Q&A Hero

Q: Which of the following is not an approach appropriate for hedge accounting? A) Cash Flow Hedge Accounting B) Critical Term Hedge Accounting C) Fair Value Hedge Accounting D) Hedge of Net Investment in Foreign Subsidiary

Q: A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using A) Modified Cash Basis Accounting. B) Critical Term Hedge Analysis. C) Fair Value Hedge Accounting. D) Hedge of Net Investment in Foreign Subsidiary.

Q: Which of the following hedging strategies would a business most likely use? A) An importer will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net asset position. B) An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position. C) An exporter will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net liability position. D) An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.

Q: Ulysses Company purchases goods from China amounting to 372,372 Yuan (the transaction is denominated in the Chinese Yuan). Assume the Yuan is trading at $0.154 at the date the goods are ordered, and the Yuan is trading at $0.155 at the date the goods are received, and when the invoice is paid a month later, the Yuan is trading at $.156. Assume all three dates are in the same fiscal year. Which of the following is true? A) The entry to record the payment will include a gain of $744.74. B) The entry to record the payment will include a gain of $372.37. C) The entry to record the purchase will include a credit to Accounts Payable of $57,345.29. D) The entry to record the purchase will include a credit to Accounts Payable of $57,717.66.

Q: If a sale on account by a U.S. company is made with a foreign company, and the U.S. company has no foreign currency risk, then A) the U.S. company has measured the transaction in US dollars. B) the U.S. company has denominated the transaction in US dollars. C) the foreign company has measured the transaction in their own currency. D) the foreign company has denominated the transaction in their own currency.

Q: On November 14, 2011, Scuby Company (a U.S. corporation) enters into a transaction which is denominated in the Canadian dollar. Assume the exchange rate at November 14 is $1.03, and at the December 31 year-end reporting date, the exchange rate is $1.07. On January 27, 2012, when the transaction is settled, the exchange rate is $1.05. At the date of settlement, which of the following is correct? A) The historical rate = $1.05, and the spot rate at which it is settled is the same as the current rate at $1.07. B) The historical rate = $1.03, and the spot rate at which it is settled is the same as the current rate at $1.06. C) The historical rate = $1.05, the current rate for reporting at December 31, 2011 is $1.07, and the spot rate at which it is settled is $1.03. D) The historical rate = $1.03, the current rate for reporting at December 31, 2011 is $1.07, and the spot rate at which it is settled is $1.05.

Q: A direct quote for the U.S. dollar is given at $1.45 per 1 foreign currency unit (fcu). The respective indirect quote for the U.S. dollar would be reported as A) 1.45 fcu = $1.00. B) 1.45 fcu = $.6897. C) .6897 fcu = $1.00. D) 1.00 fcu = $1.45.

Q: Which of the following statements is true regarding forward contracts, futures contracts, options and swaps? A) A forward contract can be purchased on the open market and is recorded at its historical cost, then adjusted for changes in the market. B) A futures contract is negotiated between two parties who are betting in the opposite direction on the movement of the underlying price. C) An option is a contract requiring the holder to either "put" or "call" an underlying asset at a specified point in time. D) A swap is a contract between two parties to exchange an ongoing stream of cash flows.

Q: Gains or losses on foreign currency transactions are recorded before the related receivable or payable is settled when A) the government cannot set an exchange rate for the foreign currency. B) the foreign currency is unknown. C) the fiscal year ends after the settlement of the receivable or payable. D) the fiscal year ends before the settlement of the receivable or payable.

Q: Which of the following is a true statement regarding the recording of a transaction which involves foreign currency? A) A transaction is always settled in the currency in which it is denominated. B) A transaction is always measured in the currency in which it is denominated. C) A transaction is always settled in the currency in which it is measured. D) A transaction is always recorded in the currency in which it is denominated.

Q: When the billing for a U.S. company's sale to a company in a foreign country is denominated in U.S. dollars, ________ is required when preparing journal entries for the sale. A) translation to a foreign currency B) conversion to a foreign currency C) translation to U.S. dollars D) no translation

Q: If a U.S. company is preparing a journal entry for a recent purchase, foreign-currency-denominated purchases must be measured in ________ at the purchase date using the foreign currency ________ rate on the purchase date. A) foreign currency; spot B) foreign currency; future C) U.S. dollars; forward D) U.S. dollars; spot

Q: Use the following information to answer the question(s) below.On October 4, 2010, Sooty Corporation borrowed 250,000 British pounds from a London bank, evidenced by an interest-bearing note payable due in one year. The note was payable in pounds. Exchange rates for pounds were:October 4, 2010 $1.59December 31, 2010 $1.55October 4, 2011 $1.61What exchange gain or loss appeared on Sooty's 2011 income statement?A) a loss of $15,000B) a loss of $5,000C) a gain of $15,000D) a gain of $5,000

Q: On December 5, 2010, Unca Corporation, a U.S. firm, bought inventory items from Skagerrak Corporation of Norway for 1,000,000 Norwegian kroner when the spot rate for kroner was $0.166. The purchase was denominated in kroner. At Unca's fiscal year end, December 31, 2010, the spot rate was $0.171. On January 4, 2011, Unca purchased 1,000,000 kroner for $167,500 and paid the invoice. How much gain or (loss) did Unca report in its 2010 and 2011 income statements, respectively? A) $(5,000) and $1,500 B) $0 and ($1,500) C) ($5,000) and $3,500 D) $0 and ($3,500)

Q: A U.S. importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the A) dollar weakened relative to the Korean won and the won was the denominated currency. B) dollar weakened relative to the Korean won and the dollar was the denominated currency. C) dollar strengthened relative to the Korean won and the won was the denominated currency. D) dollar strengthened relative to the Korean won and the dollar was the denominated currency.

