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4352 FINAL EXAM QUESTIONS &
ANSWERS(RATED A+)
Selection of appropriate exchange rate for translation A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating: Salaries expense Sales to external customers a. Yes Yes b. Yes No c. No Yes d. No No - ANSWERa. Yes Yes Selection of appropriate exchange rate for translation Gordon Ltd., a 100% owned British subsidiary of a U.S. parent company, reports its financial statements in local currency, the British pound. A local newspaper published the following U.S. exchange rates to the British pound at year end: Current Rate $1. Historical rate (acquisition) 1. Average rate 1. Inventory (FIFO) 1. Which currency rate should Gordon use to convert its income statement to U.S. dollars at year end? Select one: $1. $1. $1. $1.70 - ANSWER$1. Definition of functional currency The functional currency is the currency: Select one: Of the country in which the parent is located Of the county in which the subsidiary is located Of the country in which the subsidiary maintains its accounting records Of the environment in which a subsidiary primarily generates and expends cash - ANSWEROf the environment in which a subsidiary primarily generates and expends cash Reporting of remeasurement gains and losses Gains and losses from remeasuring a foreign subsidiary's financial statements should be reported: Select one: In current income In other comprehensive income
As a one-time item, net of income taxes As a prior period adjustment - ANSWERIn current income Selection of appropriate exchange rate for remeasurement An item that should be remeasured using the historical exchange rate is: Select one: Accounts receivable Long-term notes payable Cash Prepaid expenses - ANSWERPrepaid expenses Reporting of translation and remeasurement gains and losses One of our subsidiary companies maintains its accounting records in Euros and designates the British pound as its functional currency. Your computations yield a translation loss of $7,000 and a remeasurement gain of $5,000. What amount should you report as a gain (loss) in your income statement? Select one: $ $5, ($7,000) ($2,000) - ANSWER$5, Effects of translation adjustments on income and cash flow Assume that your subsidiary operated independently of the parent company. Which if the following is true? Translation adjustments have an immediate effect on cash flows Translation adjustments should be reflected in earnings a. No No b. No Yes c. Yes No d. Yes Yes - ANSWERa. No No Cumulative translation adjustment account During the translation process, the current year change to the cumulative translation adjustment is a function of which of the following relationships of the subsidiary? Select one: Its operating cash flows Its monetary assets minus monetary liabilities Its current assets minus current liabilities Its total assets minus total liabilities - ANSWERIts total assets minus total liabilities Reporting of translation gains and losses If a subsidiary's financial statements are translated, the translation gain (loss) is related to changes in: Select one: The subsidiary's operating profit The subsidiary's net monetary assets
C. Assets are translated at the exchange rate at the balance sheet date, but liabilities are translated at the exchange rate in effect with the liabilities were incurred. D. Revenues and expenses must be translated at the exchange rate in effect then they are recognized. - ANSWERA. Assets and liabilities are translated at the exchange rate at the balance sheet date regardless of when they arose. Which of the following best describes the translation of financial statements? Select one: A. All asset, liability and equity accounts are translated at the current exchange rate on the financial statement date. B. All asset, liability and equity accounts are translated at an average exchange rate for the period. C. Common stock and APIC accounts are translated at their respective historical exchange rates. D. All equity accounts are translated at their respective historical exchange rates. - ANSWERC. Common stock and APIC accounts are translated at their respective historical exchange rates. Which of the following best describes the cumulative translation adjustment? Select one: A. The cumulative translation adjustment is a plug figure to balance the trial balance. B. Changes in the cumulative translation adjustment are reflected in net income for the period. C. The cumulative translation adjustment reflects changes in the fair values of marketable securities on the balance sheet. D. The cumulative translation adjustment can only be a positive dollar amount. - ANSWERA. The cumulative translation adjustment is a plug figure to balance the trial balance. How should the foreign currency transaction gain or loss be reported on our company's financial statements at December 31? A gain of $7,800 in the income statement A loss of $7,800 in the income statement A gain of $13,000 in the income statement A loss of $13,000 in the income statement - ANSWERA loss of $7,800 in the income statement Definition of a derivative financial instrument A derivative financial instrument is best described as Evidence of an ownership interest in an entity such as shares of common stock. A contract that conveys to a second entity a right to receive cash from a first entity A contract that conveys to a second entity a right to future collections on accounts receivable from a first entity. A contract that has its settlement value tied to an underlying notional amount. - ANSWERA contract that has its settlement value tied to an underlying notional amount. Which of the following statements is true? Select one:
