D) 900

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?
A) $ 560.
B) 630.
C) 590.
D) 900.
E) 600
C) Frequent reporting by the accountant is rarely necessary.
Which of the following statements is false concerning the partnership Schedule of
Liquidation?
A. The Schedule of Liquidation provides a listing of transactions to date, current cash,
and capital balances.
B. Liquidations may take a considerable length of time to complete.
C. Frequent reporting by the accountant is rarely necessary.
D. The Schedule of Liquidation keeps creditors and partners apprised of the results of
the process of dissolution
E. The Schedule of Liquidation provides a listing of property still held by the partnership
as well as liabilities remaining unpaid.
E. A partnership requires written Articles of Partnership.
Which of the following is not a characteristic of a partnership?
A. It is easy to form a partnership.
B. The partnership itself pays no income taxes.
C. Any partner can be held personally liable for all debts of the business.
D. Each partner has the power to obligate the partnership for liabilities.
E. A partnership requires written Articles of Partnership.
C) $25,000
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.
If C is to contribute an amount equal to his book value share of the new partnership,
how much should C contribute?
A) $ 18000
B) $10000
C) $25,000
D) $20000
E) $22000
C. $264,540.
Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments
of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed
to (1) interest of 10% of the beginning capital balance each year, (2) annual
compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or
loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was
$150,000 in 2012 and $180,000 in 2013.
What is Wasser's capital balance at the end of 2013?
A. $313,780.
B. $263,520.
C. $264,540.
D. $201,000.
E. $304,040.
A) option A
The Keaton, Lewis, and Meador partnership had the following balance sheet just before
entering liquidation:
cash 100000, noncash assets 210000; total 310000. Liabilities 40000, Keaton, cap
90000, Lewis, cap 60000; Meador, cap 120000; total 310000.
Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. The partnership
feels confident it will be able to eventually sell the noncash assets and wants to
distribute some cash before paying liabilities. How much would each partner receive of
a total $60,000 distribution of cash?
A) Keaton 40000, Lewis 0, Meador 20000;
B) Keaton 12000, Lewis 24000, M 24000;
c) K 20000, L 13333, M 26667;
D) K 60000, L 0, M 0;
E) K 10000, L 0, M 50000.

A) option A
B) option B
C) Option C
D) Option D
E) option E
E) 1, 2, and 3
Which of the following could result in the termination and liquidation of a partnership?

1) Partners are incompatible and choose to cease operations.

2) There are excessive losses that are expected to continue.
3) Retirement of a partner.
A) 1 only
B) 1 and 2 only
C) 2 and 3 only
D) 3 only
E) 1, 2, and 3
E) Abrams and Creighton
The Abrams, Bartle, and Creighton partnership began the process of liquidation with the
following balance sheet:
Cash 16,000
Noncash asset 434,000
Total- 450,000
Liability-150000
Abrams-80,000
Bartle- 90,000
Creighton-130,000
total- 450,000
Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation
expenses are expected to be $12,000.
The noncash assets were sold for $134,000. Which partner(s) would have had to
contribute assets to the partnership to cover a deficit in his or her capital account?
A) Abrams
B) Creighton
C) Abrams and Bartle
D) Bartle
E) Abrams and Creighton
D. to record interest earned on a partner's capital balance.
Withdrawals from the partnership capital accounts are typically not used

A. to reward partners for work performed in the business.

B. to reduce the partners' capital account balances at the end of an accounting period.
C. to reduce the basic investment that has been made in the business.
D. to record interest earned on a partner's capital balance.
E. to record the partnership's payment of a partner's personal expense such as income
tax.
E) $362,500.
A local partnership has assets of cash of $130,000 and land recorded at $700,000. All
liabilities have been paid and the partners are all personally insolvent. The partners'
capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones,
$30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000,
how much cash will Roberts receive in the final settlement?
A. $0.
B. $30,000.
C. $502,500.
D. $217,500.
E. $362,500.
B. Decreased assets and liabilities.
The 12/31/2016 balance sheet of Despot Inc. included the following:

Common stock, 25 million shares at $20 par $500 million

Paid-in capital—excess of par 3,000 million
Retained earnings 980 million
In February 2016, Despot declared cash dividends of $12 million to be paid in April of
that year. What effect did the April transaction have on Despot's accounts?
A. Decreased assets and shareholders' equity.
B. Decreased assets and liabilities.
C.Increased liabilities and decreased shareholders' equity.
D.None of these answer choices is correct.
b) 90000
The changes in account balances for Elder Company for 2016 are as follows:
Assets $480,000 debit

