Question: On January 1, 2015, Wells Corporation acquires

> We’re in the business of satisfying thirst. We do it very well. We’re also thirsty ourselves. Thirsty for continued profitable growth. Every gain delivers more for our shareholders. We’re thirsty for

> Internationally, legislators and professional bodies have focused on corporate governance issues in making recommendations for restoring investor confidence, and auditing is an essential part of corporate governance. Required: Explain the link between a

> In June 2004, the IFAC Ethics Committee issued its “Revision to Paragraph 8.151 Code of Ethics for Professional Accountants.” Accordingly, for the audit of listed entities, a. The lead engagement partner should be rotated after a predefined period, norma

> In June 2003, IFAC issued an IAPS providing additional guidance for auditors internationally when they express an opinion on financial statements that are asserted by management to be prepared in either of the following ways: • Solely in accordance with

> ISA 700 describes three types of audit opinions that can be expressed by the auditor when an unqualified opinion is not appropriate: qualified, adverse, and disclaimer of opinion. Required: What are the circumstances under which each of the above three

> The responsibility for harmonizing auditing standards across countries rests with IFAC. Required: Comment on some of the problems faced by IFAC in achieving the above goal.

> In Anglo-Saxon countries, mechanisms are put in place to regulate auditors within the framework of professional self-regulation, whereas in many Continental European countries, quasi-governmental agencies play a major role in this area. Required: a. Bri

> The UK Corporate Governance Code takes the “comply or explain” approach. Required: a. Describe the main features of the comply or explain approach to corporate governance. b. Why do you think this approach seems to be popular internationally?

> Refer to the Report of Independent Auditors of Unilever N. V. and Unilever PLC, signed on 5 March 2013 (see the appendix to this chapter). Required: Identify the features in the above audit report that are unique to an MNC.

> Globalization has made cultural values irrelevant as a factor influencing multinational business and accounting. Required: State whether or not you agree with the preceding statement, and develop an argument to support the position you have taken.

> Developing a global business strategy for an MNC is a highly complex task. Required: Briefly discuss the complexities referred to in the preceding statement.

> Late in 2009, Canyon Power Company (CPC) management was considering expansion of the company’s international business activities. CPC is an Arizona-based manufacturer of specialist electric motors for use in industrial equipment. All of

> Company R purchases a 25% interest in Company E on January 1, 2014, at its book value of $20,000. From 2014 through 2018, Company E earns a total of $200,000. From 2019 through 2023, it loses $300,000. In 2024, Company E reports net income of $30,000. Wh

> Company E reports net income of $100,000 for 2015. Assume the income is earned evenly throughout the year. Dividends of $10,000 are paid on December 31. What will Company R report as investment income under the following ownership situations, if: a. Comp

> Assume the same facts as for Question 1 above. The fair value of the investment in Company E is $220,000 on December 31, 2015. Answer the following questions assuming the investment is recorded using the fair value option: a. What is Company R’s investme

> Company P has internally generated net income of $250,000 (excludes share of subsidiary income). Company P has 100,000 shares of outstanding common stock. Subsidiary Company S has a net income of $60,000 and 40,000 shares of outstanding common stock. Wha

> On January 1, 2015, Company P sold a machine to its 70%-owned subsidiary, Company S, for $60,000. The book value of the machine was $50,000. The machine was depreciated using the straight-line method over five years. On December 31, 2017, Company S sold

> On January 1, 2016, Peanut Corporation acquires an 80% interest in Sunny Corporation. Information regarding the income and equity structure of the two companies as of the year ended December 31, 2018, is as follows: Additional information is as follo

> Company S is 80% owned by Company P. Near the end of 2015, Company S sold merchandise with a cost of $6,000 to Company P for $7,000. Company P sold the merchandise to a nonaffiliated firm in 2016 for $10,000. How much total profit should be recorded on t

> Par Company acquires 100% of the common stock of Sub Company for an agreedupon price of $900,000. The book value of the net assets is $700,000, which includes $50,000 of subsidiary cash equivalents. Existing fixed assets have fair values greater than the

> A primary beneficiary company has established control over a VIE by guaranteeing its long term debt and by establishing an income distribution contract. The balance sheet of the VIE on the acquisition date was as follows: The fair values of the land an

> Company P has internally generated net income of $200,000 (excludes share of subsidiary income). Company P has 100,000 shares of outstanding common stock. Subsidiary Company S has a net income of $60,000 and 40,000 shares of outstanding common stock. Com

> P Company acquires 80% of the common stock of S Company for an agreed-upon price of $640,000. The fair value of the NCI is $160,000. The book value of the net assets is $600,000, which includes $50,000 of subsidiary cash equivalents. Any excess is attrib

> What will be the effect of the above acquisition on cash flow statements prepared in periods after the year of the purchase?

