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Homework Tax accounting questions

1. An economic advantage of a...

1. An economic advantage of a business combination includes
a. Utilizing duplicative assets     c. Coordinated marketing campaigns
b. Creating separate management teams     d. Horizontally combining levels within the marketing chain.

2. Which of the following is a potential abuse that may arise when a business combination is accounted for as a pooling of interests?
a. Assets of the buyer may be overvalued when the price paid by the investor is allocated among specific assets.
b. Earnings of the pooled entity may be increased because of the combination only and not as a result of efficient operations.
c. Liabilities may be undervalued when the price paid by the investor is allocated to specific liabilities.
d. An undue amount of cost may be assigned to goodwill, thus potentially allowing an understatement of pooled earnings.

3. Goodwill represents the excess cost of an acquisition over the
a. sum of the fair values assigned to intangible assets less liability assumed.
b. sum of the fair values assigned to tangible and intangible assets acquired less liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less liabilities assumed.
d. book value of an acquired company.

4. Cozzi Company is being purchased and has the following balance sheet as of the purchase date:

Current assets.......... $200,000        Liabilities.... $ 90,000
Fixed assets............   180,000        Equity.........   290,000
Total..................$ 380,000           Total........ $ 380,000
                           =======             &nb sp;             =======

The price paid for Cozzi's net assets (the purchaser assumes the liabilities) is $380,000. The fixed assets have a fair value of $220,000, and the liabilities have a fair value of $110,000. The amount of goodwill to be recorded in the purchase is __________.
a. $ 0
b. $50,000
c. $70,000
d. $90,000

5. In a purchase, the direct acquisition, indirect acquisition and security issuance costs are accounted for as follows:

Direct Acquisition     Indirect Acquisition     Security Issuance
a. Added to price paid    Added to price paid     Added to price paid
b. Added to price paid    Expensed               Deducted from value    
                                         &nbs p;     of security issued
c. Expensed               Expensed               Deducted from value
                                         &nbs p;     of security issued                                        &nbs p;        
d. Expensed               Expensed               Expensed

6. Account           Investor             Investee

Sales               500,000             300,000
Cost of Goods Sold 230,000             170,000
Gross Profit        270,000             130,000
Selling & Admin.
   Expenses        120,000             100,000
Net Income          150,000              30,000
                     =====               =====

Dividends paid       50,000              10,000

Assuming Investor owns 70% of Investee. What is the amount that will be recorded as Net Income for the Controlling Interest?

a. 164,000
b. 171,000
c. 178,000
d. 180,000

7. The goal of the consolidation process is for:
a. asset acquisitions and stock acquisitions to result in the same balance sheet.
b. goodwill to appear on the balance sheet of the consolidated entity.
c. the assets of the noncontrolling interest to be predominately displayed on the balance sheet.
d. the investment in the subsidiary to be properly valued on the consolidated balance sheet.

8. When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On that date the fair value of those shares totaled $4,200,000. Related to the acquisition, Pavin had payments to the attorneys and accountants of $200,000, and stock issuance fees of $100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as follows:

&nbs p; Pavin           Sutton
Common stock........................     $ 4,000,000      $ 700,000
Paid-in capital in excess of par....       7,500,000        900,000
Retained earnings...................       5,500,000        500,000
Total...............................     $17,000,000      $2,100,000
                                         ==== =======      ==========

Immediately after the purchase, the consolidated balance sheet should report paid-in capital in excess of par of
a. $8,900,000
b. $9,100,000
c. $9,200,000
d. $9,300,000

9. Jordan Company issued nonvoting preferred stock with a fair value of $1,600,000 in exchange for all the outstanding common stock of the Barkley Corporation. On the date of the exchange, Barkley had tangible net assets with a book value of $900,000 and a fair value of $1,400,000. In addition, Jordan issued preferred stock valued at $200,000 to an individual as a finder's fee for arranging the transaction. As a result of these transactions, Jordan should report an increase in net assets of __________.
a. $900,000
b. $1,400,000
c. $1,600,000
d. $1,800,000

10. On June 30, 20X1, Needle Corporation purchased for cash at $10 per share all 100,000 shares of the outstanding common stock of the Thread Company. The total fair value of all identifiable net assets of Thread was $1,500,000. The only noncurrent asset is property with a fair value of $350,000. The consolidated balance sheet of Needle and its wholly owned subsidiary on June 30, 20X1, should reflect
a. an extraordinary gain of $150,000.
b. goodwill of $150,000.
c. an extraordinary gain of $400,000.
d. goodwill of $400,000.

11. Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:

&nbs p; 20X1        20X2
Net income..........................      $80,000     $90,000
Dividends paid......................       10,000      10,000

Using the sophisticated (full) equity method, which of the following amounts are correct?

Investment Income           Investment Account Balance
        20X1                      December 31, 20X1     
a. $55,000                           $555,000
b. $55,000                           $545,000
c. $75,000                           $565,000
d. $80,000                           $570,000

12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries?
a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements.
b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary.
c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation.
d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income.

13. On January 1, 20X2, Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X2, Shaw had net income of $190,000 and paid cash dividends totaling $125,000.

In the January 1, 20X2, consolidated balance sheet, goodwill should be reported at _______.
a. $0
b. $75,000
c. $95,000
d. $175,000
14. In consolidated financial statements it is expected that:
a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends.
b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings.
c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares.
d. Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest.

15. Parthenon Corp. has several subsidiaries (Alpha, Beta, and Gamma) that are included in its consolidated financial statements. In its 12/31/X1 separate balance sheet, Parthenon had the following intercompany balances before eliminations:

&nbs p;Debit        Credit
Current Receivable due from Alpha.....   $ 40,000
Noncurrent Receivable due from Beta...    100,000
Cash Advance to Beta..................     26,000
Cash Advance from Gamma...............                 75,000
Intercompany Payable to Gamma.........                 40,000

In its 12/31/X1 consolidated balance sheet, what amount should Parthenon report as intercompany receivables?
a. $166,000
b. $51,000
c. $26,000
d. $0

16. The material sale of inventory items by a parent company to an affiliated company
a. enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
b. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
c. does not result in consolidated income until the merchandise is sold to outside entities.
d. does not require a working paper adjustment if the merchandise was transferred at cost.

17. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is still held by Humphrey on December 31, 20X3. What is the effect of the intercompany sale of land on consolidated net income?
a.     Consolidated net income will be the same as it would have been had the sale not occurred.
b.     Consolidated net income will be $20,000 less than it would have been had the sale not occurred.
c.     Consolidated net income will be $16,000 less than it would have been had the sale not occurred.
d.     Consolidated net income will be $20,000 greater than it would have been had the sale not occurred.

18. Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquired by Pennie several years ago. On January 1, 20X2, Pennie sold land with a book value of $60,000 to Stroud for $90,000. Stroud resold the land to an unrelated party for $100,000 on September 26, 20X3. The gain from sale of land that will appear in the consolidated income statements for 20X2 and 20X3, respectively, is _______.
a.     $0 and $10,000
b.     $0 and $40,000
c.     $30,000 and $10,000
d.     $30,000 and $40,000

19. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.:
    Assets under Construction
    Contracts Receivable
    Billings on Construction in Progress
    Earned Income on Long-Term Contracts
    Contracts Payable

Which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements?

a. Assets under Construction; Billings on Construction in Progress; Earned Income on Long-Term Contracts
b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts
c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts;
Contracts Payable   
d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable

20. Pirate Co.uses the sophisticated equity method to account for the 80% investment in its supplier Ship Corp. Based upon the following information what amount does Pirate Co. record as subsidiary income?
   Pirate internally generated income:        $250,000
   Ship internally generated income:          $ 50,000
   Unrealized profit on beginning inventory: $ 10,000
   Unrealized profit on ending inventory:     $ 15,000

a.     50,000     c.     40,000
b.     44,000     d.     36,000

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Answered in 2 hours by:
3/21/2007
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
Verified

The answers below are to the best of my knowledge.

1. An economic advantage of a business combination includes
a. Utilizing duplicative assets c. Coordinated marketing campaigns
b. Creating separate management teams d. Horizontally combining levels within the marketing chain.

2. Which of the following is a potential abuse that may arise when a business combination is accounted for as a pooling of interests?
a. Assets of the buyer may be overvalued when the price paid by the investor is allocated among specific assets.
b. Earnings of the pooled entity may be increased because of the combination only and not as a result of efficient operations.
c. Liabilities may be undervalued when the price paid by the investor is allocated to specific liabilities.
d. An undue amount of cost may be assigned to goodwill, thus potentially allowing an understatement of pooled earnings.

3. Goodwill represents the excess cost of an acquisition over the
a. sum of the fair values assigned to intangible assets less liability assumed.
b. sum of the fair values assigned to tangible and intangible assets acquired less liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less liabilities assumed.
d. book value of an acquired company.