Q: With respect to exchange rates, which of the following statements is true? A) An official exchange rate is the "market" rate resulting from the supply and demand for a currency. B) A floating exchange rate is the "market" rate resulting from the supply and demand for a currency. C) A government cannot set an exchange rate for their currency that is higher (weakens their currency) than the quoted interbank market rate. D) A government cannot set an exchange rate for their currency that is lower (strengthens their currency) than the quoted interbank market rate.

Q: The exchange rates between the Australian dollar and the U.S. dollar were as follows: Jun 1 1$AUS = $.8328US Jul 1 1$AUS = $.8356US Aug 1 1$AUS = $.9111US This chart shows a A) strengthening Australian Dollar which makes it less expensive for Americans to buy Australian goods. B) weakening Australian dollar which makes it less expensive for Americans to buy Australian goods. C) strengthening Australian dollar which makes it more expensive for Americans to buy Australian goods. D) weakening Australian dollar which makes it more expensive for Americans to buy Australian goods.

Q: Cass Corporation's balance sheet at December 31, 2011 included a $48,480 account receivable from Redmun Corporation of Mexico. The account receivable was denominated as 600,000 Mexican pesos. What entry did Cass make on January 16, 2012 when the account receivable was collected and the exchange rate for the peso was $.09? A) Cash 54,000 Accounts Receivable 54,000 B) Cash 54,000 Exchange Gain 5,520 Accounts Receivable 48,480 C) Cash 48,480 Accounts Receivable 48,480 D) Cash 48,480 Exchange Loss 5,520 Accounts Receivable 54,000

Q: On May 1, 2011, Deerfield Corporation purchased merchandise from a German firm for 78,000 euros when the spot rate for the euro was 1.48 euro per dollar. The account payable was denominated in the euro. Deerfield settled the account on August 1 when the spot rate for the euro was 1.39 euro per dollar. How much cash will Deerfield have to disburse to settle the account? A) $ 52,702.72 B) $ 56,115.11 C) $108,420.00 D) $115,440.00

Q: Meric Corporation (a U.S. company) began operations on January 1, 2011, when the owner borrowed $150,000 to start the company. In the first month of operations, Meric had the following transactions: January 3, 2011 Bought inventory for 100,000 Brazilian real on account. Must be paid with Brazilian real. January 8, 2011 Sold 60% of inventory acquired on 1/3/11 for 32,000 British pounds on account. Invoice denominated in British pounds. January 10, 2011 Paid $3,000 in other operating expenses January 23, 2011 Acquired and paid half of the Brazilian real owed to the Brazilian supplier January 28, 2011 Collected half of the 32,000 pounds from the customer in Great Britain and immediately converted them into U.S. dollars The following exchange rates apply: Date Rate Rate January 3 $.6260 = 1 real $1.5950 = 1 pound January 8 $.6230 = 1 real $1.5760 = 1 pound January 10 $.6210 = 1 real $1.5880 = 1 pound January 23 $.6250 = 1 real $1.5610 = 1 pound January 28 $.6330 = 1 real $1.5570 = 1 pound January 31 $.6180 = 1 real $1.5720 = 1 pound Required: Complete the summary income statement and balance sheet for the month ended January 31, 2011 assuming there were no other transactions. January 31 INCOME STATEMENT Sales COGS Gross Margin Other Operating Expenses Exchange Gain / (Loss) Net Income BALANCE SHEET Cash Accounts Receivable Inventory Total Assets Accounts Payable Debt Retained Earnings Total Liab and Equity

Q: Charin Corporation, a U.S. corporation, imports and exports small electronics. On December 1, 2011, 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, 2012. Charin paid the remaining balance on January 3, 2012. The respective exchange rates were as follows: December 1, 2011 1 pound = $.170 December 30, 2011 1 pound = $.165 December 31, 2011 1 pound = $.175 January 3, 2012 1 pound = $.180 Required: Document the journal entries related to these transactions for the four dates shown. If no entry is required, record "no entry."

Q: Plymouth Corporation (a U.S. company) began operations on September 1, 2011, when the owner borrowed $250,000 to establish the business. Plymouth then had the following import and export transactions with unaffiliated Chinese companies: September 6, 2011 Bought material inventory for 100,000 yuan on account. Invoice denominated in yuan. September 18, 2011 Sold 80% of inventory acquired on 9/6/11 for 110,000 yuan on account. Invoice denominated in yuan. October 5, 2011 Acquired and paid the 100,000 yuan owed to the Chinese supplier October 18, 2011 Collected the 110,000 yuan from the Chinese customer and immediately converted them into U.S. dollars The following exchange rates apply: Date Rate September 6 $0.1544 = 1 yuan September 18 $0.1607 = 1 yuan September 30 $0.1591 = 1 yuan October 5 $0.1578 = 1 yuan October 18 $0.1593 = 1 yuan Required: 1. What were Sales in the September month-end income statement? 2. What was the COGS associated with these sales? 3. What is the Accounts Receivable balance in the balance sheet at September 30, 2011? 4. What is the Inventory balance in the balance sheet at September 30, 2011? 5. What is the Exchange gain or loss that will be reported for the month of September?

Q: Blue Corporation, a U.S. manufacturer, sold goods to their customer in Hungary on December 12, 2011 for 6,000,000 Hungarian forints. The customer agreed to pay in Hungarian forints in 30 days. When the customer wired the foreign currency to Blue on January 11, 2012, Blue held them in their bank account until January 15 before selling them and converting them to U.S. dollars. The following exchange rates apply: Dec 12, 2011 $0.0055 Dec 31, 2011 $0.0049 Jan 11, 2012 $0.0063 Jan 15, 2012 $0.0059 Required: Record the journal entries that Blue would need related to the dates listed above. If no entry is required, state "no entry."