Common stock 250,000 credit

Liabilities 160,000 credit

Paid in capital - excess of par 30,000 credit

Assuming the only changes in retained earnings in 2016 were for net income and a
$50,000 dividend, what was net income for 2016?
The changes in account balances for Elder Company for 2011 are as follows:

Assets $480,000 debit

Common stock 250,000 credit

Liabilities 160,000 credit

Paid in capital - excess of par 30,000 credit

a. $70,000.
b. $90,000.
c. $60,000.
d. $40,000.
C) entry C
Clancy Incorporated, sold $210,000 of its inventory to Reid Company during 2013 for
$350,000. Reid sold $224,000 of this merchandise in 2013 with the remainder to be
disposed of during 2012. Assume Clancy owns 30% of Reid and applies the equity
method.
What journal entry will be recorded at the end of 2011 to defer the unrealized intra-entity
profits?
A) Dr Equity in income of Reid 5040; Dr Investment in Reid 50400
B)Dr. Investment in Reid 50400; Cr. Equity in income of Reid 50400
C) Dr. Equity in income of Reid 15120; Cr. Investment in Reid 15120
D) Dr. Investment in Reid 15120; cr. Equity in income of Reid 15120
A) entry A
B) entry B
C) Entry C
D) Entry D
E) No entry is necessary
D) The excess is allocated to the difference between fair value and book value
multiplied by the percent ownership of net assets.
When applying the equity method, how is the excess of cost over book value accounted
for?
A) The excess is allocated to the difference between fair value and book value
multiplied by the percent ownership of total assets.
B) The excess is allocated to goodwill.
C) The excess is allocated to the difference between fair value and book value
multiplied by the percent ownership of current assets.
D) The excess is allocated to the difference between fair value and book value
multiplied by the percent ownership of net assets.
E) The excess is ignored.
A. Outstanding plus treasury shares.
Issued stock refers to the number of shares:
A. Outstanding plus treasury shares.
B. In the hands of shareholders.
C. Shares issued for cash.
D. That may be issued under state law.
D. $9,000
Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-
value method to account for this investment. Trace reported net income of $110,000 for
2013 and paid dividends of $60,000 on October 1, 2013. How much income should
Gaw recognize on this investment in 2013?
a. $16,500
b. $7,500
c. $25,500
D. $9,000
E. $50,000
B. $16,000.
On January 1, 2012, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco
Corporation. This investee had assets with a book value of $550,000 and liabilities of
$300,000. A patent held by Sacco having a book value of $10,000 was actually worth
$40,000 with a six year remaining life. Any goodwill associated with this acquisition is
considered to have an indefinite life. During 2012, Sacco reported income of $50,000
and paid dividends of $20,000 while in 2013 it reported income of $75,000 and
dividends of $30,000. Assume Dawson has the ability to significantly influence the
operations of Sacco. The amount allocated to goodwill at January 1, 2012, is
A. $13,000.
B. $16,000.
C. $9,000.
D. $25,000.
E. $10,000.
A) Gains and losses on unsold held-to-maturity securities
A statement of comprehensive income does not include:
A) Gains and losses on unsold held-to-maturity securities
B)Prior service cost
C) Gains resulting from the return on assets exceeding expectations.
D) Losses resulting from the return on pension assets falling short of expectations.
D. Entry 2 only
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. Entry 1 only
D. Entry 2 only
E. Entry 3 only
C. Debit retained earnings for $18 million.
Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2013.
In October 2013, Rick Co.'s Board of Directors declared and distributed a 1% common
stock dividend when the market value of its common stock was $60 per share. In
recording this transaction, Rick would:

A. Credit paid-in capital—excess of par for $18 million.

B. Credit common stock for $18 million.
C. Debit retained earnings for $18 million.
D. None of these answer choices is correct.
C. $744,000
Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1,
2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial
records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair
value of $67,000 and an estimated remaining life of five years. Tysk earned reported net
income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in
each of these two years. Selected account balances as of December 31, 2011, for the
two companies follow.

