An Expense for the Current Year

1) Michangelo Co. paid accountants and lawyers $100,000 in order to acquire Florence Company. Michangelo will treat the $100,000:

an expense for the current year.

a prior period adjustment to retained earnings.

additional cost to investment of Florence on the consolidated balance sheet.

a reduction in paid-in capital

2) Raphael Company paid $2,000,000 for the net assets of Paris Corporation and Paris was then dissolved. Paris had no liabilities. The fair values of Paris? assets were $2,500,000. Paris?s only non-current assets were land and equipment with fair values of $160,000 and $640,000, respectively. At what value will the equipment be recorded by Raphael?

$240,000

$400,000

$640,000

3) Jacana Corporation paid $200,000 for a 25% interest in Lilypad Corporation?s common stock on January 1, 2005, but was not able to exercise significant influence over Lilypad. During 2006, Jacana reported income of $120,000, excluding its income from Lilypad, and paid dividends of $50,000. Lilypad reported net income of $40,000 during 2006 and paid dividends of $20,000. Jacana should report net income for 2006 in the amount of:

$115,000.

$120,000.

$125,000.

$130,000.

4) Jabiru Corporation purchased a 20% interest in Fish Company common stock on January 1, 2002 for $300,000. This investment is accounted for using the complete equity method and the correct balance in the Investment in Fish account on December 31, 2004 is $440,000. The original excess purchase transaction included $60,000 for a patent amortized at a rate of $6,000 per year. In 2005, Fish Corporation has net income of $4,000 per month earned uniformly throughout the year and pays $20,000 of dividends in May. If Jabiru sells one-half of its investment in Fish on August 1, 2005 for $500,000, how much gain will be recognized on this transaction?

$278,950

$280,000

$280,950

$282,000

5) Pardolate Corporation paid $200,000 for a 60% interest in Arthropod Inc on January 1, 2005, when Arthropod had Capital Stock of $200,000 and Retained Earnings of $100,000. Fair values of identifiable net assets were the same as recorded book values. During 2005, Arthropod had income of $30,000; declared dividends of $10,000 and paid $5,000 of dividends. On December 31, 2005, Pardolate will have

Investment in Salem account of $240,000.

Investment in Salem account of $218,000.

Goodwill of $20,000.

Dividends receivable of $3,000.

6) Spinebill Corporation bought 80% of Nectar Company?s common stock at its book value of $500,000 on January 1, 2005. During 2005, Nectar reported net income of $150,000 and paid dividends of $45,000. At what amount should Spinebill?s Investment in Nectar account be reported on December 31, 2005?

$500,000

$548,000

$584,000

$605,000

7) On January 1, 2006, Finch Corporation owned a 90% interest in Nest Corporation at which time the Investment in Nest account had a balance of $350,000, which was 90% of Nest?s $370,000 in stockholders? equity and $17,000 of goodwill. During 2006, Nest had income of $35,000 and paid dividends of $3,000 on June 1 and another $3,000 on November 1. On May 1, 2006, Finch sold one-fifth of its interest in Nest for $92,000. If the ?beginning-of-the-period? sales assumption is used, the balance in the Investment in Nest account on December 31, 2006 is:

$300,300.

$300,880.

$304,480.

$306,100.

8) Bowerbird Corporation purchased a 70% interest in Stage Corporation on June 1, 2006 at a purchase price of $390,400. On this date, Stage?s book values were equal to its fair values except for an unrecorded copyright, and its stockholders? equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to the copyright, which had an estimated economic life of ten years.

During 2006, Stage earned $120,000 of net income earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1.

Minority interest income for 2006 is: (Points: 4)

$36,000.

$32,400.

$61,200.

$50,000.

9) Bowerbird Corporation purchased a 70% interest in Stage Corporation on June 1, 2006 at a purchase price of $390,400. On this date, Stage?s book values were equal to its fair values except for an unrecorded copyright, and its stockholders? equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to the copyright, which had an estimated economic life of ten years.

10) During 2006, Stage earned $120,000 of net income earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1.

$315.

$560.

$815.

$960.