Advanced Accounting Exam #2
Which of the following statements is true? a)In determining reportable segments, two tests are applied and both must be met. b)In determining reportable segments, three tests are applied and all three must be met. c)In determining reportable segments, two tests are applied and only one must be met. d)In determining reportable segments, three tests are applied and only one must be met. e)In determining reportable segments, at least 80% of the revenues from external customers must be reported.
d)In determining reportable segments, three tests are applied and only one must be met.
Which of the following does U.S. GAAP not consider to be an objective of segment reporting? a)It helps users make more informed judgments about the enterprise as a whole. b)It helps users better understand the enterprise's performance. c)It helps users better assess the enterprise's prospects for future cash flows. d)It helps users make comparisons between a segment of one enterprise and a similar segment of another enterprise.
d)It helps users make comparisons between a segment of one enterprise and a similar segment of another enterprise.
Stiller Company, an 80% owned subsidiary of Leo Company, purchased land from Leo on March 1, 2020, for $75,000. The land originally cost Leo $60,000. Stiller reported net income of $125,000 and $140,000 for 2020 and 2021, respectively. Leo uses the equity method to account for its investment. On a consolidation worksheet, what adjustment would be made for 2020 regarding the land transfer? a)debit gain for 50,000 b)credit gain for 50,000 c)debit land for 15,000 d)credit land for 15,000 e)credit gain for 15,000
d)credit land for 15,000
The amount of consolidated net income attributable to the noncontrolling interest of a VIE is typically a)dependent completely on the percentage of equity voting shares owned by the primary beneficiary b) zero c)determined by voting stock ownership percentage of the equity investors d) determined by contractual agreements specifying profit and loss distributions across the primary beneficiary and the noncontrolling interest
d)determined by contractual agreements specifying profit and loss distributions across the primary beneficiary and the noncontrolling interest
A subsidiary owns shares of its parent company. Which of the following is true concerning the treasury stock approach? a)the treasury stock approach eliminates these shares entirely within the consolidation process b)it is one of several options to account for mutual holdings available under current accounting standards c)the subsidiary accrues income on its investment by using the equity method d)the original cost of the subsidiary's investment is a reduction in consolidated stockholders equity
d)the original cost of the subsidiary's investment is a reduction in consolidated stockholders equity
Arnold Corporation holds 70 percent of Belvista, which, in turn, owns 70 percent of Stang. Separate operating income figures (excluding investment income) and intra-entity upstream gains (on assets remaining within the consolidated group) included in the income for the current year follow: Separate operating income: Arnold (625,000) Belivsta (305,000) Stang (240,000) Intra-entity gains: Arnold (0) Belvista (18,000) Stang (50,000) What is the amount of consolidated net income attributable to the noncontrolling interest? a)183,000 b)143,100 c)213,900 d)163,500
a)183,000
All of the following are required to be reported in interim financial statements with respect to material operating segments, except: a)segment assets b)segment revenues from external customers c)intersegment revenues d)segment profit and loss e)reconciliation of segment profit or loss to total income before taxes
a)segment assets
Evanston Co. owned 60% of Montgomery Corp. Montgomery owned 75% of Noir Inc., and Noir owned 15% of Montgomery. This pattern of ownership would be called... a)mutual ownership b)direct control c)indirect control d)an affiliated group e)a connecting affiliation
a)mutual ownership
For interim financial reporting, a gain from the sale of land occurring in the second quarter should be a)recognized in the second quarter b)recognized ratably over all four quarters, with the first quarter being restated c)recognized ratably over the last three quarters d)disclosed by footnote only in the second quarter
a)recognized in the second quarter
Which of the following items is required to be disclosed by geographic area? a)revenues from external customers b)profit or loss c)total assets d)capital expenditures
a)revenues from external customers
What is the minimum number of operating segments that must be separately reported? a)segments with at least 75 percent of revenues as measured by the revenue test b)segments with at least 75 percent of the revenues generated from outside parties c)at least 75 percent of the segments must be separately reported d) ten
