Question 1

American Steel purchased all of the outstanding shares in China steel and immediately
replaced all of the board members of China Steel with American Steel BOD. China's
foreign policy as it relates to investors does not allow for control or equity method
investments unless it is done with a local Chinese partner. Your boss advise you to use
the equity method to record this investment since you do not control. Is he right?
True
False

Question 2
Management's Discussion and Analysis (MD&A), in the annual report to the SEC,
addresses all of the following except: A.Ability of the company to generate cash
necessary to meet its needs. B.Sources of long-term funding. C.Major commitments for
capital expenditures. D.Major lines of business engaged in by the company.
1.A
2.B
3.C
4.D

Question 3
When a person dies without leaving a valid will, how is the distribution of his or her
property determined?
In accordance with generally accepted accounting principles.
In accordance with state inheritance laws.
In accordance with federal inheritance laws.
In accordance with federal inheritance laws.

Question 4
1) When stock rights of shareholders to purchase additional shares at a bargain price in the event of
a potential takeover is called:
a) Leveraged Buyout
b) Greenmail
c) Selling the Crown Jewels
d) Poison Pill

Question 5
As discussed in class: The accounting treatment of an equity investment of stocks is
based on the % and substance of ownership. Generally, < 20 = FMV treatment (FASB
115), > 20 to 50 = Equity method treatment (APB 18), and > 50 leads to control which
requires consolidation at year end (FASB 94,141,142 and ARB51). Over 50% investment
can be accounted for on the Parent books via the full equity method, partial equity or
Initial Value-Costs. FASB 159 allowes for the immediate recognition of gains-loss, i.e,
the conversion of Available for Sale Securities to Trading. The lost of significant interest
in an investment requires fair value method treatment prospectively while gain of
significant interest requires retro treatment. (Note: > = greater than, < means less than
and FMV is fair Market Value)
The above statement is Partially True!
The above statement is entirely True!
The statement is Entirely False!
The above statement is entirely True!

Question 6
Velway Corp. purchased Joker Inc. on January 1, 2003. The parent paid more than the
fair market value of the subsidiary's net assets. On that date, Velway had equipment
with a book value of $430,000 and a fair market value of $640,000. Joker had
equipment with a book value of $400,000 and a fair market value of $470,000. Joker
decided to use push-down accounting. Immediately after the acquisition, what
Equipment amount would appear on Joker's separate balance sheetand on
the consolidated balance sheet?
$400,000 and $900,000
$400,000 and $970,000
$470,000 and $900,000
$470,000 and $970,000
$470,000 and $1,040,000

Question 7
Mandich Co. had the following amounts for its assets, liabilities, and stockholders'
equity accounts just before filing a bankruptcy petition and requesting liquidation:

Of the salaries payable, $30,000 was owed to an officer of the company. The remaining
amount was owed to salaried employees who had not been paid within the previous 80
days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra
Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum owed
for any one employee's claims for contributions to benefit plans was $800. Estimated
expense for administering the liquidation amounted to $35,000.

What was the total amount of unsecured liabilities with priority?

$155,000.
$200,000
$165,000.
$160,000

Question 8
Accountants always speak in terms of one of five things when discussing an entity's financial situation.
This statement is TRUE!
 This statement is FALSE!

Question 9
The Abrams, Bartle, and Creighton partnership began the process of liquidation
with the following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5.
Liquidation expenses are expected to be $12,000.

After the liquidation expenses of $12,000 had been paid and the noncash assets
sold, Creighton had a deficit of $14,000. For what amount were the noncash assets
sold?
$170,000.
$264,000.
$158,000.
$146,000.
$185,000.

Question 10
How would consolidated earnings per share be calculated if the subsidiary has no
convertible securities or warrants?
Parent's earnings per share plus subsidiary's earnings per share.
Parent's income divided by parent's number of shares outstanding.
Consolidated income divided by parent's number of shares outstanding.
Average of parent's earnings per share and subsidiary's earnings per share.
Consolidated income divided by total number of shares outstanding for the parent
and subsidiary.
Question 11
These questions are based on the following information and should be viewed
as independent situations.
Popper Co. purchased 80% of the common stock of Cocker Co. on January 1, 2001,
when Cocker had the following stockholders' equity accounts.
To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess cost
being allocated to goodwill, which has been measured for impairment annually and has
not been determined to be impaired as of January 1, 2007.
On January 1, 2007, Cocker reported a net book value of $1,113,000. Popper had
accrued the increase in Cocker's book value through application of the equity method.

