Advanced Financial Accounting CH 2, ACCT 4020 Advanced Accounting Chapter 3 Smartbook

Major Corp. acquires 20% of the common stock of Minor Inc. on October 1, 20X1 for $300,000. Minor declares a dividend of $50,000 on December 31, 20X1. Major's share of dividends from this investment is $_____

10,000

An investor company owns 100% of the common stock of an investee company. In the second year of its ownership, the investor company reported net income of $120,000. This amount included the equity method income of $40,000 from the investee company. Calculate the consolidated net income for the second year. Multiple choice question. $160,000 $80,000 $40,000 $120,000

120,000 Reason: Consolidated net income = ($120,000 - $40,000) + $40,000 = $120,000.

Assume that Ivory Corporation acquires 80% of Orchid Group Corporation's outstanding common shares. On the acquisition date, Orchid's common shares is $600,000 and retained earnings is $200,000. The noncontrolling interest's (NCI's) share of Orchid's book value is $

160, 000

FloraWhite Corporation purchased 85% of the common stock of a subsidiary in the previous year. During the current year, the subsidiary reports net income of $50,000, while FloraWhite reports net income of $280,000, including the equity method income from the subsidiary. The consolidated net income attributable to the controlling interest is $

280, 000

The retained earnings statement has been dropped by many companies in recent years in favor of the _____. Multiple choice question. statement of financial position income statement statement of changes in stockholders' equity statement of cash flows

statement of changes in stockholders' equity

If the fair value of an investment is equal to the book value of net identifiable assets, the goodwill recorded by the investor is $_____

0

On January 1, 20X1, Mediabase Inc. acquired all of Carephase Corp.'s common shares for $550,000. On the acquisition date, Carephase's common stock and retained earnings accounts had balances of $350,000 and $200,000, respectively. The difference between the fair value of consideration given and the book value of the shares acquired is $_____

0

When the parent and subsidiary have differing fiscal periods, the fiscal period of the subsidiary can be changed or the financial statements of the subsidiary can be adjusted each period. Current accounting standards allow consolidation without changes or adjustments if the fiscal periods do not differ by more than Blank______ months and if recognition is given to intervening events that have a material effect on financial position or results of operations.

3

On January 1, 20X1, Carpenter Corp. purchased 20% of the common stock of Hammer Inc. for $200,000. On September 1, 20X1, Carpenter purchased an additional 10% of Hammer's common stock for $120,000. Hammer reported net income of $80,000 from January 1 to August 31 and earned net income of $55,000 from September 1 to December 31. The total income from the investment recognized in 20X1 by Carpenter is $_____.

32,500

Where is the basic consolidation entry recorded? Multiple choice question. Books of the subsidiary company Books of the parent company Consolidated balance sheet Consolidation worksheet

Consolidation worksheet

Select all that apply An investor company owns 10% of the stock of an investee company and carries the investment at fair value. In the year 20X1, the investor company acquires an additional 20% of the stock of the same investee company. Which of the following are options for the investor company to account for the additional shares purchased? Multiple select question. Continue to carry the investment at fair value. Apply the cost method retroactively from the date of original investment. Apply the equity method retroactively from the date of original investment. Apply the equity method from the date of acquisition of additional investment.

Continue to carry the investment at fair value. Reason: Additional information is needed to make the determination. The investor would continue to carry the investment at fair value only if the additional shares did NOT give the investor the ability to significantly influence the investee. Apply the equity method from the date of acquisition of additional investment. Reason: Additional information is needed to make the determination. The equity method would only be applied if the additional shares gave the investor the ability to significantly influence the investee.

The Investment in Subsidiary account is ___ and the Cash account is ____ on the parent's books to record cash dividends received from a subsidiary in subsequent years of ownership.

Credited Debited

Select all that apply Which of the following accounts are normally credited as part of the basic consolidation entry when the subsidiary is less-than-wholly owned?

Dividend Declared Investment in Subsidiary NCI in NA of Subsidiary

Under the fair value option, the ______ account is credited in the investor's books to record dividend income. Multiple choice question. NCI in NA of Subsidiary Cash Dividend Income Investment in Subsidiary

Dividend Income

On January 1, 20X1, Trueware Inc. acquired 100% of Crocus Corp.'s common stock for $600,000. The purchase price was equal to the book value of Crocus' net assets. The ending book value of the total investment was $655,000 as of the end of 20X1, which is equal to Crocus' Common Stock of $500,000 and Retained Earnings of $155,000. During 20X2, Crocus earned net income of $65,000 and declared and paid dividends of $20,000. Based on this information, which of the following is (are) credited in the basic consolidation entry? Multiple choice question. Dividends Declared for $20,000; Investment in Crocus Corp. for $700,000 Investment in Crocus Corp. for $655,000; Cash for $65,000 Income from Crocus Corp. for $65,000; Dividends Declared for $20,000 Common Stock for $500,000; Retained Earnings for $155,000

Dividends Declared for $20,000; Investment in Crocus Corp. for $700,000

Select all that apply Which of the following are normally eliminated in the basic consolidation entry when the subsidiary is less-than-wholly owned?

Dividends Declared of the subsidiary Common Stock of the subsidiary Beginning Retained Earnings of the subsidiary

Select all that apply Which of the following are reasons for eliminating the investment account with the basic consolidation entry? Multiple select question. The fair value of the investment is equal to the book value of the net assets of the subsidiary. From a single entity viewpoint, a company cannot hold an investment in itself. The amount represented in the investment account is recorded separately as net assets of the subsidiary. The fair value of the investment is more than the book value of the net assets of the subsidiary.

From a single entity viewpoint, a company cannot hold an investment in itself. The amount represented in the investment account is recorded separately as net assets of the subsidiary.

Select all that apply Which of the following statements are true of the noncontrolling interest's share of net income?

If one or more of the consolidated subsidiaries is less than wholly owned, a portion of the consolidated net income accrues to the NCI shareholders. When all subsidiaries are wholly owned, all of the consolidated net income accrues to the parent company, or the controlling interest.

Select all that apply If an investor, using the equity method, sells a part of an investment in common stock, which of the following statements are true? Multiple select question. The fair value method will be applied retroactively from date of first acquisition. If the equity method isn't appropriate, the investment will be carried at fair value from the sale date forward. The investor will continue using the equity method to account for the remaining shares until all shares are sold. The investor will continue using the equity method to account for the remaining shares if the ability to exercise significant influence remains.

If the equity method isn't appropriate, the investment will be carried at fair value from the sale date forward. The investor will continue using the equity method to account for the remaining shares if the ability to exercise significant influence remains.

Select all that apply Which of the following are criticisms of the equity method of accounting for investments? Multiple select question. The use of the equity method provides a greater amount of detail on the financial statements of the investor than is needed. Income reported by the investor under the equity method does nothing to explain the composition of the income earned by the investee. The investment in stock of another company is reported as a single amount in the investor's balance sheet. The investment account balance reported by the investor under the equity method does nothing to explain the investee's asset and capital structure.

Income reported by the investor under the equity method does nothing to explain the composition of the income earned by the investee. The investment in stock of another company is reported as a single amount in the investor's balance sheet. The investment account balance reported by the investor under the equity method does nothing to explain the investee's asset and capital structure.

____ control, or pyramiding, occurs when a majority of a company's common stock is owned by one or more other companies that are all under common control.

Indirect

Which of the following accounts would a parent company debit if it has purchased 80 percent of Magenta Health Corporation's common stock cash?

Investment in Magenta Health Corporation

Which of the following accounts are normally credited as part of the basic consolidation entry in subsequent years of ownership when the subsidiary is less-than-wholly owned?

Investment in Subsidiary Dividends Declared

Select all that apply Which of the following accounts are eliminated by the basic consolidation entry?

Investment in subsidiary Subsidiary's dividends

Select all that apply Which of the following is true about the Investment in Investee Company account? Multiple select question. It appears in the income statement of the investee company. It appears in the balance sheet of the investor company. It summarizes the investor's ownership of the net assets of investee company. It shows the difference between the market value and book value of the net assets of the investee.

It appears in the balance sheet of the investor company. It summarizes the investor's ownership of the net assets of investee company.

