TAX 9863 Study Guide - Final Guide: Capital Account
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Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2017, for $3,800 cash. As of that date Hurley has the following trial balance:
| Debit | Credit | ||||||
| Cash | $ | 500 | |||||
| Accounts receivable | 600 | ||||||
| Inventory | 800 | ||||||
| Buildings (net) (5 year life) | 1,500 | ||||||
| Equipment (net) (2 year life) | 1,000 | ||||||
| Land | 900 | ||||||
| Accounts payable | $ | 400 | |||||
| Long-term liabilities (due 12/31/20) | 1,800 | ||||||
| Common stock | 1,000 | ||||||
| Additional paid-in capital | 600 | ||||||
| Retained earnings | 1,500 | ||||||
| Total | $ | 5,300 | $ | 5,300 | |||
Net income and dividends reported by Hurley for 2017 and 2018 follow:
| 2017 | 2018 | |||||
| Net income | $ | 100 | $ | 120 | ||
| Dividents | 30 | 40 | ||||
The fair value of Hurley’s net assets that differ from their book values are listed below:
| Fair Value | |||
| Buildings | $ | 1,200 | |
| Equipment | 1,250 | ||
| Land | 1,300 | ||
| Long-term liabilities | 1,700 | ||
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life .
1. Compute the amount of Hurley's inventory that would be reported in a January 1, 2017, consolidated balance sheet.
Multiple Choice
a. $800.
b. $100.
c. $900.
d. $150.
e. $0.
2. Compute the amount of Hurley's buildings that would be reported in a December 31, 2017, consolidated balance sheet.
Multiple Choice
a. $1,560.
b. $1,260.
c. $1,440.
d. $1,160.
e. $1,140.
3. Compute the amount of Hurley's buildings that would be reported in a December 31, 2018, consolidated balance sheet.
Multiple Choice
a. $1,620.
b. $1,380.
c. $1,320.
d. $1,080.
e. $1,500.
(Note: Question 53 is a Kaplan CPA Review Question)
The condensed balance sheet of Adams & Gray, a partnership, atDecember 31, 20X1, follows:
| Current Assets | $250,000 |
| Equipment (net) | 30,000 |
| TotalAssets | $280,000 |
| Liabilities | $20,000 |
| Adams, capital | 160,000 |
| Gray, capital | 100,000 |
| Totalliabilities and capital | $280,000 |
On December 31, 20X1, the fair values of the assets and liabilitieswere appraised at $240,000 and $20,000, respectively, by anindependent appraiser. On January 2, 20X2, the partnership wasincorporated and 1,000 shares of $5 par value common stock wereissued. Immediately after the incorporation, what amount should thenew corporation report as additional paid-in capital?
$215,000
$0
$275,000
$260,000
On a partner's personal statement of financial condition, assetsand liabilities are presented:
I. As current and noncurrent.
II. In order of liquidity and maturity.
Neither I nor II
II
Both I and II
I
18.
(Note: Question 52 is a Kaplan CPA Review Question)
The following balance sheet is for the partnership of Able, Bayer,and Cain which shares profits and losses in the ratio of 4:4:2,respectively.
| Assets | |
| Cash | $20,000 |
| OtherAssets | 180,000 |
| $200,000 | |
| Liabilities andCapital | |
| Liabilities | $50,000 |
| Able,Capital | 37,000 |
| Bayer,Capital | 65,000 |
| Cain,Capital | 48,000 |
| $200,000 |
The original partnership was dissolved when its assets,liabilities, and capital were as shown on the above balance sheetand liquidated by selling assets in installments. The first sale ofnoncash assets having a book value of $90,000 realized $50,000, andall cash available after settlement with creditors was distributed.How much cash should the respective partners receive (to thenearest dollar)?
Able $0; Bayer $3,000; Cain $17,000.
Able $6,667; Bayer $6,667; Cain $6,666.
Able $8,000; Bayer $8,000; Cain $4,000.
Able $0; Bayer $13,333; Cain $6,667.
19.
On a partner's personal statement of changes in net worth, whattype(s) of income is(are) recognized?