A. Direct computation of the translation adjustment only involves the current year and begins at a zero amount. B. Net income is multiplied by the difference between the end-of-year exchange rate and the beginning-of-year exchange rate. C. Net income is multiplied by the difference between the end-of-year exchange rate and the average exchange rate. D. The cumulative translation adjustment computation contains an adjustment to reflect changes in the fair value of the net assets of the company. - ANSWERC. Net income is multiplied by the difference between the end-of-year exchange rate and the average exchange rate. A highly inflationary economy is best defined as Select one: A. one which has a cumulative inflation of over 100% over a three-year period. B. one in which the rate of inflation is greater than that of the parent company. C. one with inflation that is greater than its neighboring countries. D. None of the above. - ANSWERA. one which has a cumulative inflation of over 100% over a three-year period. Which of the following best describes the accounting for nonmonetary assets and liabilities? Select one: A. They are reported at their historical cost. B. They are reported at market value. C. Declines in market value are recognized, but only if other than temporary. D. We recognize decreases in fair value, but not increases. - ANSWERA. They are reported at their historical cost. Which of the following best describes the accounting for nonmonetary assets and liabilities? Select one: A. They are reported at fair value. B. Revenues and expenses arising from these assets are translated at historical cost. C. They are reported at fair value only if less than historical cost. D. None of the above are true. - ANSWERB. Revenues and expenses arising from these assets are translated at historical cost Which of the following statements is not true? Select one: A. Gains and losses arising from remeasurement are reflected in current income. B. Cost of Goods Sold is not computed as the product of the foreign currency amount and an exchange rate. C. There is no cumulative translation adjustment arising from the remeasurement process. D. Remeasurement gains and losses are reflected in Other Comprehensive Income (OCI). - ANSWERD. Remeasurement gains and losses are reflected in Other Comprehensive Income (OCI).
December 31 1. January 20 1. Recognizing gains and losses on foreign-currency-denominated transactions On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 3,000 pounds (exchange rate, 1 pound = $1.41). At the company's December 31 fiscal year end, the exchange rate was 1 pound = $1.38. The exchange rate was 1 pound = $1.36 on collection in January of the subsequent year. The functional currency for the U.S. company is the $US. What amount would the company recognize as a gain(loss) from foreign currency translation when the receivable is collected? $(60) $ $(150) $150 - ANSWER$(60) Recognizing foreign currency exchange losses On November 2, 2018, a U.S.-based company with the $US as its functional currency entered into a 90-day futures contract to purchase 60,000 Swiss francs when the contract quote was $1.06. The purchase was for speculation in price movement. The following exchange rates existed during the contract period: 30 Day Futures Spot Rate November 2, 2018 $1.00 $1. December 31, 2018 $1.02 $1. January 31, 2019 $1.03 $1. What amount should the U.S.-based company report as foreign currency exchange loss in its income statement for the year ended December 31, 2018? $3, $3, $2, $1,200 - ANSWER$2, Recognizing foreign currency exchange losses On September 3, 2018, a U.S.-based company with the $US as its functional currency purchased merchandise for 16,000 units of the foreign company's local currency. On that date, the spot rate was $1.44. The U.S.-based company paid the bill in full on February 15, 2019, when the spot rate was $1.41. The spot rate was $1.40 on December 31, 2018. What amount should the U.S.-based company report as a foreign currency transaction gain (loss) in its income statement for the year ended December 31, 2018? $ $ $(640) $(480) - ANSWER$ Recording adjustments to accounts receivable denominated in a foreign currency
