ACT 470 CSU Advanced Accounting Mastery Exam Practice

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qbar123456

Business Finance

ACT 470

Colorado State University

ACT

Description

7 quizes 10 questions each

Explanation & Answer:
70 Questions
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Explanation & Answer

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Question 11 pts
Barnes Corporation purchased 75 percent of Nobles’ common stock for
$262,500, which was acquired at book value. The fair value of the noncontrolling
interest at the date of acquisition was equal to their proportionate share of the
book value of Nobles. During the year, Nobles reports net income of $40,000,
while Barnes reports earnings of $200,000 from its own operations. Barnes pays
dividends during the year of $50,000, and Nobles pays dividends of $10,000. On
January 1, Barnes has a retained earnings balance of $500,000 while Nobles
has retained earnings of $300,000. Barnes accounts for its investment in Nobles
using the equity method. Consolidated retained earnings as of the end of the
year is:

Group of answer choices

$1,000,000

$800,000

$680,000

$320,000

Correct option is (c)

Barnes’ retained earnings from its own operations are equal to its ending
retained earnings of $680,000 ($500,000 plus $230,000 net income, less
$50,000 in dividends), less the $30,000 of subsidiary income since acquisition,
or $650,000.Barnes’ share of Nobles’ net income since acquisition, $30,000, is
then added to this amount, resulting in consolidated retained earnings of
$680,000

Question 21 pts
ABC owns 80 percent of XYZ Corporation’s common stock. For the current
financial year, ABC and XYZ reported sales of $500,000 and $320,000 and
expenses of $280,000 and $240,000, respectively. Based on the preceding
information, what is the amount of net income to be reported in the consolidated
income statement for the year under the proprietary theory approach?

Group of answer choices

$300,000

$284,000

$236,000

$280,000

Correct option is (b)

Consolidated net income is calculated as the net income of ABC ($220,000)plus
80 percent of net income of XYZ ($80,000). When applied to consolidated
financial statements, the proprietary concept results in a pro rata consolidation
in which the parent company consolidates only its proportionate share of a lessthan-wholly-owned subsidiary’s assets, liabilities, revenues, and expenses.

Question 31 pts

On January 1, 2001, ABC Company acquired all of the common stock of XYZ
Corporation for its underlying book value of $500,000. ABC accounts for its
investment in XYZ using the equity method. Information about the two
companies as of the date of combination and for the years 2018 and 2019 is as
follows.

2018

2019

ABC net income $150,00 $250,00
0
0
XYZ net income $100,00 $150,00
0
0

The amount reported for net income by ABC for the year ended 2019 would be:

Group of answer choices

$300,000

$200,000

$400,000

$250,000

Correct option is (c)

ABC’s reported net income is equal to net income from its own operations of
$250,000 plus its share of XYZ’s reported net income for 2019 of $150,000.
The two amounts total $400,000.

Question 41 pts
What type of beneficiary absorbs a majority of the variable interest entity’s
expected losses or receives a majority of the entity’s expected residual returns?

Group of answer choices

co-beneficiary

secondary beneficiary

primary beneficiary

contingent beneficiary

Correct option is (c)

The primary beneficiary of the VIE is an enterprise that will absorb a majority of
the VIEs losses or receive a majority of the VIEs expected residual returns (or
both).

Question 51 pts
On December 31, 2017, Dick Corporation acquired 75 percent of Van Dyke
Company’s common stock for $150,000. At that date, the fair value of the
noncontrolling interest was $50,000. Of the $70,000 differential, $10,000 related
to the increased value of Van Dyke’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. Van Dyke sold all
inventory it held at the end of 2017 during 2018. The land to which the differential
related was also sold during 2018 for a large gain. At the date of combination,
Van Dyke reported retained earnings of $80,000 and common stock outstanding
of $50,000. In 2018, Van Dyke reported net income of $60,000, but paid no
dividends. Dick accounts for its investment in Van Dyke using the equity method.
Based on the preceding information, what is the amount of write-off of differential
associated with this acquisition recorded by Dick during 2009?

Group of answer choices

$0

$32,500

$24,375

$15,000

Correct option is (d)

Goodwill is calculated as: total differential ($70,000) minus differential assigned
to identifiable assets and liabilities (inventory, land, equipment).

Question 61 pts
Barnes Corporation purchased 75 percent of Nobles’ common stock for
$262,500, which was acquired at book value. The fair value of the noncontrolling
interest at the date of acquisition was equal to their proportionate share of the
book value of Nobles. During the year, Nobles reports net income of $40,000,
while Barnes reports earnings of $200,000 from its own operations. Barnes pays
dividends during the year of $50,000, and Nobles pays dividends of $10,000. On
January 1, Barnes has a retained earnings balance of $500,000 while Nobles
has retained earnings of $300,000. Barnes accounts for its investment in Nobles
using the equity method. What is the total differential, assuming Barnes paid fair
value of $300,000 for 75 percent ownership of Nobles while Nobles’ book value
was $350,000?

Group of answer choices

$0

$37,500

$50,000 gain on bargain purchase

$50,000 complex positive differential

Correct option is (d)

The differential is calculated by the difference between the fair value and book
value of the company being purchased. The fair value of Nobles is $400,000
(300,000/.75). The book value is$350,000. There is a total differential of $50,000.
This differential is allocated between the controlling and noncontrolling interests.

Question 71 pts
Barnes Corporation purchased 75 percent of Nobles’ common stock for
$262,500, which was acquired at book value. The fair value of the noncontrolling
interest at the date of acquisition was equal to their proportionate share of the
book value of Nobles. During the year, Nobles reports net income of $40,000,
while Barnes reports earnings of $200,000 from its own operations. Barnes pays
dividends during the year of $50,000, and Nobles pays dividends of $10,000. On
January 1, Barnes has a retained earnings balance of $500,000 while Nobles
has retained earnings of $300,000. Barnes accounts for its investment in Nobles
using the equity method. Barnes reports the following for income from subsidiary
prior to consolidation:

Group of answer choices

$0

$22,500

$30,000

$37,500

Correct option is (b)

The income from Subsidiary is calculated by 75 percent of Barnes’ net income
$30,000. Dividends under the equity account reduce the Investment in Barnes’
stock account.

Question 81 pts
Barnes Corporation purchased 75 percent of Nobles’ common stock for
$262,500, which was acquired at book value. The fair value of the noncontrolling
interest at the date of acquisition was equal to their proportionate share of the
book value of Nobles. During the year, Nobles reports net income of $40,000,
while Barnes reports earnings of $200,000 from its own operations. Barnes pays
dividends during the year of $50,000, and Nobles pays dividends of $10,000. On
January 1, Barnes has a retained earnings balance of $500,000 while Nobles
has retained earnings of $300,000. Barnes accounts for its investment in Nobles
using the equity method. Barnes reports the following for investment in Nobles’
stock prior to consolidation:

Group of answer choices

$240,000

$285,000

$292,500

$300,000

Correct option is (b)

The investment account is calculated by acquisition price, $262,500, increased
by 75 percent of Nobles’ net income, $30,000, decreased by 75 percent of
dividends paid by Nobles, $7,500.

Question 91 pts
On December 31, 2017, Dick Corporation acquired 75 percent of Van Dyke
Company’s common stock for $150,000. At that date, the fair value of the
noncontrolling interest was $50,000. Of the $70,000 differential, $10,000 related
to the increased value of Van Dyke�...


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