Select all that apply Identify the statements that are true about a company practicing the modified equity method for consolidating a controlled subsidiary. Multiple select question. It can apply the equity method without making adjustments for unrealized profits. It can make adjustments for amortization of the differential without applying equity method. It can apply the equity method without making adjustments for unrealized profits and amortization of the differential. It can apply the equity method without making adjustments for amortization of the differential. It can make adjustments for unrealized profit without applying the equity method.

It can apply the equity method without making adjustments for unrealized profits. It can apply the equity method without making adjustments for unrealized profits and amortization of the differential. It can apply the equity method without making adjustments for amortization of the differential.

Identify a true statement about the common stock of a subsidiary.

It does not affect the consolidated common stock in the consolidated balance sheet.

Select all that apply Which of the following statements are true regarding a parent's consolidated retained earnings if it uses the equity method to account for its investment in a subsidiary?

It includes the parent's share of the subsidiary's cumulative net income since the acquisition date. Consolidated retained earnings are equal to the parent's retained earnings.

Which of the following statements is true of consolidated income attributable to the noncontrolling interest?

It is based on its relative common stock ownership of the subsidiary.

Which of the following is true of the reporting of the noncontrolling interest's claim on the net assets of the consolidated entity in the consolidated financial statements?

It is reported as an element of equity.

How is the NCI shareholders' share of net income reported in the consolidated income statement?

It is subtracted from total consolidated net income to arrive at the controlling interest in consolidated net income.

Select all that apply Which of the following statements are true of the bottom portion of the consolidation worksheet? Multiple select question. It reflects the balance sheet amounts at the end of the period. It reflects the operating cash flow of the parent and the subsidiary company. The amount of retained earnings in this section is carried down from the ending balance in retained earnings statement section. It reflects the assets, liabilities, and equity of both the parent and the subsidiary.

It reflects the balance sheet amounts at the end of the period. The amount of retained earnings in this section is carried down from the ending balance in retained earnings statement section. It reflects the assets, liabilities, and equity of both the parent and the subsidiary.

Dim Gray Corporation holds 90% of the common stock of Spring Green Corporation. Spring Green's net income is $100,000. How will the noncontrolling interest of $10,000 be reported in the consolidated financial statements?

It will be subtracted from the total consolidated net income in the consolidated income statement.

Only one reporting entity is expected, but not required, to be identified as the ______ beneficiary of a variable interest entity.

primary

If the purchase of additional shares gives the investor control over the investee, the investor should _____. Multiple choice question. switch to the push-down accounting method at the date of acquisition switch to the equity method at the date of acquisition carry the total investment at fair value carry the total investment at net assets value of the investee company

switch to the equity method at the date of acquisition

NCI shareholders in a particular subsidiary have a proportionate claim on the income of

that subsidiary only.

If a variable interest entity is to be consolidated,

the consolidation procedures are similar to those used when consolidating a subsidiary.

Consolidated net income shown in the consolidated income statement is _____. Multiple choice question. the net income of the subsidiary the holding company's equity-method net income the difference between the net incomes of the holding company and the subsidiary the total of the net income of the holding company and the subsidiary

the holding company's equity-method net income

Consolidated net income shown in the consolidated income statement is _____. Multiple choice question. the total of the net income of the holding company and the subsidiary the net income of the subsidiary the holding company's equity-method net income the difference between the net incomes of the holding company and the subsidiary

the holding company's equity-method net income

Topaz Company reports a total controlling interest in the net assets of the consolidated entity of $1,200,000. The consolidated Common Stock is $90,000 and the total noncontrolling interest in net assets is $80,000. Calculate total stockholders' equity.

$1,280,000 Total stockholders' equity = Total controlling interest + Noncontrolling interest in subsidiary company = $1,200,000 + $80,000 = $1,280,000

An investor company owns 100% of the common stock of an investee company. In the second year of its ownership, the investor company reported net income of $120,000. This amount included the equity method income of $40,000 from the investee company. Calculate the consolidated net income for the second year. Multiple choice question. $160,000 $40,000 $120,000 $80,000

$120,000

Bertie Corp. invested in 25 percent shares of Keegan Corp. for $120,000 on the first day of the current year. Keegan Corp. reports net income of $40,000 and declares a $12,000 dividend during the year. Calculate the ending balance of Investment in Keegan Corp. account. Multiple choice question. $127,000 $142,000 $133,000 $148,000

$127,000 Reason: $120,000 + ($40,000 × 25%) − ($12,000 × 25%) = $127,000

A parent company purchased 80% of the common stock of a subsidiary in the previous year. During the current year, the subsidiary reports net income of $30,000 and the parent reports net income of $140,000, including equity method income from the subsidiary. Calculate the consolidated net income attributable to the controlling interest.

$140, 000 Income attributable to controlling interest = (Parent's net income - Equity method income from the subsidiary) + Subsidiary income - Income attributable to noncontrolling interest = [$140,000 - (80% × $30,000)] + $30,000 - ($30,000 x 20%) = $116,000 + $30,000 - $6,000 = $140,000.

Sergeant Corp. acquired 30% of the common stock of Corporal Inc. on July 1, 20X1 for $500,000. Corporal earned net income of $100,000 evenly throughout the year. Calculate Sergeant's share of Corporal's net income for 20X1 under the equity method. Multiple choice question. $100,000 $18,000 $15,000 $30,000

$15,000 Reason: Sergeant's portion of Corporal's net income = Corporal's net income × Sergeant's share in the common stock × 6 months/12 months = $100,000 × 30% × 1/2 = $15,000.

PowderBlue Corporation acquires 80% of Sapphire Corporation's outstanding common shares. The fair value of Sapphire's net assets on the acquisition date is equal to the book value of $800,000. Calculate the noncontrolling interest's share of Sapphire's book value.

$160, 000 NCI share of book value = $800,000 x 20% = $160,000.

Sapphire Designs Corp. acquired all of the stock of Ruby Systems Inc. on January 1, 20X1. During 20X1, Ruby Systems earned net income of $47,500. The net income earned by Sapphire Designs is $175,000, including the equity method income of $47,500. Compute the consolidated net income of Sapphire Designs for the year 20X1. Multiple choice question. $222,500 $47,500 $175,000 $127,500

$175,000 Reason: Consolidated net income = ($175,000 - $47,500) + $47,500 = $175,000.

A parent company holds 90% of the common stock of a subsidiary. The NCI shareholders' share of net income is $20,000. The total consolidated net income is $250,000. Calculate the consolidated income attributable to the controlling interest.

$230,000 Consolidated net income attributable to the controlling interest = Consolidated net income - Consolidated net income of the NCI shareholders = $250,000 - $20,000 = $230,000.

A parent company holds 80% of the common stock of a subsidiary. The NCI shareholders' share of net income is $50,000. Calculate total net income of the subsidiary.

$250,000

On July 1, 20X2, Green Inc. acquired 25% of White Inc.'s common stock for $250,000. White reported net income of $60,000 (earned uniformly throughout the year). On December 31, 20X2, White declared a dividend of $20,000. Calculate the carrying amount of Green's investment in White Inc. on December 31, 20X2, under the equity method. Multiple choice question. $252,500 $255,000 $260,000 $290,000

$252,500 Reason: Carrying amount = Original cost of investment + Investor's share of net income - Investor's share of dividends = $250,000 + ($60,000 × 25% × 1/2) - ($20,000 × 25%) = $250,000 + $7,500 - $5,000 = $252,500.

Garnet Materials Inc. acquires all of Ivory Developers Corp.'s common stock for $600,000. Garnet Materials has equipment with a book value of $160,000. The net assets of Ivory Developers include equipment with a cost of $200,000 and accumulated depreciation on the equipment of $80,000. What is the consolidated net carrying value of the equipment calculated in the consolidation worksheet at the date of acquisition? Multiple choice question. $280,000 $440,000 $120,000 $360,000

$280,000 Reason: Consolidated value of equipment = Garnet's equipment + Ivory's equipment - Accumulated depreciation deducted by consolidation entry = $160,000 + $200,000 - $80,000 = $280,000.

A parent company holds 80% of the common stock of a subsidiary. The total consolidated net income is $300,000. The consolidated net income attributable to the controlling interest is $270,000. Calculate the NCI shareholders' share of consolidated net income.