> A parent company is a producer of production equipment, some of which is acquired and used by the parent’s subsidiary companies. The parent offers a discount to the subsidiaries but still earns a significant profit on the sales of equipment to a subsidia

> Your friend is a noncontrolling interest shareholder in a large company. He knows that the subsidiary company leases most of its assets from the parent company under operating leases. He further believes that the lease rates are in excess of market rates

> Company P purchased $100,000 of subsidiary Company S’s bonds for $96,000 on January 1, 2015, when the bonds had five years to maturity. The bonds had been issued at face value and pay interest at 8% annually. What will the impact of this transaction be o

> Subsidiary Company S has $1,000,000 of bonds outstanding at 8% annual interest. The bonds have 10 years to maturity. If the parent, Company P, is able to purchase the bonds at a price that reflects 6% annual interest, how will the noncontrolling interest

> Subsidiary Company S has $1,000,000 of bonds outstanding at 8% annual interest. The bonds have 10 years to maturity. If the parent, Company P, is able to purchase the bonds at a price that reflects 6% annual interest, what effect will the purchase have o

> Subsidiary Company S has $1,000,000 of bonds outstanding. The bonds have 10 years to maturity and pay interest at 8% annually. The parent has an average annual borrowing cost of 6% and wishes to reduce the interest cost of the consolidated company. What

> Company S is an 80%-owned subsidiary of Company P. Company S needed to borrow $500,000 on January 1, 2015. The best interest rate it could secure was 10% annual. Company P has a better credit rating and decided to borrow the funds needed from a bank at 8

> On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. Solar has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and divid

> Mast Corporation acquires a 75% interest in the common stock of Shaw Company on January 1, 2014, for $462,500 cash. Shaw has the following balance sheet on that date: Appraisals indicate that the book values for inventory, buildings and equipment, and

> P Company acquired the S Company for an agreed value of $900,000 and issues its common stock to make the deal. The fair value of the Company S net identifiable assets is $800,000. The issue costs of the stock used for payment is $50,000. If P Company was

> What are the accounting ramifications of each of the three following situations involving the payment of contingent consideration in an acquisition? a. P Company issues 100,000 shares of its $50 fair value ($1 par) common stock as payment to buy S Compan

> Harms acquires Blake on January 1, 2015, for $1,000,000. The amount of $800,000 is assigned to identifiable net assets. Goodwill is being impairment tested on December 31, 2019. There have not been any prior impairment adjustments. The following values a

> Pam Company acquires the net assets of Jam Company for an agreed-upon price of $900,000 on July 1, 2015. The value is tentatively assigned as follows: Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> Panther Company is acquiring the net assets of Sharon Company. The book and fair values of Sharon’s accounts are as follows: What values will be assigned to current assets, land, building and equipment, thecustomer list, liabilities,

> Puncho Company is acquiring the net assets of Semos Company in exchange for commonstock valued at $900,000. The Semos identifiable net assets have book and fairvalues of $400,000 and $800,000, respectively. Compare accounting for the acquisition (includi

> Subsidiary Company S is 80% owned by Company P. Company S sold a machine with a book value of $100,000 to Company P for $150,000. The asset has a 5-year life and is depreciated under the straight-line method. The president of Company S thinks it has scor

> During 2015, Company P sold $50,000 of goods to subsidiary Company S at a profit of $12,000. One-fourth of the goods remain unsold at year-end. If no adjustments were made on the consolidated worksheet, what errors would there be on the consolidated inco

> Abrams Company is a sole proprietorship. The book value of its identifiable net assetsis $400,000, and the fair value of the same net assets is $600,000. It is agreed that thebusiness is worth $850,000. What advantage might there be for the seller if the

> Refer to the preceding information for Fast Cool’s acquisition of Fast Air’s common stock. Assume Fast Cool issues 35,000 shares of its $20 fair value common stock for 80% of Fast Air’s common stock.

