Question 1
Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred shares of Stanley Company, all acquired at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25 percent of the book value of its common stock. The balance sheets of Micron and Stanley immediately after the acquisition contained these balances: Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 20X8, Stanley reports net income of $40,000 and pays no dividends. Micron reports income from its separate operations of $75,000 and pays dividends of $30,000 during 20X8. 10. Based on the preceding information, what is the total noncontrolling interest reported in the consolidated balance sheet as of January 1, 20X8? A. $80,000 B. $40,000 C. $50,000 D. $60,000 11. Based on the preceding information, what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement? A. $10,000 B. $7,000 C. $11,800 D. $4,800 12. Based on the preceding information, what amount of income is attributable to the controlling interest in the consolidated income statement for 20X8? A. $75,000 B. $105,000 C. $96,000 D. $103,200 13. Based on the preceding information, what is the total stockholders' equity reported in the consolidated balance sheet as of January 1, 20X8? A. $450,000 B. $530,000 C. $490,000 D. $370,000 14. Based on the preceding information, what amount is reported as preferred stock outstanding reported in the consolidated balance sheet as of January 1, 20X8? A. $0 B. $40,000 C. $50,000 D. $44,000
Question 2
1. (a) (Ignore income taxes in this problem.) Five years ago, the City spent $30,000 to purchase a computerized radar system. Recently, a sales rep told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision as to which system is more desirable: Old System New System Cost of radar system ...................... $30,000 $50,000 Current salvage value .................... $10,000 ? Salvage value in 10 years .............. $5,000 $8,000 Annual operating costs .................. $34,000 $29,000 Upgrade required in 5 years .......... $4,000 ? Discount rate .................................. 14% 14% Required: Should the City purchase the new system or keep the old system (prove it)? (b) (Ignore income taxes in this problem.) The management of an amusement park is considering purchasing a new ride for $40,000 that would have a useful life of 10 years and a salvage value of $5,000. The ride would require annual operating costs of $21,000 throughout its useful life. The company's discount rate is 13%. Management is unsure about how much additional ticket revenue the new ride would generate particularly since customers pay a flat fee when they enter the park that entitles them to unlimited rides. Hopefully, the presence of the ride would attract new customers. Required: How much additional revenue would the ride have to generate per year to make it an attractive investment (prove it)?
Question 3
"1. Cost Plus Inc.'s portfolio of marketable securities was as follows (all securities were purchased in the current year): Securities Purchase Price Year-end Fair Market Value A One 10-year bond $1,500 $1,400 (face value $1,000) (carrying value $1,450) B 100 shares common stock $30 per share $28 per share C 50 shares preferred stock $100 per share $105 per share Cost Plus intends to keep the A bond until maturity and to sell one half of its investment in B common stock next year. It is unsure of its intention for the remaining 50 shares of B common stock and its 50 shares of C preferred stock. At what amount should Cost Plus report investment securities (in total) on its year-end balance sheet? (Points: 10) $9,500 $9,450 $9,550 $9,400 2. Cost Plus Inc.'s portfolio of marketable securities was as follows: (all securities were purchased this year) Securities Purchase Price Year-End Fair Market Value A One 10-year Bond $1,500 $1,400 (face value $1,000) (carrying value $1,450) B 100 shares common stock $30 per share $28 per share C 50 shares preferred stock $100 per share $105 per share Cost Plus intends to keep the A bond until maturity and to sell one half of its B common stock investment next year. It is unsure of its intention for the remaining 50 shares of B common stock and its 50 shares of C preferred stock. What amount of unrealized gain/loss should be reported on this year's income statement as part of income from continuing operations? (Points: 10) $100 loss. $200 loss. $150 loss. $ 50 gain. 3. Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What method for recording the investment should Louis use? (Points: 10) The equity method since significant influence must be assumed. The equity method if no other investor has more than a 40% interest. The equity method if it can acquire an additional 11% by year-end. The cost method. 4. On 12/31/Year1, Passey Co. acquired a 100% interest in Solomon Co. by exchanging 10,000 shares of its common stock for 100,000 shares of Solomon's common stock. The fair market value of Passey's common stock on December 31, Year 1, was $9 per share, and the fair value of Solomon's was $3.50 per share. Additional information as of December 31, Year 1, is as follows: Solomon Co. Book Values Fair Values Current assets $115,000 $115,000 Plant assets 200,000 255,000 Liabilities 10,000 10,000 Passey Co. Plant assets $1,700,000 $1,800,000 Passey Co.'s consolidated financial statements as of December 31, Year 1, would report: (Points: 10) Gain of $235,000. Gain of $270,000. A deferred credit (negative goodwill) of $235,000. A deferred credit (negative goodwill) of $270,000. 