Q&A Hero

Q: Passcode Incorporated acquired 90% of Safe Systems International for $540,000, the market value at that time. On the date of acquisition, Safe Systems showed the following balances on their ledger: Book Value Fair Value Current Assets $200,000 $200,000 Buildings 290,000 320,000 Equipment 410,000 430,000 Liabilities (350,000) (360,000) Safe Systems has determined that their buildings have a remaining life of 10 years, and their equipment has a remaining useful life of 8 years. Requirement 1: Calculate the amount of goodwill that will appear on the general ledger of Passcode and Safe Systems, as well as the amount that will appear on the consolidated financial statements. Requirement 2: Calculate the amount of amortization that will appear on the consolidated financial statements for buildings and equipment, and explain how this amortization of excess fair value is shown on the separate general ledgers of Passcode and Safe Systems.

Q: List the steps in processing transactions.

Q: David Roberts is a real estate appraiser. Shown below are (a) several accounts in his ledger with each account preceded by an identification number, and (b) several transactions completed by Roberts. Indicate the accounts debited and credited when recording each transaction by placing the proper account identification numbers to the right of each transaction.

Q: Pool Industries paid $540,000 to purchase 75% of the outstanding stock of Swimmin Corporation, on December 31, 2011. Any excess fair value over the identified assets and liabilities is attributed to goodwill. The following year-end information was available just before the purchase:Using the data provided above, assume that Pool decided rather than paying $540,000 cash, Pool issued 10,000 shares of their own stock to the owners of Swimmin. At the time of issue, the $10 par value stock had a market value of $60 per share.Required: Prepare Pool's consolidated balance sheet on December 31, 2011.

Q: Vicki Lake is a computer consultant. Shown below are (a) several accounts in her ledger with each account preceded by an identification number, and (b) several transactions completed by Lake. Indicate the accounts debited and credited when recording each transaction by placing the proper account identification numbers to the right of each transaction.

Q: Patterson Company acquired 90% of Starr Corporation on January 1, 2011 for $2,250,000. Starr had net assets at that time with a fair value of $2,500,000. At the time of the acquisition, Patterson computed the annual excess fair-value amortization to be $20,000, based on the difference between Starr's net book value and net fair value. Assume the fair value exceeds the book value, and $20,000 pertains to the whole company. Separate from any earnings from Starr, Patterson reported net income in 2011 and 2012 of $550,000 and $575,000, respectively. Starr reported the following net income and dividend payments: 2011 2012 Net Income $150,000 $180,000 Dividends $30,000 $30,000 Required: Calculate the following: Investment in Starr shown on Patterson's ledger at December 31, 2011 and 2012. Investment in Starr shown on the consolidated statements at December 31, 2011 and 2012. Consolidated net income for 2011 and 2012. Noncontrolling interest balance on Patterson's ledger at December 31, 2011 and 2012. Noncontrolling interest balance on the consolidated statements at December 31, 2011 and 2012.

Q: Polaris Incorporated purchased 80% of The Solar Company on January 2, 2011, when Solar's book value was $800,000. Polaris paid $700,000 for their acquisition, and the fair value of noncontrolling interest was $175,000. At the date of acquisition, the fair value and book value of Solar's identifiable assets and liabilities were equal. At the end of the year, the separate companies reported the following balances: Polaris Solar Current assets 5,700,000 1,250,000 Plant & equipment 15,200,000 3,400,000 Investment in Solar 780,000 0 Goodwill 0 0 Current liabilities 3,600,000 950,000 Long-term debt 11,680,000 2,800,000 Stockholder's Equity 6,400,000 900,000 Requirement 1: Calculate consolidated balances for each of the accounts as of December 31, 2011. Requirement 2: Assuming that Solar has paid no dividends during the year, what is the ending balance of the noncontrolling interest in the subsidiary?

