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Multiple Choice 1.A majority-owned subsidiary that is in legal reorganization should normally be accounted for using a.consolidated financial statements. b.the equity method. c.the market value method. d.the cost method. 2.Under the purchase method, indirect costs relating to acquisitions should be a.included in the investment cost. b.expensed as incurred. c.deducted from other contributed capital. d.none of these. 3.Eliminating entries are made to.
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1-4The following balances were taken from the records of S Company: Common stock (1/1/04 and 12/31/04)$360,000 Retained earnings 1/1/04$81,000 Net income for 200490,000 Dividends declared in 2004              (21,000) Retained earnings, 12/31/04  150,000 Total stockholders' equity on 12/31/04$510,000 P Company purchased 75% of S Company's common stock on January 1, 2004 for $450,000.  The difference between cost and.
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5-9 On January 2, 2004, Potomac Corporation bought 90% of Seine Company for $1,789,000.  At the time of the acquisition, Seine’s common stock was $1,000,000, and retained earnings was $900,000.  The only differences between the fair value and book value of S’s assets were as follows: Book ValueFair Value Inventory$   750,000$  765,000 Equipment (net)1,200,0001,230,000 Seine’s.
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Problems 3-1On December 31, 2004, Page Company purchased 80% of the outstanding common stock of Short Company for cash.  At the time of acquisition, Short Company's balance sheet was as follows: Current assets$  840,000 Plant and equipment790,000 Land     140,000 Total assets$1,770,000 Liabilities$   660,000 Common stock, $10 par value720,000 Other contributed capital350,000 Retained earnings     120,000 Total$1,850,000 Treasury stock at cost, 4,000 shares      .
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5-5Pope Corporation acquired a 75% interest in Steele Company on January 1, 2004 for $1,300,000.  The book value and fair value of the assets and liabilities of Steele Company on that date were as follows: Book ValueFair Value Current Assets$   400,000$   400,000 Property & Equipment (net)900,0001,200,000 Land500,000600,000 Deferred Charge     200,000     200,000 Total Assets$2,000,000$2,400,000 Less Liabilities     400,000     400,000 Net.
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2-3Pate Company acquired the assets (except cash) and assumed the liabilities of Sand Company on January 1, 2004, paying $1,200,000 cash. Immediately prior to the acquisition, Sand Company's balance sheet was as follows: BOOK VALUEFAIR VALUE Accounts receivable (net)$   120,000$   110,000 Inventory145,000160,000 Land480,000754,000 Buildings (net)     510,000     696,000 Total$1,255,000$1,720,000 Accounts payable$   135,000$  135,000 Note payable300,000300,000 Common stock, $5 par210,000 Other contributed.
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3-3P Company purchased 27,000 shares of the common stock of S Company on January 1, 2004, for $475,000 cash. The stockholders' equity section of S Company's balance sheet on that date was as follows: Common stock, $10 par value$300,000 Other contributed capital40,000 Retained earnings  160,000 Total$500,000 On the date of purchase, S Company owed P.
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11.Describe a test of controls that would provide evidence that only authorized program maintenance is occurring. 12.Auditors do not rely on detailed knowledge of the application's internal logic when they use the __________________________ approach to auditing computer applications. 13.Describe parallel simulation. 14.What is meant by auditing around the computer versus auditing through the.
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Problems 6-1On January 1, 2004, Persen Company purchased a 90% interest in Singer Company for $1,400,000.  At that time, Singer had $920,000 of common stock and $180,000 of retained earnings.  The difference between cost and book value was allocated to the following assets of Singer Company: Inventory$ 40,000 Plant and equipment (net)120,000 Goodwill250,000 The plant.
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Problems 4-1On January 1, 2004, Price Company purchased an 80% interest in the common stock of Sealy Company for $520,000, which was $60,000 greater than the book value of equity acquired.  The difference between cost and book value relates to the subsidiary's land. The following information is from the consolidated retained earnings.
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1.An investor adjusts the investment account for the amortization of any difference between cost and book value under the a.cost method. b.complete equity method. c.partial equity method. d.complete and partial equity methods. 2.Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to a.Dividend Income. b.Dividends Declared - S Company. c.Equity in.
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SHORT ANSWER 1.Contrast the source program library (SPL) management system to the database management system (DBMS). 2.Describe two methods used to control the source program library. 3.New system development activity controls must focus on the authorization, development, and implementation of new systems and its maintenance. Discuss at least five control activities that are.
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4-3On January 1, 2004, Peeler Company purchased 80% of the common stock of Sanders Company for $300,000.  At that time, Sanders’ stockholders' equity consisted of the following: Common stock$110,000 Other contributed capital 45,000 Retained earnings160,000 During 2004, Sanders distributed a dividend in the amount of $60,000 and at year-end reported a $160,000 net income. .