b)segments with at least 75 percent of the revenues generated from outside parties
For a U.S.-based company, which of the following would be an acceptable presentation of countries for providing information by geographic area? a)Europe, Asia, Africa b)US, Canada and Mexico, Germany, Italy c)Canada, Germany, France, all other countries d)US, Mexico, japan, Spain, all other countries
d)US, Mexico, japan, Spain, all other countries
Which of the following operating segment disclosures is not required under current U.S. accounting guidelines? a)intersegment sales b)unusual items c)interest expense d)liabilities
d)liabilities
Which of the following must be disclosed by a geographic segment according U.S. GAAP? a) operating profit or loss b)gross profit c)total assets d)revenues from external customers e)revenues from internal customers
d)revenues from external customers
A variable interest entity can take all of the following forms except a) trust b) partnership c) joint venture d)corporation e)estate
e) estate
When indirect control is present, which of the following statements is true? a)At least one company within the consolidated entity holds a parent and a subsidiary relationship. b)The parent company owns a percent of subsidiary and subsidiary owns a percent of the parent. c)Consolidated financial statements are required for only one subsidiary. d)Recognition of income for an indirectly owned subsidiary is ignored. e)Only dividend income is recognized for an indirectly owned subsidiary.
a)At least one company within the consolidated entity holds a parent and a subsidiary relationship.
Which of the following information items with regard to a major customer must be disclosed? a)the operating segment making sales to the major customer b)the identity of the major customer c)the percentage of total sales derived from the major customer d)the geographic area in which sales to the major customer are made
a)the operating segment making sales to the major customer
What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end? a)when intra-entity sales remain in ending inventory, control of the goods has not changed b)revenues and COGS must be recognized for all intra-entity sales regardless of whether the sales are upstream or downstream c)gross profits must be deferred indefinitely because sales among affiliates always remain in the consolidated group d)intra-entity sales result in gross profit overstatements regardless of amounts remaining in ending inventory
a)when intra-entity sales remain in ending inventory, control of the goods has not changed
Paloma, Inc., owns 85 percent of Blanca Corporation. Both companies have been profitable for many years. During the current year, the parent sold merchandise to the subsidiary at a transfer price of $196,000. In recording the transfer, the parent recognized cost of goods sold of $140,000. At the end of the year, the subsidiary still held 30 percent of this merchandise in its inventory. Assume that the tax rate is 21 percent. What deferred income tax asset amount is created if a consolidated tax return were filed? a)3,528 b)0 c)6,700 d)2,100
b)0
Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle. What is this pattern of ownership called? a)pyramid ownership b)a connecting affiliation c)mutual ownership d)an indirect affiliation e)an affiliated group
b)a connecting affiliation
How does the amortization of tax-deductible goodwill affect the computation of a parent company's income taxes? a)it is deductible only as impairments are recognized b)it is deductible item over a 15-year period c)it is deductible only if a consolidated tax return is filed d)it is a deductible expense only if the parent owns at least 80 percent of the subsidiary's voting stock
b)it is deductible item over a 15-year period
Which of the following is not correct regarding inventory procedures reported in an interim financial statement? a)LIFO liquidations a company expects to be replaced by year-end should be recorded in cost of goods sold, quantified at expected replacement cost rather than original LIFO cost. b)Lower-of-cost-or-net realizable value adjustments are not made for the interim period if they are expected to reverse by the end of the year. c)Variances in a standard costing system that are expected to be absorbed by year-end are not reported at the end of the interim period. d)FIFO is remeasured using the LIFO method in an interim financial statement. e)LIFO liquidations not expected to be replaced by the end of the year are reflected in cost of goods sold at original LIFO cost
d)FIFO is remeasured using the LIFO method in an interim financial statement.
