ACCT 606 MC Ch 1-5 – Flashcards
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Growth in the complexity of the U.S. business environment A. Has had no particular impact on the organizational structures or the way in which companies are managed. B. Has encouraged companies to reduce the number of operating divisions and product lines so they may better control those they retain. C. Has led to increased use of partnerships to avoid legal liability. D. Has led to increasingly complex organizational structures as management has attempted to achieve its business objectives.
answer
D
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Which of the following is not an appropriate reason for establishing a subsidiary? A. The parent wishes to reduce its taxes by establishing a subsidiary that focuses its operations in areas where special tax benefits are available. B. The parent wishes to protect existing operations by shifting new activities with greater risk to a newly created subsidiary. C. The parent wishes to avoid subjecting all of its operations to regulatory control by establishing a subsidiary that focuses its operations in regulated industries. D. The parent wishes to be able to increase its reported sales by transferring products to the subsidiary at the end of the fiscal year.
answer
D
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Which of the following actions is likely to result in recording goodwill on Randolph Company's books? A. Randolph distributes ownership of a newly created subsidiary in a distribution considered to be a split-off. B. Randolph acquires Penn Corporation in a business combination recorded as a merger. C. Randolph acquires a majority of Penn's common stock in a business combination and continues to operate it as a subsidiary. D. Randolph distributes ownership of a newly created subsidiary in a distribution considered to be a spin-off.
answer
B
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When an existing company creates a new subsidiary and transfers a portion of its assets and liabilities to the new entity A. The new entity records both the assets and liabilities it received at the carrying values of the original company. B. The new entity records both the assets and liabilities it received at fair values. C. The original company records a gain or loss on the difference between its carrying values and the fair values of the assets transferred to the new entity. D. The original company records the difference between the carrying values and the fair values of the assets transferred to the new entity as goodwill.
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A
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When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss if A. The fair value of the net identifiable assets held by a reporting unit decreases. B. The fair value of the reporting unit is less than its carrying value and the carrying value of goodwill is more than the implied value of its goodwill. C. The carrying value of the reporting unit is less than the fair value of the reporting unit. D. The fair value of the reporting unit decreases.
answer
B
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Goodwill represents the excess of the sum of the consideration given over the A. Sum of the fair values assigned to identifiable assets acquired less liabilities assumed. B. Book value of an acquired company. C. Sum of the fair values assigned to tangible assets acquired less liabilities assumed. D. Sum of the fair values assigned to intangible assets acquired less liabilities assumed.
answer
A
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In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n) A. Expense of the combined company for the period in which the costs were incurred. B. Direct addition to stockholders' equity of the combined company. C. Reduction of the otherwise determinable fair value of the securities. D. Addition to goodwill.
answer
C
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Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock? A. Cost plus any excess of purchase price over book value of assets acquired. B. Historical cost. C. Book value. D. Fair value.
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D
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In a business combination, the fair value of the net identifiable assets acquired exceeds the fair value of the consideration given. The excess should be reported as a A. Deferred credit. B. Reduction of the values assigned to current assets and a deferred credit for any unallocated portion. C. No answer listed is correct. D. Pro rata reduction of the values assigned to current and noncurrent assets and a deferred credit for any unallocated portion.
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C
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On December 31, 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its $10 par common stock, with a market price of $18 a share, for all of Saxe's common stock. The stockholders' equity section of each company's balance sheet immediately before the combination was: Poe Saxe Common Stock $ 3,000,000 $ 1,500,000 Additional Paid-In Capital 1,300,000 150,000 Retained Earnings 2,500,000 850,000 $ 6,800,000 $ 2,500,000 In the December 31, 20X3, consolidated balance sheet, additional paid-in capital should be reported at A. $1,450,000. B. $2,900,000. C. $1,300,000. D. $950,000.