Q: On November 4, 2011, the Oak Corporation, a U.S. corporation, purchased components for an assembly machine from Maple Industries, a Canadian Company, which were put into Parts Inventory. The purchase price was 80,000 Canadian dollars and Oak agreed to pay in Canadian dollars in 90 days. Both corporations are on a calendar year accounting period. Assume that the spot rates for the Canadian dollar on November 4, 2011, December 31, 2011, and February 2, 2012, are $0.9985, $1.0191, and $1.0064, respectively. Required: Record the November 4, December 31, and February 2 transactions in the General Journals of Oak Corporation and Maple Industries. If no entry is required on a particular date, indicate "No entry" in the General Journal.

Q: In September of 2011, Gunny Corporation anticipates that the price of heating oil will increase soon, and wishes to lock in a firm price for the winter months. They enter into a forward contract with Selton Industries to buy 100,000 barrels of oil at $160 per barrel in December 2011. Selton's cost of production of the heating oil is $120 per barrel. Required: Determine the economic impact of the transaction to Selton (the seller of the heating oil) at the market price levels indicated in the table below, with and without the hedge. Market Price per Barrel Forward Price per Bushel Unhedged Market Gain / (Loss) Economic Gain / (Loss) on Forward Economic Income with Hedge $180 170 160 150 140

Q: The table below provides either a direct or indirect quote for a given foreign currency unit, and the related units of that foreign currency. Quote Foreign Currency Units U.S. Dollars 1 fcu : $0.0065 40,000 fcu $1 : .0098 fcu 980 fcu 1 fcu : $0.0796 80,000 fcu $1 : .0688 fcu 55,040 fcu 1 fcu : $0.3597 110,000 fcu $1 : .8443 fcu 25,329 fcu 1 fcu : $1.68 50,000 fcu $1 : 1.64 fcu 29,520 fcu 1 fcu : $12.67 5,000 fcu $1 : 184.66 fcu 738,640 fcu 1 fcu : $166.79 700 fcu Required: Complete the table, indicating the amount of U.S. Dollars that is the equivalent of the foreign currency shown, based on the direct or indirect quote provided.

Q: Slade Corporation, a U.S. company, purchased materials on account from a manufacturer in Mexico on June 15. The invoice was denominated in the shipper's currency for 480,000 pesos. The goods were paid for on July 18. Slade closes their fiscal year on June 30, and used the following indirect quotes to measure the amounts related to the transactions. June 15 $1.00 = 12.50 pesos June 30 $1.00 = 12.80 pesos July 18 $1.00 = 12.00 pesos Required: Show all related journal entries for Slade Company.

Q: Lincoln Corporation, a U.S. manufacturer, both imports needed materials and exports finished products. Their receivables and payables are listed below, prior to year-end adjustments or preparation of the closing entries. Foreign Currency Units Rate at Date of Transaction Per Books in U.S. Dollars Current Rate at 12/31/11 ACCOUNTS RECEIVABLE Japanese yen 14,678,000 $0.0109007 160,000 $0.0120 Euros 50,000 1.2372 61,860 1.4235 Hungarian forint 50,000,000 0.0044 220,000 0.0053 TOTAL 441,860 ACCOUNTS PAYABLE Euros 50,000 1.2378 61,890 $1.4235 Mexican pesos 1,250,000 0.0799 99,875 0.0845 Indian rupee 4,000,000 0.0216 86,400 0.0223 TOTAL 248,165 Required: Determine the amount at which receivables and payables should be reported on December 31, 2011, and the net exchange gain or loss that would be reported as a result of year-end adjustments.

Q: Piel Corporation (a U.S. company) began operations on January 1, 2011, when common stock was issued for $250,000. In the first two months of operations, Piel had the following transactions: January 15, 2011 Bought inventory for 100,000 Mexican pesos on account January 26, 2011 Sold 70% of inventory acquired on 1/15/11 for 44,000 Saudi riyals on account January 27, 2011 Paid $1,000 in other operating expenses February 2, 2011 Sold additional inventory that cost $1,000 for $3,000 cash to a U.S. company. February 15, 2011 Acquired and paid the 100,000 pesos owed to the Mexican supplier February 21, 2011 Paid $1,500 in other operating expenses February 28, 2011 Collected the 44,000 riyals from the Saudi customer and immediately converted them into U.S. dollars The following exchange rates apply: Date Rate Rate January 15 $.11 = 1 peso $.23 = 1 riyal January 26 $.12 = 1 peso $.24 = 1 riyal January 31 $.13 = 1 peso $.25 = 1 riyal February 15 $.14 = 1 peso $.26 = 1 riyal February 28 $.15 = 1 peso $.27 = 1 riyal Required: Complete the summary income statement and balance sheet for the month ended January 31, 2011 and February 28, 2011, assuming there were no other transactions. January 31 February 28 INCOME STATEMENT Sales COGS Gross Margin Other Operating Expenses Exchange Gain / (Loss) Net Income BALANCE SHEET Cash Accounts Receivable Inventory Total Assets Accounts Payable Common Stock Retained Earnings Total Liab and Equity

Q: Johnson Corporation (a U.S. company) began operations on December 1, 2010, when the owner contributed $100,000 of his own money to establish the business. Johnson then had the following import and export transactions with unaffiliated Mexican companies: December 12, 2011 Bought inventory for 150,000 pesos on account. Invoice denominated in pesos. December 15, 2011 Sold 60% of inventory acquired on 12/12/11 for 120,000 pesos on account. Invoice denominated in pesos. January 1, 2012 Acquired and paid the 150,000 pesos owed to the Mexican supplier January 15, 2012 Collected the 120,000 pesos from the Mexican customer and immediately converted them into U.S. dollars The following exchange rates apply: Date Rate December 12 $.11 = 1 peso December 15 $.12 = 1 peso December 31 $.13 = 1 peso January 1 $.14 = 1 peso January 15 $.15 = 1 peso Required: 1. What were Sales in the income statement for the year ended December 31, 2011? 2. What was the COGS associated with these sales? 3. What is the Accounts Payable balance in the balance sheet at December 31, 2011? 4. What is the Inventory balance in the balance sheet at December 31, 2011?