$30,000 The share of net income of the NCI shareholders = Consolidated net income - Consolidated net income attributable to the controlling interest in subsidiary company = $300,000 - $270,000 = $30,000.

A parent company holds 85% of the common stock of a subsidiary. The subsidiary has net income of $250,000. Calculate the NCI shareholders' share of net income.

$37,500 Share of income of the NCI shareholders = $250,000 × (1 - 0.85) = $37,500.

Quartz Corporation purchased 90% of the common stock of a subsidiary in the previous year. During the current year, the subsidiary reports net income of $70,000, while Quartz reports net income of $400,000, including the equity method income from the subsidiary. Calculate total consolidated net income.

$407,000 Consolidated net income = (Parent's net income - Equity method income from subsidiary) + subsidiary income = [$400,000 - (90% × $70,000)] + $70,000 = $407,000.

Emerald Corporation acquires 85% of Azore System's outstanding common stock. The fair value of Azore System's net assets on the acquisition date is equal to the book value of $500,000. Calculate Emerald's share of Azore System's book value.

$425, 000 Emerald's share of Azore System's book value = 85% × $500,000 = $425,000.

On January 1, 20X1, HoneyDew Corporation acquires 80% of the common stock of Topaz Products at fair value. On this date, the fair values of Topaz's individual assets and liabilities are equal to their book values. The book value of Topaz Products' net assets is $600,000. Calculate the fair value of HoneyDew Corporation's consideration.

$480,000

On January 1, 20X2, Siam Corporation acquires 80% of the common stock of Olive Corporation at a fair value of $400,000. On this date, the fair values of Olive's individual assets and liabilities are equal to their book values. Calculate the book value of Olive Corporation's net assets.

$500,000 Book value of Olive Corporation's net assets = $400,000 ÷÷ 80% = $500,000.

Steamer Inc. holds 100% of Crocker Corp.'s common stock. Steamer's Retained Earnings balance at the beginning of the second year of ownership was $420,000. During the second year, Steamer earned net income from its separate operations of $80,000 and declared dividends of $25,000. During that year, Crocker reported net income of $46,000 and did not declare dividends. Calculate the consolidated Retained Earnings balance at the end of the second year of ownership. Multiple choice question. $521,000 $466,000 $546,000 $500,000

$521,000 Reason: Consolidated retained earnings = $420,000 + $80,000 + $46,000 - $25,000 = $521,000.

Bronze Corp. acquired all of Charcoal Inc.'s common shares for $500,000. The fair value of the investment was equal to the book value on the acquisition date. In the acquisition year, Charcoal earned net income of $60,000 and distributed dividends of $12,000. What is the ending book value of Bronze Corp's investment in Charcoal? Multiple choice question. $548,000 $560,000 $500,000 $572,000

$548,000 Reason: Book value at the end of the year = $500,000 + ($60,000 - $12,000) = $500,000 + $48,000 = $548,000.

Bronze Corp. acquired all of Charcoal Inc.'s common shares for $500,000. The fair value of the investment was equal to the book value on the acquisition date. In the acquisition year, Charcoal earned net income of $60,000 and distributed dividends of $12,000. What is the ending book value of Bronze Corp's investment in Charcoal? Multiple choice question. $548,000 $572,000 $500,000 $560,000

$548,000 Reason: Book value at the end of the year = $500,000 + ($60,000 - $12,000) = $500,000 + $48,000 = $548,000.

Reed Inc. acquired 20% of the common stock of Cox Corp. for $500,000 on January 1, 20X1. On July 1, 20X1, Reed purchased an additional 15% of the stock of Cox for $400,000. Cox earned net income of $120,000 between January 1 and June 30 and earned $90,000 from July 1 to December 31. What is the income from the investment earned by Reed in the year 20X1? Multiple choice question. $42,000 $37,500 $55,500 $73,500

$55,500 Reason: Income from Investment = ($120,000 × 20%) + ($90,000 × 35%) = $24,000 + $31,500 = $55,500.

Redwood Corp. acquires all of Trio Systems Inc.'s common stock on January 1, 20X1 for $750,000. On the acquisition date, Trio Systems has Accounts Payable of $200,000, Bonds Payable of $150,000, Common Stock of $500,000, and Retained Earnings of $250,000. What is the book value of the shares acquired? Multiple choice question. $750,000 $900,000 $400,000 $1,100,000

$750,000 Reason: Book value = Common stock + Retained earnings = $500,000 + $250,000 = $750,000.

Cane Distributors Inc. holds 100% of Aponix Designs Corp.'s common stock. The book value of the investment at the beginning of the second year was $850,000, which consisted of Aponix Designs' Common Stock of $700,000 and Retained Earnings of $150,000. During the second year, Aponix Designs reported net income of $160,000 and declared dividends of $75,000. Calculate the ending book value of Cane Distributors' investment. Multiple choice question. $935,000 $850,000 $900,000 $1,010,000

$935,000 Reason: Ending book value of investment = $850,000 + $160,000 - $75,000 = $935,000.

Ivory Company reports Common Stock of $60,000, Additional Paid-In Capital of $500,000, and Retained Earnings of $360,000. The Noncontrolling Interest in the Net Assets of its subsidiary is $70,000. Calculate the total consolidated stockholders' equity.

$990,000 Total stockholders' equity = Total controlling interest + Noncontrolling interest in subsidiary company = ($60,000 + $500,000 + $360,000) + $70,000 = $990,000.

Assume Alpha Corp. acquires 100% of the common stock of Bravo Inc. On the acquisition date, the retained earnings of Bravo is $165,000. The retained earnings of Alpha at the end of the year is $325,000. During the acquisition year, Bravo earns net income of $35,000 and declares dividends of $15,000. Based on this information, the value of consolidated retained earnings is $_____

325000

On January 1, 20X1, Long Developers Inc. owned 20% of Short Developers Corp.'s common stock. Long's Investment in Short account balance on June 30 was $206,000. On July 1, 20X1, Long Developers acquired another 15% of Short's common stock for $170,000. Short Developers reported net income $40,000 income of July 1 to December 31. Short Developers also declared dividends of $20,000 on July 15. Calculate Long's balance in its investment in Short Developers Corp. account on December 31, 20X1. Multiple choice question. $383,000 $272,500 $396,000 $379,000

383000

Jasper Inc. purchased 100% of Pearl Corp.'s common stock on January 1, 20X1. On the acquisition date, Jasper's common stock is $400,000 while Pearl's common stock is $220,000. The consolidated common stock recorded in the consolidation worksheet on the date of acquisition is $_____

400000

Cornsilk Corporation acquires 80% of Goldenrod Corporation's outstanding common stock. The fair value of Goldenrod's net assets on the acquisition date is equal to the book value of $600,000. Cornsilk's share of Goldenrod's book value is $

480, 000

Assume a company holds 100% of the common stock of another company. In the second year of ownership, the beginning book value of the total investment was $430,000. The book value included Common Stock of $350,000 and Retained Earnings of $80,000. During the second year, the investee company earned net income of $50,000 and did not declare dividends. Based on this information, the ending book value of the total investment is $_____

480000

The common stock balances of a parent company and a subsidiary are $600,000 and $200,000, respectively. The consolidated common stock balance in the consolidated balance sheet will be $

600, 000

Corn Inc. acquired 100% of Candy Corp.'s common stock for $200,000. The fair value of the investment was equal to the book value on the acquisition date. The investment account was equal to the combined book value of Candy Corp's Common Stock of $150,000 and Retained Earnings of $50,000. In the acquisition year, Candy earned net income of $22,000 and declared dividends of $8,000. Candy Corp.'s ending retained earnings balance is $

64000 beg RE + NI - Div 50000+22000-8000=64000

Assume Adam Corp. acquires 20% of the stock Baker Inc. on January 1, 20X1 for $500,000. Adam acquires an additional 10% of the stock of Baker on June 1, 20X1 for $300,000. Baker declares dividends of $15,000 on January 15 and $20,000 on July 15. Calculate Adam's share of total dividends declared by Baker. Multiple choice question. $9,000 $10,500 $5,000 $7,000

9,000

Diamond Materials Inc. purchased 20% of Emerald Corp.'s common stock on January 1, 20X1 for $150,000. On June 1, 20X1, Diamond Materials purchased an additional 15% of Emerald common stock for $90,000. Emerald earned income of $48,000 from January 1 to May 31. Compute Diamond Materials' share of Emerald's income from January 1 to May 31. Multiple choice question. $9,600 $4,000 $16,800 $20,000

9600

Select all that apply Which of the following are columns in the consolidation worksheet? Multiple select question. A column for the operating cash flow of the parent A column for account titles of the companies being consolidated A column for each company included in the consolidation Columns in which the consolidation entries are entered A column for the balances that will appear in consolidated financial statements

A column for account titles of the companies being consolidated A column for each company included in the consolidation Columns in which the consolidation entries are entered A column for the balances that will appear in consolidated financial statements

Which of the following is an example of direct control?