answer
B
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On January 1, 20X1, Rolan Corporation issued 10,000 shares of common stock in exchange for all of Sandin Corporation's outstanding stock. Condensed balance sheets of Rolan and Sandin immediately before the combination follow: Rolan Sandin Total Assets $ 1,000,000 $ 500,000 Liabilities and Equities $ 300,000 $150,000 Common Stock ($10 par) 200,000 100,000 Retained Earnings 500,000 250,000 Total Liabilities and Equities $1,000,000 $500,000 Rolan's common stock had a market price of $60 per share on January 1, 20X1. The market price of Sandin's stock was not readily determinable. The fair value of Sandin's net identifiable assets was determined to be $570,000. Rolan's investment in Sandin's stock will be stated in Rolan's balance sheet immediately after the combination in the amount of A. $570,000. B. $500,000. C. $350,000. D. $600,000.
answer
D
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On April 1, 20X2, Jack Company paid $800,000 for all of Ann Corporation's issued and outstanding common stock. Ann's recorded assets and liabilities on April 1, 20X2, were as follows: Cash $ 80,000 Inventory 240,000 Property and equipment 480,000 (net of accumulated depreciation of $320,000) Liabilities (180,000) On April 1, 20X2, Ann's inventory was determined to have a fair value of $190,000 and the property and equipment had a fair value of $560,000. What is the amount of goodwill resulting from the business combination? A. $0. B. $150,000. C. $50,000. D. $180,000.
answer
B
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Action Corporation issued non-voting preferred stock with a fair market value of $4,000,000 in exchange for all the outstanding common stock of Master Corporation. On the date of the exchange, Master had tangible net assets with a book value of $2,000,000 and a fair value of $2,500,000. In addition, Action issued preferred stock valued at $400,000 to an individual as a finder's fee in arranging the transaction. As a result of this transaction, Action should record an increase in net assets of A. $2,000,000. B. $4,400,000. C. $4,000,000. D. $2,500,000.
answer
C
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Topper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Topper had purchased the equipment with an expected life of 10 years four years earlier for $100,000 and has used straight-line depreciation with no expected residual value. At the time of the transfer, the subsidiary should record A. Equipment at $100,000 and accumulated depreciation of $40,000. B. Equipment at $72,000 and no accumulated depreciation. C. Equipment at $60,000 and no accumulated depreciation. D. Equipment at $120,000 and accumulated depreciation of $48,000.
answer
A
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Lead Corporation established a new subsidiary and transferred to it assets with a cost of $90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The transfer will result in A. No change in the reported net assets of Lead Corporation. B. An increase in the net assets reported by Lead Corporation of $25,000. C. A reduction of net assets reported by Lead Corporation of $90,000. D. A reduction of net assets reported by Lead Corporation of $75,000.
answer
A
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Tear Company, a newly established subsidiary of Stern Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in exchange for 7,000 shares of Tear's $8 par value common stock. Tear should record A. Additional paid-in capital of $0. B. Additional paid-in capital of $144,000. C. Additional paid-in capital of $204,000. D. Additional paid-in capital of $84,000.
answer
D
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Grout Company reports assets with a carrying value of $420,000 (including goodwill with a carrying value of $35,000) assigned to an identifiable reporting unit purchased at the end of the prior year. The fair value of the net assets held by the reporting unit is currently $350,000, and the fair value of the reporting unit is $395,000. At the end of the current period, Grout should report goodwill of A. $35,000. B. $45,000. C. $25,000. D. $10,000.
answer
A
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Twill Company has a reporting unit with the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit's net assets on Twill's books is $575,000, which includes $90,000 of goodwill. The fair value of the reporting unit is $560,000. Twill should report impairment of goodwill of A. $60,000. B. $15,000. C. $0. D. $30,000.