On November 1, 2018, our company sells to a retailer located in Spain 10,000 units of a product at a sales price of €18 per unit, and we require payment in Euros (€). The exchange rate on the date of sale is $1.22:€1.The due date for payment is February 1, 2019. To mitigate the risk of exchange rate fluctuations between the sale date and the collection date, on November 1, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to deliver €180,000 on February 1, 2019, while we lock in the $US we will receive on that date at the forward rate of $1.26:€1 (i.e., the forward rate on November 1, 2018 for settlement on February 1, 2019). Assume this derivative qualifies as a fair value hedge.The following table includes the spot rates and forward rates on November 1, 2018, December 31, 2018, - ANSWERc. $19,800 debit to "Accounts receivable (€180,000)" Recording adjustments to derivative designated as a fair value hedge of a foreign- currency denominated accounts receivable On November 1, 2018, our company sells to a retailer located in Spain 10,000 units of a product at a sales price of €18 per unit, and we require payment in Euros (€). The exchange rate on the date of sale is $1.22:€1.The due date for payment is February 1, 2019. To mitigate the risk of exchange rate fluctuations between the sale date and the collection date, on November 1, 2018, our company enters into a forward contract with an exchange broker. The contract obligates our company to deliver €180,000 on February 1, 2019, while we lock in the $US we will receive on that date at the forward rate of $1.26:€1 (i.e., the forward rate on November 1, 2018 for settlement on February 1, 2019). Assume this derivative qualifies as a fair value hedge.The following table includes the spot rates and forward ra - ANSWERd. $14,400 debit to "Sales" Recording sales transactions qualifying as foreign-currency firm commitments Assume our U.S.-based company's functional currency is the $US and it enters into a "firm commitment" with a Portugal-based retailer on November 15, 2018. The firm commitment requires our company to sell 40,000 units of an inventory item costing €20 each to the Portuguese company. Our company is contractually committed to ship the inventory (i.e., title transfers) on February 15, 2019, with payment in Euros on the same date. Our company does recurring business with the Portuguese company, and the firm commitment includes significant monetary penalties for nonperformance. Also assume, on November 15, 2018, our company enters into a contract with a foreign currency exchange broker to sell Euros (for settlement on February 15, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a fair value hedge. The relevant - ANSWERa. $ If a company reports a payable denominated in Euros (€) and the $US weakens vis- à-vis the Euro Select one: A. the company will not report the change in the relative value of the payable until the payable is paid. B. the company will accrue the gain in its financial statements as of the statement date, even before the payable is paid. C. the company will accrue the loss in its financial statements as of the statement date, even before the payable is paid.
Recording transactions qualifying as cash flow hedges of forecasted foreign- currency denominated sales Assume our U.S.-based company's functional currency is the $US dollar and it enters into a forecasted transaction with an England-based retailer on December 1,
- The forecasted transaction requires our company to sell 75,000 units of an inventory item costing £12 each to the English company. Our company is contractually committed to ship the inventory (i.e., title transfers) on March 1, 2019, with payment in British pounds on the same date. Our company does recurring business with the English company, but this arrangement does not qualify as a firm commitment. Also assume, on December 1, 2018, our company enters into a contract with a foreign currency exchange broker to sell British pounds (for settlement on March 1, 2019) to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a cash fl - ANSWERb. $1,233, Recognition of losses on derivatives in other comprehensive income The loss associated with a change in fair value of a derivative instrument should be reported as a component of other comprehensive income only if the derivative is appropriately designated as a Fair value hedge of the foreign currency exposure of an unrecognized firm commitment Fair value hedge of the foreign currency exposure of a recognized asset or liability for which a foreign currency transaction gain or loss is recognized in earnings Cash flow hedge of the foreign currency exposure of a forecasted transaction Speculation in a foreign currency - ANSWERCash flow hedge of the foreign currency exposure of a forecasted transaction Which of the following best describes the effects of foreign currency fluctuations on the financial statements of companies with foreign currency-denominated assets and liabilities? Select one: A. Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect both the balance sheet and the income statement. B. Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect only the balance sheet and have no effect in net income. C. Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect only stockholders' equity and do not affect the income statement directly. D. None of the above - ANSWERA. Fluctuations in the $US value of foreign currency-denominated assets and liabilities affect both the balance sheet and the income statement. Companies invest in financial derivatives Select one: A. to reduce exposure to currency-related risks. B. in order to realize capital gains as their value increases. C. as a means in which to enter desirable markets. D. None of the above. - ANSWERA. to reduce exposure to currency-related risks.
