Examination card №9

on the discipline “Financial Accounting II”

for the 3rd year students

1. What is push down accounting?

2. On January 1, 2013, Tonge Industries had outstanding 440,000 common shares (par $l) that originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock (par $100), convertible into 40,000 common shares.

On October 1, 2013, Tonge sold and issued an additional 16,000 shares of common stock at $33. At December 31, 2013, there were incentive stock options outstanding, issued in 2012, and exercisable after one year for 20,000 shares of common stock at an exercise price of $30. The market price of the common stock at year-end was $48. During the year the price of the common shares had averaged $40. Net income was $650,000. The tax rate for the year was 40%.

Required:

Compute basic and diluted EPS for the year ended December 31, 2013.

3. On April 1, Par Company paid $1,600,000 for all the issued and outstanding common stock of Son Corporation in a transaction properly accounted for as an acquisition. Son Corporation is dissolved. The recorded assets and liabilities of Son Corporation on April 1 follow:

Cash 160,000

Inventory 480,000

Property and equipment (net of accumulated depreciation of $640,000) 960,000

Liabilities (360,000)

On April 1, it was determined that the inventory of Son had a fair value of $380,000 and the property and equipment (net) had a fair value of $1,120,000. What is the amount of goodwill resulting from the acquisition?

Lecturer A. Kaldarova ______________________

Confirmed at the meeting of the department of "Socio-Economic Disciplines"

Minute №____ from ____ of 2015.

The dean of the faculty "International Educational Programs"

Ronald Voogdt _____________

^{name signature}

Examination card №10

on the discipline “Financial Accounting II”

for the 3rd year students

1. Why are preferred dividends deducted from net income when calculating EPS? Are there circumstances when this deduction is not made?

2. Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2013. The tax rate is 40%. The only difference between accounting income and taxable income relates to an operating lease in which Arnold is the lessee. The inception of the lease was December 28, 2013. An $8 million advance rent payment at the inception of the lease is tax-deductible in 2013 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.

Required:

1. Determine the amounts necessary to record Arnold’s income taxes for 2013 and prepare the appropriate journal entry.

2. Determine the amounts necessary to record Arnold’s income taxes for 2014 and prepare the appropriate journal entry. Pretax accounting income was $50 million for the year ended December 31, 2014.

1. Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: 1. Pay $1,000,000 in cash immediately. 2. Pay $420,000 immediately and the remainder in 10 annual installments of $80,000, with the first installment due in one year. 3. Make 10 annual installments of $135,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,500,000 five years from date of purchase.

Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at an 8% interest rate.

Lecturer A. Kaldarova ______________________

Confirmed at the meeting of the department of "Socio-Economic Disciplines"

Minute №____ from ____ of 2015.

The dean of the faculty "International Educational Programs"

Ronald Voogdt _____________

^{name signature}