ACCT4110 Advanced Accounting
Dr. Sargent – PRACTICE Exam 2
Format:
25 multiple-choice, 3 points each
Problem, non-controlling interest
Problem, partnership capital accounts
Total
75 points
10 points
15 points
100 points
1. At the acquisition date, the date on which the investor company gains control of the investee company,
which of the following occur(s)?
a. All of the Equity Investments made by the investor in the investee must be revalued.
b. Any gains or losses as a result of the revaluation should be recognized currently in income.
c. Goodwill is measured (this only occurs on the date that the parent obtains control of the investee).
d. All of the above answers are correct.
2. Montrose Co. owns 80% of the voting common stock of Concord Corp. During 2014, Concord had revenues
of $3,600,000 and expenses of $3,000,000. The amortization of excess cost allocations totaled
$160,000 in 2014. The non-controlling interest's share of the earnings of Concord Corp. should be?
a. $88,000
b. $120,000
c. $84,000
d. $80,000
e. $66,000
$3,600,000 – 3,000,000 – 160,000 = 440,000 * 20% = 88,000
On January 1, 2014, Woody Company acquires 80% of the outstanding common stock of Buzz, for a purchase
price of $785,000. It was determined that the fair market value of the noncontrolling interest in the subsidiary
is $190,000. The book value of the Buzz’s stockholders’ equity on the date of acquisition is $500,000 and its
fair market value of identifiable tangible and intangible assets is $900,000. The excess fair market value over
book value is allocated $200,000 to equipment with a remaining useful life of 10 years, and $200,000 to a
patent with a remaining useful life of 8 years.
3. The goodwill at the date of acquisition is:
a. $125,000
b. $80,000
c. $75,000
d. none of the above
$785,000 +190,000 = $975,000 FV of Buzz
Book value $500,000
Excess FV>BV $400,000
Goodwill = $75,000
4. Continuing with the Woody/Buzz acquisition above, assume that during the year ended December 31, 2014,
Buzz reports net income of $210,000 and pays dividends of $21,000. Determine the December 31,
2014 ending balance in Woody Company’s Investment in Buzz account.
a. $151,200
b. $900,200
c. $929,000
d. $1,119,000
$785,000 + (201,000 * .8 = 168,000) – (21,000 *.8 = 16,800) - $200,000/10*.8=16,000) - $200,000 / 8 *.8 =
20,000 = $900,200
Assume that, on January 1, 2013, a P Company acquired an 80% interest in its subsidiary for a purchase price
that was $250,000 over the book value of the S Company’s Stockholders’ Equity on the acquisition date. The
parent allocated the excess to the following [A] assets:
[A] Asset
PPE, net
Customer List
Goodwill
Initial Fair Value
$ 50,000
75,000
125,000
$250,000
Useful Life (years)
10
10
Indefinite
P Company and S Company report the following financial statements at December 31, 2017:
Sales
Cost of goods sold
Gross Profit
Equity income
Operating expenses
Net income
Income Statement
Parent
$ 7,330,000
(5,131,000)
2,199,000
94,748
(1,392,700)
$ 901,048
Statement of Retained Earnings
BOY Retained Earnings
Net income
Dividends
EOY Retained Earnings
Assets:
Cash
Accounts receivable
Inventory
Equity Investment
PPE, net
Liabilities and Stockholders’ Equity:
Current Liabilities
Long-term Liabilities
Common Stock
APIC
Retained Earnings
Parent
$3,682,592
901,048
(199,159)
$4,384,481
Balance Sheet
Parent
$ 411,313
938,240
1,422,020
1,380,923
5,374,356
$9,526,852
$1,053,321
2,000,000
1,198,455
890,595
4,384,481
$9,526,852
Subsidiary
$ 935,250
(561,150)
374,100
(243,165)
$ 130,935
Subsidiary
$483,213
130,935
(19,641)
$594,507
Subsidiary
$ 65,756
216,978
278,705
640,335
$1,201,773
$ 216,978
500,000
62,350
77,938
594,507
$1,201,773
5. Based on the given financial statements, the computation of the equity income of $92,248 reported by the
parent includes a deduction for:
a. $2,500 for excess attributable to depreciation and amortization
b. $10,000 for excess attributable to depreciation and amortization
c. $15,713 for 80% of dividends declared and paid by S Company
d. $104,748 for 80% of the net income of subsidiary
Depreciation of 50,000 + 75,000 / 10 years * 80% = 10,000
6. Assume the following facts relating to an 80% owned subsidiary company:
Beginning of the year Stockholders’ Equity
Beginning of the year excess over book value assets
Net income of subsidiary (not including FV excess over BV
asset depreciation and amortization)
Excess FV > BV assets depreciation and amortization expense
Dividends declared and paid to noncontrolling shareholders
$600,000
50,000
125,000
20,000
2,500
What is the net income attributable to noncontrolling interests for the year?