answer
D
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Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it uses the cost method or equity method of accounting? Cost Equity A. No No B. Yes Yes C. Yes No D. No Yes
answer
A
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In 20X0, Neil Company held the following investments in common stock: • 25,000 shares of B&K Inc.'s 100,000 outstanding shares. Neil's level of ownership gives it the ability to exercise significant influence over the financial and operating policies of B&K. • 6,000 shares of Amal Corporation's 309,000 outstanding shares. During 20X0, Neil received the following distributions from its common stock investments: November 6: $30,000 cash dividend from B November 11 :$1,500 cash dividend from Amal December 26:3 percent common stock dividend from Amal The closing price of this stock was $115 per share. What amount of dividend revenue should Neil report for 20X0? A. $1,500 B. $31,500 C. $4,200 D. $34,200
answer
A
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What is the most appropriate basis for recording the acquisition of 100 percent of the stock in another company if the acquisition was a noncash transaction? A. At the book value of the consideration given. B. At the book value of the stock acquired. C. At the fair value of the consideration given. D. At the par value of the stock acquired.
answer
C
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An investor uses the equity method to account for an investment in common stock. Assume that (1) the investor owns more than 50 percent of the outstanding common stock of the investee, (2) the investee company reports net income and declares dividends during the year, and (3) the investee's net income is greater than the dividends it declares. How would the investor's investment in the common stock of the investee company under the equity method differ at year end from what it would have been if the investor had accounted for the investment under the cost method? A. The balance under the equity method is lower than it would have been under the cost method, but only if the investee company actually paid the dividends before year end. B. The balance under the equity method is lower than it would have been under the cost method. C. The balance under the equity method is higher than it would have been under the cost method. D. The balance under the equity method is higher than it would have been under the cost method, but only if the investee company actually paid the dividends before year end.
answer
C
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A corporation exercises significant influence over an affiliate in which it holds a 40 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how would this affect the investor corporation? A. Increase several turnover ratios. B. Result in increased earnings per share. C. Result in an increased current ratio. D. Decrease book value per share.
answer
B
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An investor in common stock received dividends in excess of the investor's share of investee's earnings subsequent to the date of the investment. How will the investor's investment account be affected by those dividends under each of the following methods? Cost Method Equity Method A. No effect No effect B. Decrease No effect C. No effect Decrease D. Decrease Decrease
answer
D
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An investor uses the cost method to account for an investment in common stock. A portion of the dividends received this year was in excess of the investor's share of investee's earnings subsequent to the date of investment. The amount of dividend revenue that should be reported in the investor's income statement for this year would be A. Zero. B. The total amount of dividends received this year. C. The portion of the dividends received this year that was in excess of the investor's share of investee's earnings subsequent to the date of investment. D. The portion of the dividends received this year that was not in excess of the investor's share of investee's earnings subsequent to the date of investment.
answer
D
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Companies often acquire ownership in other companies using a variety of ownership arrangements. Equity-method reporting should be used by the investor whenever A. The investor purchases voting common stock of the investee. B. The investor purchases goods and services from the investee. C. The carrying value of the investment is less than the market value of the investee's shares held by the investor. D. The investor has significant influence over the operating and financing decisions of the investee.
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D
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The carrying amount of an investment in stock accounted for under the equity method is equal to A. The original price paid to purchase the investment. B. The original price paid to purchase the investment plus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired. C. The original price paid to purchase the investment plus cumulative net income plus cumulative dividends declared by the investee since the date the investment was acquired. D. The original price paid to purchase the investment minus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired.
answer
B
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Green Corporation owns 30 percent of the outstanding common stock and 100 percent of the outstanding noncumulative nonvoting preferred stock of Axel Corporation. In 20X1, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations. What amount of dividend revenue should Green report in its income statement for the year ended December 31, 20X1? A. $60,000. B. $30,000. C. $90,000. D. $0
answer
A
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On January 2, 20X3, Kean Company purchased a 30 percent interest in Pod Company for $250,000. Pod reported net income of $100,000 for 20X3 and paid a dividend of $10,000. Kean accounts for this investment using the equity method. In its December 31, 20X3, balance sheet, what amount should Kean report as its investment in Pod? A. $160,000. B. $277,000. C. $223,000. D. $340,000.
