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10-1 Chapter 10 Insolvency – Liquidation and Reorganization 10-1           David Corporation filed a petition under Chapter 7 of the U.S. Bankruptcy Act on June 30, 2004.  Data relevant to its financial position as of this date are:                                                                                                                   Estimated Net                                                                               Book Value              Realizable Values Cash                 $  1,000$   1,000 Accounts receivable-net      24,000   16,000 Inventories      .
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12-5On October 1, 2003, Kline Company shipped equipment to a foreign customer for a foreign currency (FC) price of FC 1,000,000 due on January 31, 2004.  All revenue realization criteria were satisfied and accordingly the sale was recorded by Kline Company on October 1.  Simultaneously, Kline entered into a forward.
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11.The following balance sheet accounts of a foreign subsidiary at December 31, 2004, have been translated into U.S. dollars as follows:        Translated at         Current RatesHistorical Rates Accounts receivable, current$400,000$440,000 Accounts receivable, long-term200,000216,000 Inventories carried at market120,000132,000 Goodwill  160,000  180,000 $880,000$968,000 What total should be included in the translated balance sheet at December 31, 2004, for the above items? .
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Problems 8-1Peete Company purchased Snead Company common stock through open-market purchases as follows: ACQUIRED DATESHARESCOST 1/1/031,500$ 40,000 1/1/043,30080,000 1/1/056,600 215,000 Snead Company had 12,000 share of $20 par value common stock outstanding during the entire period.  Snead had the following retained earnings balances on the relevant dates: January 1, 2003$ 73,000 January 1, 200425,000 January 1, 2005120,000 December 31, 2005240,000 Snead.
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Problems 7-1Porter Company, a computer manufacturer, owns 90% of the outstanding stock of Sloan Company.  On January 1, 2004, Porter sold computers to Sloan for $400,000.  The computers, which are inventory to Porter, had a cost to Porter of $280,000.  Sloan Company estimated that the computers had a useful life of.
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12-3United, Inc., a U.S. corporation, entered into a contract on November 1, 2003 to sell two machines to International Company, for 60,000 foreign currency units (FCU).  The machines were to be delivered and the amount collected on March 1, 2004. In order to hedge its commitment, United entered into a forward.
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8-5               P Company purchased 48,000 shares of the common stock of S Company for $600,000 on January 1, 2001, when S’s stockholder’s equity consisted of $5 par value, Common Stock at $300,000 and Retained Earnings of $400,000.  The difference between cost and book value relates to goodwill.   On January 2, 2004,.
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Multiple Choice 1.A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a a.hedge of a net investment in a foreign entity. b.hedge of an exposed asset or liability position. c.hedge of an identifiable foreign currency commitment. d.contract.
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11.When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when the selling affiliate is a.the parent and the subsidiary is less than wholly owned. b.a wholly owned subsidiary. c.the subsidiary and.
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13-2Sloan Corporation, a U.S. company, operates a 100%-owned British subsidiary, Winsor Corporation.  The U.S. dollar is the functional currency of the subsidiary.  Financial statements for the subsidiary for the fiscal year-end Dec. 31, 2004 are as follows: Winsor Corporation Income Statement Pounds Sales560,000 Cost of Goods Sold Beginning Inventory280,000 Purchases240,000 Goods Available For Sale520,000 Less:  Ending Inventory250,000 Cost of Goods.
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Use the following information for Questions 11-13 On January 1, 2000, Polk Company purchased 8,000 of the 10,000 outstanding common shares of Salt Company for $380,000. On January 1, 2004, Polk Company sold 1,000 of its shares of Salt Company on the open market for $90 per share. Salt Company's stockholders'.
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Multiple Choice 1.When translating foreign currency financial statements for a company whose functional currency is the U.S. dollar, which of the following accounts is translated using historical exchange rates? Notes PayableEquipment a.YesYes b.YesNo c.NoNo d.NoYes 2.Under the temporal method, monetary assets and liabilities are translated by using the exchange rate existing at the a.beginning of the current year b.date.
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1.Which of the following statements relating to differences in worldwide accounting standards and practices is not correct? Goodwill is not amortized in some countries until it is apparent that it has diminished in value. The pooling of interests method of recording a business combination is permitted in only a few countries. In the.
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10-1 Chapter 10 Insolvency – Liquidation and Reorganization Problems 10-1           On January 1, 2004, Kmart owed City Bank $800,000, under an 8% note with three years remaining to maturity.  Due to financial difficulties, Kmart was unable to pay the previous year’s interest.  City Bank agreed to settle Kmart’s debt in exchange for land.
