Question 2
22) On January 1, 2008, Colorado Corporation acquired 75 % of Denver Company's voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was $30,000. Denvers's balance sheet at the date of acquisition contained the following balances: At the date of acquisition, the reported book values of Denver's assets and liabilities approximated fair value. Eliminating entries are being made to prepare a consolidated balance sheet immediately following the business combination. Based on this information, in the entry to eliminate the investment balance, A. c. differential will be credited for $10,000 B. d. noncontrolling interest will be debited for 30,000 C. b. additional paid-in-capital will be credited for $20,000 D. a. retained earnings will be credited for $20,000 23) Consolidated net income for a parent and its 80 % owned subsidiary should be computed by eliminating A. c. the controlling interest's share of unrealized profit in downstream intercompany sales, and the controlling interest's share of unrealized profit in upstream sales made during the current year B. d. all unrealized profit in downstream intercompany sales, and the noncontrolling interest's share of unrealized profit in upstream sales made during the current year C. b. all unrealized profit in downstream intercompany inventory sales, and the noncontrolling interest's share of unrealized profit in upstream inventory sales made during the current year D. a. all unrealized profit in downstream intercompany inventory sales, and unrealized profit in upstream intercompany inventory sales made during the current year 24) On December 31, 2008, Melkor Corporation acquired 80 % of Sydney Company's common stock for $160,000. At that date, the fair value of the noncontrolling interest was $40,000. Of the $75,000 differential, $10,000 related to the increased value of Sydney's inventory, $20,000 related to the increased value of its land, and $25,000 related to the increased value of its equipment that had a remaining life of 10 years from the date of combination. Sydney sold all inventory it held at the end of 2008 during 2009. The land to which the differential related was also sold during 2009 for a large gain. At the date of combination, Sydney reported retained earnings of $75,000 and common stock outstanding of $50,000. In 2009, Sydney reported net income of $60,000, but paid no dividends. Melkor accounts for its investment in Sydney using the equity method. What is the elimination entry made to assign income to noncontrolling interest in the workpaper to prepare a full set of consolidated financial statements for the year 2009? A. Option C B. Option D C. Option B D. Option A 25) On January 1, 2008, Wilhelm Corporation acquired 90 % of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 % of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 2009, the trial balances of the two companies are as follows: What amount would be reported as income to controlling interest in the consolidated financial statements for 2009? A. $164,000 B. $150,000 C. $138,000 D. $168,000 26) Bristle Corporation acquired 75 % of Silver Corporation's common stock on December 31, 2008, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100,000. Silver's balance sheet immediately before the combination reflected the following balances: A careful review of the fair value of Silver's assets and liabilities indicated that inventory, land, and buildings and equipment (net) had fair values of $65,000, $100,000, and, $300,000, respectively. Goodwill is assigned proportionately to Bristle and the noncontrolling shareholders. What amount of land will be included in the consolidated balance sheet immediately following the acquisition? A. $90,000 B. $100,000 C. $10,000 D. $0 27) Bristle Corporation acquired 75 % of Silver Corporation's common stock on December 31, 2008, for $300,000. The fair value of the noncontrolling interest at that date was determined to be $100,000. Silver's balance sheet immediately before the combination reflected the following balances: A careful review of the fair value of Silver's assets and liabilities indicated that inventory, land, and buildings and equipment (net) had fair values of $65,000, $100,000, and, $300,000, respectively. Goodwill is assigned proportionately to Bristle and the noncontrolling shareholders. What amount will be reported as noncontrolling interest in the consolidated balance sheet immediately following the acquisition? A. $83,750 B. $100,000 C. $70,000 D. $0 Sky Corporation owns 75 % of Earth Company's stock. On July 1, 2008, Sky sold a building to Earth for $33,000. Sky had purchased this building on January 1, 2006, for $36,000. The building's original eight-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible. Based on this information, in the preparation of the 2008 consolidated financial statements, building will be _____ in the eliminating entries. A. credited for $36,000 B. debited for $3,000 C. debited for $36,000 D. debited for $33,000 32) Sigma Company develops and markets organic food products to natural foods retailers. The following information is available for the company for the year 2008: Based on the preceding information, what amount will be reported by the company as cash payments to suppliers for 2008? A. $262,000 B. $258,000 C. $305,000 D. $292,000 33) Tower