Q: Behd Company, a U.S. firm, sold some of its inventory to Edinburgo Company, a company based in Scotland, on November 27, 2011, when the local currency unit (the pound Sterling, "GBP") was trading at $1.64 : 1 GBP. The sales agreement called for Edinburgo to pay 140,000 GBP on January 26, 2012. Additional exchange rates are shown below: December 31, 2011 $1.7125 January 26, 2012 $1.7220 Required: Show all related journal entries for Behd Company.

Q: A review of Ace Industries, a U.S. corporation, shows the following balances in accounts receivable and accounts payable detail at September 30, 2011, their fiscal year end. ACCOUNTS RECEIVABLE Receivables denominated in U.S. dollar $426,000 Receivable denominated in 40,000 Australian dollar 43,000 Receivable denominated in 70,000 Canadian dollar 71,750 $ 540,750 ACCOUNTS PAYABLE Payables denominated in U.S. dollar $ 107,000 Payable denominated in 50,000 Canadian dollar 51,250 Payable denominated in 200,000 Hong Kong dollar 26,500 $ 184,750 As Ace prepared to close their books, they noted that the September 30 exchange rates for the Australian dollar, Canadian dollar and Hong Kong dollar were $1.0366, $1.0301 and $0.1284, respectively. Required: Determine the exchange gain or loss to be included in the 2011 financial statements, and the amount of Accounts Receivable and Accounts Payable that will be included on the September 30, 2011 balance sheet.

Q: Tank Corporation, a U.S. manufacturer, has a June 30 fiscal year end. Tank sold goods to their customer in Columbia on May 27, 2011 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: May 27 $0.00055 June 30 $0.00052 July 26 $0.00058 July 31 $0.00056 Required: Record the journal entries related to the dates listed above. If no entry is required, state "no entry."

Q: Crabby Industries, a U.S. corporation, purchased inventory from a company in Sweden on November 18, 2011 when the Swedish krona was trading at 1 krona = $0.161. The transaction was for 600,000 krona, and was to be paid in krona in 90 days. Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167. On February 16, 2012, Crabby paid the invoice when the krona was trading at $0.156. Required: Show the journal entries recorded by Crabby on November 18, 2011, December 31, 2011, and February 16, 2012.

Q: On April 1, 2012, Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton. Button agrees to purchase (and Bows agrees to sell) 100,000 pounds of cotton at $1.19 per pound, six months from the date of agreement. On October 1, 2012, the price of cotton is $1.17 per pound. The contract allows for net settlement. Required: Determine the net settlement on the forward contract.

Q: Jefferson Company entered into a forward contract with Washington Company on October 1, 2011, under which Jefferson agreed to buy (and Washington agreed to sell) 10,000 tons of coal at $80.00 per ton in 90 days. On October 1, 2011, the price of coal is $82.00 per ton. On December 29, 2011, the price of coal is $85.00 per ton. The contract allows for net settlement. Required: Determine the net settlement on the forward contract.

Q: On November 1, 2010, the Yankee Corporation, a US corporation, purchased and received an extruding machine from Wales Corporation, a UK company. The purchase price was $10,000(U.S. dollars) and Yankee agreed to pay in pounds on February 1, 2011. Both corporations are on a calendar year accounting period. Assume that the spot rates for the British pound on November 1, 2010, December 31, 2010, and February 1, 2011, are $1.60, $1.62, and $1.66, respectively. Required: Record the November 1, December 31, and February 1 transactions in the General Journals of Yankee Corporation and Wales Corporation. If no entry is required on a particular date, indicate "No entry" in the General Journal.

Q: On October 15, 2011, Napole Corporation, a French company, ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation, a U.S. corporation. The euro rate was $1.20 (U.S. dollars) on October 15. On November 15, 2011 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30. Napole paid the bill on December 10, 2011, and Adams immediately exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28 on December 10, 2011. Required: Compute the foreign currency gain or loss on the December 31, 2011 financial statements of Adams and show the related journal entries.

Q: On September 1, 2011, Bylin Company purchased merchandise from Himeji Company of Japan for 20,000,000 yen payable on October 1, 2011. 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, 2011. Required: 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, 2011? 3. What journal entry did Bylin record on October 1, 2011?

Q: On January 1, 2011, Gregory Company acquired a 90% interest in Subway Company for $200,000 cash. On January 1, 2011, Subway Company had the following assets and liabilities: Book Value Fair Value Cash $5,000 $5,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Other Current Assets 10,000 10,000 Plant Assets 60,000 80,000 Total Assets $145,000 $180,000 Liabilities $25,000 $25,000 Common Stock 100,000 Retained Earnings 20,000 Total Liabilities & Stockholders' Equity $145,000 The plant assets have 20 years of useful life remaining. Straight-line depreciation is used. The excess fair value over book value associated with Accounts Receivable and Inventory is realized in 2011. In 2011, Subway reported net income of $35,000 and declared and paid common dividends of $10,000. Gregory reported Income from Subway in 2011 of $17,100. Required: Assume both companies use the entity theory. Prepare the elimination entry(ies) on consolidating work papers for the year ending December 31, 2011.

Q: On January 1, 2011, Brody Company acquired an 80% interest in Kristin Company for $240,000 cash. On January 1, 2011, Kristin Company had the following assets and liabilities: Book Value Fair Value Cash $10,000 $10,000 Accounts Receivable 50,000 50,000 Inventory 50,000 70,000 Plant Assets 100,000 100,000 Total Assets $210,000 $230,000 Liabilities $100,000 $120,000 Capital Stock 100,000 Retained Earnings 10,000 Total Liabilities & Stockholders' Equity $210,000 Push-down accounting is used for the acquisition. Both companies use the entity theory. Required: 1. What is the goodwill associated with Kristin Company on January 1, 2011? 2. Prepare the journal entry(ies) on Kristin's books on January 1, 2011. 3. Prepare the journal entry(ies) on Brody's books on January 1, 2011. 4. Prepare the elimination entry(ies) on the consolidating working papers on January 1, 2011.