4. Cozzi Company is being purchased and has the following balance sheet as of the purchase date:

Current assets.......... $200,000 Liabilities.... $ 90,000
Fixed assets............ 180,000 Equity......... 290,000
Total..................$ 380,000 Total........ $ 380,000
======= &nb sp; =======

The price paid for Cozzi's net assets (the purchaser assumes the liabilities) is $380,000. The fixed assets have a fair value of $220,000, and the liabilities have a fair value of $110,000. The amount of goodwill to be recorded in the purchase is __________.
a. $ 0
b. $50,000
c. $70,000
d. $90,000

5. In a purchase, the direct acquisition, indirect acquisition and security issuance costs are accounted for as follows:

Direct Acquisition Indirect Acquisition Security Issuance
a. Added to price paid Added to price paid Added to price paid
b. Added to price paid Expensed Deducted from value
&nbs p; of security issued
c. Expensed Expensed Deducted from value
&nbs p; of security issued &nbs p;
d. Expensed Expensed Expensed

6. Account Investor Investee

Sales 500,000 300,000
Cost of Goods Sold 230,000 170,000
Gross Profit 270,000 130,000
Selling & Admin.
Expenses 120,000 100,000
Net Income 150,000 30,000

Dividends paid 50,000 10,000

Assuming Investor owns 70% of Investee. What is the amount that will be recorded as Net Income for the Controlling Interest?

a. 164,000
b. 171,000
c. 178,000
d. 180,000

7. The goal of the consolidation process is for:
a. asset acquisitions and stock acquisitions to result in the same balance sheet.
b. goodwill to appear on the balance sheet of the consolidated entity.
c. the assets of the noncontrolling interest to be predominately displayed on the balance sheet.
d. the investment in the subsidiary to be properly valued on the consolidated balance sheet.

8. When it purchased Sutton, Inc. on January 1, 20X1, Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On that date the fair value of those shares totaled $4,200,000. Related to the acquisition, Pavin had payments to the attorneys and accountants of $200,000, and stock issuance fees of $100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as follows:

&nbs p; Pavin Sutton
Common stock........................ $ 4,000,000 $ 700,000
Paid-in capital in excess of par.... 7,500,000 900,000
Retained earnings................... 5,500,000 500,000
Total............................... $17,000,000 $2,100,000

Immediately after the purchase, the consolidated balance sheet should report paid-in capital in excess of par of
a. $8,900,000
b. $9,100,000
c. $9,200,000
d. $9,300,000

9. Jordan Company issued nonvoting preferred stock with a fair value of $1,600,000 in exchange for all the outstanding common stock of the Barkley Corporation. On the date of the exchange, Barkley had tangible net assets with a book value of $900,000 and a fair value of $1,400,000. In addition, Jordan issued preferred stock valued at $200,000 to an individual as a finder's fee for arranging the transaction. As a result of these transactions, Jordan should report an increase in net assets of __________.
a. $900,000
b. $1,400,000
c. $1,600,000
d. $1,800,000

10. On June 30, 20X1, Needle Corporation purchased for cash at $10 per share all 100,000 shares of the outstanding common stock of the Thread Company. The total fair value of all identifiable net assets of Thread was $1,500,000. The only noncurrent asset is property with a fair value of $350,000. The consolidated balance sheet of Needle and its wholly owned subsidiary on June 30, 20X1, should reflect
a. an extraordinary gain of $150,000
B. goodwill of $150,000
C. an extraordinary gain of $400,000
D. goodwill of $400,000
11. Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:

&nbs p; 20X1 20X2
Net income.......................... $80,000 $90,000
Dividends paid...................... 10,000 10,000

Using the sophisticated (full) equity method, which of the following amounts are correct?

Investment Income Investment Account Balance 20X1 December 31, 20X1.
a. $55,000 $555,000
b. $55,000 $545,000
c. $75,000 $565,000
d. $80,000 $570,000

12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries?
a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements.
b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary.
c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation.
d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income.

13. On January 1, 20X2, Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X2, Shaw had net income of $190,000 and paid cash dividends totaling $125,000.

In the January 1, 20X2, consolidated balance sheet, goodwill should be reported at _______.
a. $0
b. $75,000
c. $95,000
d. $175,000

14. In consolidated financial statements it is expected that:
a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends.
b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings.
c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares.
d. Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest.