An exchange rate of $1.25:¥ Select one: A. means that each $US is worth 1.25¥ B. implies that the $US has strengthened vis-à-vis the ¥ C. implies that the ¥ has strengthened vis-à-vis the $US D. Can also be expressed as $1: ¥0.80 - ANSWERD. Can also be expressed as $1: ¥0. Assume that our US-based company purchases 2,000 units of inventories from a UK supplier at £6/unit. To record the purchase, Select one: A. our company will debit inventories and credit accounts payable for £12,000. B. our company will debit inventories and credit accounts payable for the $US equivalent of £12,000. C. our company will not record the purchase of inventory until the payable is paid. D. Either A or B is current. - ANSWERB. our company will debit inventories and credit accounts payable for the $US equivalent of £12,000. Assume that the $US has weakened with respect to the Euro and that we have a Euro-denominated payable: Select one: A. Our company will report the loss only on the payment date. B. Our company will report the gain only on the payment date. C. Our company will not report a gain or loss because there has been no cash effect. D. Our company will accrue a loss on the statement date. - ANSWERD. Our company will accrue a loss on the statement date. Which of the following best describes the accounting for foreign currency- denominated receivables and payables? Select one: A. No gains or losses are recorded until the receivable is collected or the payable is paid. B. No gains or losses are recorded because there has been no cash effect. C. Companies are required to report the foreign-currency denominated receivables and payables at their current market value on the statement date, but no gain or loss is recognized in the income statement. D. Companies are required to accrue gains and losses on foreign currency- denominated receivables and payments as of the statement date. - ANSWERD. Companies are required to accrue gains and losses on foreign currency- denominated receivables and payments as of the statement date. Assume that our company incurs a Euro-denominated payable when the exchange rate is $1.20 : €1 and that the $US weakens to $1.27 : €1 before the payable is paid: Select one: A. Our company will not recognize the gain until the payable is paid. B. Our company will not recognize the loss until the payable is paid. C. Our company will recognize the gain on its next statement date. D. Our company will recognize the loss on its next statement date. - ANSWERD. Our company will recognize the loss on its next statement date
D. It is a financial instrument. - ANSWERC. A contract that does not permit net settlement Cash flow risks Select one: A. can relate to forecasted purchases or sales of a commodity. B. can relate to the risks associated with fixed rates of interest. C. can relate to the risks associated with variable rates of interest. D. Both A and C are true. - ANSWERD. Both A and C are true. A forward contract Select one: A. is a commitment to buy or sell a specified quantity of an asset or commodity at a specified price and future date. B. is an option to buy or sell a specified quantity of an asset or commodity at a specified price and future date. C. is traded on organized exchanges. D. allows for the quantity or price of the transaction to fluctuate over time. - ANSWERA. is a commitment to buy or sell a specified quantity of an asset or commodity at a specified price and future date. If a forward or futures contract is to be an effective hedge of a net asset or future cash flow Select one: A. then the net settlement value of the forward or futures will increase and decrease in value in the same direction to the fair value of the asset (or to the future cash flows) to which they relate. B. then the net settlement value of the forward or futures will increase and decrease in value in the opposite direction to the fair value of the asset (or to the future cash flows) to which they relate. C. then the net settlement value of the forward or futures remains unchanged, thus reducing price fluctuation risk. D. None of the above are true. - ANSWERB. then the net settlement value of the forward or futures will increase and decrease in value in the opposite direction to the fair value of the asset (or to the future cash flows) to which they relate. An option contract Select one: A. requires a relatively large up-front payment and are, therefore, rarely used in practice. B. has an intrinsic value that is never less than zero. C. has an intrinsic value that decreases with time to maturity. D. gives a party the obligation to execute a transaction. - ANSWERB. has an intrinsic value that is never less than zero. Current US GAAP requires the following accounting for financial derivatives: Select one: A. Financial derivatives are reported at historical cost.