a. $20,000
b. $25,000
c. $26,000
d. $21,000
$125,000 – 20,000 = $105,000 * 20% = $21,000
7. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for $234,000 cash. This
amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of
$160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following:
Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life
of 5 years.
In consolidation at December 31, 2010, what adjustment is necessary for Hogan's Equipment account?
A. $3,000 increase.
B. $3,000 decrease.
C. $2,700 increase.
D. $2,700 decrease.
E. No adjustment is necessary.
Reflects that one year of amortization of the $4,000 excess FV>BV is expensed.
8. Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported
common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by
$30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess
consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an
annual review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the equity method is applied.
Compute the non-controlling interest in Demers at December 31, 2010.
A. $135,600.
B. $137,000.
C. $112,000.
D. $100,000.
E. $118,600.
Implied FV 500k / .8 = $625k so 20% = $125,000
Add: share of net income 100,000 – 7,000 = 93,000 * .20 = 18,600
Less: share of dividends (8,000)
= $135,600
9. Using the data above, compute the non-controlling interest in Demers at December 31, 2012.
A. $107,800.
B. $140,000.
C. $165,200.
D. $160,800.
E. $146,800.
Implied FV 500k / .8 = $625k so 20% = $125,000
Add: share of net income 350,000 – 21,000 = 319,000 * .20 = 65,800
Less: share of dividends (30,000)
= $160,800
10. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the
profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a
20% interest.
C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's
beginning capital balance?
A. $20,000
B. $25,000
C. $27,600
D. $32,600
E. $38,000
20% interest in $50,000 + $30,000 + $20,000 plus cash of $38,000 = $27,600
11. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the
profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a
20% interest.
C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for
goodwill?
A. $15,000
B. $20,000
C. $25,000
D. $28,000
E. $60,000
Since $40,000 is > 20% of partnership assets, presumed to be bringing in goodwill.
$40,000 + GW = .20 (100,000 + 40,000)
$40,000 = $20,000 + 8,000 + .20GW
$12,000 = .2 GW
GW = $60,000
12. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000,
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill
method is used, what is the capital balance of Dana?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all
profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among
all partners.
40% of Goodwill = $60,000
.40 G = $60,000
G = $150,000 and Dana receives 40% = $60,000.
Dana's balance = $60,000 + $60,000 = $120,000.
13. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?
A. $70,000.
B. $40,000.
C. $60,000.
D. $80,000.
E. $42,000.
$120,000 - $80,000 cash = $40,000
14. Which of the following is a governmental fund?
A. Enterprise fund.
B. Internal service fund.
C. Permanent fund.
D. Investment trust fund.
E. Agency fund.
15. Which of the following is a fiduciary fund?
A. Pension trust fund.
B. Debt service fund.
C. Permanent fund.
D. Enterprise fund.
E. Capital projects fund.
16. Which of the following statements is true regarding fund financial statements?
A. Fund financial statements report a government's activities and financial position as a whole.
B. Fund financial statements should tell the amount spent this year on such services as public safety,
education, health and sanitation, and the construction of a new road.
C. Fund financial statements utilize the accrual basis of accounting much like any for-profit entity.
D. Fund financial statements help to determine whether the government's overall financial position improved
or deteriorated.
E. Fund financial statements report all assets and liabilities in a way comparable to business-type
accounting.