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7-3Preston Company owns 104,000 of the 130,000 shares outstanding of Stine Corporation.  Stine Corporation sold equipment to Preston Company on January 1, 2003 for $740,000.  The equipment was originally purchased by Stine Corporation on January 1, 1999 for $1,280,000 and at that time its estimated depreciable life was 8 years. .
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Multiple Choice 1.In the year a subsidiary sells land to its parent company at a gain, a workpaper entry is made debiting 1. Retained Earnings - P Company. 2. Retained Earnings - S Company. 3. Gain on Sale of Land. a.1 b.2 c.3 d.both 1 and 2. 2.In years subsequent to the year a 90% owned subsidiary sells equipment.
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6-8 Pomona Corporation purchased a 90% interest in Seattly Company on January 2, 2005.  It accounts for its investment in Seattly using the cost method.  Pomona bought Seattly because Seattly was its primary supplier of merchandise for resale.  During 2005, Pomona bought merchandise from Seattly.  The selling price to Pomona was.
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Multiple Choice 1.When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year's income sold to noncontrolling stockholders includes a a.debit to Subsidiary Income Sold. b.debit to Equity in Subsidiary Income. c.credit to Equity in Subsidiary Income. d.credit to Subsidiary Income Sold. 2.A parent company.
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6-7On January 1, 2004, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000.  At that time, Salem Company had common stock of $550,000 and retained earnings of $155,000.  Porter Company uses the cost method to record its investment in Salem Company.  Differences between the.
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8-3Pryor Company purchased 20,000 shares of Saver Company's common stock for $430,000 on January 1, 2003.  At that time Saver Company had $250,000 of $10 par value common stock and $150,000 of retained earnings.  Saver Company's income earned and increase in retained earnings             during 2003 and 2004 were: 20032004 Income earned$130,000$180,000 Increase in.
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Multiple Choice 1.Which of the following methods of allocating the gain or loss on an intercompany bond retirement is the soundest conceptually? a.The gain (loss) is allocated to the company that issued the bonds. b.The gain (loss) is allocated to the company that purchased the bonds. c.The gain (loss) is allocated to the parent.
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10-1 Chapter 10 Insolvency – Liquidation and Reorganization Multiple Choice 1.A corporation that is unable to pay its debts as they become due is: bankrupt. overdrawn. insolvent. liquidating. 2.When a business becomes insolvent, it generally has three possible courses of action.  Which of the following is not one of the three possible courses of action? the debtor and its.
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6-5 The following balances were taken from the records of S Company: Common stock$1,000,000 Retained earnings, 1/1/04              $580,000 Net income for 2004              1,200,000 Dividends declared in 2004                (620,000) Retained earnings, 12/31/04  1,160,000 Total stockholders' equity, 12/31/04$2,160,000 P Company owns 80% of the common stock of S Company.  During 2004, P Company purchased merchandise from S Company.
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Problems 13-1Ramsey, Inc. owns a company that operates in France.  Account balances in francs for the subsidiary are shown below: 2004 January 1December 31 Cash and Receivables              24,000              26,000 Supplies              1,000               500 Property, Plant, and Equipment              52,500              49,000 Accounts Payable              (11,500)              (5,500) Long-term Notes Payable              (19,000)              (11,000) Common Stock              (30,000)              (30,000) Retained Earnings              (17,000)              (17,000) Dividends-Declared & Paid on Dec.
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10-1 Chapter 10 Insolvency – Liquidation and Reorganization 10-1           On January 2, 2003 Roberts, Inc. was indebted to First Bank under a $20 million, 10% unsecured note.  The note was signed January 2, 1997, and was due December 31, 2006.  Annual interest was last paid on December 31, 2001.  Roberts negotiated a.
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11.The exchange rate quoted for future delivery of foreign currency is the definition of a(n) a.direct exchange rate. b.indirect exchange rate. c.spot rate. d.forward exchange rate. 12.A transaction loss would result from a.an increase in the exchange rate applicable to an asset denominated in a foreign currency. b.a decrease in the exchange rate applicable to a liability.
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11.Simms Corporation is an 80% owned subsidiary of Pitts Company. Simms  purchased bonds of Pitts Company for $103,000.  Pitts Company reported the bond liability on the date of purchase at $100,000 less unamortized discount of $10,000.  Assuming that the constructive gain or loss is material, the consolidated income statement should.
