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 Topic: AICPA 2012 released questions ( Topic Closed)
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Spring Cpa
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Posts: 13
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| Posted: 13 Aug 2012 at 13:11 | IP Logged
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Hi you future CPAs, Yes You!! i need your help on 2 of the questions released by in the 2012 questions.
1. January 1, year 1, Peabody Co. purchased an investment for $400,000 that represented 30% of
Newman Corp.'s outstanding voting stock. For year 1, Newman reported net income of $60,000 and paid
dividends of $20,000. At year end, the fair value of Peabody's investment in Newman was $410,000.
Peabody elected the fair value option for this investment. What amount should Peabody recognize in net
income for year 1 attributable to the investment?
a. $6,000
b. $10,000
c. $16,000
d. $18,000
Explanation
Choice "c" is correct.
how is the answer here C? the answer I get is D
2. the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total
construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and
$300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%.
The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of
$800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize
as part of the cost of the plant addition?
a. $140,000
b. $132,000
c. $72,500
d. $60,000
Explanation
Choice "c" is correct.
This is jibberish to me, can anyone explain, how to go about solving this?
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Spring Cpa
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| Posted: 13 Aug 2012 at 14:31 | IP Logged
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please disregard this post, I was able to find out the answers.. thanks anyway guys
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wool1
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| Posted: 13 Aug 2012 at 15:20 | IP Logged
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Investment............18,000
................Equity income.........18,000
Cash......................6,000
................Investment..............6,000
But FV is used.
so the above entries aren't made.
The only entry needed is:
Investment.............10,000
................Equity Income..........10,000
no wait, that's not right, because you still need to record cash dividends that comes in, which means you would NEED to make at least that second entry above. So what I would do is...DO the first two entries above (repeated below), then force adjust Investment to 410,000. So you do
Investment............18,000
................Equity income.........18,000
Cash......................6,000
................Investment..............6,000
Then,
Equity Income..........2,000
.................Investment.............2,000
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Spring Cpa
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| Posted: 14 Aug 2012 at 12:08 | IP Logged
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thank you Wool!! when's ur exam?
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wool1
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| Posted: 15 Aug 2012 at 17:46 | IP Logged
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yw.
I took it last month and passed.
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