17. Annual budgets are recorded for:
a. General Fund
b. Capital Projects Fund
c. Agency Fund
d. Pension Trust Fund
18. When a city received a donation for microfiche to be purchased for history center, the money should
have been recorded in
A. the Permanent Fund.
B. an Expendable Trust Fund.
C. a Capital Projects Fund.
D. an Agency Fund.
E. a Special Revenue Fund.
19. When a city received a private donation stipulating that the principal donation would be preserved but
allowing the interest income to be spent on park beautification, which fund should the money be recorded
in?
A. the General Fund.
B. an Expendable Trust Fund.
C. a Permanent Fund.
D. an Agency Fund.
E. a Special Revenue Fund.
20. When a city collects fees from citizens who use the public swimming pool, the money should be
recorded in
A. the General Fund.
B. an Enterprise Fund.
C. a Capital Projects Fund.
D. an Agency Fund.
E. an Internal Service Fund.
21. Bay City received a federal grant to provide health care services to low income mothers and children.
When should the revenues be recognized?
A. as health care services are provided.
B. when the awarding of the grant is announced.
C. when the grant money is received.
D. at the end of Bay City's fiscal year.
E. when the grant money is receivable.
22. Trapper City issued 30-year bonds for the purpose of building a new City Hall. The proceeds of the
bonds are deposited in the General Fund. For the Fund Financial Statements, in what fund will Bonds
Payable appear?
A. General Fund.
B. Capital Projects Fund.
C. Permanent Fund.
D. Debt Service Fund.
E. Bonds Payable do not appear in Fund Financial Statements.
23. What activity likely prompted this journal entry:
CAPITAL PROJECTS FUND
DEBIT
Cash
$x,xxx
Other financing sources – bond proceeds
CREDIT
$x,xxx
A. Repaying a bond
B. A bond issue was authorized by the highest authority
C. Taxes were levied to repay bonds
D. Cash from the General Fund were transferred in anticipation of repaying bonds
E. A bond was issued to build a new road.
24. What activity likely prompted this journal entry:
GENERAL FUND
DEBIT
CREDIT
Other financing sources – transfers out $x,xxx
Due to Enterprise fund – swimming pool
$x,xxx
A. Repaying debt used to finance the swimming pool
B. Payment of fees for swimming pool use by government employees
C. Payment of salaries for swimming pool employees are incurred
D. The City of Franklin voted to provide permanent financing for a municipal pool
E. The City of Franklin assessed taxes to build a swimming pool
25. What activity likely prompted this journal entry:
CAPITAL PROJECTS FUND
DEBIT
Cash
$x,xxx
Other financing sources – school repairs
CREDIT
$x,xxx
A. The City of Franklin transferred $x,xxx to repair the school building.
B. The City of Franklin authorized repairs to the school building.
C. The City of Franklin levied taxes to pay for the school building repairs.
D. The City of Franklin collected taxes designated for the school repairs.
E. A donor contributed funds to repair the school building.
26. Which classifications may be not used for the Fund Balance of governmental funds?
A.
B.
C.
D.
E.
Spendable -no such category in fund balance
Non-Spendable
Assigned
Unassigned
Restricted
PROBLEM 1: For each of the following transactions, select the area of accounting records in which an
entry will be recorded.
(A) General Fund only.
(B) Governmental Activities only.
(C) General Fund and Governmental Activities.
(D) General Fund and Debt Service Fund.
(E) Capital Projects Fund and Governmental Activities.
(F) Debt Service Fund and Governmental Activities.
(G) Special Revenue Fund and Governmental Activities.
___ (1.) The city council adopts an annual budget for the General Fund.
___ (2.) Property taxes are levied.
___ (3.) Computers are ordered for the fire department.
___ (4.) A transfer of funds is made from the General Fund to the Debt Service Fund.
___ (5.) The principal and interest of a bond are paid.
___ (6.) A building is acquired for the police department, and renovations begin immediately.
___ (7.) Depreciation on fire trucks is recorded.
___ (8.) Citizens are assessed for a street lighting project that has been legally restricted for those citizens.
___ (9.) A grant is received to landscape tree-lined areas beside city-owned streets.
___ (10.) The city spends grant money received in (9.) above and landscapes the tree-lined areas beside the
streets for which the grant money was received.