B. Financial derivatives are reported at fair value at each statement date with unrealized gains (losses) reflected in Accumulated Other Comprehensive Income. C. Financial derivatives are reported at fair value at each statement date with unrealized gains (losses) reflected in Net Income. D. Financial derivatives are only written down to reflect losses that are other than temporary. - ANSWERB. Financial derivatives are reported at fair value at each statement date with unrealized gains (losses) reflected in Accumulated Other Comprehensive Income. Hedge accounting means that Select one: A. the financial derivative is reported on the balance at fair value, but no gains and losses are recognized, thus reducing income volatility. B. the financial derivative is marked to market together with the asset (liability) to which it relates and unrealized gains and losses are always reflected in net income. C. the financial derivative is marked to market together with the asset (liability) to which it relates and unrealized gains and losses on fair value hedges are immediately reflected in net income. D. the financial derivative is marked to market together with the asset (liability) to which it relates and unrealized gains and losses on cash flow hedges are immediately reflected in net income. - ANSWERC. the financial derivative is marked to market together with the asset (liability) to which it relates and unrealized gains and losses on fair value hedges are immediately reflected in net income. Legal entities Which of the following business forms are distinct legal entities separate from their owners? Corporations Partnerships Sole Proprietorships Select one: a. 1, 2, and 3 b. 1 and 2 c. 2 and 3 d. 1 and 3 - ANSWERb. 1 and 2 Partnership dissolution Which of the following is not true with respect to the dissolution of a partnership? Select one: a. The assets of the partnership must be converted to cash used to pay the obligations to creditors, including partners who are creditors, and any remaining cash must be distributed to the partners for the remaining amount reported in their capital accounts. b. If a partner's Capital Account becomes negative as a result of the sales of assets, the partner is relieved of all liability with respect to the partnership c. If a partner's Capital Account becomes negative as a result of the sales of assets, the partner must make a cash contribution to the partnership in an amount sufficient to bring the Capital Account to a zero balance d. Profits (losses) that result from the liquidation of the partnership assets must be credited (charged) to the partners' Capital Accounts - ANSWERb. If a partner's
b. The net of revenues less expenses is always allocated to the partners in proportion to their relative Partner Capital accounts c. Withdrawals of capital from the partnership are treated as expenses d. Capital contributions are treated as income to the partnership - ANSWERa. Salary paid to a partner is not treated as an expense Partnership liquidation Which of the following is true with respect to the liquidation of a partnership? Select one: a. Liquidation expenses will not limit the amount of cash that can be safely distributed b. It is uncommon to assume that no cash will be realized from the sale of assets c. There may be unreported liabilities that were not properly accrued as of the balance sheet date. The liquidation administrator must, therefore, be conservative in estimating the amount of cash that can be safely disbursed. d. All of the these are true - ANSWERc. There may be unreported liabilities that were not properly accrued as of the balance sheet date. The liquidation administrator must, therefore, be conservative in estimating the amount of cash that can be safely disbursed. Partner capital accounts upon formation of partnership-Bonus Method Assume that two individuals agree to form a partnership. Partner A is contributing an operating business that reports net assets of $35,000. Partner B is contributing cash of $45,000. The partners agree that the initial capital of the partnership should be shared equally. what will be the initial balance of the Capital Accounts of the partners assuming that the partners wish to employ the Bonus Method? Select one: a. Partner A Partner B $35,000 $45, b. Partner A Partner B $40,000 $40, c. Partner A Partner B $45,000 $45, d. Partner A Partner B $80,000 $80,000 - ANSWERb. Partner A Partner B $40,000 $40, Partner capital accounts upon formation of partnership-Goodwill Method Assume that two individuals agree to form a partnership. Partner A is contributing an operating business that reports net assets of $30,000. Partner B is contributing cash of $45,000. The partners agree that the initial capital of the partnership should be shared equally. What will be the initial balance of the Capital Accounts of the partners assuming that the partners wish to employ the Goodwill Method? Select one:
a. Partner A Partner B $90,000 $90, b. Partner A Partner B $30,000 $45, c. Partner A Partner B $37,500 $37, d. Partner A Partner B $45,000 $45,000 - ANSWERd. Partner A Partner B $45,000 $45, Allocation of profit and loss Assume that there are three partners in a partnership, A, B, and C. Partner C provides services to the partnership and is entitled to a salary of $90,000. Assume that the partnership revenues less expenses (other than salary to Partner C) amount is $480,000. Finally, assume that the Partnership Agreement provides for a sharing ratio of 40:40:20 for Partners A, B, and C, respectively. How much profit should be allocated to each partner? Select one: a. Partner A Partner B Partner C $156,000 $156,000 $168, b. Partner A Partner B Partner C $160,000 $160,000 $160, c. Partner A Partner B Partner C $190,000 $190,000 $190, d. Partner A Partner B Partner C $192,000 $192,000 $96,000 - ANSWERa. Partner A Partner B Partner C $156,000 $156,000 $168, Which of the following statements is not correct about the accounting for partnerships? Select one: A. Partnerships are a legal entity and, as such, they must issue financial statements. B. Partnerships are not necessarily required to issue financial statements that are prepared in conformity with GAAP. C. Partnerships are required to issue financial statements that are prepared in conformity with GAAP. D. Partnerships don't have stockholders' equity like corporations do. - ANSWERC. Partnerships are required to issue financial statements that are prepared in conformity with GAAP.