What information about revenues by geographic area should a company present? a)disclose as a combined amount sales to unaffiliated customers and intra-entity sales between geographic areas b)no disclosure of revenues from foreign operations need to be reported c)disclose separately the amount of sales to unaffiliated customers and the amount of intra-entity sales between geographic areas d)disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas
d)disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas
Which of the following statements is true concerning connecting affiliations and mutual ownerships? a)in a mutual ownership, at least two companies in the consolidated group own portions of a third party b)there are at least four companies in a connecting affiliation c)in a connecting affiliation, at least one subsidiary owns stock in the parent company d)in a mutual ownership, the subsidiary owns a portion of the parents stock e)there are only two companies in a connecting affiliation
d)in a mutual ownership, the subsidiary owns a portion of the parents stock
On January 1, 2021, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2021? a) the difference is added to the carrying value of the debt b)the difference is deducted from the carrying value of the debt c)the difference is treated as a loss from the extinguishment of the debt d)the difference is treated as a gain from the extinguishment of debt e)the difference does not influence the consolidated financial statements
d)the difference is treated as a gain from the extinguishment of debt
Hardford Corp. held 80% of Inglestone Inc., which, in turn, owned 80% of Jade Co. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow: Seperate Net Income: Hardford (560,000) Inglestone (420,000) Jade Co (280,000) Intra-Entity Gross Profit: Hardford (70,000) Inglestone (42,000) Jade (84,000) The net income attributable to the noncontrolling interest of Jade Co. is calculated to be a)36,900 b)33,600 c)42,400 d)32,300 e)39,200
e)39,200 Separate net income ($280,000) − intra-entity gross profit to be deferred ($84,000) = Accrual-based net income ($196,000) × 20% = Net income attributable to the noncontrolling interest $39,200
Wilson owned equipment with an estimated life of 10 years when the equipment was acquired for an original cost of $80,000. The equipment had a book value of $50,000 at January 1, 2020. On January 1, 2020, Wilson realized that the useful life of the equipment was longer than originally anticipated, at ten remaining years. On April 1, 2020 Simon Company, a 90% owned subsidiary of Wilson Company, bought the equipment from Wilson for $68,250 and for depreciation purposes used the estimated remaining life as of that date. The following data are available pertaining to Simon's income and dividends declared: Net Income: 2020 (100,000) 2021 (120,000) 2022 (130,000) Dividends Declared: 2020 (40,000) 2021 (50,000) 2022 (60,000) Compute the amortization of gain through a depreciation adjustment for 2022 for consolidation purposes. a) 1,925 b)1,825 c)2,000 d)1,500
c)2,000 Amortization of Gain on Transfer of Equipment = $19,500 Gain ÷ 9 years 9 months Remaining Useful Life = $2,000 per year × 12 months of 2022 = $2,000 Depreciation Adjustment for 2022
Prater Inc. owned 85% of the voting common stock of Harkin Corp. During 2021, Prater made several sales of inventory to Harkin. The total selling price was $215,000 and the cost was $105,000. At the end of the year, 40% of the goods were still in Harkin's inventory. Harkin's reported net income was $400,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest in Harkin? a)51,000 b)53,400 c)60,000 d)66,600 e)32,250
c)60,000 Subsidiary's Net Income $400,000 × Noncontrolling Interest (15%) = $60,000 Net Income Attributable to the Noncontrolling Interest
In a father-son-grandson business combination, which of the following is true? a)the father company always must have its total accrual-based income computed first b)the computation of a company's accrual-based net income has not effect on the accrual-based net income of other companies within a business combination c)a father-son-grandson configuration does not require consolidation unless one company owns shares in all of the other companies d)all companies solely in subsidiary positions must have their accrual-based net income computed first within the consolidation process
d)all companies solely in subsidiary positions must have their accrual-based net income computed first within the consolidation process
Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for inventory. The amount of gross profit for the first quarter is: a)83,000 b)87,000 c)90,000 d)221,000 e)250,000
a)83,000 Rev (3,400 × $65) $221,000 − COGS (3,000 × $40 + 400 × $45) $138,000 = $83,000 Gross Profit
How does the amortization of tax-deductible goodwill affect the computation of a parent company's income taxes? a)it is a deductible item over a 15-year period b)it is deductible only as impairments are recognized c)it is deductible only if a consolidated tax return is filed d)it is deductible expense only if the parent owns at least 80 percent of the subsidiary's voting stock.