A company owns a majority of another company's common stock.

Which of the following are limitations of consolidated financial statements?

A lack of detailed disclosures Unrepresentative combined financial ratios Limited availability of resources The masking of poor performance

Select all that apply Identify the adjustments that are done before adding the separate financial statements of companies for consolidation. Multiple select question. Adjustments relating to receivables from external parties Adjustments relating to payables to external parties Adjustments relating to holdings Adjustments relating to intercompany transactions

Adjustments relating to holdings Adjustments relating to intercompany transactions

Select all that apply Identify the statements that are true about effective control.

Adopting it can lead to the consolidation of companies even when these entities hold little ownership. Adopting it can lead to the consolidation of companies even when these entities hold no ownership. Adopting it can lead to the consolidation of entities other than corporations, such as partnerships and trusts.

Select all that apply According to ASC323-10-15-10, which of the following are examples of evidence where an investor is unable to exercise significant influence over an investee? Multiple select question. Agreement by the investor to give up certain rights Technological dependency between the investor and investee Legal or regulatory challenges to the investor's influence Material intercompany transactions

Agreement by the investor to give up certain rights Legal or regulatory challenges to the investor's influence

Select all that apply Which of the following are true of preparing combined financial statements?

All intercompany receivables and payables must be eliminated. Intercompany transactions must be eliminated. Unrealized intercompany profits and losses must be eliminated.

Select all that apply Which of the following are purposes for which special-purpose entities have been used for several decades?

Asset securitization Risk sharing Taking advantage of tax statutes

Power Devices, Inc. acquired 20% of Yates Zone Corp.'s common stock for $500,000 on January 1, 20X1. During the acquisition year, Yates reported net income of $200,000, and declared dividends of $90,000. The carrying amount of the investment is $_____ under the equity method.

Blank 1: 522,000

The investee's are _____ viewed as distributions of previously recognized income that already has been capitalized in the carrying amount of the investment.

Blank 1: dividends

Investments in which the investor's voting stock gives it the ability to exercise significant influence over operating and financial policies of the subsidiary company should use the ________ method of accounting for the investment.

Blank 1: equity

Under the equity method of accounting for an investment, an investor records its investment at the _____ cost.

Blank 1: original or initial

Consolidation is generally appropriate when one company, referred to as the __________ , controls another company, referred to as a __________ .

Blank 1: parent Blank 2: subsidiary

Select all that apply Which of the following are approaches used in practice by investors in accounting for their consolidated subsidiaries? Multiple select question. Use the lower-of-cost-or-market method. Carry investment at cost. Use the fully adjusted equity method. Apply the modified version of the equity method.

Carry investment at cost. Use the fully adjusted equity method. Apply the modified version of the equity method.

Citrine Company owns 80 percent of Orchid Company and 60 percent of Azore Company. Orchid Company owns 30 percent of Garnet Company. Azore Company owns 40 percent of Garnet Company. Which of the following can be concluded from this information?

Citrine Company controls Garnet Company.

Which of the following accounts are normally debited as part of the basic consolidation entry in subsequent years of ownership when the subsidiary is less-than-wholly owned?

Common Stock Retained Earnings Income from Subsidiary

On January 1, 20X1, Gold Inc. purchased all of Silver Corp.'s common stock for $400,000 and the purchase price was equal to the book value of Silver Corp on the acquisition date. The book value of the investment on Gold's books is equal to Silver Corp.'s Common Stock of $300,000 and Retained Earnings of $100,000. Silver Corp. earned net income of $50,000 and paid dividends of $25,000 during 20X1. Which of the following accounts is debited in the basic consolidation entry recorded in the consolidation worksheet? Multiple choice question. Investment in Silver Corp. for $400,000. Common Stock for $300,000 and Retained Earnings for $100,000. Common Stock for $300,000; Retained Earnings for $100,000; and Income from Silver Corp. for $50,000. Dividend Declared for $25,000 and Investment in Silver Corp. for $425,000.

Common Stock for $300,000; Retained Earnings for $100,000; and Income from Silver Corp. for $50,000.

On January 1, 20X1, Trueware Inc. acquired 100% of Crocus Corp.'s common stock for $600,000. The purchase price was equal to the book value of Crocus' net assets. The ending book value of the total investment was $655,000 as of the end of 20X1, which is equal to Crocus' Common Stock of $500,000 and Retained Earnings of $155,000. During 20X2, Crocus earned net income of $65,000 and declared and paid dividends of $20,000. Based on this information, which of the following is (are) debited in the basic consolidation entry? Multiple choice question. Income from Crocus Corp. for $65,000; Dividends Declared for $20,000 Investment in Crocus Corp. for $655,000; Dividends Declared for $20,000 Common Stock for $500,000; Retained Earnings for $155,000; Income from Crocus Corp. for $65,000 Investment in Crocus Corp. for $$700,000

Common Stock for $500,000; Retained Earnings for $155,000; Income from Crocus Corp. for $65,000

Which of the following accounts are normally debited as part of the basic consolidation entry when the subsidiary is less-than-wholly owned?

Common Stock of Subsidiary NCI in NI of Subsidiary Income from Subsidiary

Select all that apply Which of the following are true of consolidation entries? Multiple select question. Consolidation entries are used to adjust the totals of the individual account balances of the separate consolidating companies. Consolidation entries are carried forward from one period to another and the same entries will be retained every year. Consolidation entries reflect the amounts that would appear if the legally separate companies were actually a single company. Consolidation entries appear only in the consolidation worksheet and do not affect the books of the separate companies.

Consolidation entries are used to adjust the totals of the individual account balances of the separate consolidating companies. Consolidation entries reflect the amounts that would appear if the legally separate companies were actually a single company. Consolidation entries appear only in the consolidation worksheet and do not affect the books of the separate companies.

Emerald Inc. acquires all of Opal Corp.'s common stock. The net assets of Opal include equipment of $250,000. On the date of acquisition, the accumulated depreciation on the equipment is $45,000. What is the accumulated depreciation consolidation entry for this transaction? Multiple choice question. Debit Equipment for $45,000; Credit Accumulated Depreciation for $45,000 Debit Accumulated Depreciation for $45,000; Credit Equipment for $45,000 Debit Equipment for $205,000; Accumulated Depreciation for $45,000; Credit Cash for $250,000 Debit Investment for $45,000; Credit Cash for $45,000

Debit Accumulated Depreciation for $45,000; Credit Equipment for $45,000

Assume a company acquires all the common shares of another company. The net assets of the investee include accumulated depreciation on equipment. Which of the following is the accumulated depreciation consolidation entry? Multiple choice question. Debit Equipment; Credit Accumulated Depreciation Debit Accumulated Depreciation; Credit Equipment Debit Equipment; Credit Cash Debit Accumulated Depreciation; Credit Cash

Debit Accumulated Depreciation; Credit Equipment

Domic Corporation purchased 80% of Lunist Products' common stock on January 1, 20X1. During the year, Lunist reported 20X1 net income of $60,000 and declared and paid dividends of $20,000. Which of the following is Dominic's journal entry to record the receipt of the dividend from the Lunist?

