Multiple Choice Questions

DATA for question 14 - 17

(see chart in attached file)

14. Assume that Allen issues 10,000 shares of common stock with a $5 par value and a $40 fair market value to obtain all of Tucker's outstanding stock. How much goodwill should be recognized?
a. -0-
b. $15,000
c. $35,000
d. $100,000

15. For the fiscal year ending December 31, 2004, how will consolidated net income of this business combination be determined if Allen acquires all of Tucker's stock in a purchase?
a. Allen's income for the past year plus Tucker's income for the past six months.
b. Allen's income for the past year plus Tucker's income for the past year.
c. Allen's income for the past six months plus Tucker's income for the past six months.
d. Allen's income for the past six months plus Tucker's income for the past year.

16. Assume that Allen issues preferred stock with a par value of $200,000 and a fair market value of $335,000 for all shares of Tucker. What will be the balance in the consolidated Inventory, Land, and beginning Retained Earnings accounts?
a. $365,000, $410,000, and $130,000.
b. $365,000, $430,000, and $130,000.
c. $352,500, $417,500, and $280,000.
d. $335,000, $430,000, and $280,000.

17. Assume that Allen pays a total of $370,000 in cash for all of the shares of Tucker. In addition, Allen pays $30,000 to a group of attorneys for their work in arranging the acquisition. What will be the balance in consolidated goodwill and retained earnings?
a. 0 and $90,000.
b. 0 and $280,000.
c. $15,000 and $280,000.
d. $15,000 and $130,000.
(AICPA adapted)

Chapter 3:

21. Jefferson, Inc., purchases Hamilton Corporation on January 1, 2004. Immediately after the acquisition, the two companies have the following account balances. Hamilton's equipment (with a five year life) is actually worth $450,000. Any goodwill is considered to have an indefinite life.

Jefferson Hamilton
Current assets . . . . . . . . . . . . . . . . . . . $300,000 $210,000
Investment in Hamilton . . . . . . . . . . . . 510,000
Equipment . . . . . . . . . . . . . . . . . . . . . 600,000 400,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . 200,000 160,000
Common stock . . . . . . . . . . . . . . . . . . 350,000 150,000
Retained earnings . . . . . . . . . . . . . . . . 860,000 300,000

In 2004, Hamilton earns a net income of $55,000 and pays a $5,000 cash dividend. At the end of
2005, selected account balances for the two companies are as follows:

Jefferson Hamilton
Revenues . . . . . . . . . . . . . . . . . . . . . . $400,000 $240,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . 290,000 180,000
Investment income . . . . . . . . . . . . . . . not given
Retained earnings, 1/1/05 . . . . . . . . . . not given 350,000
Common stock . . . . . . . . . . . . . . . . . . 350,000 150,000
Current assets . . . . . . . . . . . . . . . . . . . 360,000 140,000
Investment in Hamilton . . . . . . . . . . . . not given
Equipment . . . . . . . . . . . . . . . . . . . . . 520,000 420,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . 170,000 190,000

a. What will be the December 31, 2005, balance in the Investment Income account and the Investment in Hamilton account under each of the three methods described: equity method, partial equity method and cost method?
b. How is the consolidated Expense account affected by the accounting method used by the parent to record ownership of this subsidiary?
c. How is the consolidated Equipment account affected by the accounting method used by the parent to record ownership of this subsidiary?
d. What is Jefferson's Retained Earnings balance as of January 1, 2005, under each of the three methods described in this chapter?
e. What is Entry *C on a consolidation worksheet for 2005 under each of the three methods described?
f. What is Entry S on a consolidation worksheet for 2005 under each of the three methods described?
g. What is consolidated net income for 2005?