a)it is a deductible item over a 15-year period
Which of the following statements is false concerning the number of operating segments that should be disclosed? a)At least 75 percent of total company sales made to outsiders should be presented. b)Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year. c)If the 75 percent rule is not met by the results of applying all three reporting tests, additional segments must be disclosed separately despite their failure to satisfy even one of the three quantitative thresholds. d)The practical limit to the number of operating segments is 10.
b)Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year.
During 2020, Odyssey Co. sold inventory to its wholly-owned subsidiary, Civic Co. The inventory cost $40,000 and was sold to Lord for $58,000. For consolidation reporting purposes, when is the $18,000 intra-entity gross profit recognized? a) when goods are transferred to a third party by civic b)when civic pays odyssey for the goods c)when odyssey sold the goods to civic d)when civic receives the goods e)no gain can be recognized since the transfer was between related parties.
a) when goods are transferred to a third party by civic
A gain or loss from reacquisition of the debt of one company by an affiliated firm... a) is typically recognized via a consolidated worksheet entry rather than an entry on the individual books of an affiliate b)is typically recognized through an entity on the individual books of an affiliate c)is typically not recognized on consolidated financial statements d)is not typically allocated to the controlling entity
a) is typically recognized via a consolidated worksheet entry rather than an entry on the individual books of an affiliate
When one affiliate within a consolidated group acquires the debt of another affiliate from a third party, then from a consolidated reporting viewpoint... a) the reacquired debt is effectively retired b)the reacquired debt remains in the liability section of the consolidated balance sheet c)an investment in bonds account must be included in the asset section of the consolidated balance sheet d)any related interest expense or interest income from the debt is reported on the consolidated income statement
a) the reacquired debt is effectively retired
On January 1, Jarel acquired 80 percent of the outstanding voting stock of Suarez for $260,000 cash consideration. The remaining 20 percent of Suarez had an acquisition-date fair value of $65,000. On January 1, Suarez possessed equipment (five-year remaining life) that was undervalued on its books by $25,000. Suarez also had developed several secret formulas that Jarel assessed at $50,000. These formulas, although not recorded on Suarez's financial records, were estimated to have a 20-year future life. As of December 31, the financial statements appeared as follows: Inventory: Jarel (150,000) Suarez (110,000) Included in the preceding statements, Jarel sold inventory costing $80,000 to Suarez for $100,000. Of these goods, Suarez still owns 60 percent on December 31. What is the consolidated total for inventory at December 31? a)260,000 b)248,000 c)250,000 d)240,000
b)248,000 Combined pre-consolidation inventory balances $260,000Intra-entity gross profit ($100,000 − $80,000)$20,000 Inventory remaining at year's end 60% Intra-entity gross profit in ending inventory, 12/31 (12,000)Consolidated total for inventory $248,000
Flax Co. acquired 80% percent of the voting common stock of Levinson Corp. on January 1, 2021. During the year, Flax made sales of inventory to Levinson. The inventory cost Flax $275,000 and was sold to Levinson for $420,000. Levinson held $84,000 of the goods in its inventory at the end of the year. The amount of intra-entity gross profit for which recognition is deferred, and should therefore be eliminated in the consolidation process at the end of 2021, is: a) 23,200 b)29,000 c)67,200 d)116,000 e)145,000
b)29,000 Intra-Entity Gross Profit ($420,000 − $275,000) $145,000 × Intra-Entity Gross Profit Remaining in Ending Inventory ($84,000 ÷ $420,000) 20% = $29,000
