Today's question: BEC

Destiny Manufacturing, Inc., is incorporated under the laws of Nevada. Its principal place of business is in California and it has permanent sales offices in several other states. Under the circumstances, which of the following is correct?

A) California may validly demand that Destiny incorporate under the laws of the state of California.

B) Destiny must obtain a certificate of authority to transact business in California and the other states in which it does business.

C) Destiny is a foreign corporation in California, but not in the other states.

D) California may prevent Destiny from operating as a corporation if the laws of California differ regarding organization and conduct of the corporation's internal affairs.

Correct Answer: B

Explanation: A foreign corporation is one doing business in any state other than their state of incorporation. A foreign corporation must obtain a certificate of authority from each state in which they do business. Thus, Destiny is a foreign corporation in California because they were incorporated in Nevada and they were doing business in California. Destiny must obtain a certificate of authority from California and all other states in which it does business. Incorporation is not required merely because a corporation is doing business in a state. Destiny is a foreign corporation in any state in which it does business. Destiny as a Nevada corporation is only required to comply with Nevada's requirements for incorporation and not California's requirements.

Today's question: REG

Webstar Corp. orally agreed to sell Northco, Inc. a computer for $20,000. Northco sent a signed purchase order to Webstar confirming the agreement. Webstar received the purchase order and did not respond. Webstar refused to deliver the computer to Northco, claiming that the purchase order did not satisfy the UCC Statute of Frauds because it was not signed by Webstar. Northco sells computers to the general public and Webstar is a computer wholesaler. Under the UCC Sales Article, Webstar's position is _________________

A) incorrect because it failed to object to Northco's purchase order.

B) incorrect because only the buyer in a sale-of-goods transaction must sign the contract.

C) correct because it was the party against whom enforcement of the contract is being sought.

D) correct because the purchase price of the computer exceeded $500.

Correct Answer: A

Explanation: A writing is not required to enforce a contract of more than $500 if a merchant fails to object within ten days to a confirming letter sent by another merchant. Since Webstar and Northco are both merchants and Webstar failed to object to the purchase order sent by Northco, a writing signed by Webstar was not required under the Statute of Frauds. UCC Sales does not require that only the buyer sign. Usually only one party need sign (whether buyer or seller), but it can only be enforced against the one who signed. The failure of a merchant to object to a written confirmation is an exception to the rule that it can only be enforced against the one who signed.

Today's question: FAR

Sage, Inc., bought 40% of Adams Corp.'s outstanding common stock on January 2, Year 2, for $400,000. The carrying amount of Adams' net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during Year 2. During Year 2, Adams reported net income of $120,000 and paid a $20,000 cash dividend. What amount should Sage report in its income statement from its investment in Adams for the year ended December 31, Year 2?

A) $48,000

B) $42,000

C) $36,000

D) $32,000

Correct Answer: B

Explanation: $42,000 income from investment in Adams. Under the equity method the investor recognizes in income its share of the investee's net income or loss subsequent to the date of acquisition. Furthermore, the investor should reflect adjustments which would be made in consolidation, based on the investor's percentage ownership, if such adjustments (eliminations) can be recorded between investment income and the investment account.

Today's question: AUD

Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

A) Hill, the successor auditor

B) Post, the predecessor auditor

C) Monday's controller or CFO

D) The chairman of Monday's board of directors

Correct Answer: A

Explanation: AU 315 states that the initiative in communicating rests with the successor auditor. The communication may be either written or oral. Both the predecessor and successor auditors should hold in confidence information obtained from each other. This obligation applies whether or not the successor accepts the engagement. Before contacting the predecessor, the successor auditor must have the permission from the client to do so.

Today's question: BEC
When building contractors decide not to build on speculation but only when a contract to build is executed, it is a signal that wage inflation may be causing a rise in building costs. One may conclude from this scenario that:

A) The supply curve will remain static as wage inflation increases demand.

B) The quantity of new homes demanded will decrease, prices will rise, and the supply curve will shift to the left.

C) The supply curve will shift downward but prices will rise.

D) The quantity of homes built will decrease along with the price of housing.

Correct answer: B

Explanation: The supply curve will shift to the left, the demand curve will remain unchanged, prices will increase and the quantity demanded will decline. The supply curve will shift to the left and speculative homes are no longer built. A downward shift in the supply curve would suggest an increased supply at all price points (contrary to the removal of speculative homes) and an increased supply would imply a reduction in price. The supply curve will shift to the left as speculative homes are no longer constructed. That shift in the supply curve with no change in the demand curve will result in an increase in price.