Q: On January 1, 2011, Jennifer Company acquired a 90% interest in Jayda Company for $270,000 cash. On January 1, 2011, Jayda Company had the following assets and liabilities: Book Value Fair Value Cash $10,000 $10,000 Accounts Receivable 50,000 70,000 Inventory 50,000 80,000 Plant Assets 100,000 200,000 Total Assets $210,000 $360,000 Liabilities $100,000 $120,000 Capital Stock 100,000 Retained Earnings 10,000 Total Liabilities & Stockholders' Equity $210,000 Push-down accounting is used for the acquisition. Both companies use the entity theory. Required: 1. What is the goodwill associated with Jayda Company on January 1, 2011? 2. Prepare the journal entry(ies) on Jayda's books on January 1, 2011. 3. Prepare the journal entry(ies) on Jennifer's books on January 1, 2011. 4. Prepare the elimination entry(ies) on the consolidating working papers on January 1, 2011.

Q: On January 1, 2011, Jeff Company acquired a 90% interest in Marian Company for $198,000 cash. On January 1, 2011, Marian Company had the following assets and liabilities: Book Value Fair Value Cash $5,000 $5,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Plant Assets 60,000 80,000 Total Assets $135,000 $170,000 Liabilities $25,000 $25,000 Capital Stock 100,000 Retained Earnings 10,000 Total Liabilities & Stockholders' Equity $135,000 Push-down accounting is used for the acquisition. Required: 1. Assume both companies use the entity theory. Prepare the elimination entry(ies) on consolidating work papers on January 1, 2011. 2. Assume both companies use the parent company theory. Prepare the elimination entry(ies) on consolidating work papers on January 1, 2011.

Q: On January 1, 2011, Jeff Company acquired a 90% interest in Margaret Company for $198,000 cash. On January 1, 2011, Margaret Company had the following assets and liabilities: Book Value Fair Value Cash $5,000 $5,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Plant Assets 60,000 80,000 Total Assets $135,000 $170,000 Liabilities $25,000 $25,000 Capital Stock 100,000 Retained Earnings 10,000 Total Liabilities & Stockholders' Equity $135,000 Push-down accounting is used for the acquisition. Required: 1. Assume both companies use the entity theory. a. Record the journal entry on Margaret's separate books on January 1, 2011. b. Record the journal entry on Jeff's separate books on January 1, 2011. 2. Assume both companies use the parent company theory. a. Record the journal entry on Margaret's separate books on January 1, 2011. b. Record the journal entry on Jeff's separate books on January 1, 2011.

Q: On January 1, 2011, Penny Company acquired a 90% interest in Lampire Company for $180,000 cash. On January 1, 2011, Lampire Company had the following assets and liabilities: Book Value Fair Value Cash $10,000 $10,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Plant Assets 60,000 80,000 Total Assets $140,000 $175,000 Liabilities $25,000 $25,000 Capital Stock 100,000 Retained Earnings 15,000 Total Liabilities & Stockholders' Equity $140,000 Push-down accounting is used for the acquisition. Required: 1. Assume both companies use the entity theory. Record the push-down adjustment on Lampire's separate books on January 1, 2011. 2. Assume both companies use the parent company theory. Record the push-down adjustment on Lampire's separate books on January 1, 2011.

Q: Patch Corporation has a 50% undivided interest in Saric Corporation, a joint venture. Patch accounts for its interest in Saric by the equity method and also prepares consolidated financial statements for external reporting purposes. Patch follows specialized industry practices and uses proportionate consolidation for its interest in Saric. Separate financial statements for Patch and Saric are as follows: Patch Saric Consolidation Cash $30,000 $18,000 ________ Accounts receivable 70,000 42,000 ________ Inventories 80,000 72,000 ________ Investment in Saric 140,000 ________ Land 116,000 40,000 ________ Plant, property, equipment 200,000 128,000 ________ Total assets $636,000 $300,000 ________ Accounts payable $24,000 $20,000 ________ Common stock 340,000 0 ________ Retained earnings 272,000 ________ Venture capital ________ 280,000 ________ Total liab. & equity $636,000 $300,000 ________ Required: Prepare the consolidated balance sheet for Patch Corporation and its undivided interest in Saric Corporation.

Q: Johnsen Corporation paid $225,000 for a 70% interest in Jonas Corporation on January 1, 2011. On that date, Jonas's balance sheet accounts, at book value and fair value, were as follows: Book Value Fair Value Assets Cash $25,000 $25,000 Accounts receivable-net 45,000 55,000 Inventories 40,000 60,000 Plant, property and equipment-net 140,000 125,000 Total assets $250,000 $265,000 Equities Accounts payable $40,000 $40,000 Common stock 120,000 Retained earnings 90,000 Total liab. & equity $250,000 Required: 1. Prepare the journal entry necessary on January 1, 2011 on Jonas Corporation's books. Both companies use push-down accounting and the entity theory. 2. Prepare the balance sheet for Jonas Corporation immediately after the acquisition on January 1, 2011.

Q: Pascal Corporation paid $225,000 for a 70% interest in Sank Corporation on January 1, 2011. On that date, Sank's balance sheet accounts, at book value and fair value, were as follows: Book Value Fair Value Assets Cash $25,000 $25,000 Accounts receivable-net 45,000 55,000 Inventories 40,000 60,000 Plant, property and equipment-net 140,000 125,000 Total assets $250,000 $265,000 Equities Accounts payable $40,000 $40,000 Common stock 120,000 Retained earnings 90,000 Total liab. & equity $250,000 Both companies use the parent company theory. Push-down accounting is used for the acquisition. Required: 1. Prepare the journal entry on January 1, 2011 on Sank Corporation's books. 2. Prepare a balance sheet for Sank Corporation immediately after the acquisition on January 1, 2011.