Debit Cash for $16,000; Credit Investment in Lunist for $16,000

Assume that a company purchases 20% of the common stock of another company for $250,000 on January 1st. On the last day of the on the acquisition year, the fair value of the common stock is $257,000. The investor receives a dividend of $18,000 during the acquisition year. Which of the following is the journal entry in the investor's books to record the receipt of dividends under the fair value option? Multiple choice question. Debit Cash for $18,000; Credit Dividend Income for $18,000 Debit Cash for $7,000; Credit Dividend Income for $7,000 Debit Dividend Income for $18,000; Credit Cash for $18,000 Debit Cash for $7,000; Credit Income from Investment for $7,000

Debit Cash for $18,000; Credit Dividend Income for $18,000

Assume a company acquired 100% of the common stock of another company on January 1, 20X1, and used the equity method to account for the investment. In the acquisition year, the investee company declared and paid cash dividends of $25,000. What is the investor company's journal entry to record the dividends received from the investee company? Multiple choice question. Debit Cash for $25,000; Credit Dividends Income for $25,000 Debit Cash for $25,000; Credit Investment in Investee Company for $25,000 Debit Investment in Investee Company for $25,000; Credit Income from Investee Company for $25,000 Debit Cash for $25,000; Credit Income from Investee Company for $25,000

Debit Cash for $25,000; Credit Investment in Investee Company for $25,000

In the second year after a company's investment in 100% of the the common stock of another company, the investee declared and paid dividends of $25,000. Which of the following is the journal entry to record the dividends in the books of the investor when the equity method is applied? Multiple choice question. Debit Investment in Investee Company for $25,000; Credit Cash for $25,000 Debit Income from Investment for $25,000; Credit Cash for $25,000 Debit Cash for $25,000; Credit Investment in Investee Company for $25,000 Debit Cash for $25,000; Credit Income from Investment for $25,000

Debit Cash for $25,000; Credit Investment in Investee Company for $25,000

For subsequent years of ownership, which of the following is the parent company's journal entry to record the receipt of cash dividends from a subsidiary company?

Debit Cash; Credit Investment in Subsidiar

For subsequent years of ownership, which of the following is the parent company's journal entry to record the receipt of cash dividends from a subsidiary company?

Debit Cash; Credit Investment in Subsidiary

Which of the following is the parent's journal entry to record the receipt of dividends from a subsidiary company?

Debit Cash; Credit Investment in Subsidiary

Assume Thor Corp. purchases 100% of the common stock of Hulk Inc. at book value for $450,000. On the acquisition date, the book value of Hulk's common stock is $300,000 and the book value of the retained earnings is $150,000. Which of the following is the basic consolidation entry recorded in the consolidated worksheet on the acquisition date? Multiple choice question. Debit Common Stock for $300,000; Debit Retained Earnings for $150,000; Credit Investment in Hulk Inc. for $450,000 Debit Cash for $450,000; Credit Investment in Hulk Inc. for $450,000 Debit Common Stock for $300,000; Debit Retained Earnings for $150,000; Credit Cash for $450,000 Debit Investment in Hulk Inc. for $450,000; Credit Common Stock for $300,000; Credit Retained Earnings for $150,000

Debit Common Stock for $300,000; Debit Retained Earnings for $150,000; Credit Investment in Hulk Inc. for $450,000

Mack Corp. acquired 25% of the common stock of Ball Corp. for $350,000. Ball declares dividends of $30,000. Which of the following journal entries would Mack record with respect to the dividends? Assume the dividends have not yet been paid. Multiple choice question. Debit Cash for $30,000; Credit Investment in Ball Company Stock for $30,000 Debit Cash for $7,500; Credit Dividends Receivable for $7,500 Debit Dividends Receivable for $30,000; Credit Investment in Ball Company Stock for $30,000 Debit Dividends Receivable for $7,500; Credit Investment in Ball Company Stock for $7,500

Debit Dividends Receivable for $7,500; Credit Investment in Ball Company Stock for $7,500

Which of the following journal entries would an investor company record when an investee company declares dividends? Assume the dividends have not yet been paid and the equity method is applied. Multiple choice question. Debit Dividends Receivable; Credit Investment in Investee Company Stock Debit Cash; Credit Dividends Receivable Debit Cash; Credit Investment in Investee Company Stock Debit Investment in Investee Company Stock; Credit Dividends Receivable

Debit Dividends Receivable; Credit Investment in Investee Company Stock

Multiple Choice Question If a company acquires 100% of the common stock of another company by paying cash, which of the following is the investor's journal entry to record the purchase? Multiple choice question. Debit Cash; Credit Investment in Investee Company Debit Investment In Investee Company; Credit Cash Debit Income from Investment; Credit Investment In Investee Company Debit Income from Investee Company; Credit Cash

Debit Investment In Investee Company; Credit Cash

Multiple Choice Question Amber Inc. purchases all of Coral Corp.'s common shares for $450,000. Which of the following is Amber Inc.'s journal entry to record the purchase? Multiple choice question. Debit Cash for $450,000; Credit Investment in Coral Corp. for $450,000 Debit Investment in Coral Corp. for $450,000; Credit Cash for $450,000 Debit Common Stock for $450,000; Credit Cash for $450,000 Debit Income from Investment for $450,000; Credit Cash for $450,000

Debit Investment in Coral Corp. for $450,000; Credit Cash for $450,000

Calcore Corporation purchased 80% of Ecogen Products' common shares on January 1, 20X1. During 20X2, Calcore reported operating earnings of $500,000, excluding its income from investing in Ecogen, and declared dividends of $50,000. Ecogen reported net income of $30,000 and declared dividends of $20,000 during 20X2. Which of the following is Calcore's journal entry to record its share of Ecogen income?

Debit Investment in Ecogen Products for $24,000; Credit Income from Ecogen Products for $24,000

Which of the following is the journal entry made by an investor company to record its share of the income from an investee company? Multiple choice question. Debit Income from Investee Company; Credit Investment in Investee Company Stock Debit Investment in Investee Company Stock; Credit Income from Investee Company Debit Investment in Investee Company Stock; Credit Cash Debit Cash; Credit Income from Investee Company

Debit Investment in Investee Company Stock; Credit Income from Investee Company

Assume a company acquired 100% of the shares of another company in the year 20X1. In the second year, the investor company earned net income of $100,000 and the investee company earned net income of $80,000. Which of the following is the journal entry to record the income from investment in the books of the investor? Multiple choice question. Debit Cash for $80,000; Credit Investment in Investee Company for $80,000 Debit Investment in Investee Company for $80,000; Credit Income from Investee company $80,000 Debit Income from Investee company $80,000; Credit Investment in Investee Company for $80,000 Debit Cash for $80,000; Credit Income from Investee company $80,000

Debit Investment in Investee Company for $80,000; Credit Income from Investee company $80,000

Assume a company purchases 100% of the common stock of another company on January 1, 20X2. Which of the following is the investor's journal entry to record the stock purchase? Multiple choice question. Debit Cash; Credit Income from Investment Debit Investment in Investee Company; Credit Cash Debit Income from Investment; Credit Cash Debit Cash; Credit Investment in Investee Company

Debit Investment in Investee Company; Credit Cash

Assume a company acquires 25% of the common of another company for $400,000 on January 1, 20X1. The investor prepares the financial statements at the end of each quarter. On March 31, 20X1, the investor determines that the fair value of the investment is $410,000. Which of the following is the journal entry to record the fair value adjustment? Multiple choice question. Debit Cash for $10,000; Credit Unrealized Gain on Investee Stock for $10,000 Debit Investment in Investee Stock for $10,000; Credit Unrealized Gain on Investee Stock for $10,000 Debit Unrealized Gain on Investee Stock for $10,000; Credit Investment in Investee Stock for $10,000 Debit Investment in Investee Stock for $10,000; Credit Income from Investment for $10,000

Debit Investment in Investee Stock for $10,000; Credit Unrealized Gain on Investee Stock for $10,000

Mark Inc. purchased 35% of Jean Corp.'s common stock for $500,000. Jean reported $100,000 of net income in the acquisition year. What is Mark's journal entry to record its share of Jean's income? Multiple choice question. Debit Income from Jean Corp. for $35,000; Credit Investment in Jean Corp. Stock for $35,000 Debit Investment in Jean Corp. Stock for $35,000; Credit Income from Jean Corp. for $35,000 Debit Cash for $35,000; Credit Investment in Jean Corp. Stock for $35,000 Debit Cash for $35,000; Credit Income from Jean Corp. for $35,000

Debit Investment in Jean Corp. Stock for $35,000; Credit Income from Jean Corp. for $35,000

Weber Inc. purchased 25% of Parks Corp.'s common stock for $300,000. What is the journal entry to record the purchase of Parks' common stock? Multiple choice question. Debit Income from Investment for $300,000; Credit Cash for $300,000 Debit Investment in Parks Corp. for $75,000; Credit Cash for $75,000 Debit Investment in Parks Corp. for $300,000; Credit Cash for $300,000 Debit Income from Investment for $300,000; Credit Investment in Parks Corp. for $300,000

Debit Investment in Parks Corp. for $300,000; Credit Cash for $300,000

Kayend Corporation purchases 85% of Subil Products' common stock. Assume that Kayend already recorded the acquisition on January 1, 20X1. During the year, Kayend reports operating earnings of $450,000, excluding its income from investing in Subil, and declares dividends of $70,000. Subil reports 20X1 net income of $50,000 and declares dividends of $30,000. Which of the following is Kayend's journal entry to record its share of Subil's income?