Redfield Company reports current earnings of $420,000 while declaring $52,000 in cash dividends. Snedeker Company earns $147,000 in net income and declares $13,000 in dividends. Redfield has held a 70 percent interest in Snedeker for several years, an investment with an acquisition-date excess fair over book value attributable solely to goodwill. Redfield uses the initial value method to account for these shares. On January 1 of the current year, Snedeker acquired in the open market $51,600 of Redfield's 8 percent bonds. The bonds had originally been issued several years ago at 92, reflecting a 10 percent effective interest rate. On the date of purchase, the carrying amount of the bonds payable was $50,400. Snedeker paid $49,200 based on a 12 percent effective interest rate over the remaining life of the bonds. What is the noncontrolling interest's share of consolidated net income? a)40,560 b)44,100 c)40,200 d)44,460
b)44,100 30% of $147,000 subsidiary net income; the intra-entity debt effects are attributed solely to the parent company. 30% × $147,000 = $44,100
Prairie Corporation is a primary beneficiary for Vintage Company, a variable interest entity. When Prairie obtained financial control over Vintage, any excess fair value over Prairie's book value was attributed solely to goodwill. Prairie owns 15 percent of Vintage Company's common stock and participation rights that entitle it to an additional 40 percent of Vintage's net income. In the current year, Prairie reports $400,000 of net income before consideration of its investment in Vintage. Vintage Company reports net income of $100,000. What amount of consolidated net income is attributable to the noncontrolling interest? (Assume Paririe's entitlements are determined prior to determination of noncontrolling interest in net income) a)15,000 b)45,000 c)85,000 d)60,000
b)45,000 Vintage Company net income$100,000 Less: Prairie Company 15% ownership share (15,000)Less: Prairie Company 40% participating rights (40,000)Net income attributable to noncontrolling interest$45,000
Prescott Inc. owned 80% of the voting common stock of Hutchins Corp. During 2021, Hutchins made several sales of inventory to Prescott. The total selling price was $190,000 and the cost was $105,000. At the end of the year, 30% of the goods were still in Prescott's inventory. Hutchins's reported net income was $320,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what was the net income attributable to the noncontrolling interest in Hutchins? a) 47,000 b)58,900 c)64,000 d)69,100 e)90,900
b)58,900 Subsidiary's Net Income ($320,000) − Intra-Entity Gross Profit Deferred [($190,000 − $105,000) × 30% = $25,500] = $294,500 × Noncontrolling Interest (20%) = $58,900 Net Income Attributable to the Noncontrolling Interest
Which of the following is correct for two companies that want to file a consolidated tax return as an affiliated group? a)One company must hold at least 65 percent of the other company's voting stock. b)One company must hold at least 80 percent of the other company's voting stock. c)They cannot file one unless one company owns 100 percent of the other's voting stock. d)One company must hold at least 51 percent of the other company's voting stock.
b)One company must hold at least 80 percent of the other company's voting stock.
How should material seasonal variations in revenue be reflected in interim financial statements? a)The seasonal nature should be disclosed, but no attempt should be made to reflect the effect of past seasonality on financial statements. b)The seasonal nature should be disclosed, and the interim report should be supplemented with a report on the 12-month period ended at the interim date for both the current and preceding years. c)The seasonal nature should be reflected by providing pro forma financial statements for the current interim period. d)No attempt should be made to reflect seasonality in interim financial statements.
b)The seasonal nature should be disclosed, and the interim report should be supplemented with a report on the 12-month period ended at the interim date for both the current and preceding years.
Which of the following statements is true regarding an intra-entity transfer of land? a)a loss is always recognized but a gain is deferred in a consolidated income statement b)a loss and a gain are deferred until the land is sold to an outside party c)a loss and a gain are always recognized in a consolidated income statement d)a gain is always recognized but a loss is deferred in a consolidated income statement e)recognition of a gain or loss if deferred by adjusting stockholders equity through comprehensive income.