I. Realized
II. Unrealized
II only
Neither I nor II
I only
Both I and II
20.
The JKL partnership liquidated its business in 20X9. Due to anexpected long liquidation period, a cash distribution plan wasdeveloped. The initial sale and realization of cash from noncashassets resulted in partner K properly getting $24,000. No otherpartners received cash along with K. Based upon this information,which of the following statements is correct?
I. K's loss absorption power (LAP) was higher than J's LAP and L'sLAP.
II. K's capital balance was substantially larger than the balancesof J and L.
Neither I nor II
I only
II only
Either I or II
Data Table
Outdoor Adventure Company | |||
Comparative Balance Sheet | |||
December 31, 2019 and 2018 | |||
2019 | 2018 | ||
Assets | |||
Current Assets: | |||
Cash | $1,398,330 | $14,790 | |
Short-term Investments, net | 29,000 | 0 | |
Accounts Receivable, net | 1,600 | 6,300 | |
Merchandise Inventory | 400 | 0 | |
Office Supplies | 70 | 300 | |
Prepaid Rent | 0 | 2,000 | |
Property, Plant, and Equipment: | |||
Land | 615,000 | 75,000 | |
Building | 944,000 | 94,000 | |
Canoes | 13,920 | 13,920 | |
Office Furniture and Equipment | 140,000 | 0 | |
Accumulated Depreciation—PP&E | (31,920) | (1,740) | |
Total Assets | $3,110,400 | $204,570 | |
Liabilities | |||
Current Liabilities: | |||
Accounts Payable | $6,420 | $4,400 | |
Utilities Payable | 550 | 250 | |
Telephone Payable | 640 | 290 | |
Wages Payable | 3,700 | 1,200 | |
Notes Payable | 18,000 | 0 | |
Interest Payable | 630 | 30 | |
Unearned Revenue | 650 | 450 | |
Long-Term Liabilities: | |||
Notes Payable | 6,720 | 6,720 | |
Mortgage Payable | 725,000 | 0 | |
Bonds Payable | 1,000,000 | 0 | |
Discount on Bonds Payable | (1,140) | 0 | |
Total Liabilities | 1,761,170 | 13,340 | |
Stockholders' Equity | |||
Paid-In Capital: | |||
Preferred Stock | 60,000 | 0 | |
Paid-In Capital in Excess of Par—Preferred | 480,000 | 0 | |
Common Stock | 229,000 | 189,000 | |
Paid-In Capital in Excess of Par—Common | 240,000 | 0 | |
Retained Earnings | 340,230 | 2,230 | |
Total Stockholders' Equity | 1,349,230 | 191,230 | |
Total Liabilities and Stockholders' Equity | $3,110,400 | $204,570 | |
1. | Theincome statement for 20192019 included the following items: | |
a. | Net income, $ 435 comma 000$435,000 | |
b. | Depreciation expense for the year, $ 30 comma 180$30,180. | |
c. | Amortization on the bonds payable, $ 380$380. | |
2. | There were no disposals of property, plant and equipment duringthe year. All acquisitions of PP&E were for cash except theland, which was acquired by issuing preferred stock. | |
3. | Thecompany issued bonds payable with a face value of $ 1 comma 000 comma 000$1,000,000 , receiving cash of$ 998 comma 480$998,480. | |
4. | Thecompany distributed 8 comma 0008,000 shares of common stock in a stock dividend when the market valuewas$ 9.00$9.00 per share. All other dividends were paid in cash. | |
5. | The common stock, except for the stock dividend, was issued forcash. | |
6. | Thecash receipt from the notes payable in 20192019 is considered a financing activity because it does not relate tooperations. | |
Net Cash Provided by (Used for) Investing Activities | (990,000) |
Cash Flows From Financing Activities: | ||
Cash Receipt from Issuance of Common Stock | ||
Cash Receipt from Issuance of Notes Payable | ||
Cash Receipt from Issuance of Mortgage Payable | ||
Cash Receipt from Issuance of Bonds Payable | ||
Cash Payment of Dividends | ||
Net Cash Provided by (Used for) Financing Activities |
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