Debit Investment in Subil Products for $42,500; Credit Income from Subil Products for $42,500 Kavend's share of income from Subil = $50,000 × 85% = $42,500.

Which of the following journal entries would a parent company record at the acquisition of a subsidiary for cash?

Debit Investment in Subsidiary; Credit Cash.

Which of the following is the journal entry to record a parent company's share in the subsidiary's income in subsequent years of ownership?

Debit Investment in Subsidiary; Credit Income from Subsidiary

On January 1, 20X1, Lavender Corp. purchased all of Violet Inc.'s common stock for $800,000. During 20X1, Violet earned net income of $75,000. Which of the following is Lavender's equity method journal entry to record the income from its investment in Violet stock? Multiple choice question. Debit Income from Violet Inc. for $75,000; Credit Investment in Violet Inc. for $75,000 Debit Cash for $75,000; Credit Investment in Violet Inc. for $75,000 Debit Cash for $75,000; Credit Income from Violet Inc. for $75,000 Debit Investment in Violet Inc. for $75,000; Credit Income from Violet Inc. for $75,000

Debit Investment in Violet Inc. for $75,000; Credit Income from Violet Inc. for $75,000

Garnet Corporation acquires 80 percent of Zircon Foods' outstanding common stock for $300,000, an amount equal to 85 percent of the fair value of Zircon Foods' net assets on January 1, 2014. Which of the following is a journal entry to record the transaction in the books of Garnet?

Debit Investments in Zircon Foods for $300,000 and credit Cash for $300,000.

____ control occurs when one company owns a majority of another company's common stock.

Direct

Select all that apply Which of the following affects the investment account of an investor when the equity method is used? Multiple select question. Dividends declared by an investee A net loss reported by an investee Net income reported by an investee Sale of goods at cost to another company reported by an investee

Dividends declared by an investee A net loss reported by an investee Net income reported by an investee

Select all that apply Which of the following will decrease the investment account on the books of the investor when the equity method is applied? Multiple select question. Income received from a foreign investment reported by the investee Gain on sale of asset reported by the investee Dividends declared by the investee A net loss reported by the investee

Dividends declared by the investee A net loss reported by the investee

Identify the equation to calculate ending balance in consolidated retained earnings. Multiple choice question. Ending balance in consolidated retained earnings = Beginning balance − Consolidated net income + Dividend declared by the parent company Ending balance in consolidated retained earnings = Beginning balance + Consolidated net income + Dividend declared by the parent company Ending balance in consolidated retained earnings = Beginning balance + Consolidated net income − Dividend declared by the parent company Ending balance in consolidated retained earnings = Beginning balance − Consolidated net income − Dividend declared by the parent company

Ending balance in consolidated retained earnings = Beginning balance + Consolidated net income − Dividend declared by the parent company

True or False Question True or false: Dividends declared by the investee are treated as a reduction of investment under both the equity and fair value methods.

False

True or false A party without an interest in a variable interest entity (VIE) should consolidate the VIE.

False

True or false: Dividends declared by the investee are treated as a reduction of investment under both the equity and fair value methods.

False

True or false: A company practicing modified equity method for consolidating a controlled subsidiary can make adjustments for unrealized profit and amortization of differential without applying equity method

False Reason: This is false. A company practicing modified equity method for consolidating a controlled subsidiary can make adjustments for unrealized profit and amortization of differential applying equity method.

True or false: The amount of detail provided by the use of the equity method is greater than that provided by consolidation.

False Reason: Under the equity method, there is a single amount in the investor's balance sheet that represents the investment in stock of another company.

Select all that apply Which of the following are true of a dividend declared by an investee under the equity method of accounting for an investment? Multiple select question. It will be recorded as a payment of dividends on the books of the investor. It will be recorded as an income from investment on the books of the investor. It will decrease the balance of the investment account. It will be recorded as an asset on the books of an investor.

It will decrease the balance of the investment account. It will be recorded as an asset on the books of an investor.

Select all that apply Identify the limitations that may be imposed in a variable interest entity.

Limitation of equity investors' control over the entity's activities Limitation of equity investors' share in the entity's profit

Which of the following statements is true if Morion Company owns 70% of Zircon Company's common stock?

Morion has direct control of Zircon.

Which of the following items are included in the calculation of consolidated retained earnings at the end of the period? Multiple select question. Net income attributable to the controlling interest Beginning consolidated retained earnings balance Dividends declared by the parent company Consideration paid for the purchase of the subsidiary

Net income attributable to the controlling interest Beginning consolidated retained earnings balance Dividends declared by the parent company

Dave Company holds 60 percent shares in Robert Company and uses the equity method of accounting. On December 15, Robert Company declared stock dividends at a ratio of 2:1. Identify a statement that is true regarding this event. Multiple choice question. Dave Company will add the stock dividend amount to the Investment in Robert Company account. No accounting record is made in Dave Company's books. Robert Company will transfer the stock dividend amount to the Restricted Retained Earnings account. No accounting record is made in Robert Company's books.

No accounting record is made in Dave Company's books.

What will be the effect of a reverse stock split on the carrying value of an investment when the investment is carried at fair value? Multiple choice question. No effect on carrying value Increase in carrying value Increase or decrease in carrying value depending on the market price Decrease in carrying value

No effect on carrying value

Which of the following is an example of indirect control?

One or more companies (that are under common control) own a majority of another company's common stock.

Select all that apply Which of the following items are reported in consolidated financial statements? Multiple select question. Receivables from a subsidiary company Payables of a subsidiary to the parent company Payables to external parties Receivables from external parties

Payables to external parties Receivables from external parties

Select all that apply Which of the following will require journal entries by the investor when the investment is carried at fair value? Multiple select question. Reverse splits Stock splits Stock dividends Purchase of shares Sales of shares

Purchase of shares Sales of shares

Select all that apply Assume Charlie Corp. acquires 100% of the common stock of Delta Inc. The fair value of the investment is equal to its book value on the acquisition date. Delta earns net income during the acquisition year and declares dividends out of the net income. Based on this information, which of the following accounts are included in the basic consolidation entry? Multiple select question. Gain on Purchase of the Investment Retained Earnings Common Stock Dividends Declared Investment in Delta inc.

Retained Earnings Common Stock Dividends Declared Investment in Delta inc.

Select all that apply Which of the following statements is true of the basic consolidation entry? Multiple select question. The basic consolidation entry eliminates the equity accounts of the investee company. The basic consolidation entry eliminates the income from the investee company account. The basic consolidation entry eliminates the investment in the investee company account. The basic consolidation entry eliminates the dividends declared by the investor company.

The basic consolidation entry eliminates the equity accounts of the investee company. The basic consolidation entry eliminates the income from the investee company account. The basic consolidation entry eliminates the investment in the investee company account.

When a parent holds majority ownership in a subsidiary that is in legal reorganization or in bankruptcy, control of that subsidiary resides with which of the following?