answer
B
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On January 1, 20X8, Mega Corporation acquired 10 percent of the outstanding voting stock of Penny Inc. On January 2, 20X9, Mega gained the ability to exercise significant influence over Penny's financial and operating decisions by acquiring an additional 20 percent of Penny's outstanding stock. The two purchases were made at prices proportionate to the value assigned to Penny's net assets, which equaled their carrying amounts. For the years ended December 31, 20X8 and 20X9, Penny reported the following: 20X8 20X9 Dividends Paid $ 200,000 $ 300,000 Net Income 600,000 650,000 In 20X9, what amounts should Mega report as current year investment income and as an adjustment, before income taxes, to 20X8 investment income? 20X9 Investment Adjustment to 20X8 Income Investment Income A. $195,000 $160,000 B. $195,000 $100,000 C. $195,000 $40,000 D. $105,000 $40,000
answer
C
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Investor Inc. owns 40 percent of Alimand Corporation. During the calendar year 20X5, Alimand had net earnings of $100,000 and paid dividends of $10,000. Investor mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively? A. Understate, overstate, overstate. B. Overstate, understate, understate. C. Understate, understate, understate. D. Overstate, overstate, overstate.
answer
C
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A corporation using the equity method of accounting for its investment in a 40 percent-owned investee, which earned $20,000 and paid $5,000 in dividends, made the following entries: Investment in Investee 8,000 Equity in Earnings of Investee 8,000 Cash 2,000 Dividend Revenue 2,000 What effect will these entries have on the investor's statement of financial position? A.Financial position will be fairly stated. B. Investment in the investee will be understated, retained earnings understated. C. Investment in the investee will be overstated, retained earnings understated. D. Investment in the investee will be overstated, retained earnings overstated.
answer
D
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When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of A. Materiality B. Legal entity C. Reliability D. Economic entity
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D
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Consolidated financial statements are typically prepared when one company has a controlling interest in another unless A. The subsidiary is a finance company. B. The fiscal year-ends of the two companies are more than three months apart. C. Circumstances prevent the exercise of control. D. The two companies are in unrelated industries, such as real estate and manufacturing.
answer
C
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Penn Inc., a manufacturing company, owns 75 percent of the common stock of Sell Inc., an investment company. Sell owns 60 percent of the common stock of Vane Inc., an insurance company. In Penn's consolidated statements, should consolidation accounting or equity method accounting be used for Sell and Vane? A. Consolidation used for Sell and equity method used for Vane. B. Consolidation used for both Sell and Vane. C. Equity method used for Sell and consolidation used for Vane. D. Equity method used for both Sell and Vane.
answer
B
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Shep Company has a receivable from its parent, Pep Company. Should this receivable be separately reported on Shep's balance sheet and in Pep's consolidated balance sheet? Shep's Pep's Consolidated Balance Sheet Balance Sheet A. No No B. Yes No C. No Yes D. Yes Yes
answer
B
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Which of the following is the best theoretical justification for consolidated financial statements? A. In form the companies are one entity; in substance they are separate. B. In form the companies are separate; in substance they are one entity. C. In form and substance the companies are one entity. D. In form and substance the companies are separate.
answer
B
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Special-purpose entities generally A. Have a much smaller portion of their assets financed by equity shareholders than do companies such as General Motors. B. Have relatively large amounts of preferred stock and convertible securities outstanding. C. Pay out a relatively high percentage of their earnings as dividends to facilitate the sale of additional shares. D. Have a much larger portion of assets financed by equity shareholders than do companies such as General Motors.
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A
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Variable interest entities may be established as A. Corporations B. Trusts C. Partnerships D. All of the above
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D
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An enterprise that will absorb a majority of a variable interest entity's expected losses is called the A. Qualified owner B. Critical management director C. Primary beneficiary D. Major facilitator
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C
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In determining whether or not a variable interest entity is to be consolidated, the FASB focused on A. Share of profits and obligation to absorb losses. B. Legal control. C. Frequency of intercompany transfers. D. Proportionate size of the two entities.