Q: The following accounts appear on either the Income Statement (IS) or Balance Sheet (BS). In the space provided next to each account write the letters, IS or BS, that identify the statement on which the account appears.1. Owner, Capital2. Wages Payable3. Cash4. Rent Expense5. Unearned Fees Revenues6. Accounts Payable7. Office Equipment8. Notes Receivable9. Rent Expense10. Fees Revenue

Q: The consolidated balance sheet of Pasker Corporation and Shishobee Farm, its 80% owned subsidiary, as of December 31, 2011, contains the following accounts and balances: Pasker Corporation and Subsidiary Consolidated Balance Sheet at December 31, 2011 Balances Cash $57,000 Accounts receivable-net 210,000 Inventories 330,000 Other current assets 255,000 Plant assets-net 870,000 Goodwill from consolidation 117,000 $1,839,000 Accounts payable $219,000 Other liabilities 210,000 Capital stock 1,050,000 Retained earnings 240,000 Noncontrolling interest 120,000 $1,839,000 Pasker Corporation acquired its interest in Shishobee Farm on January 1, 2011, when Shishobee Farm had $450,000 of Capital Stock and $210,000 of Retained Earnings. Shishobee Farm's net assets had fair values equal to their book values when Pasker acquired its interest. No changes have occurred in the amount of outstanding stock since the date of the business combination. Pasker uses the equity method of accounting for its investment. Required: Determine the following amounts: 1. The balance of Pasker's Capital Stock and Retained Earnings accounts at December 31, 2011. 2. Cost of Pasker's purchase of Shishobee Farm on January 1, 2011.

Q: Identify each of the following accounts as a revenue (R), expense (E), asset (A), liability (L), or equity (OE) by placing initials (R,E,A,L or OE) in the blanks.1. Unearned Fee Revenue2. Fees Revenue3. Owner, Capital4. Supplies5. Salary Expense6. Cash7. Accounts Receivable8. Prepaid Insurance9. Accounts Payable10. Office Furniture11. Equipment12. Owner, Withdrawals

Q: On July 1, 2011, 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. Requirement 1: Prepare the journal entry that Polliwog would record at the date of acquisition on their general ledger. Requirement 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.

Q: Match the following definitions and terms by placing the letter that identifies the best definition in the blank space next to the term.a. A simple form used as a helpful tool in understanding the effect of transactions and events on specific accounts.b. The most flexible type of journal, it can be used to record any kind of transaction.c. A journal entry that affects at least three accounts.d. A written promise from a customer to pay a definite sum of money on a specified future date.e. A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense item.f. A list of all accounts used by a company and the identification number assigned to each account.g. The process of transferring journal entry information to the ledger.h. A list of accounts and their balances at a point in time; the total debit balances should equal the total credit balances.i. A column in journals where individual account numbers are entered when entries are posted to ledger accounts.j. Liabilities created when customers pay in advance for products or services; satisfied by delivering the products or services in the future.1)Account2)General journal3)Posting reference column4)T-account5)Note receivable6)Chart of accounts7)Posting8)Compound journal entry9)Trial Balance10)Unearned revenues

Q: Passerby International purchased 80% of Standaround Company's outstanding common stock for $200,000 on January 2, 2011. At that time, the fair value of Standaround's net assets were equal to the book values. The balance sheets of Passerby and Standaround at January 2, 2011 are summarized as follows: Passerby Standaround Assets $1,600,000 $470,000 Liabilities $840,000 $230,000 Capital stock 360,000 50,000 Retained earnings 400,000 190,000 Required: Determine the consolidated balances as of January 2, 2011 for the following five balance sheet line items: Goodwill, Liabilities, Capital Stock, Retained Earnings, and Noncontrolling Interest.

Q: Push-down accounting A) requires a subsidiary to use the same accounting principles as its parent company. B) is required when the parent company uses the equity method to account for its investment in a subsidiary. C) is required when the parent company uses the cost method to account for its investment in a subsidiary. D) requires the subsidiary to record the subsidiary's assets and liabilities at fair value at the acquisition date.

Q: In the consolidated income statement of Wattlebird Corporation and its 85% owned Forest subsidiary, the noncontrolling interest share was reported at $45,000. Assume the book value and fair value of Forest's net assets were equal at the acquisition date. What amount of net income did Forest have for the year? A) $52,941 B) $38,250 C) $235,000 D) $300,000

Q: Which of the following groups of accounts are not balance sheet accounts? A.Assets. B.Liabilities. C.Revenues. D.Equity accounts. E.All of these are balance sheet accounts.