The courts or court-appointed trustee

Select all that apply Which of the following are true of consolidation? Multiple select question. It is most appropriate when the investor owns between 20% and 50% of the voting shares of the investee. The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor. It is appropriate when the investor can exercise control over the investee. During consolidation, the investment and related income accounts are eliminated in preparing the consolidated financial statements.

The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor. It is appropriate when the investor can exercise control over the investee. During consolidation, the investment and related income accounts are eliminated in preparing the consolidated financial statements.

Select all that apply In order to avoid double-counting the assets of the subsidiary, which of the following are true of a full consolidation?

The investment account is eliminated in the consolidation process. The investment account is not carried to the consolidated balance sheet.

Select all that apply In order to avoid double-counting the assets of the subsidiary, which of the following are true of a full consolidation?

The investment account is not carried to the consolidated balance sheet. The investment account is eliminated in the consolidation process.

Select all that apply Which of the following are true regarding the equity method of accounting for investments in equity securities? Multiple select question. The investment is reported as one line in the investor's balance sheet. It is appropriate when the investor has the ability to exercise significant influence over the investee and consolidation is not appropriate. The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor. Income recognized from the investee is reported as one line in the investor's income statement.

The investment is reported as one line in the investor's balance sheet. It is appropriate when the investor has the ability to exercise significant influence over the investee and consolidation is not appropriate. Income recognized from the investee is reported as one line in the investor's income statement.

Select all that apply If an investor company, using the equity method, purchases additional shares of common stock of an investee company already held by the investor, which of the following are true about the treatment of the additional purchase in the books of the investor? Multiple select question. The investor company will add the cost of the new shares to the investment account. The income accruing from the new investment is recognized retrospectively from date of the original acquisition. The investor company will treat the new and old stock separately. The investor company will apply the equity method to the newly purchased shares from the date of acquisition

The investor company will add the cost of the new shares to the investment account. The investor company will apply the equity method to the newly purchased shares from the date of acquisition.

Select all that apply In which of the following situations will the equity method most likely be used for reporting investments in common stock? Multiple select question. The subsidiary company has other investors who own majority shares of the company. The investor has the ability to exercise significant influence over the investee. The investor holds 20% or more of the investee's voting stock. The investment is a corporate joint venture.

The investor has the ability to exercise significant influence over the investee. The investor holds 20% or more of the investee's voting stock. The investment is a corporate joint venture.

Under the equity method, the investor's income statement will include what amount of the investee's income or loss for the period? Multiple choice question. The investor's proportionate share of the investee's income or loss All of the investee's income or loss Only the investor's proportionate share of the investee's income, not losses None of the investee's income or loss

The investor's proportionate share of the investee's income or loss

Select all that apply Under the equity method, which of the following is a reason the carrying amount of an investment may not be equal to its original cost? Multiple select question. The investor's share in the investee's net loss reduces the investment's carrying value. The investor's share of dividends declared by the investee reduce the carrying value of the investment. The investor's share of the investee's income increases the investment's carrying value. The carrying amount of the investment is changed according to the changes in the market value of the investment.

The investor's share in the investee's net loss reduces the investment's carrying value. The investor's share of dividends declared by the investee reduce the carrying value of the investment. The investor's share of the investee's income increases the investment's carrying value.

Select all that apply Under the equity method, which of the following is true of a parent company's recognition of dividends declared by an investee? Multiple select question. The investor's share of an investee's dividends reduce the carrying amount of the investment. The investee's dividends declared are considered as an increase in its equity. The dividends declared by the investee are not recognized as income. The investee's dividends are viewed as distributions of previously recognized income.

The investor's share of an investee's dividends reduce the carrying amount of the investment. The dividends declared by the investee are not recognized as income. The investee's dividends are viewed as distributions of previously recognized income.

Which of the following must be accounted for in the consolidated worksheet?

The noncontrolling interest's claim on both the income and net assets of the subsidiaries

Select all that apply Which of the following must be present for a reporting entity to have a controlling financial interest in a variable interest entity (VIE)?

The obligation to absorb the losses of the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE. The power to direct the activities of the VIE that most significantly impact the VIE's economic performance

Match the limitations of consolidated financial statements and their descriptions. The masking of poor performance A lack of uniformity Limited availability of resources The lack of detailed disclosures

The operating results and financial position of individual companies included in the consolidation are not disclosed. Similar accounts of different companies that are combined in the consolidation may not be entirely comparable. Not all of the consolidated retained earnings balance is necessarily available for dividends of the parent because a portion may represent the parent's share of undistributed subsidiary earnings. Additional information about individual companies or groups of companies included in the consolidation often is necessary for fair presentation and may require voluminous footnotes.

Consolidated Retained Earnings in the consolidated balance sheet is the portion of the consolidated entity's undistributed earnings accruing to the which of the following stockholders?

The parent's

Select all that apply If the parent accounts for subsidiaries using the equity method on its books, the retained earnings of each subsidiary is completely eliminated when the subsidiary is consolidated. Which of the following statements support this statement? Multiple select question. The parent's share of the subsidiary's income since acquisition is already included in the parent's equity-method retained earnings. The book value of the net assets of the subsidiary is equal to the fair value of the consideration on the date of purchase. The noncontrolling interest's share of the subsidiary's retained earnings is not included in consolidated retained earnings. The retained earnings cannot be purchased.

The parent's share of the subsidiary's income since acquisition is already included in the parent's equity-method retained earnings. The noncontrolling interest's share of the subsidiary's retained earnings is not included in consolidated retained earnings. The retained earnings cannot be purchased.

Which of the following factors determines control?

The proportion of voting shares of a company's stock owned directly or indirectly by another company

Which of the following are considered noncontrolling shareholders?

The shareholders of the subsidiary other than the parent

Select all that apply A parent company cannot exercise control over a subsidiary, even though it owns more than 50% of its outstanding voting stock, in which of the following circumstances?

The subsidiary is located in a foreign country that has placed restrictions on the remittance of profits or assets to the parent. The subsidiary is in legal reorganization.

Select all that apply Which of the following statements are true of consolidation when the fiscal periods of a parent and subsidiary are different?

The subsidiary's fiscal period is often changed to coincide with that of the parent. The consolidation of a subsidiary without adjusting the fiscal period is permitted if the difference in period is not more than three months. The financial statement data of the subsidiary is adjusted in each period to place the data on a basis consistent with the parent's fiscal period.

Which of the following are approaches commonly used to account for investments in common stock? Select all that apply a-consolidation b-amortized cost c-fair value method d-equity method

a-consolidation c-fair value method d-equity method

Select all that apply Which of the following factors constitute evidence of the the investor company's ability to exercise significant influence over the investee company? Multiple select question. There is no technological dependency between the investor and investee. There is an interchange of managerial personnel. The investor has representation on the investee's board of directors. The investor participates in the policy making of the investee.

There is an interchange of managerial personnel. The investor has representation on the investee's board of directors.

Which of the following accurately describes the effect of a stock dividend, split, or reverse stock split by an investee company on the parent's investment in investee account under the equity method? Multiple choice question. They reduce the carrying amount of the investment. They are not recorded in the books of the investor company. They increase the carrying amount of the investment. They are added to the original cost of the investment.

They are not recorded in the books of the investor company.

Select all that apply Which of the following statements are true if Olivine Petroleum Corporation owns 70 percent of Topaz Group Corporation, which owns 80 percent of Amethyst Corporation?

Topaz Group Corporation controls Amethyst Corporation. Olivine Petroleum Corporation controls Amethyst Corporation. Olivine Petroleum Corporation controls Topaz Group Corporation.

True or false The subsidiary's individual assets and liabilities are combined with those of the parent in a full consolidation.

True

True or false: Consolidated net income and consolidated net income attributable to the controlling interest are equal when all consolidated subsidiaries are wholly owned.

True Reason: Consolidated net income and consolidated net income attributable to the controlling interest are the same when all consolidated subsidiaries are wholly owned, as the net income earned from a subsidiary will be equal to the equity method income.

