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AKUNTANSI KEUANGAN LANJUTAN 1

1. Which of the following is NOT a cost that is typically incurred as part of a business
combination:
a. Direct Costs
b. Research & Development Costs
c. Cost of Issuing Securities
d. Indirect & General Costs
e. None of the above

Questions 2&3 refer to the following:


Assume that P Company purchases 10 percent of S Company common stock for $50,000
at the beginning of the year. During the year, S has net income of $25,000 and pays
dividends of $10,000.
2. The entry recorded by P for the purchase of S' common stock includes which of the
following:
a. a debit to cash for $50,000
b. a credit to investment in S Company Common Stock for $50,000
c. a credit to cash for $50,000
d. a debit to cash for $10,000
e. None of the above

3. The entry recorded by P for the receipt of dividend income from S Company includes
which of the following:
a. a credit to Cash for $1,000
b. a debit to Cash for $10,000
c. a debit to dividend income for $1,000
d. a debit to cash for $1,000
e. None of the above

Questions 4 and 5 relate to the following:Alpha Corporation owns 75 percent of X-Ray's


common stock, which was purchased at book value. During the year, X-Ray reports net
income of $40,000, while Alpha reports earnings of $150,000 from its own operations
and $30,000 of investment income. Alpha pays dividends during the year of $50,000, and
X-Ray pays dividends of $20,000. On January 1, Alpha has a retained earnings balance
of $500,000 while X-Ray has retained earnings of $300,000.Alpha accounts for its
investment in X-Ray using the equity method.

4. Consolidated net income for the year is:


a. $180,000
b. $150,000
c. $ 40,000
d. $ 30,000
e. None of the above

5. Consolidated retained earnings as of the end of the year is:


a. $950,000
b. $800,000
c. $630,000
d. $320,000
e. None of the above

6. In preparing a consolidation workpaper for an entity in which one affiliate has sold a
depreciable asset to another affiliate, consolidation procedures for years subsequent to the
sale include:
a. Reducing beginning retained earnings by the amount of the intercompany gain
unrealized at the beginning of the year
b. Adjusting depreciation expense for the year
c. Restating the asset and accumulated depreciation balances
d. All of the above
e. None of the above

Questions 7 through 10 relate to the following:On July 1, 20X1, Flip Company purchases
80 percent of the common stock of Flop Company for its underlying book value of
$406,400. As of January 1, 20X1, Flop has common stock of $400,000 and retained
earnings of $100,000. Flop's net income before the combination (January 1 through June
30) is $24,000, and its net income after the combination (July 1 through December 31) is
$36,000. Flop pays dividends prior to the combination (January 1 through June 30) of
$16,000, and pays dividends after the combination (July 1 through December 31) of
$24,000. Flip accounts for its investment using the equity method.

7. After the acquisition, the entry Flip records on its books to recognize its share of Flop's
net income would include:
a. A credit to Investment in Flop Stock for $28,800
b. A debit to Income from Subsidiary for $28,800
c. A credit to Income from Subsidiary for $28,800
d. A credit to Income from Subsidiary for $48,000
e. None of the above

8. After the acquisition, the entry Flip records on its books to recognize its share of the
dividends paid by Flop would include:
a. A debit to Investment in Flop Stock for $19,200
b. A credit to Investment in Flop Stock for $19,200
c. A credit to Investment in Flop Stock for $32,000
d. A credit to Cash for $32,000
e. None of the above

9. The amount of preacquisition subsidiary income is:


a. $ 4,800
b. $12,800
c. $24,000
d. $16,000
e. None of the above
10. For Flip/Flop's consolidated income statement assume that gross margin is $530,000 and
total expenses are $150,000. If the consolidated income statement is prepared as if the
combination had taken place at the beginning of the year, what is consolidated net
income?
a. $348,800
b. $380,000
c. $368,000
d. $360,800
e. None of the above

Questions 11 and 12 relate to the following:ABC Company acquires (10,000 from its bank on
January 1, 20X3, for use in future purchases from foreign companies. The direct exchange rate is
$1.30 = (1. ABC prepares financial statements on June 30, 20X3, when the exchange rate is
$1.25 = (1.
11. The entry to record the purchase of the foreign currency (widgets) on January 1 would
include:
a. A debit to Foreign Currency Units (() for $10,000
b. A debit to Cash for $13,000
c. A credit to Cash for $10,000
d. A debit to Foreign Currency Units (() for $13,000
e. None of the above

12. When ABC prepares financial statements as of June 30, 20X3, the adjusting entry to
account for the change in the widget exchange rate would include:
a. A debit to Foreign Currency Transaction Loss for $3,000
b. A debit to Foreign Currency Transaction Loss for $500
c. A debit to Foreign Currency Units (() for $500
d. A credit to Foreign Currency Units (() for $3,000
e. None of the above

13. In a business combination, the appraisal value of the identifiable assets acquired exceeds
the acquisition price. The excess appraisal value should be reported as a:
a. Deferred credit.
b. Reduction of the values assigned to current assets and a deferred credit for any
unallocated portion.
c. Pro rata reduction of the values assigned to current and noncurrent assets and a
deferred credit for any unallocated portion.
d. No answer listed is correct.