Q: Party Corporation acquired an 80% interest in Sang Corporation on January 1, 2011 for $20,000. Balance sheet and fair value information on this date is summarized as follows: Party Book Value Sang Book Value Sang Fair Value Current assets $15,000 $9,000 $9,000 Land and Building-net 35,000 7,000 7,000 Equipment 8,000 4,000 6,000 Total assets $58,000 $20,000 $22,000 Liabilities $27,000 $10,000 10,000 Capital stock 18,000 4,000 Retained earnings 13,000 6,000 Total liab. & equity $58,000 $20,000 Required: 1. Prepare an entry on the books of Sang Corporation to record the push-down adjustment under parent company theory. 2. Prepare an entry on the books of Sang Corporation to record a push-down adjustment under entity theory.

Q: Partridge Corporation purchased an 80% interest in Sandy Corporation for $840,000 on January 1, 2011. Sandy's balance sheet book values and accompanying fair values on this date are shown below. Parent Entity Company Theory Theory Push- Push- Down Down Book Fair Balance Balance Value Value Sheet Sheet Cash $30,000 $30,000 ________ ________ Receivables 200,000 200,000 ________ ________ Inventory 300,000 360,000 ________ ________ Land 50,000 90,000 ________ ________ Plant assets-net 250,000 300,000 ________ ________ Total Assets $830,000 $980,000 ________ ________ Current liabilities $180,000 $180,000 ________ ________ Other liabilities 120,000 100,000 ________ ________ Common Stock 400,000 ________ ________ Retained Earnings 130,000 ________ ________ ________ Total Liab. & Equity $830,000 ________ ________ ________ Required: Complete the push-down columns of Sandy Corporation's restructured balance sheet using entity theory and parent company theory.

Q: On January 1, 2011, Parton Corporation acquired an 80% interest in Sandra Corporation for $184,000. Sandra's net assets on this date had a book value of $160,000 and a fair value of $210,000. The excess of fair value over book value at acquisition was attributable to $20,000 of understated plant assets with a remaining useful life of five years from January 1, 2011, and $30,000 to an understated patent with a remaining economic life of six years from January 1, 2011. Separate net incomes (excluding investment income) of Parton and Sandra for 2011 were $300,000 and $50,000, respectively. Required: 1. Compute goodwill at January 1, 2011 under the parent company theory and the entity theory. 2. Determine consolidated net income and noncontrolling interest share for 2011 under the parent company theory and the entity theory.

Q: Patane Corporation acquired 80% of the outstanding voting common stock of Sanlon Corporation on January 1, 2011, for $500,000. Sanlon Corporation's stockholders' equity at this date consisted of $250,000 in Capital Stock and $100,000 in Retained Earnings. The fair value of Sanlon's assets was equal to the book value of the assets except for land with a fair value $40,000 greater than its book value, and marketable securities with a fair value $50,000 greater than its book value. Sanlon also had a valuable patent with a fair value of $25,000 and a book value of zero because its development costs were expensed as incurred. The fair value of Sanlon's liabilities is $10,000 higher than the $40,000 book value. Required: Calculate the amount of goodwill under the parent company and entity theories of consolidation.

Q: Pashley Corporation purchased 75% of Sargent Corporation on January 1, 2011, for $115,000. Balance sheets for the two companies on this date, prepared just prior to the purchase, are provided below. Pashley Sargent Sargent Book Values Book Values Fair Values Cash $165,000 $5,000 $5,000 Inventory 135,000 35,000 45,000 Buildings & equipment-net 250,000 60,000 95,000 Total assets $550,000 $100,000 $145,000 Common stock $150,000 $47,500 Retained earnings 400,000 52,500 Total equities $550,000 $100,000 Required: Prepare a consolidated balance sheet using the entity theory of consolidation.

Q: Partel Corporation purchased 75% of Sandford Corporation on January 1, 2011, for $230,000. Balance sheets for the two companies on this date, prepared just prior to the purchase, are provided below. Partel Sandford Sandford Book Values Book Values Fair Values Cash $330,000 $10,000 $10,000 Inventory 270,000 70,000 90,000 Buildings & equipment-net 500,000 120,000 190,000 Total assets $1,100,000 $200,000 $290,000 Common stock $300,000 95,000 Retained earnings 800,000 105,000 Total equities $1,100,000 $200,000 Required: 1. Prepare a consolidated balance sheet using the entity theory of consolidation. 2. Prepare a consolidated balance sheet using the parent company theory of consolidation.

Q: On July 1, 2010, Parslow Corporation acquired a 75% interest in Sanderson Corporation for $150,000. Sanderson's net assets on this date had a book value of $140,000 and a fair value of $160,000. The excess of fair value over book value at acquisition was due to understated plant assets with a remaining useful life of five years from July 1, 2010. Separate net incomes (excluding investment income) of Parslow and Sanderson for 2011 were $400,000 and $20,000, respectively. Required: 1. Compute goodwill at July 1, 2010 under the parent company theory and the entity theory. 2. Determine consolidated net income and noncontrolling interest share for 2011 under the parent company theory and the entity theory.

Q: Use the following information to answer the question(s) below.On January 1, 2011, Penelope Company acquired a 90% interest in Leah Company for $180,000 cash. On January 1, 2011, Leah Company had the following assets and liabilities:Book Value Fair ValueCash $10,000 $10,000Accounts Receivable 30,000 35,000Inventory 40,000 50,000Plant Assets 60,000 80,000Total Assets $140,000 $175,000Liabilities $25,000 $25,000Capital Stock 100,000Retained Earnings 15,000Total Liabilities &Stockholders' Equity $140,000Push-down accounting is used for the acquisition.Assume the parent company theory is used. On January 2, 2011, Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.A) $27,000; $30,000B) $27,000; $35,000C) $30,000; $30,000D) $45,000; $34,500

Q: Under push-down accounting, the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________. A) book value; subsidiary B) book value; parent C) fair value; subsidiary D) present value; parent

Q: Which of the following statements about variable interest entities (VIE) is false? A) Under GAAP, a VIE may be a corporation, partnership, limited liability company or trust. B) Under GAAP, pension plans are excluded from VIE accounting. C) A potential VIE must be a separate entity, not a subset, branch or division of another entity. D) VIEs do not require the identification of a primary beneficiary.

