MBA 6315 - FINAL EXAM

Paris, Inc. holds 100 percent of the common stock of Stockholm Company, an investment acquired for $520,000. Immediately following the combination, Paris's net assets have a book value of $900,000 and a fair value of $1,050,000. The book and fair value of Stockholm's net assets on the date of combination are $350,000 and $425,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared. Based on the information given above, at what amount will Paris's investment in Stockholm stock be reported in a consolidated balance?

$0 Reason: The Investment in Subsidiary is eliminated in preparing the consolidated financial statements

Pooley Corporation owns 75 percent of the common shares and 60 percent of the preferred shares of Stanley Company, all acquired at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25 percent of the book value of its common stock. The balance sheets of Pooley and Stanley immediately after the acquisition contained these balances: Pooley Stanley Cash and Receivables $80,000 $40,000 Inventory 90,000 60,000 Buildings and Equipment (net) 250,000 200,000 Investment in Stanley Preferred Stock 60,000 Investment in Stanley Common Stock 120,000 Total Assets $600,000 $300,000 Liabilities $150,000 $40,000 Preferred Stock 100,000 Common Stock 200,000 100,000 Retained Earnings 250,000 60,000 Total Liabilities and Equity $600,000 $300,000 Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 20X8, Stanley reports net income of $40,000 and pays no dividends. Pooley reports income from its separate operations of $75,000 and pays dividends of $30,000 during 20X8. Based on the preceding information, what amount is reported as preferred stock outstanding reported in the consolidated balance sheet as of January 1, 20X8? $0 $44,000 $40,000 $50,000

$0 Reason: The preferred stock from the sub is eliminated the consolidation worksheet in the process of preparing the consolidated financial statements. The value of outstanding preferred stock in the consolidated balance sheet will be 0.

Pluto Company owns 80 percent of the common stock of Star Corporation. During the year, Pluto reported sales of $1,000,000, and Star reported sales of $500,000, including sales to Pluto of $80,000. The amount of sales that should be reported in the consolidated income statement for the year is: $1,300,000. $500,000. $1,420,000. $1,500,000.

$1,420,000 Reason: Pluto's Sales + Star's Sales - Sales to Pluto = 1,000,000 + 500,000 - 80,000 = 1,420,000

On January 2, 20X2, Piranha Company acquired 70 percent of Salmon Corporation's common stock for $420,000 cash. At the acquisition date, the book values and fair values of Salmon's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30 percent of the total book value of Salmon. The stockholders' equity accounts of the two companies at the acquisition date are as follows: Account Name Piranha Salmon Common Stock ($10 par value) $ 600,000 $ 350,000 Additional Paid-In Capital 450,000 50,000 Retained Earnings 250,000 200,000 Total Stockholders' Equity $ 1,300,000 $ 600,000 Noncontrolling interest was assigned income of $15,000 in Piranha's consolidated income statement for 20X2. Based on the preceding information, what is the total stockholders' equity in the consolidated balance sheet as of January 2, 20X2? $1,300,000 $1,120,000 $1,900,000 $1,480,000

$1,480,000 Reason: Consolidated Stockholder's Equity = Parent's Equity + NCI Equity = 1,300,000 + [(600,000 x 30%) = 180,000] = 1,480,000

Paper Corporation holds 80 percent of the voting shares of Scissor Company. On January 1, 20X8, Scissor purchased $100,000 par value 12 percent Paper bonds from Cruse Corporation for $115,000. Paper originally issued the bonds to Cruse on January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue and pay interest semiannually on June 30 and December 31 each year. Scissor' reported net income of $65,000 for 20X8, and Paper reported income (excluding income from ownership of Scissor's stock) of $90,000. Paper's partial bond amortization schedule is as follows: # Date IntPmt IntExp Amort of Disc.(Prem.) Prem.(Disc.) BP CV 0 1/1/X6 10,000.00 100,000.00 110,000.00 1 6/30/X6 6,0005,579.78 (420.22) 9,579.78 100,000 109,579.78 2 12/31/X6 6,000 5,558.47 (441.53) 9,138.25 100,000 109,138.25 3 6/30/X7 6,000 5,536.07 (463.93) 8,674.33 100,000 108,674.33 4 12/31/X7 6,000 5,512.54 (487.46) 8,186.86 100,000 108,186.86 5 6/30/X8 6,000 5,487.81 (512.19) 7,674.68 100,000. 107,674.68 6 12/31/X8 6,000 5,461.83 (538.17) 7,136.51 100,000 107,136.51 Based on the information given above, what amount of interest income does Scissor record on its individual books for 20X8? $9,410 $8,002 $10,950 $10,002

$10,002

Parent Corporation owns 90 percent of Subsidiary 1 Company's stock and 75 percent of Subsidiary 2 Company's stock. During 20X8, Parent sold inventory purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31, 20X8. Based on the information given above, what amount of sales must be eliminated from the consolidated income statement for 20X8? $120,000 $117,000 $128,000 $150,000

$120,000 Reason: Sale from Parent to Subsidiary 1 = 60,000. Sale from Subsidiary 1 to Subsidiary 2 = 60,000. Total intercompany sales to eliminate = 60,000 + 60,000 = 120,000.