Jans Tysk
Revenues $1,080,000 $840,000
Expenses 480,000 600,000
Investment incomeNot given 0
Retained earnings, 1/1/13840,000 600,000
Dividends paid 132,000 70,000
If the equity method had been applied, what would be the Investment in Tysk Corp.
account balance within the records of Jans at the end of 2013?
A. $612,100
B. $844,150
C. $744,000
D. $774,150
E. $372,000
E) E above
When a company applies the partial equity method in accounting for its investment in a
subsidiary and initial value, book values and fair values of net assets are all equal, what
consolidation worksheet entry would be made?
A) Dr. retained earnings; Cr. Investment in subsidiary
B) Dr. Investment in subsidiary; Cr. retained earnings;
C) Dr. Investment in subsidiary; Cr. Equity in subsidiary's income
D) Dr. Investment in subsidiary; Cr. Additional paid-in capitals
E) No entry is neccessary

A) A above
B) B above
C) C above
D) D above
E) E above
D. $100 increase.
Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2013 and paid dividends of $100.
Assume the initial value method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations?
A. $210 increase
B. $400 increase.
C. $380 increase.
D. $100 increase.
E. $300 increase.
E) Investment in Subsidiary.
Which one of the following accounts would not appear on the consolidated financial
statements at the end of the first fiscal period of the combination?
A) Common Stock.
B) Equipment.
C) Additional Paid-In Capital.
D) Goodwill.
E) Investment in Subsidiary.
A) option A
How are direct costs and indirect costs accounted for when applying the acquisition
method for a business combination?
direct indirect
A) expensed expensed
B) increase in invnt acc decrease in APIC
C) expensed decrease in APIC
D) increase in invnt acc expensed
E) increase in invnt acc increase in invnt acc

A) option A
B) option B
C) option C
D) option D
E) option E
B. A statutory merger requires dissolution of the acquired company while a statutory
consolidation does not require dissolution.
An example of a difference in types of business combination is:
A. A statutory consolidation requires dissolution of the acquired company while a
statutory merger does not require dissolution.
B. A statutory merger requires dissolution of the acquired company while a statutory
consolidation does not require dissolution.
C. A statutory merger can only be effected by a capital stock acquisition while a
statutory consolidation can only be effected by an asset acquisition.
D. A statutory merger can only be effected by an asset acquisition while a statutory
consolidation can only be effected by a capital stock acquisition.
E. Both a statutory merger and a statutory consolidation can only be effected by an
asset acquisition but only a statutory consolidation requires dissolution of the acquired
company.
B) Book Value Fair Value
In an acquisition where control is achieved, how would the land accounts of the parent
and the land accounts of the subsidiary be combined?
Parent Subsidiary
A) Book Value Book Value
B) Book Value Fair Value
C) Fair Value Fair Value
D) Fair Value Book Value
E) Cost Cost
E. $127,000.
On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop
maintained separate incorporation. Cale used the equity method to account for the
investment. The following information is available for Kaltop's assets, liabilities, and
stockholders' equity accounts on January 1, 2012:

Current assets : Book Value : $120,000 Fair Value : $120,000

Land : Book Value : $72,000 Fair Value : $192,000
Building (20 year life ) : Book Value : $240,000 Fair Value : $268,000
Equipment : (10 year life) : Book Value : $540,000 Fair Value : $516,000
Current Liabilities : Book Value : $24,000 Fair Value : $24,000
Long Term Liabilities : Book Value : $120,000 Fair Value : $120,000
Common Stock : Book Value : $228,000
Additional Paid In Capital : Book Value : $384,000
Retained Earnings : Book Value : $216,000
Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during
the year
Question :
In Cale's accounting records, what amount would appear on December 31, 2012 for
equity in subsidiary earnings?
A. $125,000.
B. $77,000.
C. $81,800.
D. $79,000.
E. $127,000.
A. $497,000.
Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2009, at a price
in excess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life)
had a book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-
year life) with a book value of $240,000 and a fair value of $350,000. Parrett used the
partial equity method to record its investment in Jones. On December 31, 2011, Parrett
had equipment with a book value of $250,000 and a fair value of $400,000. Jones had
equipment with a book value of $170,000 and a fair value of $320,000. What is the
consolidated balance for the Equipment account as of December 31, 2011?
A. $497,000.
B. $508.000.
C. $387,000.
D. $537,000.
E. $570,000.
D) None. There is a gain on bargain purchase of $230.
On January 1, 2013, the Moody Company entered into a transaction for 100% of the
outstanding common stock of Osorio Company. To acquire these shares, Moody issued
$400 in long-term liabilities and 40 shares of common stock having a par value of $1 per
share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and
brokers for assistance in bringing about this acquisition. Another $15 was paid in
connection with stock issuance costs. Prior to these transactions, the balance sheets for
the two companies were as follows:

What amount was recorded as goodwill arising from this acquisition?