Q: With regard to a variable interest entity (VIE), Ann Company may meet the following two conditions: Condition I Ann Company has the power to direct VIE activities that significantly impact VIE's economic performance. Condition II Ann Company has an obligation to absorb losses and/or a right to receive significant benefits from the VIE. Ann Company must consolidate a VIE if A) Condition I is met only. B) Condition II is met only. C) either Condition I or Condition II is met. D) both Condition I and Condition II are met.

Q: Entities other than the primary beneficiary account for their investment in a variable interest entity using the A) cost method. B) equity method. C) cost or equity methods. D) consolidated method.

Q: Under GAAP, the ________ will include the variable interest entity in consolidated financial statements. A) special purpose entity B) limited liability company C) trust D) primary beneficiary

Q: Under parent company theory, noncontrolling interest is valued at ________ on the consolidated balance sheet. Under entity theory, noncontrolling interest is valued at ________ on the consolidated balance sheet. A) fair value; present value B) present value; fair value C) book value; fair value D) fair value; book value

Q: Noncontrolling interest share is viewed as an expense under ________ theory. A) parent company B) entity C) contemporary D) joint venture

Q: Anthony and Cleopatra create a joint venture to distribute artifacts. Anthony contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb Company. How would Anthony report information about Cleopatra on Anthony's financial statements? A) Not at all B) In a footnote C) As a liability D) As a noncontrolling interest

Q: Earth Company, Fire Incorporated, and Wind Incorporated created a joint venture to market their products on the internet. Earth owns 40% of the stock, Fire owns 45% of the stock and Wind owns the remaining 15%. Which firms should report their joint venture investments using the equity method? A) Earth B) Fire C) Earth and Fire D) Earth, Fire and Wind

Q: A parent company acquired 100% of the outstanding common stock of another corporation. The parent is going to use push-down accounting. The fair market value of each of the acquired corporation's assets is lower than its respective book value. The fair market value of each of the acquired corporation's liabilities is higher than its respective book value. The acquired corporation has a deficit in the Retained Earnings account. Which one of the following statements is correct? A) The push-down capital account will have a credit balance after this transaction is posted. B) The push-down capital account will have a debit balance after this transaction is posted. C) The push-down capital account will have either a debit or a credit balance depending upon whether the asset adjustments exceed the liability adjustments, or vice versa. D) Subsidiary Retained Earnings will have a deficit balance after this transaction is posted.

Q: Under parent company theory, the amount of consolidated net income is equal to the amount of ________ under entity theory. A) noncontrolling interest share B) noncontrolling interest income C) income attributable to controlling stockholders D) income attributable to noncontrolling stockholders

Q: Under parent company theory, noncontrolling interest is classified on the consolidated balance sheet as ________. Under entity theory, noncontrolling interest is classified on the consolidated balance sheet as ________. A) stockholders' equity; stockholders' equity B) stockholders' equity; liability C) liability; a liability D) liability; stockholders' equity

Q: The SEC requires push-down accounting for SEC filings of subsidiaries when the subsidiary has no substantial publicly-held debt or preferred stock outstanding andA) the parent has substantial ownership (5% or greater).B) the parent has substantial ownership (20% or greater).C) the parent has substantial ownership (50% or greater).D) the parent has substantial ownership (90% or greater).

Q: Use the following information to answer the question(s) below.Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2011, at a cost of $400,000. The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders' land was $10,000, and fair value was $22,000. The book value of Sanders' inventory was $30,000, and fair value was $25,000.Assume Paris's inventory account had a book value of $40,000 and a fair value of $44,000 on January 1, 2011. Using the parent company theory, what was the amount reported on the consolidated balance sheet for inventories on January 1, 2011?A) $65,000B) $66,000C) $69,000D) $70,000

Q: Use the following information to answer the question(s) below.Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1, 2011, when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings. The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest.The separate net incomes (excluding investment income) of Pascoe and Sarabet for 2011 were $600,000 and $100,000, respectively. Dividends declared and paid during 2011 were $250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet.Pascoe's income from Sarabet under the equity method for 2011 wasA) $72,000.B) $87,500.C) $90,000.D) $100,000.

Q: Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg's stockholders' equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings. The fair values of Sandberg's net assets were equal to their recorded book values. At the time of acquisition, on Paroz's books, Paroz will record A) goodwill for $60,000 under the parent company theory. B) goodwill for $85,714 under the entity theory. C) investment in Sandberg for $1,285,714 under the entity theory. D) investment in Sandberg for $900,000 under the entity and parent company theories.

Q: Use the following information to answer the question(s) below.Pasfield Corporation acquired a 90% interest in Santini Corporation for $90,000 cash on January 1, 2011. The following information is available for Santini at that time.Book Value Fair Value DifferenceCurrent assets $40,000 $50,000 $10,000Plant assets 60,000 75,000 15,000Liabilities (50,000) (50,000) 0Net assets $50,000 $75,000Under the entity theory, a consolidated balance sheet prepared immediately after the business combination will show noncontrolling interest ofA) $5,000.B) $7,500.C) $9,000.D) $10,000.