5. On 12/31/Year 1, Passey Co. acquired a 100% interest in Solomon Co. by exchanging 10,000 shares of its common stock for 100,000 shares of Solomon's common stock. The fair market value of Passey's common stock on December 31, Year 1, was $9 per share, and the fair value of Solomon's was $3.50 per share. Additional information as of December 31, Year 1, is as follows: Solomon Co. Book Values Fair Values Current assets $115,000 $115,000 Plant assets 200,000 255,000 Liabilities 10,000 10,000 Passey Co. Plant assets $1,700,000 $1,800,000 Passey's consolidated financial statements as of December 31, Year 1, would report plant assets at: (Points: 10) $1,700,000 $1,800,000 $1,955,000 $2,055,000 6. On January 1, Year 1, Pepper Company acquired 30% of the voting common stock of Salt, Inc. for $60 per share. Pepper was able to exercise significant influence over the affairs of Salt. Salt had 50,000 common shares outstanding on January 1, Year 1. On July 1, Year 1, Pepper sold all but 500 shares of its investment in Salt, Inc. Pepper held all 500 shares through year-end Year 1. Salt declared and paid a $1 per share common stock dividend on March 31, Year 1, and a $1.50 per share dividend on September 30, Year 1. Salt's net income was exactly $50,000 each quarter. What amount of revenue should Pepper record for the Year 1 from this investment? (Points: 10) $15,250 $15,750 $30,750 $31,000 7. Palmetto Inc. is currently using the equity method to account for its 30% investment in Royal Company. In the acquisition last year of Royal Co. common stock, Palmetto calculated $1,000,000 of goodwill. The correct accounting for this goodwill during the current year is: (Points: 10) Amortization over 40 years. Amortization over the anticipated holding period of the Royal Company stock. Test for impairment at year-end. No accounting necessary. 8. On December 31, Year 1, Starlight Enterprises acquired a 90% ownership interest in Lunar Importers by purchasing 90,000 of Lunar's 100,000 voting common shares outstanding for $900,000 cash. Starlight did not pay a control premium. Additional information regarding Lunar as of December 31, Year 1, follows: Book value Fair value Net assets $600,000 $800,000 The consolidated balance sheet of Starlight Enterprises and Subsidiary would report goodwill in the amount of: (Points: 10) $200,000 $280,000 $400,000 $460,000 9. During Year 1, Abaco Co., the 100% owned subsidiary of Walker, Inc., sold merchandise to Walker at a 25% markup over its cost. This practice continued into Year 2. Intercompany merchandise purchased from Abaco was then sold to unrelated third parties. Year 2 information from Walker's accounting records regarding intercompany merchandise was as follows: Beginning inventory $20,000 Purchases $80,000 Ending inventory $30,000 In one of Walker's December 31, Year 2, workpaper elimination entries, "Intercompany Cost of Goods Sold?Abaco" would have been: (Points: 10) Debited for $64,000. Credited for $64,000. Debited for $80,000. Credited for $80,000. 10. During Year 1, Abaco Co., the 100% owned subsidiary of Walker, Inc., sold merchandise to Walker at a 25% markup over its cost. This practice continued into Year 2. Intercompany merchandise purchased from Abaco was then sold to unrelated third parties. Year 2 information from Walker's accounting records regarding intercompany merchandise was as follows: Beginning inventory $20,000 Purchases $80,000 Ending inventory $30,000 In one of Walker's December 31, Year 2, workpaper elimination entries, "Cost of Goods Sold?Walker" would have been: (Points: 10) Debited for $17,500. Credited for $17,500. Debited for $14,000. Credited for $14,000.
Question 4
Problem # 1 Compute unit contribution margin and contribution margin ratio ****Use the following data for problems 1,2,3,4,9, &10 **** Luxury Cruiseline offers nightly dinner cruises off the coast of Miami, San Francisco, and Seattle. Dinner Cruise tickets sell for $120 per passenger. Luxury Cruiseline's variable cost of providing the dinner is $48 per passenger, and the fixed cost of operating the vessels (depreciation, salaries, docking fees, and other expenses) is $270,000 per month. The company's relevant range extends to 15,000 monthly passengers. 1. a - What is the contribution margin per passenger? b - What is the contribution margin ratio? c - Use the unit contribution margin to project operating income if monthly sales total 10,000 passengers. d - Use the contribution margin ratio to project operating income if monthly sales revenue totals $650,000. 2. Project change in income Use the information from the luxury Cruiseline Data Set. If luxury Cruiseline sells and additional 300 tickets, by what amount will its operating income increase (or operating loss decrease)? 3. Find Breakeven Use the information from the Luxury Cruiseline Data Set to compute the number of dinner cruise tickets it must sell to break even and the sales dollars needed to break even. 4. Find target profit volume Use the information from the Luxury Cruiseline Data Set. If Luxury Cruiseline has a target operating income of $97,200 per month, how many dinner cruise tickets must the company sell? 9. Compute weighted-average contribution margin. Use the information from the Luxury Cruiseline Data Set. Suppose Luxury Cruiseline decides to offer two types of dinner cruises: regular cruises and executive cruises. The executive cruise includes complimentary cocktails and a five-course dinner on the upper deck. Assume that fixed expenses remain at $270,000 per month and that the following ticket prices and variable expenses apply: Regular Cruise Executive Cruise Sales price per ticket ................................................ $120 $240 Variable expense per passenger ............................. $48 $180 Assuming that Luxury Cruiseline expects to sell four regular cruises for every executive cruise, compute the weighted-average contribution margin per unit. Is it higher or lower than a simple average contribution margin? Why? Is it higher or lower than the regular cruise contribution margin calculated Problem #1? Why? Will this new sales mix cause Luxury Cruiseline's breakeven point to increase or decrease from what it was when it sold only regular cruises? 10. Continuation of #9 Breakeven Refer to your answer to # 9. A) Compute the total number of dinner cruises that Luxury Cruiseline must sell to break even. B) Compute the number of regular cruises and executive cruises the company must sell to breakeven.