Q: Pinata Corporation acquired an 80% interest in Smackem Inc. for $130,000 on January 1, 2011, when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000. Assume the fair value and book value of Smackem's net assets were equal on January 1, 2011. Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31, 2011, are shown below. Pinata Consolidated Sales revenue $145,850 $234,750 Income from Smackem 12,600 Cost of sales (60,000) (100,000) Other expenses (20,000) (50,000) Noncontrolling interest share (3,150) Net income $ 78,450 $ 81,600 Smackem's separate income statement must have reported net income of A) $13,750. B) $14,750. C) $15,750. D) $15,250.

Q: A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error? A.Office Equipment, understated $130; Fees Earned, overstated $130. B.Office Equipment, understated $260; Fees Earned, overstated $130. C.Office Equipment, overstated $130; Fees Earned, overstated $130. D.Office Equipment, overstated $130; Fees Earned, understated $130. E.Office Equipment, overstated $260; Fees Earned, understated $130.

Q: Pomograte Corporation bought 75% of Sycamore Company's common stock, with a book value of $900,000, on January 2, 2011 for $750,000. The law firm of Dewey, Cheatam and Howe was paid $55,000 to facilitate the purchase. At what amount should Pomograte's Investment in Sycamore account be reported on January 2, 2011? A) $675,000 B) $695,000 C) $750,000 D) $845,000

Q: Of the following errors, which one by itself will cause the trial balance to be out of balance? A.A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries Expense. B.A $100 cash receipt from a customer in payment of his account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable. C.A $75 cash receipt from a customer in payment of his account posted as a $75 debit to Cash and a $75 credit to Cash. D.A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50 credit to Cash. E.An $800 prepayment from a customer for services to be rendered in the future was posted as an $800 debit to Unearned Revenue and an $800 credit to Cash.

Q: Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1, 2011. During 2011, Sedacor reported net income of $130,000 and paid dividends of $40,000. At what amount should Pental's Investment in Sedacor account be reported on December 31, 2011? A) $400,000 B) $481,000 C) $490,000 D) $530,000

Q: If the Debit and Credit column totals of a trial balance are equal, then: A.All transactions have been recorded correctly. B.All entries from the journal have been posted to the ledger correctly. C.All ledger account balances are correct. D.The total debit entries and total credit entries are equal. E.The balance sheet would be correct.

Q: Pardo Corporation paid $140,000 for a 70% interest in Spedeal Inc. on January 1, 2011, when Spedeal had Capital Stock of $50,000 and Retained Earnings of $100,000. Fair values of identifiable net assets were the same as recorded book values. During 2011, Spedeal had income of $40,000, declared dividends of $15,000, and paid $10,000 of dividends. On December 31, 2011, the consolidated financial statements will show A) investment in Spedeal account of $170,000. B) investment in Spedeal account of $165,000. C) consolidated goodwill of $50,000. D) consolidated dividends receivable of $5,000.

Q: The credit purchase of a delivery truck for $4,700 was posted to Delivery Trucks as a $4,700 debit and to Accounts Payable as a $4,700 debit. What effect would this error have on the trial balance? A.The total of the Debit column of the trial balance will exceed the total of the Credit column by $4,700. B.The total of the Credit column of the trial balance will exceed the total of the Debit column by $4,700. C.The total of the Debit column of the trial balance will exceed the total of the Credit column by $9,400. D.The total of the Credit column of the trial balance will exceed the total of the Debit column by $9,400. E.The total of the Debit column of the trial balance will equal the total of the Credit column.

Q: In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers? A) All revenues, expenses, gains, losses, receivables, and payables B) All revenues, expenses, gains, and losses but not receivables and payables C) Receivables and payables but not revenues, expenses, gains, and losses D) Only sales revenue and cost of goods sold

Q: In which of the following situations would the trial balance not balance? A.A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash. B.The purchase of office supplies on account for $3,250 was erroneously recorded in the journal as $2,350 debit to Office Supplies and credit to Accounts Payable. C.A $50 cash receipt for the performance of a service was not recorded at all. D.The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a credit to Cash for $1,200. E.The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750.

Q: Percy Inc. acquired 80% of the outstanding stock of Sillson Company in a business combination. The book values of Sillson's net assets are equal to the fair values except for the building, whose net book value and fair value are $500,000 and $800,000, respectively. At what amount is the building reported on the consolidated balance sheet? A) $400,000 B) $500,000 C) $640,000 D) $800,000

Q: A trial balance taken at year-end showed total credits exceed total debits by $4,950. This discrepancy could have been caused by: A.An error in the general journal where a $4,950 increase in Accounts Receivable was recorded as an increase in Cash. B.A net income of $4,950. C.The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950. D.The balance of $5,500 in the Office Equipment account being entered on the trial balance as a debit of $550. E.An error in the general journal where a $4,950 increase in Accounts Payable was recorded as a decrease in Accounts Payable.