> Identify each of the following business combinations as being vertical-backward, vertical-forward, horizontal, product extension, market extension, or conglomerate: a. An inboard marine engine manufacturer is acquired by an outboard engine manufacturer.

> Albers Company acquires an 80% interest in Barker Company on January 1, 2015, for $850,000. The following determination and distribution of excess schedule is prepared at the time of purchase: Albers uses the simple equity method for its investment in

> The audit of Barns Company and its subsidiaries for the year ended December 31, 2016, is completed. The working papers contain the following information: a. Barns Company acquires 4,000 shares of Webo Company common stock for $320,000 on January 1, 2015.

> On January 1, 2016, Mitta Corporation acquires a 60% interest (12,000 shares) in Train Company for $156,000. Train stockholders’ equity on the purchase date is as follows: Common stock ($5 par). . . . . . . . . . . . . . . . . . . . .

> On January 1, 2016, Palo Company acquires 80% of the outstanding common stock of Sheila Company for $700,000. On January 1, 2018, Sheila Company sells 25,000 shares of common stock to the public at $12 per share. Palo Company does not purchase any of the

> On January 1, 2015, Bear Corporation acquires a 60% interest in Kelly Company and an 80% interest in Samco Company. The purchase prices are $225,000 and $250,000, respectively. The excess of cost over book value for each investment is considered to be go

> On January 1, 2017, Black Jack Corporation purchases all of the preferred stock and 60% of the common stock of Zeppo Company for $56,000 and $111,000, respectively. Immediately prior to the purchases, Zeppo Company has the following stockholdersâ&#

> The following information pertains to Titan Corporation and its two subsidiaries, Boat Corporation and Engine Corporation: a. The three corporations are all in the same industry and their operations are homogeneous. Titan Corporation exercises control ov

> Marsha Corporation purchases an 80% interest in the common stock of Transam Corporation on December 31, 2013, for $720,000, when Transam has the following condensed balance sheet: On the December 31, 2013, purchase date, the dividends on the preferre

> Refer to the preceding information for Fast Cool’s acquisition of Fast Air’s common stock. Assume Fast Cool issues 35,000 shares of its $20 fair value common stock for 80% of Fast Air’s common stock.

> The information shown on page 425 is available regarding the investments of Billings Corporation in Channel Company for the years 2011–2015. The stockholders’ equity section of Channel Company’s b

> On January 1, 2013, Carlos Corporation purchases 90% (18,000 shares) of the outstanding common stock of Dower Company for $504,000. Just prior to Carlos Corporation’s purchase, Dower Company has the following stockholdersâ€&#

> Kraus Company has the following balance sheet on July 1, 2016: On July 1, 2016, Neiman Company purchases 80% of the outstanding common stock of Kraus Company for $310,000. Any excess of book value over cost is attributed to the equipment, which has an

> Smith Company is acquired by Roan Corporation on July 1, 2015. Roan exchanges 60,000 shares of its $1 par stock, with a fair value of $18 per share, for the net assets of Smith Company. Roan incurs the following costs as a result of this transaction: Ac

> During 2017, Away Company acquires a controlling interest in Stallward, Inc. Trial balances of the companies at December 31, 2017, are as follows: The following information is available regarding the transactions and accounts of the two companies: a.

> On January 1, 2015, James Company purchases 70% of the common stock of Craft Company for $245,000. On this date, Craft has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. On Ma

> The following determination and distribution of excess schedule is prepared on January 1, 2012, the date on which Palmer Company purchases a 60% interest in Sharon Company: On December 31, 2013, Palmer Company purchases an additional 20% interest in

> Refer to the preceding facts for Parson’s acquisition of Solar common stock. Parson uses the simple equity method to account for its investment in Solar. During 2017, Solar sells $40,000 worth of merchandise to Parson. As a result of th

> Refer to the preceding facts for Parson’s acquisition of Solar common stock. Parson uses the simple equity method to account for its investment in Solar. During 2016, Solar sells $30,000 worth of merchandise to Parson. As a result of th

> On January 1, 2015, Pillar Company purchases an 80% interest in Stark Company for $890,000. On the date of acquisition, Stark has total owners’ equity of $800,000. Buildings, which have a 20-year life, are undervalued by $200,000. The r

> Refer to the preceding information for Fast Cool’s acquisition of Fast Air’s common stock. Assume Fast Cool issues 25,000 shares of its $20 fair value common stock for 100% of Fast Air’s common stock.

