question 27
Multiple Choice
On January 1, 2019, King Corp. acquired 80% of Kong Corp. for $500,000. King uses the cost method to account for its investment. On January 1, 2019, Kong's retained earnings and common shares were $350,000 and $110,000, respectively.
Kong's book values did not differ materially from its fair values on the date of acquisition with the following exceptions:
? Inventory had a fair value that was $20,000 higher than its book value. This inventory was sold to outsiders during 2019.
? A patent (which had not previously been accounted for) was identified on the acquisition date with an estimated fair value of $15,000. The patent had an estimated useful life of 3 years.
The Financial Statements of King Corp. and Kong Corp. for the year ended December 31, 2020 are shown below:
Income Statements
Sales Other Revenues Less: Expenses Cost of Goods Sold Depreciation Expense Other Expenses Income Tax Expense Net Income King Corp. $500,000$300,000$400,000$20,000$80,000$120,000$180,000 Kong Corp. $300,000$120,000$240,000$10,000$40,000$52,000$78,000 Retained Earnings Statements
Balance, January 1, 2020 Net Income Less: Dividends Retained Earnings King Corp $250,000$180,000($30,000) $400,000 Kong Corp $350,000$78,000($38,000) $390,000 Balance Sheets
Cash Accounts Receivable Inventory Investment in Kong Corp. Land Equipment Accumulated Depreciation Total Assets Current Liabilities Dividends Payable Common Shares Retained Earnings Total Liabilities and Equity King Corp $50,000$100,000$50,000$500,000$400,000($250,000) $850,000$320,000$30,000$100,000$400,000$850,000 Kong Corp $25,000$250,000$250,000$25,000$200,000($150,000) $600,000$62,000$38,000$110,000$390,000$600,000 Other Information:
? King sold a tract of Land to Kong at a profit of $10,000 during 2020. This land is still the property of Kong Corp.
? On January 1, 2020, Kong sold equipment to King at a price that was $20,000 higher than its book value. The equipment had a remaining useful life of 4 years from that date.
? On January 1, 2020, King's inventories contained items purchased during 2019 from Kong for $10,000. This entire inventory was sold to outsiders during 2020. Also during 2020, King sold inventory to Kong for $50,000. Half this inventory is still in Kong's warehouse at year end. All sales are priced at a 25% mark-up above cost, regardless of whether the sales are internal or external.
? There was a goodwill impairment loss of $4,000 during 2020.
? Both companies are subject to an effective tax rate of 40%
? Both companies use straight line amortization.
What is the total amount of unrealized pre-tax profits in inventory at the start of 2021?
Understand the process of converting between currencies and the impact of exchange rates on these conversions.
Analyze cost-benefit scenarios involving international travel expenditures.
Calculate the financial impact of changing exchange rates on investments and savings.
Solve problems related to the appreciation and depreciation of currencies.
Definitions:
REM Sleep Deprivation
The lack of REM (Rapid Eye Movement) sleep, a stage of sleep characterized by vivid dreams, which can lead to cognitive impairments and mood disturbances.
Intense Learning
Engaging deeply in the educational process, often characterized by a high level of concentration and active involvement in mastering new skills or knowledge.
Neuroadaptation
The process by which the brain adapts to changes in its environment, often in response to repeated exposure to substances, leading to tolerance or dependence.
Drug Tolerance
A physiological state where the effectiveness of a drug decreases as a result of repeated use, often leading to the need for increased doses.