Q: On July 1, 2011, when Salaby Company's total stockholders' equity was $360,000, Pogana Corporation purchased 14,000 shares of Salaby's common stock at $30 per share. Salaby had 20,000 shares of common stock outstanding both before and after the purchase by Pogana, and the book value of Salaby's net assets on July 1, 2011 was equal to the fair value. On a consolidated balance sheet prepared at July 1, 2011, goodwill would be A) $60,000. B) $85,714. C) $100,000. D) $240,000.

Q: A $15 credit to Sales was posted as a $150 credit. By what amount is Sales in error? A.$150 understated. B.$135 overstated. C.$150 overstated. D.$15 understated. E.$135 understated.

Q: On January 1, 2012, Packaging International purchased 90% of Shipaway Corporation's outstanding shares for $135,000 when the fair value of Shipaway's net assets were equal to the book values. The balance sheets of Packaging and Shipaway Corporations at year-end 2011 are summarized as follows: Packaging Shipaway Assets $590,000 $180,000 Liabilities $70,000 $30,000 Capital stock 360,000 90,000 Retained earnings 160,000 60,000 If a consolidated balance sheet was prepared immediately after the business combination, the noncontrolling interest would be A) $9,000. B) $13,500. C) $15,000. D) $16,667.

Q: While in the process of posting from the journal to the ledger a company failed to post a $50 debit to the Office Supplies account. The effect of this error will be that: A.The Office Supplies account balance will be overstated. B.The trial balance will not balance. C.The error will overstate the debits listed in the journal. D.The total debits in the trial balance will be larger than the total credits. E.All of these effects will be caused by the error.

Q: The unamortized excess account is A) a contra-equity account. B) used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values. C) used in allocating the amounts paid for each asset and liability that are above or below their book values, especially when numerous assets or liabilities are involved. D) the excess purchase cost that is attributable to goodwill.

Q: Which of the following statements is true? A.If the trial balance is in balance, it proves that no errors have been made in recording and posting transactions. B.The trial balance is a book of original entry. C.Another name for the trial balance is the chart of accounts. D.The trial balance is a list of all accounts from the ledger with their balances at a point in time. E.The trial balance is another name for the balance sheet as long as debits balance with credits.

Q: A newly acquired subsidiary had pre-existing goodwill on its books. The parent company's consolidated balance sheet will A) not show any value for the subsidiary's pre-existing goodwill. B) treat the goodwill similarly to other intangible assets of the acquired company. C) not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value. D) always show the pre-existing goodwill of the subsidiary at its book value.

Q: A report that lists accounts and their balances, in which the total debit balances should equal the total credit balances, is called a(n): A.Account balance. B.Trial balance. C.Ledger. D.Chart of accounts. E.General Journal.

Q: Perth Corporation acquired a 100% interest in Sansone Company for $1,600,000 when Sansone had no liabilities. The book values and fair values of Sansone's assets were Book Value Fair Value Current assets $350,000 $400,000 Equipment 150,000 210,000 Land & buildings 570,000 590,000 Total assets $1,070,000 $1,200,000 Immediately following the acquisition, equipment will be included on the consolidated balance sheet at A) $150,000. B) $200,000. C) $210,000. D) $280,000.

Q: An accountant has debited an account for $3,500 and credited a liability account for $2,000. Which of the following would be an incorrect way to complete the recording of this transaction: A.Credit another asset account for $1,500. B.Credit another liability account for $1,500. C.Credit an expense account for $1,500. D.Credit the owner's capital account for $1,500. E.Debit another asset account for $1,500.

Q: On June 1, 2011, Puell Company acquired 100% of the stock of Sorrell Inc. On this date, Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000. On December 31, 2011, Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000. The amount of Retained Earnings that appeared in the December 31, 2011 consolidated balance sheet was A) $120,000. B) $130,000. C) $170,000. D) $180,000.

Q: A company had the following accounts and balances year-end: If all of the accounts have normal balances, what are the totals for the trial balance? A.$ 45,200. B.$ 67,000. C.$104,800. D.$209,600. E.$186,600.

