to pay
pesos in 60 days. When the customer wired the funds to Tank on
July 26, Tank held them in their bank account until July 31 before
selling them and converting them to U.S.dollars. The following
exchange rates apply:
the journal entries related to the dates listed above. If no
entry is required, state “no entry.”
3 (16 points)
Corporation, a U.S. corporation, imports and exports small
electronics. On December 1, 2014, Charin purchased components
from an Egyptian manufacturer amounting to 500,000 Egyptian
pounds. The purchase is payable in Egyptian pounds. At
December 30, Charin wanted to take advantage of favorable exchange
rates but did not have the full amount required to pay off the entire
amount. Charin wired the funds to pay off half of the balance
owed and expected to pay the remaining balance on January 3,
2015. Charin paid the remaining balance on January 3, 2015.
respective exchange rates were as follows:
1, 2014 1 pound = $.170
30, 2014 1 pound = $.165
31, 2014 1 pound = $.175
3, 2015 1 pound = $.180
the journal entries related to these transactions for the four dates
shown. If no entry is required, record “no entry.
June 1, 2014, Dapple Industries purchases an option contract for
$5,000 on 10,000 gallons of aviation gas to minimize its purchasing
cost price exposure. At the time, the market price is $2.50 per
gallon and the option price of $2 per gallon will expire 6 months
later. Dapple can exercise the option at its discretion. When
Dapple prepares quarterly reports on June 30, Dapple is still holding
the option. On June 30, the market price of aviation gas is
$4.50 per gallon. The option is to be settled net.
August 1, Dapple exercises the option when the gas market price is
$5.00 per gallon and purchases 40,000 gallons of gas. On August
15, Dapple uses all of the gas on a charter flight.
are Dapple’s journal entries with regard to the aviation gas
option? Assume this is a cash flow hedge. Ignore the time value
5 (16 points)
November 1, 2013, Mayberry Corporation, a U.S. corporation,
purchased from Cantata Corporation, a Mexican company, some machinery
that cost 1,000,000 pesos. The invoice was payable in pesos on
January 30, 2014. To hedge against rapid changes in the peso,
Mayberry entered into a forward contract on November 1, 2013 with AB
Trader & Company, a US brokerage and investment firm. The
contract specified that Mayberry would buy 1,000,000 pesos from AB
Trader at $0.084 per peso for settlement on January 30, 2014.
that all three companies are subject to the same accounting standards
and have December 31st year-ends. The spot rates for pesos on
November 1, December 31, and January 30, are $0.082, $0.080, and
$0.089, respectively. The 30-day forward rate for pesos on
December 31, 2013 is $0.083. The forward contract is not settled
General Journal entries for Mayberry Corporation on November 1,
December 31, and January 30. If no entry is required on a
particular date, indicate “no entry” in the General
Journal. This is a fair value hedge.
8 exam 4
1 Dan and Ellie share partnership profits and losses at 70% and 30%,
respectively. The partners agree to admit Fran into the
partnership for a 50% interest in capital and earnings. Capital
accounts immediately before the admission of Fran are:
(70%) $ 800,000
1: Prepare the journal entry(s) for the admission of Fran to the
partnership, assuming Fran invested $800,000 for the ownership
interest and that this is a fair price for that share of the
partnership to be acquired. Fran paid the money directly to Dan
and to Ellie for 50% of each of their respective capital
interests. The partnership records goodwill.
2: Prepare the journal entry(s) for the admission of Fran to the
partnership, assuming Fran invested $1,000,000 for the ownership
interest. Fran paid the money to the partnership for a 50%
interest in capital and earnings. Assume the valuation is based
on the capital of the current partnership, which is fairly
valued. The partnership records goodwill.
3: Prepare the journal entry(s) for the admission of Fran to the
partnership, assuming Fran invested $1,400,000 for the ownership
interest and that this is a fair price for that share of the
partnership to be acquired. Fran paid the money to the
partnership for a 50% interest in capital and earnings. The
partnership records goodwill.
