Exam 7: Investing Activities

Although the organizational structure and operating policies of a particular foreign unit determine its functional currency, discuss two actions that a management team might take to ensure that the foreign currency is the functional currency.

Penguin, Inc. acquires 100% of the outstanding shares of Snowflake Corp. for $2,250,000 and accounts for the transaction using the purchase method. Snowflake's balance sheet at the acquisition date is as follows: $\text {Snowtiake, Corp.}$ $\text {Balance Slieet}$ $\text {Acquisition Date}$ Current Historical Manket Cost Value Assets Current Assets \9 00,000 \9 00,000 Depreciable Assetsless Accumulated Depreciation \8 75,000 \1 ,250,000 Goodwill Total Assets \1 ,775,000 Liabilities and Equities Liabilities \1 ,100,000 \1 ,100,000 Deferred Income Tax Liability \1 25,000 \1 25,000 Shareholders' Equity \5 50,000 Total Liabilities and Equities \1 ,775,000 - Based on the information concerning Snowflake Corp. what is the market value of the company's shareholders' equity at the acquisition date?

Financial reporting requires firms to ____________________ immediately all R&D costs incurred internally.

Coffee Corp. purchased 40% of the outstanding shares of Cream Corp. for $1,854,000. The investment allows Coffee to exert significant influence over the operations of Cream. During 2011 Cream recognized net income of $2,450,000 and paid $560,000 in dividends. Discuss how Coffee should account for its investment in Cream and how the information would appear in Coffee's balance sheet, income statement, and cash flow statement.

Unrealized gains and losses that appear in accumulated other comprehensive income are from securities classified as ___________________________________ securities.

When a firm can exercise control or significantly influence the operations of a company it has only a minority interest in, it should account for the investment using the ______________________________.

Which of the following is the least effective way for an analyst to understand whether existing long-lived assets must be replaced?

An analyst can estimate the average total life of depreciable assets by

All of the following are factors that must be considered when measuring depreciation expense except:

Harbour Company purchased a new piece of equipment with a list price of $175,000 and subject to a 5 percent discount if paid within 45 days. Harbour paid within the discount period. The company also paid $1,500 to obtain title to the equipment and $600 as the license fee for the first year of operation. It paid $2,500 to level the area in which the equipment would be located and $12,500 to relocate other equipment that would have interfered with the proper operation of the new equipment. Harbour paid $400 for property and liability insurance for the first year of operation. What is the acquisition cost of this equipment that Harbour should record in its accounting records? Indicate the treatment of any amount not included in acquisition cost.

Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010. During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000. At the end of 2010 the market value of a share of Judd, Inc. stock has increased to $32 per share. - If Ashley Company accounts for the investment as a minority, passive and classifies the investment as an available-for-sale investment, Ashley will recognize what amount of 2010 income from the investment?

Penguin, Inc. acquires 100% of the outstanding shares of Snowflake Corp. for $2,250,000 and accounts for the transaction using the purchase method. Snowflake's balance sheet at the acquisition date is as follows: $\text {Snowtiake, Corp.}$ $\text {Balance Slieet}$ $\text {Acquisition Date}$ Current Historical Manket Cost Value Assets Current Assets \9 00,000 \9 00,000 Depreciable Assetsless Accumulated Depreciation \8 75,000 \1 ,250,000 Goodwill Total Assets \1 ,775,000 Liabilities and Equities Liabilities \1 ,100,000 \1 ,100,000 Deferred Income Tax Liability \1 25,000 \1 25,000 Shareholders' Equity \5 50,000 Total Liabilities and Equities \1 ,775,000 - Based on the information concerning Snowflake Corp. by what amount would Penguin increase depreciable assets when it consolidates Snowflake on the acquisition date?

All of the following are typically costs that fail the future benefits test of long-lived operating assets except:

When a foreign entity has the foreign currency as its functional currency, it uses which exchange rate to translate revenues and expenses in the income statement?

The three types of costs incurred in coal production are acquisition costs (costs to acquire the coal rich lands plus the present value of future cash flows necessary to restore the sites minus the cost of the land), exploration costs (costs of mining), and development costs (pipes, roads, and so on, to extract and transport the coal to customers). Required: Should each of these costs be capitalized or expensed? Explain.

When dividends from an investment are recognized as a reduction of the investment account, the investment must have been of which type?

Carlson Company began constructing a building for its own use in January 2012. During 2012, Carlson incurred interest of $70,000 on specific construction debt and $15,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 2012 as $60,000. Required: What amount of interest should Carlson capitalize?

Examine the five following cases and determine if the functional currency of a U.S. parent's foreign unit is the foreign currency or the U.S. Dollar. Scenario Functional Currency is? Receivables and payables denominated in foreign currency are not usually remitted to parent company. Sales prices are influenced by worldwide competitive conditions and responsive on a short-term basis to exchange rate changes. Foreign unit obtains materials primarily from its own country. The unit's financing is taken care of through ongoing fund transfers by the parent. There is a low volume of intercompany transactions and little operational interrelations between the U.S. parent and foreign unit.

Focus Company's accounting manager decided to start capitalizing the company's routine repairs and maintenance expense, starting in 2011. What effect will this change have on the company's 2012 income and assets respectively?

Under IFRS, when an asset is revalued upwards, subsequent depreciation is based on