A) $230.
B) $120.
C) $520.
D) None. There is a gain on bargain purchase of $230.
E) None. There is a gain on bargain purchase of $265.
A. $201,250.
Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of
$5 par value common stock and 2,000 shares of preferred stock outstanding. Each
preferred share received an annual per share dividend of $10 and is convertible into
four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop
also had 600 bonds outstanding, each of which is convertible into ten shares of
common stock. Stoop's annual after-tax interest expense for the bonds was $22,000.
Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2011.
12. What was the amount of Stoop's earnings that should be included in calculating
consolidated diluted earnings per share?
A. $201,250.
B. $300,000.
C. $257,600.
D. $322,000.
E. $240,000.
C. A gain will be reported on the consolidated income statement in 2013
Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land
externally for a gain in 2013. Which of the following statements is true?
A. The subsidiary will report a gain in 2010.
B. Only the parent company will report a gain in 2013
C. A gain will be reported on the consolidated income statement in 2013
D. A gain will be reported on the consolidated income statement in 2010.
E. No gain will be reported on the 2013 consolidated income statement
e) $150,000
Perch Co. acquired 80% of the common stock of Float Corp for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000. The
non-controlling interest shares of Float Corp are not actively traded.
1) What is the total amount of goodwill recognized at the date of acquisition?
a) $250,000
b) $0
c) $120,000
d) $170,000
e) $150,000
C) 7604500
Patti Company owns 80% of the common stock of Shannon, Inc. Inthe current year,
Patti reports sales of $10,000,000 and cost ofgoods sold of $7,500,000. For the same
period, Shannon has sales of$200,000 and cost of goods sold of $160,000. During the
year, Pattisold merchandise to Shannon for $60,000 at a price based on thenormal
markup. At the end of the year, Shannon still possesses 30percent of this inventory.

Compute consolidated cost of goods sold.

A) 7615000
B) 7660000
C) 7604500
D) 7500000
E) 7600000
A) 135600
Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014.
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:

2014 2015 2016

NI 100000 120000 130000
Dividends 40000 50000 60000

Assume the EQUITY METHOD is applied.

