Acct 559 Quiz 1 Solution

Quiz I (Chapters 1and 2) Date Name ID Answer the following Questions1. Tower Inc. owns 30% of Yale Co. and applies the equity mode. During the current year, Tower bought inventory approaching $66,000 and whence sold it to Yale for $120,000. At year-end, exactly $24,000 of merchandise was still being held by Yale. What amount of inter- attach to inventory profit must be deferred by Tower? A. $6,480 B. $3,240 C. $10,800 D. $16,200 E. $6,6102. exclusively of the following statements regarding the coronation key using the equity method ar true except A. The investment is put down at cost B.Dividends sure ar reported as revenue C. Net income of investee increases the investment account D. Dividends received reduce the investment account E. Amortization of circus grade over cost reduces the investment account3. After eachocating cost in excess of book value, which asset or liability would not be amortized over a useful emotional state? A. Cost of goods sold B. Property, plan t, & equipment C. Patents D. Good lead E. Bonds payable4. A party should always use the equity method to account for an investment if A. it has the ability to exercise significant put to work over the operating policies of the investee.B. it owns 30% of another companys stock. C. it has a controlling interest (more than 50%) of another companys stock. D. the investment was made primarily to earn a result on excess cash. E. it does not have the ability to exercise significant function over the operating policies of the investee.5. An upstream cut-rate sale of inventory is a sale A. between subsidiaries owned by a earthy parent. B. with the transfer of goods scheduled by contract to go along on a specified future date. C. in which the goods are physically transported by boat from a subsidiary to its parent. D. ade by the investor to the investee. E. made by the investee to the investor.6. In a situation where the investor exercises significant influence over the investee, which of the following entries is not actually posted to the books of the investor?1) Debit to the Investment account and a Credit to the Equity in Investee Income account.2) Debit to Cash (for dividends received from the investee) and a Credit to Dividend Revenue.3) Debit to Cash (for dividends received from the investee) and a Credit to the Investment account. A. Entries 1 and 2 B. Entries 2 and 3 C. admittance 1 only D.Entry 2 only E. Entry 3 only7. All of the following statements regarding the investment account using the equity method are true except A. The investment is recorded at cost B. Dividends received are reported as revenue C. Net income of investee increases the investment account D. Dividends received reduce the investment account E. Amortization of fair value over cost reduces the investment account8. A company has been using the fair-value method to account for its investment. The company now has the ability to significantly control the investee and the equity method h as been deemed appropriate.Which of the following statements is true? A. A cumulative effect change in write up belief must occur B. A prospective change in accounting principle must occur C. A retrospective change in accounting principle must occur D. The investor will not receive future dividends from the investee E. Future dividends will continue to be recorded as revenue9. A company has been using the equity method to account for its investment. The company sells shares and does not continue to have significant control. Which of the following statements is true? A. A cumulative effect change in accounting principle must occur B. A prospective change in accounting principle must occur C. A retrospective change in accounting principle must occur D. The investor will not receive future dividends from the investee E. Future dividends will continue to reduce the investment account10. After allocating cost in excess of book value, which asset or liability would not be amortized over a useful life? A. Cost of goods sold B. Property, plant, & equipment C. Patents D. Goodwill E. Bonds payable11. How are stock issuance costs and direct combination costs handle in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation? A. Stock issuance costs are a part of the acquisition costs and the direct combination costs are expensed B. handle combination costs are a part of the acquisition costs and the stock issuance costs are a reduction to additional paid-in large(p) C. Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital D. Both are treated as part of the acquisition price E. Both are treated as a reduction to additional paid-in capital12. Lisa Co. paid cash for all of the vote common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in A. A worksheet B. Lisas general journal C. Victorias general journal D. Victorias secret consolidation journal E. The general journals of both companies13. At the date of an acquisition which is not a bargain purchase, the acquisition method A. Consolidates the subsidiarys assets at fair value and the liabilities at book value B.Consolidates all subsidiary assets and liabilities at book value C. Consolidates all subsidiary assets and liabilities at fair value D. Consolidates current assets and liabilities at book value, long-term assets and liabilities at fair value E. Consolidates the subsidiarys assets at book value and the liabilities at fair value14. Which of the following statements is true regarding a statutory consolidation? A. The original companies dissolve while remaining as separate divisions of a newly created company B. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company C.The acquired company dissolves as a separate co rporation and becomes a division of the acquiring company D. The acquiring company acquires the stock of the acquired company as an investment E. A statutory consolidation is no longer a legal option15. In a transaction accounted for using the purchase method where cost is less than fair value which statement is true? A. Negative goodwill is recorded B. A deferred credit is recorded C. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit D.Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an comical gain E. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain16. In a purchase or acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined? A. Entry A B. Entry B C. Entry C D. Entry D E. Entry E17. In a pooling of interests, A.Revenues and expenses are consolidated for the entire fiscal year, even if the combination occurred lately in the year B. Goodwill may be recognized C. Consolidation is accomplished using the fair values of both companies D. The transactions may affect the exchange of preferred stock or debt securities as well as common stock E. The transaction is properly regarded as an acquisition of one company by another Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders equity figures Botkins issued 56,000 new shares of its common stock valued at $3. 5 per share for all of the outstanding stock of Volkerson.18. Assume that Botkins acquired Volkerson as a purchase combination. Immediately afterwards, what are consolidated Additional Paid-In Capital and kept up(p) Earnings, respectively? A. $133,000 and $360,000 B. $236,000 and $360,000 C. $130,000 and $360,000 D. $236,000 and $490,000 E. $133,000 and $490,00019. Assume that Botkins and Volkerson were being joined in a pooling of interests and this occurred on January 1, 2000, using the same values given. Immediately afterwards, what is consolidated Additional Paid-In Capital? A. 138,000 B. $266,000 C. $130,000 D. $236,000 E. $135,00020. chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue townspeople Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2009, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Companys outstanding common stock. This combination was accounted for as an acquisition. Immediately after the combination, what was the consolidated net assets? A. $2,520,000 B. $1,190,000 C. $1,680,000 D. $2,870,000 E. $2,030,000