Select all that apply Which of the following investor accounts are affected in recording an increase in the fair value of an investee's stock? Multiple select question. Unrealized Gain on Investee Stock Income from Investment Cash Investment in Investee Stock

Unrealized Gain on Investee Stock Investment in Investee Stock

Which of the following are recognized as income by the investor under the fair value method? Multiple select question. Unrealized gains or losses during the investment period Income is not recognized using the fair value method Investor's share of investee's earnings during the investment period Investor's share of investee's dividends declared from earnings

Unrealized gains or losses during the investment period Investor's share of investee's dividends declared from earnings

Which of the following are true of preparing combined financial statements?

Unrealized intercompany profits and losses must be eliminated. All intercompany receivables and payables must be eliminated. Intercompany transactions must be eliminated.

The traditional view of control is of prime importance for determining when ____.

a subsidiary should be consolidated

Select all that apply The equity method of accounting for investments in equity securities is appropriate when Multiple select question. a the investor has the ability to exercise significant influence over the investee. b the investor holds more than 50% of the investee's common stock. c the investor does not have the ability to exercise significant influence over the investee. d consolidation is not appropriate.

a the investor has the ability to exercise significant influence over the investee. d consolidation is not appropriate.

Select all that apply Which of the following are true of consolidation? Multiple select question. a) It is appropriate when the investor can exercise control over the investee. b) During consolidation, the investment and related income accounts are eliminated in preparing the consolidated financial statements. c) It is most appropriate when the investor owns between 20% and 50% of the voting shares of the investee. d) The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor.

a) It is appropriate when the investor can exercise control over the investee. b) During consolidation, the investment and related income accounts are eliminated in preparing the consolidated financial statements. d) The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor.

A parent company sells land at a price above the cost it incurred to its subsidiary. A worksheet entry is required in _____. Multiple choice question. the year of subsequent sale by the subsidiary only all the years for which the subsidiary holds the land the year of sale by the parent company only all the years including years after the subsequent sale of land by the subsidiary

all the years for which the subsidiary holds the land

An investment in common stock that was previously accounted for with a method other than the equity method may become qualified for use of the equity method by Multiple choice question. an increase in the level of ownership. reporting earnings in excess of expectations. a change in company leadership. a decrease in the level of ownership.

an increase in the level of ownership.

Select all that apply Investments are carried at fair value when Multiple select question. a the investee has significant influence over the investee. b the investee does not have significant influence over the investee. c the equity securities have readily determinable fair values. d the investor owns more than 50% of the investee's voting shares.

b the investee does not have significant influence over the investee. c the equity securities have readily determinable fair values.

A company is said to be engaged in off-balance-sheet financing if it

borrows heavily through finance subsidiaries but excludes those subsidiaries from consolidation.

Net income calculated in the income statement section of the consolidation worksheet is Multiple choice question. carried forward to the liabilities of the consolidation worksheet. subtracted from the common stock in the equity section of the consolidation worksheet. added to the assets of the consolidation worksheet. carried forward to the retained earnings statement portion of the consolidation worksheet.

carried forward to the retained earnings statement portion of the consolidation worksheet.

The noncontrolling interest in a subsidiary represents the

claim of the shareholders of a subsidiary, other than the parent, on the income and net assets of the subsidiary.

Financial statements that include a group of related companies without including the parent company or other owner are referred to as ____ financial statements.

combined

Which of the following methods would be used when an investor acquires more than 50% of an investee's voting shares? Multiple choice question. amortized cost consolidation fair value method equity method

consolidation

According to ASC 810, consolidated financial statements are normally appropriate for a group of companies when one company has a ______ in the other companies.

controlling financial interest

When all subsidiaries are wholly owned, all of the consolidated net income accrues to the parent company, often called the ____ ____

controlling interest

In the entry to record the parent's share of a subsidiary's net income, the Investment in Subsidiary account of the parent company is ____, and the Income from Subsidiary account is ___ to record the parent's share of the subsidiary's net income.

debited credited

The cash account is ____ and the Investment in Subsidiary account is ____ on the parent's books to record dividends received from a subsidiary.

debited credited

When a portion of consolidated net income accrues to NCI shareholders, that amount is then ______ consolidated net income to arrive at consolidated net income attributable to the controlling interest.

deducted from

Under the fair value method of accounting for investments in equity securities, income is recognized when Multiple choice question. the investment's fair value declines. the investee reports income. dividends are received by the investor. dividends are declared by the investee.

dividends are declared by the investee.

A company's ____ ____ reflects its ability to direct the policies of another entity even without majority ownership of that entity.

effective control

In the absence of transactions between companies included in the consolidation, consolidated net income is equal to the parent's income from its own operations,

excluding any investment income from consolidated subsidiaries, plus the net income from each of the consolidated subsidiaries.

When it is inappropriate for a parent company to consolidate a subsidiary, it is reported as a(n) ____ investment.

intercompany

Upon the sale of part of an investment in common stock accounted for under the equity method, the investment account is adjusted to the date of sale for the Multiple choice question. proceeds from the sale of stock. investor's share of the investee's assets. dividend income. investor's share of the investee's current earnings.

investor's share of the investee's current earnings.

For financial reporting purposes, a purchase of additional shares of a common stock already held _____. Multiple choice question. does not affect the old investment partially affects the old investment is deducted from the old investment is added to the old investment

is added to the old investment

A subsidiary should not be consolidated with a parent when the parent

is precluded from exercising control.

A ____ interest exists when a subsidiary is less than wholly owned.

noncontrolling

The claim of the shareholders of a subsidiary, other than the parent, on the income and net assets of the subsidiary is referred to as the ____ interest.

noncontrolling

To arrive at consolidated net income attributable to the controlling interest, the ____ interest's share of consolidated net income is deducted from consolidated net income at the bottom of the worksheet's income statement section in the Consolidated column.

noncontrolling

When a subsidiary is not wholly owned by the parent, the shareholders of a subsidiary other than the parent company are referred to as

noncontrolling shareholders.

A reason for the lack of consistency in consolidation policy is ____.

off-balance-sheet financing

Select all that apply Consolidated net income is ______.

the parent's income from its own operations, excluding any investment income from consolidated subsidiaries, plus the net income from each of the consolidated subsidiaries the difference between consolidated revenues and expenses

Which of the following are parts of the most widely used consolidation worksheet format? Multiple select question. the statement of retained earnings the balance sheet the income statement the statement of cash flows

the statement of retained earnings the balance sheet the income statement

A subsidiary's stockholders' equity accounts are eliminated when _____. Multiple choice question. the subsidiary's stock is held entirely by its parent the equity account has no relevance to the consolidation the parent company has its own equity accounts less than 50 percent of the subsidiary's stock is held by its parent

the subsidiary's stock is held entirely by its parent

When the amount of investment equals the net assets of a subsidiary as of the acquisition date, the the amount of investment is equal to _____. Multiple choice question. the sum of the common stock and the retained earnings of the subsidiary the common stock of the subsidiary the sum of the common stock and the retained earnings of the holding company the retained earnings of the holding company

the sum of the common stock and the retained earnings of the subsidiary

Total stockholders' equity of a consolidated balance sheet is ____.

the sum of the controlling interest and the noncontrolling interest in the net assets of sub company

When a subsidiary is purchased for an amount equal to the book value of the subsidiary's net assets, _____. Multiple choice question. there is a difference between the amount of investment made by the parent company and the net assets of the subsidiary the net assets of the subsidiary are reported as liability in the books of the parent company the net assets of the subsidiary are reported as equity in the books of the parent company there is no difference between the amount of investment made by the parent company and the net assets of the subsidiary

there is no difference between the amount of investment made by the parent company and the net assets of the subsidiary

Investment income of the subsidiary that is recognized by the parent must be eliminated

to avoid double-counting

Consolidated retained earnings is that portion of the consolidated enterprise's earnings that is _____. Multiple choice question. distributed and accrues to the subsidiary company shareholders undistributed and accrues to the parent company shareholders distributed and accrues to the parent company shareholders undistributed and accrues to the subsidiary company shareholders

undistributed and accrues to the parent company shareholders

A(n) ____ ____ entity is a legal structure used for business purposes that does not have equity investors with voting rights and share in all of the entity's profits and losses, or that has equity investors that do not provide sufficient financial resources to support the entity's activities.

variable interest

In practice, control has been determined by the proportion of ____ ____ of a company owned directly or indirectly by another company.

voting shares