Compute Pell's investment account balance in Demers at December 31, 2014.
A) 135600
B) 112000
C) 137000
D) 118600
E) 100000
d. 1, 2, 3, and 4.
Which of the following statements is true concerning variable interest entities (VIEs)?
1.. The role of the VIE equity investors can be fairly minor
2) A VIE may be created specifically to benefit its sponsoring firm with low-cost
financing.
3) VIE governing agreements often limit activities and decision making.
4) VIEs usually have a well-defined and limited business activity.
IS IT:
a. 1, 2, and 4
b. 2, 3, and 4.
c. 2 and 4..
d. 1, 2, 3, and 4.
e. 1, 2, and 3.
C. Credit accumulated depreciation, $46,000.
On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc.,
transferred equipment with a 10-year life (six of which remain with no salvage value) to
Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried
the equipment at a cost of $120,000 less accumulated depreciation of $48,000.
Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000
for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are
attributed to the seller for consolidation purposes.
For consolidation purposes, what net debit or credit will be made for the year 2010
relating to the accumulated depreciation for the equipment transfer?
A. Credit accumulated depreciation, $48,000.
B. Debit accumulated depreciation, $46,000.
C. Credit accumulated depreciation, $46,000.
D. Debit accumulated depreciation, $48,000.
E. Debit accumulated depreciation, $2,000.
D) 635600
Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2014 when Park's
book value was $560,000. The Royce stock was not actively traded. On the date of
acquisition, Park had equipment (with a ten-year life) that was undervalued in the
financial records by $140,000. One year later, the following selected figures were
reported by the two companies. Additionally, no dividends have been paid.
Royce Park Co.
Book value Book value Fairvlue
current ass 868000 420000 448000
equip 364000 280000 400000
build 574000 210000 210000
liab (546000) (168000) (168000)
rev (1260000) (560000)
expe 700000 420000
invest income not given
What is consolidated net income for 2015 attributable to Royce's controlling interest?
A) 560000
B) 691600
C) 686000
D) 635600
E) 644000
C. Consolidated net income divided by parent's number of shares outstanding
How would consolidated earnings per share be calculated if the subsidiary has no
convertible securities or warrants?
A. Consolidated income divided by total number of shares outstanding for the parent
and subsidiary.
B. Parent's net income divided by parent's number of shares outstanding.
C. Consolidated net income divided by parent's number of shares outstanding.
D. Average of parent's earnings per share and subsidiary's earnings per share.
E. Parent's earnings per share plus subsidiary's earnings per share.
C) 26000
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:
Book value Fair value
Buildings (10 year life) 10,000 8,000
Equipments ( 4 year life) 14,000 18,000
Land 5,000 12,000
Any excess consideration transferred over fair value is attributable to an unamortized
patent with a useful life of 5 years.
The acquisition value attributable to the non-controlling interest at January 1, 2014 is:
A) 24000
B) 20000
C) 26000
D) 23400.
E) 24900
D. A gain or loss must be recognized by both parent and subsidiary companies.
The accounting problems encountered in consolidated intra-entity debt transactions
when the debt is acquired by an affiliate from an outside party include all of the following
except :
A. Subsequent interest revenue/expense must be removed although these balances fail
to agree in amount.
B. The gain or loss on the retirement of the debt must be removed although these
balances fail to agree in amount.
C . Both the investment and debt accounts have to be eliminated now and for each
future consolidated financial statement despite containing differing balances.
D. A gain or loss must be recognized by both parent and subsidiary companies.
E. Changes in the investment, debt, interest revenue, and interest expense accounts
occur constantly because of the amortization process.
D. Parent company dividends equal consolidated dividends
When a parent uses the initial value method throughout the year to account for its
investment in an acquired subsidiary, which of the following statements is true before
making adjustments on the consolidated worksheet?
A. Parent company net income equals consolidated net income.
B. Parent company retained earnings equals consolidated retained earnings.
C. Goodwill needs to be recognized on the parent's books.
D. Parent company dividends equal consolidated dividends.
E. Parent company total assets equals consolidated total assets.
A. $406,000.
Campbell Inc. owned all of Gordon Corp. For 2013, Campbell reported net income
(without consideration of its investment in Gordon) of $280,000 while the subsidiary
reported $112,000. The subsidiary had bonds payable outstanding on January 1, 2013,
with a book value of $297,000. The parent acquired the bonds on that date for
$281,000. During 2013, Campbell reported interest income of $31,000 while Gordon
reported interest expense of $29,000. What is consolidated net income for 2013?
A. $406,000.
B. $378,000.
C. $410,000.
D. $374,000.
E. $394,000.
B. A worksheet entry is made with a debit to investment in subsidiary for a downstream
transfer when the parent uses the equity method.
An intra-entity sale took place whereby the transfer price exceeded the book value of a
depreciable asset. Which statement is true for the year following the sale?
A. A worksheet entry is made with a debit to gain for a downstream transfer.
B. A worksheet entry is made with a debit to investment in subsidiary for a downstream
transfer when the parent uses the equity method.
C. A worksheet entry is made with a debit to gain for an upstream transfer.
D. A worksheet entry is made with a debit to retained earnings for a downstream
transfer, regardless of the method used account for the investment.
E. No worksheet entry is necessary.
B. $40,800
On January 1, 2013, Race Corp. acquired 80% of the voting common stock of Gallow
Inc. During the year, Race sold to Gallow for $450,000 goods which cost $330,000.
Gallow still owned 15% of the goods at year-end. Gallow's reported net income was
$204,000 and Race's net income was $806,000. Race decided to use the equity method
to account for this investment. What was the non-controlling interest's share of
consolidated net income ?
A. $32,900
B. $40,800
C. $30,900
D. $22,800
E. $37,200
B) a component of stockholders' equity on the consolidated balance sheet.
The translation adjustment from translating a foreign subsidiary's financial statements
should be shown as
A) a component of cash flows from financing activities on the consolidated statement of
cash flows.
B) a component of stockholders' equity on the consolidated balance sheet.
C) a revenue or expense (depending on the balance) on the consolidated income
statement.
D) an element of the notes which accompany the consolidated financial statements.
E) an asset or liability (depending on the balance) on the consolidated balance sheet.
D. $280,000 loss.
Gunther Co. established a subsidiary in Mexico on January 1, 2011. The subsidiary
engaged in the following transactions during 2011:

January 1 : Sold common stock to Gunther for 5,000,000 pesos . Purchased inventory
throughout the year, 8,000,000 pesos (1/4 remained at year end). Sales for year totaled
12,000,000 pesos.
Dec 31 : Purchased equipment for 1,000,000 pesos

Gunther concluded that the subsidiary's functional currency was the dollar. Exchange
rates for 2011 were:
Jan 1 : 1 peso = $.20
Jan 31 : 1 peso = $.19
Dec 31 : 1 peso = $.16
Weighted Average For Year = 1 peso = $.18