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11.A business combination is accounted for properly as a purchase. Which of the following expenses related to effecting the business combination should enter into the determination of net income of the combined corporation for the period in which the expenses are incurred? Accounting and Overhead allocated consulting feesto the merger a.YesYes b.YesNo c.NoYes d.NoNo 12. In a.
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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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11.Achieving batch control objectives requires grouping similar types of input transactions (such as sales orders) together in batches and then controlling the batches throughout data processing. 12.The "white box" tests of program controls are also known as auditing through the computer. 13.The presence of a SPLMS effectively guarantees program integrity. 14.When using the.
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Multiple Choice 1.A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n) a.agreeable combination. b.friendly combination. c.hostile combination. d.unfriendly combination. 2.A merger between a supplier and a customer is a(n) a.friendly combination. b.horizontal combination. c.unfriendly combination. d.vertical combination. 3.When a business acquisition is financed using debt, the interest payments are tax.
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21.When following the parent company concept in the preparation of consolidated financial statements, noncontrolling interest in combined income is considered a(n) a.prorated share of the combined income. b.addition to combined income to arrive at consolidated net income. c.expense deducted from combined income to arrive at consolidated net income. d.deduction from current assets in the.
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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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3-5 P Corporation paid $279,000 for 70% of S Corporation’s $10 par common stock on December 31, 2004, when S Corporation’s stockholders’ equity was made up of $200,000 of Common Stock, $60,000 of Other Contributed Capital and $40,000 of Retained Earnings.  S’s identifiable assets and liabilities reflected their fair values.
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5-3On January 1, 2004, Palmer Corporation acquired an 80% interest in  Sealy Company for $1,200,000.  At that time Sealy Company had common stock of $900,000 and retained earnings of $400,000.  The book values of Sealy Company's assets and liabilities were equal to their fair values except for land and bonds.
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3.The presence of an audit trail is critical to the integrity of the accounting information system. Discuss three of the techniques used to preserve the audit trail. 4.Define each of the following input controls and give an example of how they may be used: a.  Missing data check b.  Numeric/alphabetic data check c.  Limit.
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6.What are the three categories of processing control? 7.What control issue is related to reentering corrected error records into a batch processing system? What are the two methods for doing this? 8.Output controls ensure that output is not lost, misdirected, or corrupted and that privacy is not violated. What are some output.
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21.In a business combination in which the total fair value of the identifiable assets acquired over liabilities assumed is greater than the cost, the excess fair value is: classified as an extraordinary gain. allocated first to reduce proportionately non-current assets, except long-term marketable securities, and any remaining excess over cost is classified.
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2-7 Proust Corporation is considering a merger with Seville Company.  After considerable negotiations, the two companies determined that two shares of each Seville Company stock would be replaced with one share of Proust stock.  The balance sheets of the two companies are below, along with the fair value of Seville’s identifiable.
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4-5P Company purchased 90% of the common stock of S Company on January 2, 2004 for $450,000. On that date, S Company's stockholders' equity was as follows: Common stock, $20 par value$200,000 Other contributed capital50,000 Retained earnings225,000 During 2004, S Company earned $100,000 and declared a $50,000 dividend. P Company uses the partial equity.
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4-7On January 1, 2004, P Company acquired 80% of the outstanding capital stock of S Company for $380,000.  On that date, the capital stock of S Company was $100,000 and its retained earnings were $300,000. On the date of acquisition, the assets of S Company had the following values:     Fair Market                      .
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11.Which of the following is a limitation of consolidated financial statements? a.Consolidated statements provide no benefit for the stockholders and creditors of the parent company. b.Consolidated statements of highly diversified companies cannot be compared with industry standards. c.Consolidated statements are beneficial only when the consolidated companies operate within the same industry. d.Consolidated statements are.
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8.Contrast Embedded Audit Modules with Generalized Audit Software. 9.What is the purpose of the auditor's review of SDLC documentation? 10.Microcomputers have traditionally been difficult to control, leaving auditors with special problems in verifying physical controls. Discuss what an auditor's objectives might be in testing microcomputer controls. 11.Contrast the "black box" approach to IT.
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Multiple Choice 1.Assets and liabilities acquired are recorded at their fair values under a.The pooling of interests method. b.The purchase method. c.Both the purchase and the pooling of interests methods. d.Neither the purchase nor the pooling of interests methods. 2.Equity shares issued as consideration are recorded at the book value of the acquired shares under a.The pooling.
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Multiple Choice 1.When the acquisition cost exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as a.excess of cost over fair value. b.a deferred credit. c.difference between cost and fair value. d.goodwill. 2.Long-term debt and other obligations of an acquired company should be valued for consolidation purposes at their a.book value. b.carrying.