Q: Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for A) investments in unconsolidated subsidiaries. B) investments in consolidated subsidiaries. C) capital stock. D) ending retained earnings.

Q: A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n): A.Account. B.Trial balance. C.Journal. D.T-account. E.Balance column account.

Q: Pregler Inc. has 70% ownership of Sach Company, but should exclude Sach from its consolidated financial statements if A) Sach is in a regulated industry. B) Pregler uses the equity method for Sach. C) Sach is in legal reorganization. D) Sach is in a foreign country and records its books in a foreign currency.

Q: A general journal is: A.A ledger in which amounts are posted from a balance column account. B.Not required if T-accounts are used. C.A complete record of any transaction and the place from which transaction amounts are posted to the ledger accounts. D.Not necessary in electronic accounting systems. E.A book of final entry because financial statements are prepared from it.

Q: A subsidiary can be excluded from consolidation if A) control does not rest with the majority owner. B) the subsidiary is in legal reorganization. C) the subsidiary is operating under severe foreign-exchange restrictions. D) All of the above are correct.

Q: A balance column ledger account is: A.An account entered on the balance sheet. B.An account with debit and credit columns for posting entries and another column for showing the balance of the account after each entry is posted. C.Another name for the withdrawals account. D.An account used to record the transfers of assets from a business to its owner. E.A simple form of account that is widely used in accounting to illustrate the debits and credits required in recording a transaction.

Q: Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock. On the consolidated financial statements of Panini Corporation and Strathmore, Malone is A) an affiliate. B) a noncontrolling interest. C) an equity investee. D) a related party.

Q: The general journal provides a place for recording: A.The transaction date. B.The names of the accounts involved. C.The amount of each debit and credit. D.An explanation of the transaction. E.All of these.

Q: From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements? A) In substance the companies are separate, but in form the companies are one entity. B) In substance the companies are one entity, but in form they are separate. C) In substance and form the companies are one entity. D) In substance and form the companies are separate entities.

Q: The record in which transactions are first recorded is the: A.Account balance. B.Ledger. C.Journal. D.Trial balance. E.Cash account.

Q: What method must be used if FASB Statement No. 94 prohibits full consolidation of a 70% owned subsidiary? A) The cost method B) The Liquidation value C) Market value D) Equity method

Q: A column in journals and ledger accounts used to cross reference journal and ledger entries is the: A.Account balance column. B.Debit column. C.Posting reference column. D.Credit column. E.Description column.

Q: Keynse Company owns 70% of Subdia Incorporated. The Investment in Subdia qualifies as a business reporting unit under FASB 142, and Keynse has reported goodwill in the amount of $200,000 with respect to its acquisition of Subdia. Subdia's $10 par common stock is currently trading for $92 per share, Subdia's account book balances and related fair values at December 31, 2011 are shown below. Book Values Fair Values Cash $2,000,000 $2,000,000 Accounts Receivable 8,000,000 7,500,000 Plant assets net 18,000,000 23,000,000 Patents 1,000,000 1,500,000 Accounts Payable ( 9,000,000) ( 9,000,000) Notes Payable (16,000,000) (16,000,000) Common Stock ( 1,000,000) Retained Earnings ( 3,000,000) Required: Determine if Goodwill has been impaired, and if so, the amount of adjustment that would be required.

Q: The process of transferring general journal information to the ledger is: A.Double-entry accounting. B.Posting. C.Balancing an account. D.Journalizing. E.Not required unless debits do not equal credits.

Q: On January 1, 2010, Palgan, Co. purchased 75% of the outstanding voting common stock of Somil, Inc., for $1,500,000. The book value of Somil's net equity on that date was $2,000,000. Book values were equal to fair values except as follows: Book Fair Assets & Liabilities Values Values Inventory $ 225,000 $ 253,000 Building 850,000 750,000 Note payable 320,000 304,000 Required: Prepare a schedule to allocate any excess purchase cost to specific assets and liabilities.

Q: At the beginning of the current year, Taunton Company's total assets were $248,000 and its total liabilities were $175,000. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and owner withdrawals of $5,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $260,000. Taunton Company's debt ratio at the end of the current year is: A.70.6%. B.67.3%. C.32.7%. D.48.6%. E.Cannot be determined from the information provided.