answer
A
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Par Corporation owns 60 percent of Sub Corporation's outstanding capital stock. On May 1, 20X8, Par advanced Sub $70,000 in cash, which was still outstanding at December 31, 20X8. What portion of this advance should be eliminated in the preparation of the December 31, 20X8, consolidated balance sheet? A. $42,000 B. $28,000 C. $70,000 D. $0
answer
C
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On January 2, 20X8, Pare Company acquired 75 percent of Kidd Company's outstanding common stock. Selected balance sheet data at December 31, 20X8, are as follows: Pare Company Kidd Company Total Assets $ 420,000 $ 180,000 Liabilities $ 120,000 $ 60,000 Common Stock 100,000 50,000 Retained Earnings 200,000 70,000 $ 420,000 $ 180,000 In Pare's December 31, 20X8, consolidated balance sheet, what amount should be reported as minority interest in net assets? A. $30,000 B. $0 C. $45,000 D. $105,000
answer
A
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On January 2, 20X8, Pare Company acquired 75 percent of Kidd Company's outstanding common stock. Selected balance sheet data at December 31, 20X8, are as follows: Pare Company Kidd Company Total Assets $ 420,000 $ 180,000 Liabilities $ 120,000 $ 60,000 Common Stock 100,000 50,000 Retained Earnings 200,000 70,000 $ 420,000 $ 180,000 In its consolidated balance sheet at December 31, 20X8, what amount should Pare report as common stock outstanding? A. $150,000 B. $137,500 C. $50,000 D. $100,000
answer
D
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At the time Hyman Corporation became a subsidiary of Duane Corporation, Hyman switched depreciation of its plant assets from the straight-line method to the sum-of-the-years'-digits method used by Duane. As to Hyman, this change was a A. Change in an accounting estimate. B. Correction of an error. C. Change of accounting principle. D. Change in the reporting entity.
answer
C
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Consolidated statements are proper for Neely Inc., Randle Inc., and Walker Inc., if A. Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Reeves Inc. owns 55 percent of Walker. B. Neely owns 100 percent of the outstanding common stock of Randle and Walker; Walker is in legal reorganization. C. Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Randle owns 30 percent of Walker. D. Neely owns 100 percent of the outstanding common stock of Randle and 90 percent of Walker; Neely bought the Walker stock one month before the foreign country in which Walker is based imposed restrictions preventing Walker from remitting profits to Neely.
answer
C
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Consolidated financial statements are typically prepared when one company has A. Accounted for its investment in another company by the equity method. B. Accounted for its investment in another company by the cost method. C. Significant influence over the operating and financial policies of another company. D. The controlling financial interest in another company.
answer
D
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Aaron Inc. owns 80 percent of the outstanding stock of Belle Inc. Compare the total consolidated net earnings of Aaron and Belle (X) and Aaron's operating earnings before considering the investment in Belle (Y). Assume Belle had positive net income for the year. A. Cannot be determined. B. X is equal to Y. C. X is greater than Y. D. X is less than Y.
answer
C
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On October 1, X Company acquired for cash all of Y Company's outstanding common stock. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income for the year ended December 31 should include net income of A. X Company for 12 months and Y Company for 12 months. B. X Company for 12 months and Y Company for 3 months. C. X Company for three months and Y Company for three months. D. X Company for 12 months, but no income from Y Company until Y Company distributes a dividend
answer
B
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Ownership of 51 percent of the outstanding voting stock of a company would usually result in A. The use of the cost method. B. The use of the equity method. C. The use of the lower-of-cost-or-market method. D. A consolidation.
answer
D
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Goodwill is A. Generally smaller for small companies and increases in amount as the companies acquired increase in size. B. Seldom reported because it is too difficult to measure. C. Reported when the fair value of the acquiree is greater than the fair value of the net identifiable assets acquired. D. Reported when more than book value is paid in purchasing another company.