On January 1, 2007, Cocker reacquired 8,000 of the outstanding shares of its own
common stock for $34 per share. None of these shares belonged to Popper. How would
this transaction have affected the additional paid-in capital of the parent company?
$0.
decrease it by $32,900.
decrease it by $45,700.
decrease it by $49,400.
decrease it by $50,500.

Question 12
P Company is considering the acquisition of S Inc. To assess the amount it might be willing to
pay, P makes the following computations and assumptions:
A. S Inc. has identifiable assets with a total fair value of $8,000,000 and liabilities of
$5,300,000. The assets include office equipment with a fair value approximating
book value, buildings with a fair value 30% higher than book value, and land with a
fair value 60% higher than book value. The remaining lives of the assets are deemed
to be approximately equal to those used by Barkley, Inc.
B. S Inc.'s pretax incomes for the years 2010 through 2012 were $700,000, $900,000,
and $550,000, respectively. P believes that an average of these earnings represents a
fair estimate of annual earnings for the indefinite future. However, it may need to
consider adjustments for the following items included in pretax earnings:
Depreciation on Buildings (each year) 580,000
Depreciation on Equipment (each year) 30,000
Extraordinary Loss (year 2012) 200,000
Salary expense (each year) 150,000
C. The normal rate of return on net assets for the industry is 20%.
Required:
Assume further that P feels that it must earn a 15% return on its investment, and that
goodwill is determined by capitalizing excess earnings. Based on these assumptions,
calculate a reasonable offering price for S, Inc.
$3,184,000
$3,183,000
$3,185,447
$3,183,447
None of the above is correct!

Question 13
During January 2013, Webb, Inc. acquired 30% of the outstanding common stock of Wilson Co. for
$1,200,000. This investment gave Webb the ability to exercise significant influence over Wilson. Wilson's
assets on that date were recorded at $6,400,000 with liabilities of $3,000,000 (BV). Any excess of cost over
book value of Webb's investment was attributed to unrecorded patents having a remaining useful life of ten
years. In 2013, Wilson reported net income of $600,000. For 2013, Wilson reported net income of
$750,000. Dividends of $500,000 were paid in each of these two years. What was the reported balance of
Webb's Investment in Wilson Co. at December 31, 2013? Investment = $1.2m + 69k =(Income = Inc
0.3(600+750)- 0.3 Div (500+500) - Depreciation (1.2m - (6.4-3m=3.4m*.3=1.02m)=Excess paid for
assets=180k/10yrs * 2yrs (2013 & 14) = 36k)
$1,449,000.

$1,485,000.

$1,269,000.

$1,305,000.

$ 854,300.

Question 14
Sparkman Co. filed a bankruptcy petition and liquidated its noncash assets. Sparkman
was paying Fifty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of
$150,000 on land that was sold for $110,000. The total amount of payment that Bailey
should have received is calculated to be
Sale of land $110,000 + 50% of remaining $40,000 owed = $130,000
$110,000
$150,000
$126,000.
$130,000

Question 15
Requires each annual report of an issuer to contain an "internal control report", which
shall: (1) state the responsibility of management for establishing and maintaining an
adequate internal control structure and procedures for financial reporting; and (2)
contain an assessment, as of the end of the issuer's fiscal year, of the effectiveness of
the internal control structure and procedures of the issuer for financial reporting. Each
issuer's auditor shall attest to, and report on, the assessment made by the management
of the issuer. An attestation made under this section shall be in accordance with
standards for attestation engagements issued or adopted by the Board. An attestation
engagement shall not be the subject of a separate engagement: This is rule 202 as it
relates to Summary of Sarbanes-Oxley Act of 2002 ( T or F)???
F
T

Question 16
The first step in producing a set of consolidated results is to use a process to post all
completed or closed subs books along with the parent,
(P+Ss+Adjustments=Consol). The most important elimination entry is to CR the
 individual Sub's Equity and DR the respective investment to zero out the
investment for consolidation purposes (referred to as removal of investments for
consolidation). Is this statement True or False?
T
F

Question 17
Royce Co. acquired 48% of Park Co. for $420,000 when Park's book value was
$560,000. On that date, Park had equipment (with a ten-year life) that was
undervalued in the financial records by $140,000. Two years later, the following
figures were reported by the two companies (stockholders' equity accounts have
been omitted from their separate operations).

What is the consolidated balance of the Equipment account?

$697,760.
$684,320.
$701,120.
$756,000.
$600,000.