Q: On January 1, 2010, Petrel, Inc. purchased 70% of the outstanding voting common stock of Ocean, Inc., for $2,600,000. The book value of Ocean's net equity on that date was $3,100,000. Book values were equal to fair values except as follows: Book Fair Assets & Liabilities Values Values Equipment $ 250,000 $ 190,000 Building 600,000 700,000 Note payable 270,000 240,000 Required: Prepare a schedule to allocate any excess purchase cost to specific assets and liabilities.

Q: At the end of the current year, Norman Company reported total liabilities of $300,000 and total equity of $100,000. The company's debt ratio on the last year-end was: A.300%. B.33.3% C.75.0%. D.$400,000. E.Cannot be determined from the information provided.

Q: For 2010, 2011, and 2012, Squid Corporation earned net incomes of $40,000, $70,000, and $100,000, respectively, and paid dividends of $24,000, $32,000, and $44,000, respectively. On January 1, 2010, Squid had $500,000 of $10 par value common stock outstanding and $100,000 of retained earnings. On January 1 of each of these years, Albatross Corporation bought 5% of the outstanding common stock of Squid paying $37,000 per 5% block on January 1, 2010, 2011, and 2012. All payments made by Albatross in excess of book value were attributable to equipment, which is depreciated over five years on a straight-line basis. Required: 1. Assuming that Albatross uses the cost method of accounting for its investment in Squid, how much dividend income will Albatross recognize for each of the three years and what will be the balance in the investment account at the end of each year? 2. Assuming that Albatross has significant influence and uses the equity method of accounting (even though its ownership percentage is less than 20%), how much net investee income will Albatross recognize for each of the three years?

Q: Which of the following statements describing the debt ratio is false? A.It is of use to both internal and external users of accounting information. B.A relatively high ratio is always desirable. C.The dividing line for a high and low ratio varies from industry to industry. D.Many factors such as a company's age, stability, profitability and cash flow influence the determination of what would be interpreted as a high versus a low ratio. E.The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.

Q: For 2010 and 2011, Sabil Corporation earned net income of $480,000 and $640,000 and paid dividends of $18,000 and $20,000, respectively. At January 1, 2010, Sabil had $200,000 of $10 par value common stock outstanding and $1,500,000 of retained earnings. On January 1 of each of these years, Phyit Corporation bought 10% of the outstanding common stock of Sabil paying $200,000 per 10% block on January 1, 2010 and 2011. All payments made by Phyit in excess of book value were attributable to equipment, which is depreciated over ten years on a straight-line basis. Required: 1. If Phyit uses the cost method of accounting for its investment in Sabil, how much dividend income will Phyit recognize in 2010 and 2011, and what will be the balance in the investment account at the end of each year? 2. If Phyit has significant influence and can justify using the equity method of accounting, how much net investee income will Phyit recognize for 2010 and 2011?

Q: Stride Rite has total assets of $385 million. Its total liabilities are $100 million and its equity is $285 million. Calculate its debt ratio. A.35.1%. B.26.0%. C.38.5%. D.28.5%. E.58.8%.

Q: Shoreline Corporation had $3,000,000 of $10 par value common stock outstanding on January 1, 2009, and retained earnings of $1,000,000 on the same date. During 2009, 2010, and 2011, Shoreline earned net incomes of $400,000, $700,000, and $300,000, respectively, and paid dividends of $300,000, $550,000, and $100,000, respectively. On January 1, 2009, Pebble purchased 21% of Shoreline's outstanding common stock for $1,240,000. On January 1, 2010, Pebble purchased 9% of Shoreline's outstanding stock for $510,000, and on January 1, 2011, Pebble purchased another 5% of Shoreline's outstanding stock for $320,000. All payments made by Pebble that are in excess of the appropriate book values were attributed to equipment, with each block depreciable over 20 years under the straight-line method. Required: 1. What is the adjustment to Investment Income for depreciation expense for Pebble's investment in Shoreline in 2009, 2010, and 2011? 2. What will be the December 31, 2011 balance in the Investment in Shoreline account after all adjustments have been made?