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Multiple Choice 1.Sales from one subsidiary to another are called a.downstream sales. b.upstream sales. c.intersubsidiary sales. d.horizontal sales. 2.Noncontrolling interest in combined income is never affected by a.upstream sales. b.downstream sales. c.horizontal sales. d.Noncontrolling interest is affected by all sales. 3.Failure to eliminate intercompany sales would result in an overstatement of consolidated a.net income. b.gross profit. c.cost of sales. d.all of these. 4.Price Company owns 80%.
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Problems 5-1Philco Company purchased a 90% interest in Smith Corporation for $780,000 on January 1, 2004.  Smith Corporation had $550,000 of common stock and $350,000 of retained earnings on that date. The following values were determined for Smith Corporation on the date of purchase: BOOK VALUEFAIR VALUE Inventory$ 80,000$100,000 Land800,000900,000 Equipment540,000 600,000 Required: A.Prepare a computation and allocation.
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31.All of the following concepts are associated with the black box approach to auditing computer applications except a.the application need not be removed from service and tested directly b.auditors do not rely on a detailed knowledge of the application's internal logic c.the auditor reconciles previously produced output results with production input transactions d.this approach.
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Problems 2-1Balance sheet information for Steve Corporation at January 1, 2004, is summarized as follows: Current assets$ 230,000Liabilities$ 300,000 Plant assets   450,000Capital stock $10 par   200,000      Retained earnings   180,000 $ 680,000$ 680,000 Steve’s assets and liabilities are fairly valued except for plant assets that are undervalued by $50,000.  On January 2, 2004, Paul Corporation.
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Problems 1-1Plantier Company is considering the acquisition of Barkley, Inc.  To assess the amount it might be willing to pay, Plantier makes the following computations and assumptions. A.Barkley, Inc. has identifiable assets with a total fair value of $9,000,000 and liabilities of $5,300,000.  The assets include office equipment with a fair value.
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1-3Penn Company acquired an 80% interest in the common stock of Sweet Company for $772,000 on July 1, 2004.  Sweet Company's stockholders' equity on that date consisted of: Common stock$400,000 Other contributed capital200,000 Retained earnings165,000 The book values of Sweet's assets and liabilities are equal to their fair values except for the following:     Book.
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11.Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company’s a.recorded net income. b.recorded net income plus the subsidiary's recorded net income. c.recorded net income plus the its share of the subsidiary's recorded net income. d.income from independent operations plus its share of the subsidiary's.
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11.An example of a hash total is a.total payroll checks–$12,315 b.total number of employees–10 c.sum of the social security numbers–12,555,437,251 d.none of the above 12.Which statement is not true? A batch control record a.contains a transaction code b.records the record count c.contains a hash total d.control figures in the record may be adjusted during processing e.All the above are true 13.Which.
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2-5              The stockholders’ equities of P Corporation and S Corporation were as follows on January 1, 2004:     P Corp.    S Corp.  Common Stock, $1 par$2,000,000$   600,000 Other Contributed Capital  5,500,000  1,100,000 Retained Earnings  1,300,000     340,000   Total Stockholders’ equity$8,800,000$2,040,000 On January 2, 2004 P Corp. issued 200,000 of its shares with a market value.
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11.A potential offering price for a company is computed by adding the estimated goodwill to the book value of the company’s net assets. book value of the company’s identifiable assets. fair value of the company’s net assets. fair value of the company’s identifiable assets. 12.Estimated goodwill is determined by computing the present value of the .
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21.Run-to-run control totals can be used for all of the following except a.to ensure that all data input is validated b.to ensure that only transactions of a similar type are being processed c.to ensure the records are in sequence and are not missing d.to ensure that no transaction is omitted 22.Methods used to maintain an.
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5.After data is entered into the system, it is processed. Processing control exists to make sure that the correct things happen during processing. Discuss processing controls. 6.If input and processing controls are adequate, why are output controls needed? 7.Describe and contrast the test data method with the integrated test facility. .
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11.On November 30, 2004, Page, Incorporated purchased for cash of $50 per share all 300,000 shares of the outstanding common stock of Stark Company. Stark's balance sheet at November 30, 2004 showed a book value of $12,000,000. Additionally, the fair value of Stark's property, plant, and equipment on November 30,.
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11.P Company sold merchandise costing $90,000 to S Company (90% owned) for $112,500. At the end of the current year, one-third of the merchandise remains in S Company's inventory. Applying the lower-of- cost-or-market rule, S Company wrote this inventory down to $34,500.  What amount of intercompany profit should be eliminated.
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MULTIPLE CHOICE 1.Which statement is not correct? The audit trail in a computerized environment a.consists of records that are stored sequentially in an audit file b.traces transactions from their source to their final disposition c.is a function of the quality and integrity of the application programs d.may take the form of pointers, indexes, and embedded.
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