> On January 1, 2015, Pepper Company purchases 80% of the common stock of Salty Company for $270,000. On this date, Salty has total owners’ equity of $300,000. The excess of cost over book value is due to goodwill. For tax purposes, goodw

> On January 1, 2015, Dawn Corporation exchanges 12,000 shares of its common stock for an 80% interest in Mercer Company. The stock issued has a par value of $10 per share and a fair value of $25 per share. On the date of purchase, Mercer has the following

> Presented below are the consolidated work paper balances of Bush, Inc., and its subsidiary, Dorr Corporation, as of December 31, 2016 and 2015: Additional information: a. On January 20, 2016, Bush, Inc., issues 10,000 shares of its common stock for l

> Billing Enterprises purchases a 90% interest in the common stock of Rush Corporation on January 1, 2015, for an agreed-upon price of $495,000. Billing issues $400,000 of bonds to Rush shareholders plus $95,000 cash as payment. Rush’s ba

> Cardinal Company acquires an 80% interest in Huron Company common stock for $420,000 cash on January 1, 2015. At that time, Huron Company has the following balance sheet: Appraisals indicate that accounts are fairly stated except for the equipment, whi

> Refer to the preceding facts for Penske’s acquisition of Stock common stock. Penske accounts for its investment in Stock using the simple equity method, including income tax effects. During 2017, Stock sells $40,000 worth of merchandise

> Refer to the preceding facts for Penske’s acquisition of Stock common stock. Penske uses the simple equity method to account for its investment in Stock. During 2016, Stock sells $30,000 worth of merchandise to Penske. As a result of th

> On January, 1, 2015, Perko Company acquires 70% of the common stock of Solan Company for $385,000 in a taxable combination. On this date, Solan has total owners’ equity of $422,000, including retained earnings of $222,000. The excess of

> Marion Company is an 80% owned subsidiary of Lange Company. The interest in Marion is purchased on January 1, 2015, for $680,000 cash. The fair value of the NCI was $170,000. At that date, Marion has stockholders’ equity of $650,000. Th

> Princess Company acquired a 90% interest in Sundown Company on January 1, 2011, for $675,000. Any excess of cost over book value was due to goodwill. Capital balances of Sundown Company on January 1, 2011, were as follows: Common stock ($10 par). . . .

> Refer to the preceding information for Fast Cool’s acquisition of Fast Air’s common stock. Assume Fast Cool issues 40,000 shares of its $20 fair value common stock for 100% of Fast Air’s common stock.

> The problem below is an example of a question of the CPA ‘‘Other Objective Format’’ type as it was applied to the consolidations area. A mark-sensing answer sheet was used on the exa

> Refer to the preceding facts for Postman’s acquisition of 80% of Spartan’s common stock and the bond transactions. Postman uses the simple equity method to account for its investment in Spartan. On January 1, 2016, Pos

> Refer to the preceding facts for Postman’s acquisition of 80% of Spartan’s common stock and the bond transactions. Postman uses the simple equity method to account for its investment in Spartan. On January 1, 2015, Pos

> Refer to the preceding facts for Pontiac’s acquisition of 80% of Stark’s common stock and the bond transactions. Pontiac uses the simple equity method to account for its investment in Stark. On January 1, 2016, Stark h

> Refer to the preceding facts for Pontiac’s acquisition of 80% of Starks common stock and the bond transactions. Pontiac uses the simple equity method to account for its investment in Stark. On January 1, 2015, Stack held merchandise acq

> On January 1, 2021, Knight Corporation purchases all the outstanding shares of Craig Company for $950,000. It has been decided that Craig Company will use push-down accounting principles to account for this transaction. The current balance sheet is state