(1) A; (2) C; (3) A; (4) D; (5) F; (6) E; (7) B; (8) G; (9) G; (10) G
PROBLEM 2: The board of commissioners of the city of Jarmaine adopted a General Fund budget
for the year ending June 30, 2011, which indicated revenues of $1,300,000, bond proceeds of
$520,000, appropriations of $1,170,000, and operating transfers out of $390,000.
Required:
If this budget was formally integrated into the accounting records used to produce the Fund
Financial Statements, what was the required journal entry at the beginning of the year?
ENTRY:
GENERAL FUND
On July 12, 2011, Fred City ordered a new computer at an anticipated cost of $114,400. The computer
was received on July 16 with an actual cost of $116,220. Payment was subsequently made on August 15,
2011.
Required:
(A.) Prepare all the required journal entries and identify the type of fund in which each entry was
recorded for the Fund Financial Statements.
(B.) Prepare all the required journal entries and identify the type of fund in which each entry was
recorded for the Government-Wide Financial Statements.
A.
DEBIT
CREDIT
7/12
Expenditures (or encumbrances) control
$114,400
Fund balance, reserve for encumbrances
$114,400
7/16
Expenditures, computer
$116,220
Vouchers payable
$116,220
Fund balance, reserve for encumbrances
$114,400
Expenditures (or encumbrances) control
$114,400
8/15
Vouchers payable
$116,220
Cash
$116,220
B. 7/12 no entry when ordered
7/16
Computer
Vouchers payable
8/15
Vouchers payable
Cash
$116,200
$116,200
$116,200
$116,200
PROBLEM 3
Norr and Caylor established a partnership on January 1, 2010. Norr invested cash of $100,000 and
Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000.
For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
For 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2011, the partnership's income was $24,000, and Norr and Caylor worked 800 and
1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2010 but no
withdrawals in 2011.
Show the full activity and balances for the partners accounts for 2010 and 2011.
beginning
interest
salary allow
remainder
withdrawals
ending 2010
$
$
$
$
$
$
Norr
100,000
12,000
10,000
14,640
(12,000)
124,640
$
$
$
$
$
$
Caylor
80,000
9,600
14,000
9,760
(12,000)
101,360
Total
$ 180,000
$ 21,600
$ 24,000
$ 24,400
$ 21,600
$ 271,600
interest
salary allow
remainder
withdrawals
ending 2011
$
$
$
14,957
8,000
(13,872)
$
$
$
12,163
12,000
(9,248)
$ 27,120
$ 20,000
$ (23,120)
$
9,085
$
14,915
$ 24,000
PROBLEM 4
The ABCD Partnership has the following balance sheet at January 1, 2010, prior to the admission of new
partner, Eden.
Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits
and losses equally.
A. Using the bonus method, determine the balances for each of the five partners after Eden joins the
partnership.
B. Assume the contribution was $124,000 for 20% interest (rest of data is same). Using the goodwill
method, determine the balances for each of the five partners after Eden joins the partnership.
Part A:
balances
Computation:
$
351,000
$
49,000
$
400,000
$
$
$
A
26,000
(12,750)
13,250
$
$
$
B
52,000
(12,750)
39,250
C
$ 117,000
$ (12,750)
$ 104,250
D
$ 156,000
$ (12,750)
$ 143,250
E
$ 100,000
$ 100,000
<--Eden gets 25% of this
Part B:
Goodwill method:
FV implied
$
124,000
0.20
$
620,000
Computation:
$
$
$
351,000
124,000
475,000
so implied goodwill =
A
allocate goodwill
admit Eden
balances
$ 145,000
B
C
D
$
26,000
$
52,000
$ 117,000
$ 156,000
$
36,250
$
36,250
$ 36,250
$ 36,250
$
62,250
$
88,250
$ 153,250
$ 192,250
E
$ 124,000
$ 124,000
Problem 5
On January 1, 2010, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash.
There is no active trading market for Techron stock. Techron Co. reported a Common
Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair
value of Techron Co. was appraised at $530,000. The total annual amortization was
$11,000 as a result of this transaction. The subsidiary earned $98,000 in 2010 and $126,000
in 2011 with dividend payments of $42,000 each year. Without regard for this investment,
Jannison had income of $308,000 in 2010 and $364,000 in 2011.
What is the non-controlling interest balance as of December 31, 2011?
KEY