b)a loss and a gain are deferred until the land is sold to an outside party
A parent company buys bonds on the open market that had been previously issued by its subsidiary. The price paid by the parent is less than the carrying amount of the bonds on the subsidiary's records. How should the parent report the difference between the price paid and the carrying amount of the bonds on its consolidated financial statements? a)because the bonds now represent intra-entity debt, the difference is not reported b)as a gain on retirement of the bonds c)as a loss on the retirement of bonds d)as an increase to interest expense over the remaining life of the bonds
b)as a gain on retirement of the bonds
Which of the following statements is true regarding the reporting of revenues in an interim report? a)revenues should be recognized on the income tax basis for interim reporting b)revenues should be recognized in interim periods in the same way as they are on an annual basis c)projected losses on long-term contracts should be deferred to the annual report d)the percentage-of-completion method of reporting long-term construction projects is not an acceptable method for interim reporting e)revenues should be recognized on the cash basis of accounting for interim reporting
b)revenues should be recognized in interim periods in the same way as they are on an annual basis
Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements? a)the business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE b)the business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership c) the business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE d)the business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance e)the business enterprise establishing a VIE is a primary beneficiary for the VIE
b)the business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership
Which of the following is true concerning the treasury stock approach in accounting for a subsidiary's investment in parent company stock? a)the original cost of the subsidiary's investment reduces long-term liabilities b)the cost of parent shares is treated as if the shares are no longer outstanding c)the subsidiary must apply the equity method in accounting for the investment if the treasury stock approach is used d)the treasury stock approach increases total stockholders equity e)the cost of parent shares is treated as if the shares are no longer issues
b)the cost of parent shares is treated as if the shares are no longer outstanding
On October 6, 2021, Ronan Corp. sold land to Bane Co., its wholly owned subsidiary. The land cost $72,400 and was sold to Bane for $96,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized? a)proportionately over a designated period of years b)when Bane Co. sells the land to a third party c)no gain may be recognized d)as Bane uses the land e)when Bane Co. begins using the land productively
b)when Bane Co. sells the land to a third party
Paloma, Inc., owns 85 percent of Blanca Corporation. Both companies have been profitable for many years. During the current year, the parent sold merchandise to the subsidiary at a transfer price of $175,000. In recording the transfer, the parent recognized cost of goods sold of $125,000. At the end of the year, the subsidiary still held 20 percent of this merchandise in its inventory. Assume that the tax rate is 21 percent and that separate tax returns are filed. What deferred income tax asset amount is created? a)0 b)1,785 c)2,100 d)8,925
c)2,100 Total gross profit$50,000 Portion still held 20%Intra-entity gross profit in inventory$10,000 Tax rate 21%Deferred tax asset$2,100
The Nigel Co. had four separate operating segments: Sales to outsiders: Sneakers (173,600) Sandals (115,300) Heels (134,000) Boots (108,900) Intersegment Revenue: Sneakers (44,500) Sandals (37,400) Heels (19,600) Boots (26,100) What amount of revenues must be generated from one customer before that party must be identified as a major customer? a)12,760 b)65,940 c)53,180 d)40,420 e)17,360
c)53,180 Total External Sales Revenue $173,600 + $115,300 + $134,000 + $108,900 = $531,800 × 10% = $53,180
Diamond Company owns 80 percent of Emerald, and Emerald owns 90 percent of Sapphire, Inc. Separate operating income totals for the current year follow; they contain no investment income. None of these acquisitions required amortization expense. Included in Sapphire's income is a $40,000 intra-entity gain on transfers to Emerald still in Emerald's possession. Separate operating income: Diamond (300,000) Emerald (200,000) Sapphire (200,000) What is diamonds accrual-based net income for the year? a)588,000 b)596,400 c)575,200 d)604,000
c)575,200
The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except: a)Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances. b)Subsequent interest revenue/expense must be removed although these balances fail to agree in amount. c)A gain or loss must be recognized by both parent and subsidiary companies. d)Changes in the investment, debt, interest revenue, and interest expense accounts occur constantly because of the amortization process. e)The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired, even though this balance does not appear on the financial records of either company.
c)A gain or loss must be recognized by both parent and subsidiary companies.
A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. Which of the following statements is true? a)Whether the balances agree or not, both the subsequent interest income and interest expense should be reported in a consolidated income statement. b)The interest income and interest expense will agree in amount and should be offset for consolidation purposes. c)Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes. d)In computing any noncontrolling interest allocation, the interest income should be included but not the interest expense.
c)Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes.
