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Multiple Choice Questions LO1 1. Which of the following is a reason why a company would expand through a combination, rather than by building new facilities? a. A combination might provide cost advantages. b. A combination might provide fewer operating delays. c. A combination might provide easier access to intangible assets. d. All of the above are possible reasons that.

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LO5 Exercise 5 Stilt Corporation purchased a 40% interest in the common stock of Shallow Company for $2,660,000 on January 1, 2005, when the book value of Shallow’s net equity was $6,000,000. Shallow’s book values equaled their fair values except for the following items: Book Value Fair Value Difference Inventories $ 450,000 $ 500,000 $ 50,000 Land 100,000 450,000 350,000 Building-net 400,000 200,000 ( 200,000 ) Equipment-net 350,000 400,000 50,000 Required: Prepare a schedule to allocate any excess purchase.

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Multiple Choice Questions LO1 1. What method must be used if FASB 94 prohibits full consolidation of a 70% owned subsidiary? a. The cost method. b. The Liquidation value. c. Market value. d. Equity method. LO1 2. From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements? a. In substance the companies are separate,.

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LO3 Exercise 2 Wader’s Corporation paid $120,000 for a 25% interest in Shell Company on July 1, 2005. No information is available on the fair value of Shell’s assets and liabilities.  Assume the equity method.  Shell’s trail balances were as follows: Debits December 31 July 1 Current assets $  100,000 $  50,000 Noncurrent assets 300,000 310,000 Expenses 160,000 120,000 Dividends (paid in June) 40,000 40,000   Total $ 600,000 $.

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LO5 Exercise 7 Manucode Corporation paid $279,000 for 70% of Trumpet Corporation?s $10 par common stock on December 31, 2005, when Trumpet Corporation?s stockholders? equity was made up of $200,000 of Common Stock, $60,000 Additional Paid-in Capital and $40,000 of Retained Earnings. Trumpet?s identifiable assets and liabilities reflected their fair values on.

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Balance sheet information for Sphinx Company at January 1, 2005, is summarized as follows: Current assets     $ 230,000 Liabilities         $ 300,000 Plant assets 450,000 Capital stock $10 par 200,000 Retained earnings 180,000                    $ 680,000                     $ 680,000 Sphinx’s assets and liabilities are fairly valued except for plant assets that are undervalued by $50,000. On January 2, 2005, Pyramid Corporation issues 20,000 shares of its.

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LO5 Exercise 3 The consolidated balance sheet of Treecreeper Corporation and Ants Farm, its 90% owned subsidiary, as of December 31, 2005, contains the following accounts and balances: Treecreeper Corporation and Subsidiary Consolidated Balance Sheet at December 31, 2005 Balances Cash $ 19,000 Accounts receivable-net 70,000 Inventories 110,000 Other current assets 85,000 Plant assets-net 290,000 Goodwill from consolidation 39,000 $ 613,000 Accounts payable $ 73,000 Other liabilities 70,000 Capital stock 350,000 Retained earnings 80,000 Minority interest 40,000 $ 613,000 Treecreeper Corporation acquired its 90%.

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LO5 Exercise 5 Zoo Inc paid $268,000 to purchase 80% of the outstanding stock of Bird Corporation, on December 31, 2005. The following year-end information was available just before the purchase: Zoo Book Value Bird  Book Value Bird Fair Value Cash $ 378,000 $ 40,000 $ 40,000 Accounts Receivable 130,000 76,000 76,000 Inventory 240,000 50,000 55,000 Land 220,000 80,000 55,000 Plant and equipment-net 660,000 200,000 215,000 $ 1,628,000 $ 446,000 $ Accounts Payable $ 440,000 $ 11,000 $ 11,000 Bonds Payable 468,000 100,000 95,000 Capital stock, $10 par value 200,000 Capital stock, $15 par value 225,000 Additional paid-in capital 200,000 80,000 Retained earnings 320,000 30,000 $ 1,628,000 $ 446,000 Required: 1. Prepare.