answer
C
question
[AICPA Adapted] Wright Corporation includes several subsidiaries in its consolidated financial statements. In its December 31, 20X2, trial balance, Wright had the following intercompany balances before eliminations: Current receivable due from Main Company 32,000DR Noncurrent receivable from Main Company 114,000 DR Cash advance to Corn Corporation 6,000DR Cash advance from King Company 15,000CR Intercompany payable to King Company 101,000CR In its December 31, 20X2, consolidated balance sheet, what amount should Wright report as intercompany receivables? A. $0 B. $146,000 C. $36,000 D. $152,000
answer
A
question
Beni Corporation acquired 100 percent of Carr Corporation's outstanding capital stock for $430,000 cash. Immediately before the purchase, the balance sheets of both corporations reported the following: Beni Carr Assets $ 2,000,000 $ 750,000 Liabilities $ 750,000 $ 400,000 Common Stock 1,000,000 310,000 Retained Earnings 250,000 40,000 Liabilities and Stockholders' Equity 2,000,000 $ 750,000 At the date of purchase, the fair value of Carr's assets was $50,000 more than the aggregate carrying amounts. In the consolidated balance sheet prepared immediately after the purchase, the consolidated stockholders' equity should amount to A. $1,600,000 B. $1,680,000 C. $1,250,000 D. $1,650,000
answer
C
question
On January 1, 20X1, Prim Inc. acquired all of Scrap Inc.'s outstanding common shares for cash equal to the stock's book value. The carrying amounts of Scrap's assets and liabilities approximated their fair values, except that the carrying amount of its building was more than fair value. In preparing Prim's 20X1 consolidated income statement, which of the following adjustments would be made? A. Decrease depreciation expense and recognize goodwill amortization. B. Increase depreciation expense and recognize goodwill amortization. C. Decrease depreciation expense and recognize no goodwill amortization. D. Increase depreciation expense and recognize no goodwill amortization.
answer
C
question
The first examination of Rudd Corporation's financial statements was made for the year ended December 31, 20X8. The auditor found that Rudd had acquired another company on January 1, 20X8, and had recorded goodwill of $100,000 in connection with this acquisition. Although a friend of the auditor believes the goodwill will last no more than five years, Rudd's management has found no impairment of goodwill during 20X8. In its 20X8 financial statements, Rudd should report Amortization Expense Goodwill A. $ 0 $ 100,000 B. $ 100,000 $ 0 C. $ 20,000 $ 80,000 D. $ 0 $ 0
answer
A
question
Consolidated financial statements are being prepared for a parent and its four subsidiaries that have intercompany loans of $100,000 and intercompany profits of $300,000. How much of these intercompany loans and profits should be eliminated? Intercompany Loans Profits A. $ 0 $ 0 B. $ 0 $ 300,000 C. $ 100,000 $ 0 D. $ 100,000 $ 300,000
answer
D
question
If A Company acquires 80 percent of the stock of B Company on January 1, 20X2, immediately after the acquisition A. Consolidated retained earnings will be equal to the combined retained earnings of the two companies. B. Goodwill will always be reported in the consolidated balance sheet. C. A Company's additional paid-in capital may be reduced to permit the carryforward of B Company retained earnings. D. Consolidated retained earnings and A Company retained earnings will be the same.
answer
D
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Which of the following is correct? A. The noncontrolling shareholders' claim on the subsidiary's net assets is based on the book value of the subsidiary's net assets. B. Only the parent's portion of the difference between book value and fair value of the subsidiary's assets is assigned to those assets. C. Goodwill represents the difference between the book value of the subsidiary's net assets and the amount paid by the parent to buy ownership. D. Total assets reported by the parent generally will be less than total assets reported on the consolidated balance sheet.
answer
D
question
Which of the following statements is correct? A. Foreign subsidiaries do not need to be consolidated if they are reported as a separate operating group under segment reporting. B. Consolidated retained earnings do not include the noncontrolling interest's claim on the subsidiary's retained earnings. C. The noncontrolling shareholders' claim should be adjusted for changes in the fair value of the subsidiary assets but should not include goodwill. D. Consolidation is expected any time the investor holds significant influence over the investee.