Q: Pretax operating incomes of Panitz Corporation and its 80%-owned subsidiary, Salazar Corporation, for the year 2011, are shown below. Panitz and Salazar belong to an affiliated group. Salazar pays total dividends of $35,000 for the year. There are no unamortized book value/fair value differentials relating to Panitz's investment in Salazar. During the year, Panitz sold land to Salazar at a total loss of $15,000 which is included in its pretax operating income. Salazar still holds this land at the end of the year. The marginal corporate tax rate for both corporations is 34%. Panitz Salazar Sales revenue $890,000 $700,000 Loss on sale of land (15,000) Cost of sales (400,000) (250,000) Other expenses (350,000) (350,000) Depreciation expense (50,000) (35,000) Pretax operating income (does not include Salazar investment income) $75,000 $65,000 Required: 1. Determine the separate amounts of income tax expense for Panitz and Salazar as if they had filed separate tax returns. 2. Determine Panitz's net income from Salazar.

Q: Pretax operating incomes of Pang Corporation and its 70%-owned subsidiary, Sala Corporation, for the year 2011, are shown below. Sala pays total dividends of $60,000 for the year. There are no unamortized book value/fair value differentials relating to Pang's investment in Sala. During the year, Pang sold land to Sala for a gain of $35,000 and Sala holds this land at the end of the year. The marginal corporate tax rate for both corporations is 34%. Pang Sala Sales revenue $900,000 $600,000 Gain on sale of land 35,000 Cost of sales (480,000) (325,000) Other expenses (192,000) (78,000) Pretax operating income (does not include investment income) $263,000 $197,000 Required: 1. Determine the separate amounts of income tax expense for Pang and Sala as if they had filed separate tax returns. 2. Determine Pang's net income from Sala.

Q: Stello Corporation's stockholders' equity on December 31, 2010 was as follows: 10% cumulative preferred stock, $100 par value, callable at $110, with no dividends in arrears $100,000 Common stock, $1 par value 300,000 Additional paid-in capital 40,000 Retained earnings 160,000 Total stockholders' equity $600,000 On January 1, 2011, Kaprelian Corporation paid $300,000 for a 90% interest in Stello's common stock. On January 1, 2011, the book values of Stello's assets and liabilities were equal to fair values. On January 2, 2011, Kaprelian Corporation paid $100,000 for a 90% interest in Stello's preferred stock. Required: 1. Determine the book value of the common stockholders' equity for Stello Corporation on January 1, 2011. 2. Prepare the journal entry(ies) on January 1, 2011 for Kaprelian Corporation. 3. Prepare the journal entry(ies) on January 2, 2011 for Kaprelian Corporation. 4. For the year ending December 31, 2011, Stello Corporation reported net income of $50,000. Stello Corporation declared and paid dividends of $10,000 to preferred stockholders and $10,000 to common stockholders. Prepare the journal entries for Kaprelian Corporation relating to this information.

Q: Sandy Corporation's stockholders' equity on December 31, 2010 was as follows: 10% cumulative preferred stock, $100 par value, callable at $105, with one year dividends in arrears $100,000 Common stock, $1 par value 200,000 Additional paid-in capital 40,000 Retained earnings 160,000 Total stockholders' equity $500,000 On January 1, 2011, Bombard Corporation paid $200,000 for a 90% interest in Sandy's common stock. On January 1, 2011, the book values of Sandy's assets and liabilities were equal to fair values. On January 2, 2011, Bombard Corporation paid $120,000 for a 90% interest in Sandy's preferred stock. Required: 1. Determine the book value of the common stockholders' equity for Sandy Corporation on January 1, 2011. 2. Prepare the journal entry(ies) on January 1, 2011 for Bombard Corporation. 3. Prepare the journal entry(ies) on January 2, 2011 for Bombard Corporation. 4. For the year ending December 31, 2011, Sandy Corporation reported net income of $50,000. Sandy Corporation declared and paid dividends of $20,000 to preferred stockholders and $10,000 to common stockholders. Prepare the journal entries for Bombard Corporation relating to this information.

Q: Paradise Corporation owns 100% of Aldred Corporation, 90% of Balme Corporation, 80% of Calder Corporation, 75% of Dale Corporation, 20% of East Corporation, and 8% of Faber Corporation. Paradise, Aldred, Balme and Calder belong to an affiliated group. All of these corporations are domestic corporations. During 2011, Paradise Corporation reports net income of $1,500,000. This net income includes the full amount of dividends received from Aldred and Faber, but does not include the dividends received from Balme, Calder, Dale, and East Corporations. All investees have paid out all of their net income in the form of dividends. Paradise's share of the various dividend distributions is as follows: From Aldred: $90,000 From Balme: $92,000 From Calder: $88,000 From Dale: $66,000 From East: $50,000 From Faber: $40,000 Required: Calculate the correct amount of taxable income for Paradise Corporation if a consolidated tax return is filed.

Q: Pane Corporation owns 100% of Alder Corporation, 85% of Ball Corporation, 70% of Cake Corporation, 40% of Dash Corporation, and 10% of Eager Corporation. All of these corporations are domestic corporations. Pane, Alder and Ball belong to an affiliated group. Pane's marginal income tax rate is 35%. All investees have paid out all their net income in the form of dividends. During 2011, Pane Corporation received the following cash dividends: From Alder: $180,000 From Ball: $170,000 From Cake: $160,000 From Dash: $100,000 From Eager: $ 60,000 Required: 1. Compute the amount of the dividend income that would be excluded from taxation under the current Internal Revenue Code. 2. Compute Pane's current income tax liability for the dividend income received in 2011.

Q: Peyton Corporation owns an 80% interest in Sampe Corporation's common stock. Throughout 2011, Sampe had 10,000 shares of common stock outstanding and Peyton had 100,000 shares of common stock outstanding. Sampe's only dilutive security consists of $100,000 face amount of 8% bonds payable. Each $1,000 bond is convertible into 20 shares of Sampe stock. Peyton and Sampe's separate net incomes for the year are $200,000 and $150,000, respectively. Assume a 34% flat income tax rate. Required: Compute the amount of basic and diluted earnings per share for Peyton (consolidated) and Sampe Corporations.