In computing the noncontrolling interest's share of consolidated net income, how should the subsidiary's net income be adjusted for intra-entity transfers? a)The subsidiary's reported net income is adjusted for the impact of downstream transfers prior to computing the noncontrolling interest's allocation. b)The subsidiary's reported net income is not adjusted for the impact of transfers prior to computing the noncontrolling interest's allocation. c)The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation. d)The subsidiary's reported net income is adjusted for the impact of all transfers prior to computing the noncontrolling interest's allocation.
c)The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation.
In considering interim financial reporting, how does current U.S. GAAP require that such reporting be viewed? a)as useful only if activity is evenly spread throughout the year, making estimates unnecessary b)as reporting for a basic accounting period c)as reporting for an integral part of an annual period d)as a special type of reporting that need not follow generally accepted accounting principles
c)as reporting for an integral part of an annual period
On January 1, 2021, a subsidiary buys 8% of the outstanding voting stock of its parent corporation. The payment of $350,000 exceeded book value of the acquired shares by $50,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported operating income of $675,000 (excluding investment income from the subsidiary), and paid $100,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2021? a)included in current assets b)included in noncurrent assets c)consolidated stockholders equity is reduced by 350,000 d)consolidated stockholders equity is reduced by 300,000 e)there is no effect on the consolidated balance sheet, because the effects have been eliminated
c)consolidated stockholders equity is reduced by 350,000
Which of the following is a criterion for determining whether an operating segment is separately reportable? a)segment profit or loss is 10 percent of more of consolidated net income b)segment liabilities are 10 percent or more of consolidated liabilities c)segment assets are 10 percent or more of combined segment assets d)segment revenues from external sales are 5 percent or more of combined segment revenues from external sales
c)segment assets are 10 percent or more of combined segment assets
An enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and noncontrolling interest of that entity if: a)the variable interest held by the enterprise involves a lease b)the VIE has issued no voting stock c)the enterprise has a controlling financial interest in the VIE d)other equity interests in the VIe have the obligation to absorb the expected losses of the VIE
c)the enterprise has a controlling financial interest in the VIE
Under current U.S. tax law for consolidated tax returns: a)One entity in the group can use another entity's net operating loss carryforward to its advantage. b)The parent can use the net operating loss carryforward of another entity in the group. c)A net operating loss carryforward of an entity will be unusable when consolidated tax returns are prepared. d)A net operating loss carryforward of an entity in the group can only be used by that entity. e)Since the tax return is for all entities in one consolidated group, the net operating loss carryforward of one entity must be pro-rated to all other entities in the group.
d)A net operating loss carryforward of an entity in the group can only be used by that entity.
Dane, Inc., owns Carlton Corporation. For the current year, Dane reports net income (without consideration of its investment in Carlton) of $185,000 and the subsidiary reports $105,000. The parent had a bond payable outstanding on January 1, with a carrying amount of $209,000. The subsidiary acquired the bond on that date for $196,000. During the current year, Dane reported interest expense of $18,000 while Carlton reported interest income of $19,000, both related to the intra-entity bond payable. What is consolidated net income? a)289,000 b)304,000 c)291,000 d)302,000
d)302,000 Dane's income from own operations$185,000 Carlton's income 105,000 Eliminate intra-entity interest income (19,000)Eliminate intra-entity interest expense 18,000 Recognize retirement gain on debt ($209,000 - $196,000) 13,000 Consolidated net income$302,000
Which of the following is not necessarily true for an operating segment: a)The chief operating decision maker regularly reviews an operating segment to assess performance and make resource allocation decisions. b)Discrete financial information generated by the internal accounting system is available for an operating segment. c)an operating segment earns revenues and incurs expenses d)An operating segment regularly generates a profit from its normal ongoing operations.
d)An operating segment regularly generates a profit from its normal ongoing operations.