Bella, and Chris operate a partnership with a complex profit and loss
sharing agreement. The average capital balance for Adam, Bella
and Chris on December 31, 2014 is $120,000, $270,000, and $340,000,
respectively. A 6% interest allocation is provided to each
partner based on the average capital balance on December 31,
2014. Adam and Bella receive salary allocations of $40,000 and
$50,000, respectively. If partnership net income is above
$160,000 after the salary allocations are considered (but before the
interest allocations are considered), Chris will receive a bonus of
10% of the income (pre-salary and interest, but net of the
bonus). All residual income is allocated in the ratios of 2:2:6
to Adam, Bella, and Chris, respectively.
1: Prepare a schedule to allocate income to the partners, assuming
that the partnership net income for 2014 is $330,000.
2: Prepare a journal entry to distribute the partnership’s
income to the partners (assume that an Income Summary account is used
by the partnership).
balance sheet of the Addy, Bess, and Clara partnership on January 1,
2014 (the date of partnership dissolution) was as follows:
$ 4,000 Liabilities $ 8,000
assets 26,000 Loan from Addy 1,000
to Clara 2,000 Addy, capital (20%) 2,000
capital (40%) 9,000
capital (40%) 12,000
assets $ 32,000 Total liab./equity $ 32,000
January, other assets with a book value of $16,000 were sold for
$10,000 in cash.
how the available cash on January 31, 2014 will be distributed. (Use
a safe payments schedule.)
Corporation is liquidating under Chapter 7 of the Bankruptcy Act. The
accounts of Alitech at the time of filing are summarized as follows:
$ 10,000 $ 10,000
receivable-net 60,000 50,000
payable $ 120,000
and salaries 30,000
mortgage interest payable 22,000
land and building are pledged as security for the mortgage payable as
well as any accrued interest on the mortgage. Wages and salaries
were earned within 90 days of filing the petition for bankruptcy and
do not exceed $10,000 per employee. Liquidation expenses are
expected to be $30,000.
1: Prepare a schedule showing the priority rankings of the creditors
and the expected payouts.
2: Billing Corporation was a supplier to Alitech Corporation, and at
the time of Alitech’s bankruptcy filing, Billing’s
account receivable from Alitech was $40,000. On the basis of the
estimates, how much can Billing expect to receive?
5 Kline Corporation incurred major losses in 2014 and entered into
voluntary Chapter 7 bankruptcy in the early part of 2015. By
July 1, all assets were converted into cash, the secured creditors
were paid, and $122,700 in cash was left to pay the remaining claims
payable $ 37,000
incurred between the date of filing an involuntary 5,000
and the date an interim trustee is appointed
taxes payable 8,000
payable (all under $10,000 per employee; 74,000
within 90 days of filing bankruptcy petition)
note payable 19,000
interest on the note payable 2,000
expenses of the trustee 12,180
the claims by their Chapter 7 priority ranking, and analyze which
amounts will be paid and which amounts will be written off.
Corporation filed for Chapter 11 bankruptcy on January 1, 2014. A
summary of their financial status is shown below on June 30, 2014, at
the date of the approved reorganization, along with the fair value of
Books Fair Value
$ 134,000 $ 134,000
– net 20,000 20,000
Assets – net 114,000 106,000
the reorganization plan, the reorganization value has been set at
$320,000. Prepetition liabilities include $30,000 of trade
Accounts Payable and a $220,000 Note Payable to Bigg Bank. The
reorganization plan calls for the Prepetition accounts payable to be
paid at 80% at a later date, and the Note Payable for $220,000 to be
replaced by a Note Payable for $76,000 and the issuance of common
stock of the new entity for $100,000. The former stockholders
will receive $40,000 in common stock of the new entity, Hilfmir, in
exchange for their shares.
the calculations to determine if Hilfmir is eligible for fresh-start
accounting, and prepare a fresh-start balance sheet for the new
entity, Hilfmir, as of July 1, 2014.
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