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LO5 Exercise 4 Sandpiper Inc. acquired a 30% interest in Shore Corporation for $27,000 cash on January 1, 2005, when Shore’s stockholders’ equity consisted of $30,000 of capital stock and $20,000 of retained earnings. Shore Corporation reported net income of $18,000 for 2005. The allocation of the $12,000 excess of cost over.

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Exercise 4 The balance sheets of Palisade Company and Salisbury Corporation were as follows on December 31, 2004:                                  Palisade         Salisbury Current Assets $  260,000 $  120,000 Equipment-net    440,000    480,000 Buildings-net    600,000    200,000 Land    100,000    200,000 Total Assets $1,400,000 $1,000,000 Current Liabilities    100,000    120,000 Common Stock, $5 par 1,000,000    400,000 Paid-in Capital    100,000    280,000 Retained Earnings    200,000    200,000 Total Liabilities and Stockholders' equity $1,400,000 $1,000,000 On January 1, 2005.

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LO5 Exercise 10 On January 1, 2005, Shearwater, Co. purchased 60% of the outstanding voting common stock of Colony, Inc., for $1,800,000. The book value of Colony’s net equity on that date was $3,000,000. Book values were equal to fair values except as follows: Assets & Liabilities Book Values Fair Values Inventory $ 200,000 $ 225,000 Building 850,000 750,000 Note payable 300,000 320,000 Required: Prepare a schedule to.

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Multiple Choice Questions LO1 1 When Eagle Company has less than 50% of the voting stock of Fish Corporation which of the following applies? a. Only the fair value method may be used. b. Only the equity method may be used. c. Either the fair value method or the equity method may be used. d. Neither the fair value method or.

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LO5 11. On January 1, 2005, Tern purchased 90% of Costal Corporation’s outstanding shares for $1,400,000 when the fair value of Costal’s assets were equal to the book values.  The balance sheets of Tern and Costal Corporations at year-end 2004 are summarized as follows: Tern Costal Assets $ 5,900,000 $ 1,450,000 Liabilities $ 700,000 $ 250,000 Capital stock 3,600,000 1,000,000 Retained earnings 1,600,000 200,000 If a consolidated balance sheet was.

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LO5 Exercise 9 On January 1, 2005, Petrel, Inc. purchased 70% of the outstanding voting common stock of Ocean, Inc., for $2,600,000. The book value of Ocean’s net equity on that date was $3,100,000. Book values were equal to fair values except as follows: Assets & Liabilities Book Values Fair Values Equipment $ 250,000 $ 190,000 Building 600,000 700,000 Note payable 270,000 240,000 Required: Prepare a schedule to.

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LO5 Exercise 3 Dotterel Corporation paid $200,000 cash for 40% of the voting common stock of Swamp Land Inc. on January 1, 2005. Book value and fair value information for Swamp on this date is as follows: Assets Book Values Fair Values Cash $  60,000 $  60,000 Accounts receivable 120,000 120,000 Inventories 80,000 100,000 Equipment 340,000 400,000 $ 600,000 $ 680,000 Liabilities & Equities Accounts payable $ 200,000 $ 200,000 Note payable 120,000 100,000 Capital stock 200,000 Retained earnings 80,000 $ 600,000 $ 300,000 Required: Prepare.

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Exercise 5 Paradise Inc purchased the net assets of Sublime Company on January 2, 2005 for $320,000 and also paid $5,000 in direct acquisition costs. Sublime's balance sheet on January 2, 2005 was as follows: Accounts receivable-net   $180,000    Current liabilities    $ 25,000 Inventory                  180,000    Long term debt           90,000 Land                        30,000    Common stock ($1 par)   .

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General journal entry for the purchase of Carnac's net assets: Accounts receivable         90,000 Inventory                  200,000 Land                        25,000 Building                    30,000 Equipment                   35,000 Patent                      10,000 Goodwill                    15,000    Current liabilities                  35,000    Long-term debt                       80,000    Cash                                290,000 .

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