Question 18
Which of the following four statements regarding Estate, Trust, Bankruptcy and
Reorganization is correct
A. Bankruptcy and Reorganizations both use the Statement of Affairs instead
of normal financials
B. All Wills and Trusts are effective upon death
C. Wills and Trusts are Temporary holding place for the creators income and
principle until distribution. A will is still in effect after distribution of all
Income and Principle.
D. Wills and Testamentary Trusts are effective upon death of the creator;
however, Intervivos Trusts are effective during the life time of the creator. The
statement of Charge and Discharge are used to account for the creators estate
via a will and the Statement of Affairs is used to account for the liquidation of
assets in a bankruptcy.

Question 19
According to APB 18, an investment in a subsidiary cannot be reduced below zero as a
result of reccurring losses by the sub. However, you are required to restart booking
income once the cummulative losses that caused the investment to become negative is
wiped out. The accounting guidance did not offer help as to how to accomplish these
requirements. In the real world, the professor offered an efficient way to solve the
problem most companies encounter. This method is reffered to as reverse accounting
which is:
Do nothing until there is enough income to wipe out the cummulative losses.

Keep booking the entries regardless of the negative balance since there will be no
way to figure out when to restart the entries unless there is perpetual reconciliation
between loss and income.
Keep booking the entries regardless.
Keep booking the entrites in the real investment and equity in investee income along with the reversed
entries books to a new set of account referred to as the reversal accounts. This will keep the accounts
netting to zero until it returns to income and increase to the investment account.

Question 20
On January 1, 2015, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common
stock which represents a 45% investment. No allocation to goodwill or other specific account was made.
Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $3.30
per share during 2014 and reported net income of $1,090,000. What was the balance in the Investment in
Lennon Co. account found in the financial records of Pacer as of December 31, 2015?

$2,040,500.

$2,212,500.

$2,260,500.

$2,171,500.

$2,071,500.

Question 21
Jell and Dell were partners with capital balances of $600 and $800 and an income
sharing ratio of 2:3. They admitted Zell to a 30% interest in the partnership, and the
total amount of goodwill credited to the original partners was $700. What amount did
Zell contribute to the business?
$560.
$570.
$600.
$590.
$630.

Question 22
Which of the following will not result in the dissolution of a partnership?
Partners are incompatible and choose to cease operations.
Partners realize that the profit figures have failed to reach projected levels.
Retirement of a partner.
Death of a partner.
None of the above.

Question 23
The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a
bonus of 20% of net income (after the bonus) and that the remaining net income is to
be divided equally. If the partnership income before the bonus for the year is $57,600,
Hanes share of the pre-bonus income is:
$28,800.
$33,600.
$34,560.
$43,200.
$57,600.

Question 24
The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets
were sold for $180,000. Liquidation expenses were $12,000.

Assume that Keaton was personally insolvent with assets of $8,000 and liabilities of
$60,000. Lewis and Keaton were both solvent and able to cover deficits in their capital
accounts, if any. What amount of cash could Keaton's personal creditors have expected
to receive from partnership assets?
$29,333.
$0.
$52,000
$38,333
$33,600

Question 25
Surrell Inc. owns 30% of the outstanding voting common stock of Vicker Co. and has the ability to
significantly influence the investee's operations and decision making. On January 1, 2014, the balance in
the Investment in Vicker Co. account was $402,000. Amortization associated with this acquisition is $9,558
per year. During 2014, Vicker earned an income of $108,000 and paid cash dividends of $36,000.
Previously in 2013, Vicker had sold inventory costing $28,800 to Surrell for $48,000. All but 25% of this
merchandise was consumed by Surrell during 2014. The remainder was used during the first few weeks of
2014. Additional sales were made to Surrell in 2014; inventory costing $33,600 was transferred at a price
of $60,000. Of this total, 40% was not consumed until 2015.

What amount of equity income would Surrell have recognized in 2011 from its ownership interest in
Vicker?
$9,936.

$24,840.

$19,872.

$21,114.

$17,082.

Question 26
Bell Company purchases 80% of Demers Company for $500,000 on January 1, 2011. Demers reported
common stock of $300,000 and retained earnings of $200,000 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 cost
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:

2011 2012 2013

Net Income $100,000 $120,000 $130,000
Dividends 40,000 50,000 60,000

Assume the equity method is applied.

Compute Bell's investment in Demers at December 31, 2011.

$580,000.
$574,400.
$548,000.
$542,400.
$532,000.