14. On June 30, 20X2, Pane Corporation exchanged 150,000 shares of its $20 par value
common stock for all of Sky Corporation's common stock. At that date, the fair value of
Pane's common stock issued was equal to the book value of Sky's net assets. Both
corporations continued to operate as separate businesses, maintaining accounting records
with years ending December 31. Information from separate company operations follows:
Pane Sky Retained earnings, Dec. 31, 20X1 $3,200,000 $925,000 Net income, 6 months
ended June 30, 20X2 800,000 275,000 Dividends paid, March 25, 20X2 750,000 - What
amount of retained earnings would Pane report in its June 30, 20X2, consolidated balance

sheet?
a. $5,200,000.
b. $4,450,000.
c. $3,525,000.
d. $3,250,000.

15. A and B Companies have been operating separately for five years. Each company has a
minimal amount of liabilities and a simple capital structure consisting solely of voting
common stock. A Company, in exchange for 40 percent of its voting stock, acquires 80
percent of the common stock of B Company. This was a "tax-free" stock-for-stock (type
B) exchange for tax purposes. B Company assets have a total net fair market value of
$800,000 and a total net book value of $580,000. The fair market value of the A stock
used in the exchange was $700,000. The goodwill on this acquisition would be:
a. Zero.
b. $60,000.
c. $120,000.
d. $236,000.

16. 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:
20X1 20X2
Net income.......................... $80,000 $90,000
Dividends paid...................... 10,000 10,000
Using the simple equity method, which of the following amounts are correct?
Investment Income Investment Account Balance
20X1 December 31, 20X1
a. $80,000 $570,000
b. $70,000 $570,000
c. $70,000 $550,000
d. $80,000 $550,000

17. 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:

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

18. 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:
20X1 20X2
Net income.......................... $80,000 $90,000
Dividends paid...................... 10,000 10,000
Using the cost method, which of the following amounts are correct?
Investment Income Investment Account Balance
20X1 December 31, 20X1
a. $10,000 $500,000
b. $10,000 $570,000
c. $0 $570,000
d. $80,000 $500,000

19. 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.

20. On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for $469,000. On
that date the book value of the net assets of Set totaled $500,000. Based on the appraisal
done at the time of the purchase, all assets and liabilities had book values equal to their
fair values except as follows:

Book Value Fair Value


Inventory........................... $100,000 $120,000
Land ............................... 75,000 85,000
Equipment (useful life 4 years)..... 125,000 165,000
The $70,000 of excess of cost over book value was allocated to a patent with a 10-year useful
life. During 20X1 Promo reported net income of $200,000 and Set had net income of $100,000.
What is consolidated net income if Promo includes in its net income, income from Set using the
sophisticated equity method?
a. $ 42,000
b. $ 70,000
c. $200,000
d. $270,000

21. Red Inc. owns 70% of White Co.'s outstanding common stock. Price Inc. reports cost of
goods sold in 2001 of $850,000 while White Co. reports $520,000. During 2001, Red
Inc. sells inventory costing $100,000 to White Co. for $125,000. 40% of these goods are
not resold by White Co. until the following year. What is consolidated cost of goods
sold?

A. $1,395,000
B. $1,255,000
C. $1,360,000
D. $1,235,000
E. $1,345,000

22. Maust Inc. owns 70% of Light Co.'s common stock. On January 2, 2000, Maust sold
Light some equipment for $90,000. The equipment had a carrying amount of $60,000.
Light is depreciating the acquired equipment over a fifteen-year remaining useful life by
the straight-line method. The net adjustments to calculate 2000 and 2001 consolidated
net income would be an increase (decrease) of

2000 2001
A. $ (28,000) $ 2,000
B. $ 2,000 $ -0-
C. $( 24,000) $ –0–
D. $ ( 6,000) $ 24,000
E. $ ( 14,000) $ ( 500)

Items 23 through 25 are based on the following information.

Presented below are several figures reported for Post Inc. and Mitchell Co. as of December 31,
2003.

Post Inc. Mitchell Co.


Inventory $ 400,000 $ 200,000
Sales 900,000 500,000
Cost of Goods Sold 300,000 180,000
Expenses 180,000 140,000
Post Inc. acquired 80% of Mitchell Co.'s outstanding common stock on January 1, 2002. Land
use rights valued at $281,250 were owned by Mitchell Co. and should be amortized over twenty
years. During 2002, Mitchell sold Post inventory costing $80,000 for $100,000. 30% of this
inventory was not sold to external parties until 2003. During 2003, Mitchell sold inventory
costing $l00,000 to Post for $150,000. Of this inventory, 25 % remained unsold on December
31, 2003.

23. What is the 2003 consolidated sales figure?


A. $1,400,000
B. $1,550,000
C. $1,050,000
D. $1,350,000
E. $1,250,000

24. What is the 2003 consolidated cost of goods sold figure?


A. $480,000
B. $336,500
C. $337,000
D. $330,500
E. $370,000

25. What is the consolidated inventory on December 31, 2003?


A. $603,500
B. $593,500
C. $619,500
D. $587,500
E. $546,500

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