Corporation's controller has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for the year ended December 31, 2009. Tower owns 80 % of Network Corporation's stock, which it acquired at underlying book value on November 1, 2006. At that date, the fair value of the noncontrolling interest was equal to 20 % of Network Corporation's book value. The following information is available: Consolidated net income for 2009 was $160,000. Network reported net income of $50,000 for 2009. Tower paid dividends of $30,000 in 2009. Network paid dividends of $10,000 in 2009. Tower issued common stock on February, 18, 2009, for a total of $100,000. Consolidated wages payable decreased by $6,000 in 2009. Consolidated depreciation expense for the year was $15,000. Consolidated accounts receivable decreased by $20,000 in 2009. Bonds payable of Tower with a book value of $102,000 were retired for $100,000 on December 31, 2009. Consolidated amortization expense on patents was $10,000 for 2009. Tower sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June 10, 2009. Consolidated accounts payable decreased by $7,000 during 2009. Total purchases of equipment by Tower and Network during 2009 were $180,000. Consolidated inventory increased by $36,000 during 2009. There were no intercompany transfers between Tower and Network in 2009 or prior years except for Network's payment of dividends. Tower uses the indirect method in preparing its cash flow statement. Based on the preceding information, what was the change in cash balance for the consolidated entity for 2009? A. Increase of $17,000 B. Increase of $32,000 C. Decrease of $66,000 D. Increase of $49,000 34) Flyer Corporation holds 90 % of Kite Company's common shares but none of its preferred shares. On the date of acquisition, the fair value of the noncontrolling interest was equal to 10 % of the book value of Kite Company. Summary balance sheets for the companies on December 31, 2008, are as follows: Flyer's preferred pays an 8 % annual dividend, and Kite's preferred pays a 10 % dividend. Kite's preferred shares can be converted into 20,000 shares of common stock at any time. Kite reported net income of $35,000 and paid a total of $10,000 of dividends in 2008. Flyer reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 2008. Based on the information provided, what is the diluted earnings per share for the consolidated entity for 2008? A. 4.00 B. 3.80 C. 4.33 D. 4.53 36) Flyer Corporation holds 90 % of Kite Company's common shares but none of its preferred shares. On the date of acquisition, the fair value of the noncontrolling interest was equal to 10 % of the book value of Kite Company. Summary balance sheets for the companies on December 31, 2008, are as follows: Flyer's preferred pays an 8 % annual dividend, and Kite's preferred pays a 10 % dividend. Kite's preferred shares can be converted into 20,000 shares of common stock at any time. Kite reported net income of $35,000 and paid a total of $10,000 of dividends in 2008. Flyer reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 2008. Based on the information provided, what is the basic earnings per share for the consolidated entity for 2008? A. 3.80 B. 5.24 C. 5.18 D. 5.04 11) On December 5, 2008, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 2009. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: Based on this information, what journal entry would Imperial make on December 31, 2008, to revalue foreign currency payable to equivalent U.S. dollar value? A. Option C B. Option A C. Option B D. Option D 12) On December 5, 2008, Texas-based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 2009. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: Based on this information, what journal entry would Imperial make on January 10, 2009, to revalue foreign currency payable to equivalent U.S. dollar value? A. Option C B. Option A C. Option B D. Option D 13) If the U.S. dollar is the currency in which the foreign affiliate's books and records are maintained, and the U.S. dollar is also the functional currency, A. either translation or remeasurement could be used for restatement B. the translation method should be used for restatement C. the remeasurement method should be used for restatement D. no restatement is required 14) Infinity Corporation acquired 80 % of the common stock of an Egyptian company on January 1, 2008. The goodwill associated with this acquisition was $18,350. Exchange rates at various dates during 2008 follow: Goodwill suffered an impairment of 20 % during the year. If the functional currency is the Egyptian Pound, how much goodwill impairment loss should be reported on Infinity's consolidated statement of income for 2008? A. $3,690 B. $3,670 C. $3,700 D. $3,680 On January 3, 2009, Jane Company acquired 75 % of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 2009, are as follows: What amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31, 2009? A. $156,000 B. $120,000 C. $180,000 D. $264,000 19) West, Inc. holds 100 % of the common stock of Coast Company, an investment acquired for $680,000. Immediately following the combination, West's net assets have a book value of $1,150,000 and a fair value of $1,390,000. The book value and the fair value of Coast's net assets on the date of combination are $400,000 and $550,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared. At what amount will West's investment in Coast stock be reported in the consolidated balance sheet? A. $440,000 B. $0 C. $400,000 D. $480,000 20) Tanner Company, a subsidiary acquired for cash, owned equipment with a fair value higher than the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference in A. deferred charges B. goodwill C. retained earnings D. equipment