A. In an LLP, all partners have a form of limited liability, similar to that of the shareholders of a corporation. B. Unlike corporate shareholders, the partners have the right to manage the business directly rather than through a board of directors C. In addition to structuring the partnership as an LLP, professional service organizations also typically maintain a significant amount of malpractice insurance as additional protection. D. All of the above are true. - ANSWERD. All of the above are true. Which of the following statements is false regarding the formation of a partnership? Select one: A. Partners may only contribute cash to the partnership which, then, purchases all of its assets. B. Capital Accounts are credited to represent the claim of the partners to the net assets of the partnership. C. The Capital Account for an individual partner does not need to be equal to the amount that the partner has contributed to the partnership. D. All of the above are true. - ANSWERA. Partners may only contribute cash to the partnership which, then, purchases all of its assets. Which of the following best describes the accounting for partnership formation when partners are assigned balances that do not equal their capital contributions? Select one: A. This scenario is not possible since all capital accounts must be proportional to the relative contributions of the partners. B. The partnership can apply either the "bonus method" or the "goodwill method" to account for the contribution without restriction. C. The "bonus method" relates to the recognition of an intangible asset upon formation of the partnership. D. The "bonus method" can be used even in the presence of an intangible asset if the partners agree. - ANSWERD. The "bonus method" can be used even in the presence of an intangible asset if the partners agree. Which of the following best describes the accounting for changes in partnership ownership? Select one: A. A common practice when admitting a new partner to a partnership is to revalue the partnership net assets to fair value. B. The purchase of a partnership interest in a transaction between old and new partners requires a journal entry in the partnership records. C. Both A and B. D. Neither A nor B. - ANSWERC. Both A and B. Which of the following statements is false regarding the allocation of profit to partners? Select one: A. The allocation of remaining profit to the partners is based on a sharing ratio that is described in the Partnership Agreement. B. The Partnership Agreement can provide for different sharing ratios in the event of a profit or a loss.
C. The profit sharing ratio does not have to conform to the partners' respective Capital Account balances. D. All of the above are true. - ANSWERD. All of the above are true. Which of the following is not true about the accounting for changes in partnership ownership involving revaluation of net assets? Select one: A. If net assets are measured at fair value, the partners have the best possible chance of allocating partner Capital Accounts in a fair and unbiased manner. B. When partnership net assets are revalued in anticipation of a realignment transaction, the resulting gains and losses accrue only to the partners who have an ownership interest in the entity during the period in which the net assets changed in value. C. The gains and losses that result from pre-realignment revaluation are allocated to the existing partners' Capital Accounts in the revaluation profit-and-loss-sharing ratio designated in the Partnership Agreement. D. The differential in value resulting from the revaluation of assets is recognized as a gain or loss in the partnership income statement. - ANSWERD. The differential in value resulting from the revaluation of assets is recognized as a gain or loss in the partnership income statement. Which of the following statements is false? Select one: A. The partner Capital Account is updated in a manner that is similar to the way in which we update Retained Earnings for a corporation. B. Cash paid to partners is called a dividend. C. Profit and loss can be allocated to individual partners in a ratio that is different form the relative proportion of their capital accounts. D. Cash paid to a partner for services performed for the partnership is not recognized as an expense. - ANSWERB. Cash paid to partners is called a dividend. The capital balances of the FGH Partnership are as follows: Fortier $120, Gauthier 75, Houle 225, The partners' income sharing ratio is: Fortier, 35%; Gauthier, 45%; Houle, 20%. Escoffier joins the partnership by contributing $150,000 to the partnership for a 25% interest in the partnership. Assume the partnership's identifiable net assets are carried at amounts approximating fair value. If the goodwill method is used to record the admission of Escoffier, goodwill will be recorded on the books of partnership in the amount of: Select one: a. 30000 b. 75000 c. 150000 d. 50000 - ANSWERa. 30000