Q: Shebing Corporation had $80,000 of $10 par value common stock outstanding on January 1, 2010, and retained earnings of $120,000 on the same date. During 2010 and 2011, Shebing earned net incomes of $30,000 and $45,000, respectively, and paid dividends of $8,000 and $10,000, respectively. On January 1, 2010, Pentz Company purchased 25% of Shebing's outstanding common stock for $60,000. On January 1, 2011, Pentz purchased an additional 10% of Shebing's outstanding stock for $30,200. The payments made by Pentz in excess of the book value of net assets acquired were attributed to equipment, with each excess value amount depreciable over 8 years under the straight-line method. Required: 1. What is the adjustment to Investment Income for depreciation expense relating to Pentz's Investment in Shebing in 2010 and 2011? 2. What will be the December 31, 2011 balance in the Investment in Shebing account after all adjustments have been made?

Q: Which of the following statements is incorrect? A.Higher financial leverage involves higher risk. B.Risk is higher if a company has more liabilities. C.Risk is higher if a company has higher assets. D.The debt ratio is one measure of financial risk. E.Lower financial leverage involves lower risk.

Q: On January 2, 2010, Slurg Corporation paid $600,000 to acquire 20% interest in Padwaddy Inc. At that time, the book value of Padwaddy's stockholders' equity included $700,000 of common stock and $1,800,000 of retained earnings. All the excess purchase cost over the book value acquired was attributable to a patent with an estimated life of 10 years. Padwaddy paid $6,250 of dividends each quarter for the next two years, and reported net income of $180,000 for 2010 and $220,000 for 2011. Slurg recorded all activities related to their investment using the equity method. Required: 1. Calculate Slurg's income from Padwaddy for 2010. 2. Calculate Slurg's income from Padwaddy for 2011. 3. Determine the balance of Slurg's Investment in Padwaddy account on December 31, 2011.

Q: Which of the following is the formula used to calculate the debt ratio? A.Total Equity/Total Liabilities. B.Total Liabilities/Total Equity. C.Total Liabilities/Total Assets. D.Total Assets/Total Liabilities. E.Total Equity/Total Assets.

Q: Pearl Corporation paid $150,000 on January 1, 2010 for a 25% interest in Sandlin Inc. On January 1, 2010, the book value of Sandlin's stockholders' equity consisted of $200,000 of common stock and $200,000 of retained earnings. All the excess purchase cost over book value acquired was attributable to a patent with an estimated life of 5 years. During 2010 and 2011, Sandlin paid $3,000 of dividends each quarter and reported net income of $60,000 for 2010 and $80,000 for 2011. Pearl used the equity method. Required: 1. Calculate Pearl's income from Sandlin for 2010. 2. Calculate Pearl's income from Sandlin for 2011. 3. Determine the balance of Pearl's Investment in Sandlin account on December 31, 2011.

Q: The debt ratio is used: A.To measure the relation of equity to expenses. B.To reflect the risk associated with a company's debts. C.Only by banks when a business applies for a loan. D.To determine how much debt a firm should pay off. E.All of these.

Q: Paster Corporation was seeking to expand its customer base, and wanted to acquire a company in a market area it had not yet served. Paster determined that the Semma Company was already in the market they were pursuing, and on January 1, 2011, purchased a 25% interest in Semma to assure access to Semma's customer base. Paster paid $800,000, at a time when the book value of Semma's net equity was $3,000,000. Semma's book values equaled their fair values except for the following items: Book Fair Value Value Difference Inventories $150,000 $200,000 $ 50,000 Land 80,000 100,000 20,000 Building-net 220,000 180,000 (40,000) Equipment-net 260,000 310,000 50,000 Required: Prepare a schedule to allocate any excess purchase cost to identifiable assets and goodwill.

Q: Based on the information included in Question #102, the balance in the Andrea Conaway, Capital account reported on the Statement of Owner's Equity at the end of the month would be: A.$31,400. B.$39,200. C.$31,150. D.$40,175. E.$30,875.

Q: Stilt Corporation purchased a 40% interest in the common stock of Shallow Company for $2,660,000 on January 1, 2011, when the book value of Shallow's net equity was $6,000,000. Shallow's book values equaled their fair values except for the following items: Book Fair Value Value Difference Inventories $450,000 $500,000 $ 50,000 Land 100,000 450,000 350,000 Building-net 400,000 200,000 (200,000) Equipment-net 350,000 400,000 50,000 Required: Prepare a schedule to allocate any excess purchase cost to identifiable assets and goodwill.