Question 3
The Star Restaurant Company owns and operates Chinese restaurants throughout the northwestern United States. Paris Brown, vice president of development, has been analyzing a new metropolitan market for expansion opportunities. The company?s best option would be to acquire a distressed property at a low price and turn it into a money-making venture. Ms. Brown is contemplating taking over a restaurant that recently failed and is currently closed. The restaurant is located in the parking lot of a large regional shopping mall. The mall owner is anxious to reopen the restaurant, as in its current state it is an eyesore and a deterrent to attracting retail customers. Ms. Brown asks the previous owner for historical operating results for the failed restaurant, and she is provided with the following information: TIME VALUE OF MONEY APPLICATIONS 283 Siesta Restaurant Operating Results (000) 2002 2003 2004 2005 2006 Revenue Food $900 $925 $950 $975 $1,000 Beverage 350 360 365 370 375 Total 1,250 1,285 1,315 1,345 1,375 Operating expenses Food cost 240 255 270 285 300 Beverage cost 50 53 54 57 60 Labor cost 550 585 615 650 685 Travel 120 120 120 120 120 Marketing 60 50 40 20 10 Utilities 60 65 70 75 80 Rent 160 162 163 165 150 Total 1,240 1,290 1,332 1,372 1,405 Operating Profit (Loss) $10 $(5) $(17) $(27) $(30) Based on Paris?s market analysis, tour of the competition, inspection of the subject property, and interviews with the prior owner, she concludes a Star Restaurant would work in the subject space, but it would require approximately $200,000 of renovation and conversion cost in addition to the land purchase price of $2,000,000. By Year 5, the restaurant could generate $2.5 million in annual food revenue and $1.5 million in annual beverage revenue. Ms. Brown estimates the following cash flows for the first five years of operations, with cash flows leveling off in Year 5. Year Cash Flow 1 $695,000 2 876,250 3 1,057,500 4 1,238,750 5 1,420,000 1. Calculate the IRR and NPV of this project utilizing a 12% discount rate and a 15% cap rate. Ms. Brown was able to secure a loan for $1,540,000, and an equity investor agreed to invest the remaining $660,000 in exchange for 20% ownership in the project. 284 C H A P T E R 9 HOSPITALITY INDUSTRY APPLICATIONS OF TIME VALUE 2. What is the loan-to-value ratio for this project? 3. What would the investor?s ROI be for this 5-year project if the restaurant achieved its budgeted operating results for the year? 4. If the investor has a hurdle rate of 15%, does this project meet or exceed the investor?s requirements?
Question 4
1. Bonds usually sell at their: A. Maturity value. B. Face value. C. Present value. D. Statistical expected value. Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2009. LPC's accountant has projected the following amortization schedule from issuance until maturity: 2. LPC issued the bonds: A. At par. B. At a premium. C. At a discount. D. Cannot be determined from the given information. 3. What is the annual stated interest rate on the bonds? A. 3.5% B. 6% C. 7% D. None of these is correct. 4. What is the effective interest rate on the bonds? A. 3% B. 3.5% C. 6% D. 7% 5. LPC calls the bonds at 103 immediately after the interest payment on 12/31/10 and retires them. What gain or loss, if any, would LPC record on this date? A. No gain or loss B. $3,717 gain C. $6,000 loss D. $2,283 loss 6. A $500,000 bond issue sold for 98. Therefore, the bonds: A. Sold at a discount because the stated rate of interest was lower than the effective rate. (490,000 (=500k*98%)) B. Sold for the $500,000 face amount less $10,000 of accrued interest. C. Sold at a premium because the stated rate of interest was higher than the yield rate. D. Sold at a discount because the effective interest rate was lower than the face rate. 7. How would the carrying value of bonds payable be affected by the amortization of each of the following? A. B. C. D. 8. On January 1, 2009, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2009, in the amount of: A. $ 8,850 B. $10,000 C. $10,620 D. $12,000 9. On January 1, 2009, an investor paid $291,000 for bonds with a face amount of $300,000. The stated rate of interest is 8% while the current market rate of interest is 10%. Using the effective interest method, how much interest income is recognized by the investor in 2009 (assume annual interest payments and amortization)? A. $23,280. B. $29,100. C. $24,000. D. $30,000. 10. On January 31, 2009, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2008, and mature on December 31, 2018. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2009, balance sheet? A. $18,000. B. $36,000. C. $54,000. D. $48,000.,Hi, I need answers to the rest of questions pleasee asap.. I was not aware that I was missing information... I have sent you the exam again with the information... Thank you so much!!!! My teacher said she can give me untill Saturday to submit... Thanks tons!!!!