> On January 1, 2013, Appliance Outlets had the following balances in its stockholders’ equity accounts: Common Stock ($10 par), $800,000; Paid-In Capital in Excess of Par, $625,000; and Retained Earnings, $450,000. General Appliances acq

> On January 1, 2015, Parker Company acquired 90% of the common stock of Stride Company for $351,000. On this date, Stride had common stock, other paid-in capital in excess of par, and retained earnings of $100,000, $40,000, and $210,000, respectively. The

> Patter Inc. acquired an 80% interest in Swing Company for $480,000 on January 1, 2011, when Swing had the following stockholders’ equity: Common stock ($10 par). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 Additi

> Plessor Industries acquired 80% of the outstanding common stock of Slammer Company on January 1, 2015, for $320,000. On that date, Slammer’s book values approximated fair values, and the balance of its retained earnings account was $80,

> Refer to the preceding information for Fast Cool’s acquisition of Fast Air’s common stock. Assume Fast Cool issues 40,000 shares of its $20 fair value common stock for 100% of Fast Air’s common stock.

> Refer to the preceding facts for Press’s acquisition of Simon common stock. Press uses the simple equity method to account for its investment in Simon. On January 1, 2017, Press held merchandise acquired from Simon for $12,000. During 2

> Refer to the preceding facts for Press’s acquisition of Simon common stock. Press uses the simple equity method to account for its investment in Simon. On January 1, 2016, Press held merchandise acquired from Simon for $10,000. During 2

> Refer to the preceding facts for Press’s acquisition of Simon common stock. Press uses the simple equity method to account for its investment in Simon. On January 1, 2017, Press held merchandise acquired from Simon for $12,000. During 2

> Refer to the preceding facts for Press’s acquisition of Simon common stock. Press uses the simple equity method to account for its investment in Simon. On January 1, 2016, Press held merchandise acquired from Simon for $10,000. During 2

> Sym Corporation, a wholly owned subsidiary of Paratec Corporation, leased equipment from its parent company on August 1, 2016. The terms of the agreement clearly do not require the lease to be accounted for as a capital lease. Both entities are accountin

> Since its 100% acquisition of Dancer Corporation stock on December 31, 2012, Jones Corporation has maintained its investment under the equity method. However, due to Dancer’s earning potential, the price included a $40,000 payment for g

> Barns Corporation purchased a 10% interest in Delta Company on January 1, 2015, as an available for-sale investment for a price of $42,000. On January 1, 2020, Barns Corporation purchased 7,000 additional shares of Delta Company from existing shareholder

> The December 31, 2016, trial balances of Pettie Corporation and its 90%-owned subsidiary Sunco Corporation are as follows: Pettie’s investment in Sunco was purchased for $1,260,000 in cash on January 1, 2015, and was accounted for by

> Refer to the preceding facts for Panther’s acquisition of Sandin common stock. On January 1, 2016, Sandin held merchandise sold to it from Panther for $20,000. During 2016, Panther sold merchandise to Sandin for $100,000. On December 31, 2016, Sandin hel

> Refer to the preceding facts for Panther’s acquisition of Sandin common stock. On January 1, 2016, Panther held merchandise sold to it from Sandin for $12,000. This beginning inventory had an applicable gross profit of 25%. During 2016, Sandin sold merch

> Refer to the preceding information for Paulcraft’s acquisition of Switzer’s common stock. Assume that Paulcraft pays $420,000 for 70% of Switzer common stock. Paulcraft uses the cost method to account for its investmen

> On September 1, 2015, Parcel Corporation purchased 80% of the outstanding common stock of Sack Corporation for $152,000. On that date, Sack’s net book values equaled fair values, and there was no excess of cost or book value resulting f

> On January 1, 2015, Silvio Corporation exchanged on a 1-for-3 basis common stock it held in its treasury for 80% of the outstanding stock of Jenko Company. Silvio Corporation common stock had a market price of $40 per share on the exchange date. On the d

> Refer to the preceding facts for Packard’s acquisition of Stude common stock. On January 1, 2016, Packard held merchandise acquired from Stude for $10,000. This beginning inventory had an applicable gross profit of 25%. During 2016, Stude sold $40,000 wo