Question 27
How should the fresh start reorganization value normally be determined?
As the sum of current replacement cost of the company's assets.
As the sum of the net realizable value of identifiable assets.
As the sum of the historical cost of net assets.
By discounting future cash flows for the entity that will emerge.

Question 28
Which statement is true concerning unrealized gains in inventory transfers using the
equity method?
A The investee must defer upstream ending inventory profits.
B The investee must defer upstream beginning inventory profits
C The investor must defer downstream ending inventory profits.
E Both A and C is correct.

Question 29
An investee company incurs an extraordinary loss during the period. The investor
appropriately applies the equity method. Which of the following statements is true?
Under the equity method, the investor only recognizes its share of investee's income
from continuing operations.
The extraordinary loss would reduce the value of the investment.
The extraordinary loss would reduce the value of the investment based on %
ownership.
The extraordinary loss would not appear on the income statement but would be a
component of comprehensive income.
The loss would be ignored but shown in the investor's notes to the financial
statements.
Question 30
Why do firms merge/combine?
a) Vertical integration
a) Cost Savings
a) Tax advantages
a) All of the above

Question 31
Partnerships have alternative legal forms including all of the following except:
Subchapter S Corporation.
Limited Partnership.
Limited Corporation.
Limited Liability Partnership.
Limited Liability Company.

Question 32
The provisions of a will currently undergoing probate are: "Two thousand shares of
Dorn stock to my son; $30,000 in cash from my savings account to my brother; $50,000
in cash to my daughter; and any remaining property divided equally between my son
and daughter." Assume that, at the time of death, the estate included 1,200 shares of
Dorn stock, $60,000 cash in the savings account, and $70,000 in cash from other
sources. What would the son have received from the settlement of the estate?
2,000 shares of Dorn stock and $10,000 cash
 1,200 shares of Dorn stock and $35,000 cash.
1,200 shares of Dorn stock and $25,000 cash.
1,200 shares of Dorn stock and $10,000 cash.

Question 33
Regulations for trading in securities once they are issued and are outstanding derive
from the: a. Securities Act of 1933. b. Securities Act of 1934. c. Investment Company Act
of 1940. d. Trust Indenture Act of 1940.
1.A
2.B
3.C
4.D

Question 34
Accountants rely on fact over substance when it comes to areas of accounting where accounting
principles is lacking or not clear enough in its application referred to as "grey areas."
True
False

Question 35
The appropriate format of the January 31, 2010 closing entry for John & Hope Limited
Liability Partnership, whose two partners had withdrawn their salaries from the
partnership during January is

A Above.
B Above.
C Above.
D Above.

Question 36
Kaye Company acquired 100% of Fiore Company on January 1, 2015. Kaye paid $1,000 excess cost over
book value. Fiore reported net income of $400 in 2015 and paid dividends of $100. Assume the equity
method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations in
2015?
$400 increase.

$300 increase.

$380 increase.

$280 increase.

$480 increase.
Question 37
A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All
liabilities have been paid. The partners capital accounts are as follows Harry $40,000,
Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2.

If the building is sold for $25,000, how much cash will Harry receive in the final
settlement? Loss on sale of building 25,000-80,000=55,000 share of loss Harry 22,000,
Landers 22,000 and Waters 11,000 so the remaining credit balance: Harry 40,000-
22,000=18,000
$55,000
$28,000
$18,000
$9,000

Question 38
Club Co. appropriately uses the equity method to account for its investment in Chip Corp. As of the end of
2014, Chip's common stock had suffered a significant decline in market value, which is expected to be
recovered over the next several months. How should Club account for the decline in value?

Club should switch to the fair-value method

No accounting because the decline in market value is temporary.

Club should decrease the balance in the investment account to the current value and recognize a loss
on the income statement.

Club should decrease the balance in the investment account to the current value and recognize an
unrealized loss on the balance sheet.

Question 39
The accounting process of ensuring accuracy and completeness includes Journalizing transactions timely
using ledgers and journals, closing entries, create a trial balance, make adjusting entries, create adjusting
trial balance and prepare the four basic financials statements, balance sheet, income statement, changes
in net assets/equity and cash flows.
True
False

Question 40
A Chapter 7 bankruptcy is a(n)
bankruptcy forced by a company's creditors.
involuntary reorganization.
bankruptcy in which all creditors receive payment in full.
liquidation.