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Problems 9-1On January 1, 2004, Paul Company acquired an 80% interest in Stoner Company for $535,000.  Stoner reported common stock of $500,000 and retained earnings of $200,000 on this date.  Any difference between cost and the book value interest acquired is attributable to land. Other information available for Stoner Company is shown.
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7-5On January 1, 2003, Poland Company purchased equipment from its 80%-owned subsidiary for $1,200,000.  On the date of the sale, the carrying value of the equipment on the books of the subsidiary company was $900,000. The equipment had a remaining useful life of six years on January 2003.  On January.
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9-5On January 1, 2004, Petty Company acquired 90% of the common stock of Stark Company for $360,000 and 20% of the preferred stock for $35,000.  On this date Stark Company reported the following account balances: Common stock ($10 par value)$300,000 Preferred stock ($100 par value, 9%, cumulative, nonparticipating, liquidation value equal to par value)150,000 Other.
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Problems 12-1On November 1, 2003, Dexter Company sold inventory to a company in England.  The sale was for 300,000 British pounds and payment will be received on February 1, 2004.  On November 1, Dexter entered into a forward contract to sell 300,000 British pounds on February 1 at the forward rate.
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10-1 Chapter 10 Insolvency – Liquidation and Reorganization 10-1           Anderson Corporation incurred major losses in 2003 and entered into voluntary Chapter 7 bankruptcy in the early part of 2004.  By June 1, all assets were converted into cash, the secured creditors were paid, and $50,000 in cash was left to pay the.
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Problems 11-1Barkley, Inc. maintains its financial statements following non-U.S. GAAP.  The income statement and balance sheet are as follows: Barkley, Inc. Income Statement      2003       2004   .       Sales              2,800,000 FC              3,100,000 FC Cost of Goods Sold              2,100,000              2,260,000 Gross Margin              700,000              840,000 Selling and Administration expense              420,000              430,000 Income before Tax              280,000              410,000 Tax Expense                85,000             .
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9-6On January 1, 2003, P Company acquired 80% of S Company's common stock for $105,000 and 70% of S's preferred stock for $40,000.  S Company reported the following stockholders' equity on this date: Preferred stock, 8%, Par value $20$  50,000 Common stock, Par value $50100,000 Premium on common stock15,000 Retained earnings  40,000 Total$205,000 The preferred stock.
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7-8On January 2, 2004, Plymouth Corporation sold a piece of equipment to its 80% subsidiary Shakopee Corporation.  The equipment originally cost Plymouth $50,000 and had accumulated depreciation of $20,000.  Plymouth sold it to Shakopee for $35,000.  It has a remaining useful life of 5 years.  Plymouth uses the cost method.
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10-1 Chapter 10 Insolvency – Liquidation and Reorganization 10 –7  Miller Corporation is facing bankruptcy proceedings.  A balance sheet dated December 31, 2005 and other information is presented below. Miller Company Balance Sheet December 31, 2005                                                                                                                               Fair Value Cash$15,000 Accounts receivable                                                $10,000 Less:  Allowance for uncollectibles                            1,2008,800$ 8,000 Inventory18,00015,000 Property and equipment (net)45,00030,000 Goodwill  5,000-0- $91,800 Accounts payable$20,000 Accrued liabilities5,000 Long-term notes.
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12-8 MDS is an international company which often enters into long-term contracts with foreign companies.  At the present time, MDS has just completed a major contract with a Japanese company.  The company considers that all the revenue has been earned, so has recorded a receivable as of November 1, 2002.  The.
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8-4Pool made the following purchases of Stone Company common stock: Date              Shares              Cost 1/1/03              35,000 (70%)                  $500,000 1/1/04              5,000 (10%)              80,000 Stockholders' equity information for Stone Company for 2003 and 2004 follows: 20032004 Common stock, $10 par value              $500,000              $500,000                                                             1/1 Retained earnings              150,000              190,000 Net income              55,000              70,000 Dividends declared, 12/15                 (15,000)                .
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10-1 Chapter 10 Insolvency – Liquidation and Reorganization 11.Which statement with respect to gains and losses on troubled debt restructuring is correct?     Creditors losses on restructuring are extraordinary.    Debtor’s gains and losses on asset transfers and debtor’s gains on restructuring are combined and treated as extraordinary.     Debtor gains and creditor losses on restructuring.
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