15. Parthenon Corp. has several subsidiaries (Alpha, Beta, and Gamma) that are included in its consolidated financial statements. In its 12/31/X1 separate balance sheet, Parthenon had the following intercompany balances before eliminations:

&nbs p;Debit Credit
Current Receivable due from Alpha..... $ 40,000
Noncurrent Receivable due from Beta... 100,000
Cash Advance to Beta.................. 26,000
Cash Advance from Gamma............... 75,000
Intercompany Payable to Gamma......... 40,000

In its 12/31/X1 consolidated balance sheet, what amount should Parthenon report as intercompany receivables?
a. $166,000
b. $51,000
c. $26,000
d. $0
___________

16. The material sale of inventory items by a parent company to an affiliated company
a. enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
B. affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
C. does not result in consolidated income until the merchandise is sold to outside entities.
D. does not require a working paper adjustment if the merchandise was transferred at cost.

17. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is still held by Humphrey on December 31, 20X3. What is the effect of the intercompany sale of land on consolidated net income?
a. Consolidated net income will be the same as it would have been had the sale not occurred.
b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred.
c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred.
d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred.

18. Stroud Corporation is an 80%-owned subsidiary of Pennie, Inc., acquired by Pennie several years ago. On January 1, 20X2, Pennie sold land with a book value of $60,000 to Stroud for $90,000. Stroud resold the land to an unrelated party for $100,000 on September 26, 20X3. The gain from sale of land that will appear in the consolidated income statements for 20X2 and 20X3, respectively, is _______.
A. $0 and $10,000
b. $0 and $40,000
c. $30,000 and $10,000
d. $30,000 and $40,000

19. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.:
Assets under Construction
Contracts Receivable
Billings on Construction in Progress
Earned Income on Long-Term Contracts
Contracts Payable

Which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements?

a. Assets under Construction; Billings on Construction in Progress; Earned Income on Long-Term Contracts
b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts
c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts;
Contracts Payable
d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable

20. Pirate Co.uses the sophisticated equity method to account for the 80% investment in its supplier Ship Corp. Based upon the following information what amount does Pirate Co. record as subsidiary income?
Pirate internally generated income: $250,000
Ship internally generated income: $ 50,000
Unrealized profit on beginning inventory: $ 10,000
Unrealized profit on ending inventory: $ 15,000

a. 50,000 c. 40,000
b. 44,000 d. 36,000

RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
Verified
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A partner sold his interest in an LLC to the other partner. He still receives distributions, which are handled as payments to a retiring partner according to Internal Revenue Code §736(a). The questio… read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
My wife died this year at age 68 and 10 months. I was listed
My wife died this year at age 68 and 10 months. I was listed as a joint owner of her credit union account which included an IRA CD and an IRA savings account. I was also the beneficiary of those two I… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Assume a U.S. citizen has a joint account (Tenants by
Assume a U.S. citizen has a joint account (Tenants by Entirety) with his wife. She is a NON-U.S. citizen. If the 2017 gift tax exclusion is 149k for gifts to non-U.S. spouses, at what point will a gif… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I received an inherited IRA 10 years ago and I'm being told
I received an inherited IRA 10 years ago and I'm being told that I needed to have reported that to the state of PA and pay inheritance tax on it but my understanding is that taxes are only to be paid … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I have been using your services since 2008. First I need my
My name is ***** ***** and I have been using your services since 2008. First I need my 2015 password ***** get a copy of my taxes for that year. My second question I need an eample of how to fill out … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am completing my I cane taxes for 2014-2016. Beginning in
I am completing my I cane taxes for 2014-2016. Beginning in 2014, I became an active manager of my real estate portfolio as defined by the IRS, while maintaining a corporate job with w2 income.As I un… read more
James Daloisio
James Daloisio
Attorney
Doctoral Degree
55 satisfied customers
How to find out if I have a irs levy or lien. My mother
my mother passed away in 1999 I was her heir/executrix, in 2005 met life reported underlying shares and I just discovered it. Also, in 2008 I began working contract labor until about 2011 and got behind in taxes, to be exact about 12,000 payments have been sporadic, except for they take my 1400 tax return at the end of each year. can the IRS take my unclaimed texas state property … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
If I Made $57600 this year between/severance,pension,401k/
If I Made $57600 this year between/severance,pension,401k/ and paid taxes on pension&severance-but owe on 401k/$33000-should I start a 1099 job this nov or wait until next jan-2018?????for tax reasons… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I own a business in Kentucky and owe state sales tax to the
I own a business in Kentucky and owe state sales tax to the state of Kentucky. Can the state of Kentucky place a lien on my home in Pennsylvania jointly owned by me and my wife … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I'm a home improvement contractor in Pennsylvania filing
I'm a home improvement contractor in Pennsylvania filing Schedule C on my 1040. Along with federal and state income tax, we also have a county "Earned Income Tax" and a "Local Services Tax". I had fil… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,215 satisfied customers
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Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

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