answer
B
question
[AICPA Adapted] At December 31, 20X9, Grey Inc. owned 90 percent of Winn Corporation, a consolidated subsidiary, and 20 percent of Carr Corporation, an investee in which Grey cannot exercise significant influence. On the same date, Grey had receivables of $300,000 from Winn and $200,000 from Carr. In its December 31, 20X9, consolidated balance sheet, Grey should report accounts receivable from its affiliates of A. $500,000. B. $340,000. C. $230,000. D. $200,000.
answer
D
question
A 70 percent owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and minority interest balances in the parent company's consolidated balance sheet? A. No effect on retained earnings and a decrease in minority interest. B. Decreases in both retained earnings and minority interest. C. A decrease in retained earnings and no effect on minority interest. D. No effect on either retained earnings or minority interest.
answer
A
question
How is the portion of consolidated earnings to be assigned to the noncontrolling interest in consolidated financial statements determined? A. The parent's net income is subtracted from the subsidiary's net income to determine the noncontrolling interest. B. The subsidiary's net income is extended to the noncontrolling interest. C. The amount of the subsidiary's earnings recognized for consolidation purposes is multiplied by the noncontrolling interest's percentage of ownership. D. The amount of consolidated earnings on the consolidated worksheets is multiplied by the noncontrolling interest percentage on the balance sheet date.
answer
C
question
On January 1, 20X5, Post Company acquired an 80 percent investment in Stake Company. The acquisition cost was equal to Post's equity in Stake's net assets at that date. On January 1, 20X5, Post and Stake had retained earnings of $500,000 and $100,000, respectively. During 20X5, Post had net income of $200,000, which included its equity in Stake's earnings, and declared dividends of $50,000; Stake had net income of $40,000 and declared dividends of $20,000. There were no other intercompany transactions between the parent and subsidiary. On December 31, 20X5, what should the consolidated retained earnings be? A. $666,000 B. $770,000 C. $766,000 D. $650,000
answer
D
question
On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the January 1, 20X8, consolidated balance sheet, the amount of goodwill reported should be A. $156,000 B. $76,000 C. $95,000 D. $0
answer
C
question
On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, 20X8, consolidated balance sheet, the amount of noncontrolling interest reported should be A. $251,000 B. $239,000 C. $252,000 D. $200,000
answer
A
question
On January 1, 20X3, Miller Company purchased 25 percent of Wall Corporation's common stock; no goodwill resulted from the purchase. Miller appropriately carries this investment at equity, and the balance in Miller's investment account was $190,000 on December 31, 20X3. Wall reported net income of $120,000 for the year ended December 31, 20X3, and paid dividends on its common stock totaling $48,000 during 20X3. How much did Miller pay for its 25 percent interest in Wall? A. $172,000. B. $208,000. C. $202,000. D. $232,000.
answer
A
question
On January 1, 20X7, Robohn Company purchased for cash 40 percent of Lowell Company's 300,000 shares of voting common stock for $1,800,000 when 40 percent of the underlying equity in Lowell's net assets was $1,740,000. The payment in excess of underlying equity was assigned to amortizable assets with a remaining life of six years. The amortization is not deductible for income tax reporting. As a result of this transaction, Robohn has the ability to exercise significant influence over Lowell's operating and financial policies. Lowell's net income for the year ended December 31, 20X7, was $600,000. During 20X7, Lowell paid $325,000 in dividends to its shareholders. The income reported by Robohn for its investment in Lowell should be A. $120,000. B. $230,000. C. $130,000. D. $240,000.
answer
B
question
In January 20X0, Farley Corporation acquired 20 percent of Davis Company's outstanding common stock for $800,000. This investment gave Farley the ability to exercise significant influence over Davis. The book value of the acquired shares was $600,000. The excess of cost over book value was attributed to an identifiable intangible asset, which was undervalued on Davis's balance sheet and had a remaining economic life of 10 years. For the year ended December 31, 20X0, Davis reported net income of $180,000 and paid cash dividends of $40,000 on its common stock. What is the proper carrying value of Farley's investment in Davis on December 31, 20X0? A. $772,000. B. $800,000. C. $808,000. D. $780,000.
answer
C