Question 41
Under the equity method, when the company's share of cumulative losses equals its
investment and the company has no obligation or intention to fund such additional
losses, which of the following statements is true?
The investor should change to the fair-value method to account for its investment.
The investor should suspend applying the equity method until the investee reports
income.
The investor should suspend applying the equity method and not record any equity in
income of investee until its share of future Profits is sufficient to recover losses that
have not previously been recorded.
The cumulative losses should be reported as a prior period adjustment.
The investor should report these losses as extraordinary items.

Question 42
Ross Company acquired 90% of Parsons Company several years ago and recorded
goodwill of $200,000 at that date. During 2010 an analysis of the fair market value of
Parson's assets determined an impairment of goodwill in the amount of $35,000.

What journal entry would be made by Ross regarding its investment in Parsons
impairment of goodwill?

Entry A.
Entry B.
Entry C.
Entry D.
Entry E.

Question 43
Jim Bowie died on April 1, 2011. The estate has the following gross asset valuation
information:

The estate tax will be calculated using: April 1 and adding the 2 #s down
$76,000.
$75,000.
$80,000.
$73,000.

Question 44
On January 1, 2014, Jordan Inc. acquired 45% of Nico Corp. Jordan used the equity method to account for
the investment. On January 1, 2015, Jordan sold 2/3 of its investment in Nico. It no longer had the ability to
exercise significant influence over the operations of Nico. How should Jordan have accounted for this
change?
 Jordan should use the fair-value method for 2015 and future years but should not make a retroactive
adjustment to the investment account.

Jordan should restate the prior years' financial statements and change the balance in the investment
account as if the fair-value method had been used since 2014.

Jordan has the option of using either the equity method or the fair-value method for 2014 and future
years

Jordan should report the effect of the change from the equity to the fair-value method as a cumulative
effect of a change in accounting principle.

Question 45
Purchase Price of a subsidiary under the acquisition method can be represented as
follows:
Gross FMV of Assets + Contingencies + Goodwill
Net FMV of Assets + Earnings Contingency + Goodwill
100% of Net FMV of Assets + Earnings & Stock Contingencies + Goodwill
None of the above

Question 46
The Pooling of Interest can be characterized by BV, while Purchase method FMV and
Acquisition Method Cash.
True
False

Question 47
Harriss Company outstanding voting shares 100%
acquired by Merrill Inc.
Cash paid by Merrill to acquire shares $ 200,000
Merrill Company's $10 par common stock issued 10,000
for acquisition - number of shares
Fair market value of Merrill stock at acquisition date $ 18
Fees paid by Merrill for arranging acquisition $ 5,000
Stock issuance costs paid by Merrill $ 6,000
Harriss Company fully amortized patent - value $ 25,000

Merrill, Inc. Harriss Company

Book Book Fair
Value Value Value
Cash $ 300,000 $ 40,000 $ 40,000
Receivables 160,000 90,000 80,000
Inventory 220,000 130,000 130,000
Land 100,000 60,000 60,000
Buildings (net) 400,000 110,000 140,000
Equipment (net) 120,000 50,000 50,000
Accounts payable (160,000) (30,000) (30,000)
Long-term liabilities (380,000) (170,000) (150,000)
Common stock (400,000) (40,000)
Retained earnings (360,000) (240,000)

After reviewing the above facts: How would you classify this M&A and What is the
associated Goodwill?
Statutory Consolidation & Goodwill = $40,000
Statutory Merger & Goodwill = $40,000
Statutory Merger & Goodwill = $35,000
Statutory Consolidation & Goodwill = $35,000

Question 48
According to APB 18, the Equity method allows for accounting up to the point of zero balance. While it
suggests to stop accounting for investment below zero, accountants still have the need to know when to
restart accounting under normal accounting. According to our instructor, it might be appropriate to apply
his methodology referred to as "reverse accounting." Suppose you have a 50% investment with a begining
balance of $100 and the investee incurred a lost for the following 10 years. Determine what the reversal
account would show after 10 years of $100 lost each year. How much would the investee have to earn in
the 11th year before the investor can start accounting normally for its investment again (i.e., to stop reversal
accounting).

= to or > $1,000

= to or > $900

= to or > $500

= to or > $400

Question 49
The terms of a will currently undergoing probate are: "A gift to my brother David of
$25,000 cash; to my son James, $55,000 from my savings account; and to my Daughter
Lila, all of my remaining property." At the time of death, the balance in the savings
account was $50,000, and there was additional cash (after payment of funeral expenses
and all claims against the estate) of $70,000. How much would James have received
from the estate?
$50,000.
$40,000
$45,000
$55,000