Q: Andrea Conaway opened Wonderland Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1) Conaway invested $13,500 cash in the business. 2) Conaway contributed $20,000 of photography equipment to the business. 3) The company paid $2,100 cash for an insurance policy covering the next 24 months. 4) The company received $5,700 cash for services provided during January. 5) The company purchased $6,200 of office equipment on credit. 6) The company provided $2,750 of services to customers on account. 7) The company paid cash of $1,500 for monthly rent. 8) The company paid $3,100 on the office equipment purchased in transaction #5 above. 9) Paid $275 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be: A. $41,450. B. $12,225 C. $18,700. D. $15,250. E. $13,500.

Q: On January 1, 2011, 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 2011. 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: Overvalued receivables (collected in 2011) $(5,000) Undervalued inventories (sold in 2011) 16,000 Undervalued building (4 years' useful life remaining at January 1, 2011) 24,000 Undervalued land 8,000 Unrecorded patent (6 years' economic life remaining at January 1, 2011) 18,000 Undervalued accounts payable (paid in 2011) (4,000) Total of excess allocated to identifiable assets and liabilities 57,000 Goodwill 3,000 Excess cost over book value acquired $60,000 Required: Determine Pailor's investment income from Saska for 2011.

Q: On January 1 of the current year, Bob's Lawn Care Service reported owner's capital totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year Bob withdrew $20,000 from the company. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $196,000, the change in owner's capital during the year was: A.A decrease of $9,500. B.An increase of $9,500. C.An increase of $30,500. D.A decrease of $30,500 E.Impossible to determine from the information provided.

Q: Sandpiper Inc. acquired a 30% interest in Shore Corporation for $27,000 cash on January 1, 2011, when Shore's stockholders' equity consisted of $30,000 of capital stock and $20,000 of retained earnings. Shore Corporation reported net income of $18,000 for 2011. The allocation of the $12,000 excess of cost over book value acquired on January 1 is shown below, along with information relating to the useful lives of the items: Overvalued receivables (collected in 2011) $(600) Undervalued inventories (sold in 2011) 2,400 Undervalued building (6 years' useful life remaining at January 1, 2011) 3,600 Undervalued land 900 Unrecorded patent (8 years' economic life remaining at January 1, 2011) 3,200 Undervalued accounts payable (paid in 2011) (300) Total of excess allocated to identifiable assets and liabilities 9,200 Goodwill 2,800 Excess cost over book value acquired $12,000 Required: Determine Sandpiper's investment income from Shore for 2011.

Q: During the month of March, Cooley Computer Services made purchases on account totaling $43,500. Also during the month of March, Cooley was paid $8,000 by a customer for services to be provided in the future and paid $36,900 of cash on its accounts payable balance. If the balance in the accounts payable account at the beginning of March was $77,300, what is the balance in accounts payable at the end of March? A.$83,900. B.$91,900. C.$6,600. D.$75,900. E.$4,900.

Q: On January 1, 2011, Pendal Corporation purchased 25% of the outstanding common stock of Sedda Corporation for $100,000 cash. Book value and fair value of Sedda's assets and liabilities at the time of acquisition are shown below. Assets Book Fair Values Values Cash $40,000 $40,000 Accounts receivable 100,000 90,000 Inventories 40,000 50,000 Equipment 180,000 210,000 $360,000 $390,000 Liabilities & Equities Accounts payable $110,000 $110,000 Note payable 50,000 40,000 Capital stock 100,000 Retained earnings 100,000 $360,000 $150,000 Required: Prepare an allocation schedule for Pendal's investment in Sedda.

Q: At the beginning of January of the current year, Thomas Law Center's ledger reflected a normal balance of $52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500. Additionally, during January one customer paid Thomas $5,000 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be: A.$54,700. B.$49,700. C.$2,300. D.$54,300. E.$49,300.

Q: Dotterel Corporation paid $200,000 cash for 40% of the voting common stock of Swamp Land Inc. on January 1, 2011. Book value and fair value information for Swamp on this date is as follows: Book Fair Assets Values Values Cash $60,000 $60,000 Accounts receivable 120,000 120,000 Inventories 80,000 100,000 Equipment 340,000 400,000 $ 600,000 $ 680,000 Liabilities & Equities Accounts payable $200,000 $200,000 Note payable 120,000 100,000 Capital stock 200,000 Retained earnings 80,000 $600,000 $300,000 Required: Prepare an allocation schedule for Dotterel's investment in Swamp Land.