What amount of foreign exchange gain or loss would have been recognized in
Gunther's consolidated income statement for 2011?
A. $440,000 loss.
B. $760,000 gain.
C. $800,000 gain.
D. $280,000 loss.
E. $320,000 loss.
B) If the foreign currency appreciates, a foreign exchange gain will result.
A U.S. company sells merchandise to a foreign company denominated in the foreign
currency. Which of the following statements is true?
A) No foreign exchange gain or loss will result.
B) If the foreign currency appreciates, a foreign exchange gain will result.
C) Any gain or loss will be included in comprehensive income.
D) If the foreign currency depreciates, a foreign exchange gain will result.
E) If the foreign currency appreciates, a foreign exchange loss will result.
A) 388,800
Esposito is an Italian subsidiary of a U.S. Company. Esposito's ending inventory is
valued at the average cost for the last quearter of the year. The following account
balances are available for Esposito for 2013:
Beginning inventory E 20,000 (E = Euro)
Purchases E400,000
Ending inventory E15,000
Relevant exchange rates follow:
4th quarter average, 2010 $.93 = E1 (E = Euro)
December 31, 2010 .94 = E1
Average 2011 .96 = E1
4th quarter average, 2011 .99 = E1
December 31, 2011 1.01 = E1

Compute the cost of goods sold for 2013 in U.S. dollars using the current rate method.
A) 388800
B) 409050
C) 387750
D) 376550
E) 400950
E. $941 gain.
Norton Co., a U.S. corporation, sold inventory on December 1, 2013, with payment of
10,000 British pounds to be received in sixty days. The pertinent exchange rates were
as follows:

Date Spot Rate

12/1 $1.7241
12/31 $1.8182
1/30 $1.6666

What amount of foreign exchange gain or loss should be recorded on December 31?
A. $300 gain.
B. $300 loss.
C. $941 loss.
D. $0.
E. $941 gain.
B. $295 (gain).
Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16,
2013, with payment of 10 million Korean won to be received on January 15, 2014. The
following exchange rates applied:
Date Spot Rate Forward 1/15
12/16/13 $0.00092 $0.00098
12/31/13 $0.00090 $0.00093
1/31/14 $0.00095 $0.00095 Assume an annual interest rate of 12% and a fair value
hedge. The present value for one month at 12% is .9901.
A. $700 (gain).
B. $295 (gain).
C. $300 (loss).
D. $300 (gain).
E. $700 (loss).
D. A foreign currency option gives the holder the right but not the obligation to buy or
sell foreign currency in the future.
Which statement is true regarding a foreign currency option?
A. A foreign currency option gives the holder the obligation to buy or sell foreign
currency in the future at the spot rate on the future date.
B. A foreign currency option gives the holder the obligation to buy or sell foreign
currency in the future.
C. A foreign currency option gives the holder the obligation to only buy foreign currency
in the future.
D. A foreign currency option gives the holder the right but not the obligation to buy or
sell foreign currency in the future.
E. A foreign currency option gives the holder the obligation only sell foreign currency in
the future.
C. Current rate.
Under the current rate method, property, plant & equipment would be translated at what
rate?
A. Beginning of the year rate.
B. Average rate.
C. Current rate.
D. Historical rate.
E. Composite amount.
D.Forward contract (asset).
Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16,
2013, with payment of 10 million Korean won to be received on January 15, 2014. The
following exchange rates applied:
Date Spot Rate Forward 1/15
12/16/13 $0.00092 $0.00098
12/31/13 $0.00090 $0.00093
1/31/14 $0.00095 $0.00095
Assuming a forward contract was entered into, how would the forward contract be
reFected on Car's December 31, 2013 balance sheet?
A.Forward contract (liability).
B. Foreign exchange (liability).
C.Foreign currency (liability).
D.Forward contract (asset).
E. Foreign currency (asset).
E) 387750
Esposito is an Italian subsidiary of a U.S. Company. Esposito's ending inventory is
valued at the average cost for the last quearter of the year. The following account
balances are available for Esposito for 2011:
Beginning inventory E 20,000 (E = Euro)
Purchases E400,000
Ending inventory E15,000
Relevant exchange rates follow:
4th quarter average, 2010 $.93 = E1 (E = Euro)
December 31, 2010 .94 = E1
Average 2011 .96 = E1
4th quarter average, 2011 .99 = E1
December 31, 2011 1.01 = E1
Compute the cost of goods sold for 2011 in U.S. dollars using the temporal method.
A) 409,050
B) 400,950
C) 388,800
D) 376,650
E) 387750