On January 1, 20X9, Pirate Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Pirate Corp.Sea-Gull Corp. Cash 60,000 20,000 Accounts Receivable 80,000 30,000 Inventory 90,000 40,000 Land 100,000 40,000 Buildings and Equipment 200,000 150,000 Less: Accumulated Depreciation (80,000) (50,000) Investment in Sea-Gull Corp. 160,000 Total Assets $610,000 $230,000 Accounts Payable 110,000 30,000 Bonds Payable 95,000 40,000 Common Stock 200,000 40,000 Retained Earnings 205,000 120,000 Total Liabilities and Equity $610,000 $230,000 At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000. Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination? $20,000 $15,000 $0 $40,000

$15,000 Reason: Total Assets = Cash and Receivables 50,000 + Inventory 45,000 + Land 60,000 + P/E 150,000 - Accumulated Dep. (50,000) -AP (30,000) BP (40,000) = 185,000 Total Value of Sub = Consideration Given 160,000 / Parent's Interest 80% = 200,000 Goodwill = 200,000 - 185,000 = 15,000

On January 1, 20X9, A Company acquired 85 percent of B Company's voting common stock for $425,000. At that date, the fair value of the noncontrolling interest of B Company was $75,000. Immediately after A Company acquired its ownership, B Company acquired 75 percent of C Company's stock for $150,000. The fair value of the noncontrolling interest of C Company was $50,000 at that date. At January 1, 20X9, the stockholders' equity sections of the balance sheets of the companies were as follows: Item Company A Company B Company C Common Stock $400,000 $200,000 $50,000 Additional Paid-In Capital 100,000 120,000 50,000 Retained Earnings 500,000 180,000 100,000 Total Stockholders' Equity $1,000,000 $500,000 $200,000 During 20X9, A Company reported operating income of $175,000 and paid dividends of $50,000. B Company reported operating income of $125,000 and paid dividends of $40,000. C Company reported net income of $100,000 and paid dividends of $25,000. Based on the information provided, the equity-method income recorded by A Company is: $170,000 $200,000 $181,250 $125,000

$170,000 Reason: Share of NCI in C = 100,000 x 25% = 25,000 Share of B's CI in C = 100,000 x 75% = 75,000 (this is included in B's income) B Company Income after share in C = 125,000 + 75,000 = 200,000 Share of NCI = 200,000 x (1-.85) = 30,000 Total NCI for B and C = 30,000 + 25,000 = 55,000 Equity Income of A = Total income of B and C - Share of NCI = 125,000 + 100,000 - 55,000 = 170,000

On January 1, 20X8, Pullman Company acquired 30 percent of Skate Company's common stock, at underlying book value of $100,000. Skate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. Skate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. Pullman uses the equity method to account for this investment. Based on the preceding information, what amount would Pullman Company receive as dividends from Skate for the year? $62,000 $18,600 $21,600 $54,000

$18,600 Reason: Skate's Total dividends declared = 72,000 Preferred Stock Value = 100,000 x 2 par value = 200,000 Preferred dividend = 200,000 x 5% = 10,000 Common Stock dividend = 72,000 - 10,000 = 62,000 Pullman's Share of Dividends = 62,000 x 30% = 18,600

Perfect Corporation acquired 70 percent of Storm Company's shares on December 31, 20X8, for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On January 1, 20X0, Perfect acquired an additional 10 percent of Storm's common stock for $32,500. Summarized balance sheets for Storm on the dates indicated are as follows: Dec 31 20X8 20X9 20X0 Cash $ 25,000 35,000 50,000 Accounts Receivable 30,000 45,000 80,000 Inventory 45,000 60,000 70,000 Buildings and Equipment (net) 200,000 180,000 160,000 Total Assets $ 300,000 $ 320,000 $ 360,000 Accounts Payable $40,000 35,000 40,000 Notes Payable 60,000 60,000 60,000 Common Stock 100,000 100,000 100,000 Retained Earnings 100,000 125,000 160,000 Total Liabilities and Equities $ 300,000 $ 320,000 $ 360,000 Storm paid dividends of $10,000 in each of the three years. Perfect uses the fully adjusted equity method in accounting for its investment in Storm and amortizes all differentials over 5 years against the related investment income. All differentials are assigned to patents in the consolidated financial statements. Based on the preceding information, what was the balance in Perfect's Investment in Storm Company Stock account on December 31, 20X0? $173,000 $218,000 $216,000 $211,500

$218,000 Reason: 12/31/09 Bal in Storm's Stock = (100,000 + 125,000) x 70% = 157,500 1/1/10: Additional 10% acquired = 32,500 Share of Net Income from 20X9 and 20X0 = (160,000 - 125,000) = 35,000 x 80% = 28,000 Bal in Investment Account = 157,500 + 32,500 + 28,000 = 218,000

Scissor Corporation holds assets with a fair value of $150,000 and a book value of $125,000 and liabilities with a book value and fair value of $50,000. What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Paper Company pays $90,000 to acquire 75 percent ownership in Scissor and goodwill of $20,000 is reported? $20,000 $50,000 $30,000 $40,000

$30,000 Reason: Fair Value Assets (150,000) - Fair Value Liabilities (50,000) = Fair Value Equity is 100,000. NCI interest = (Equity + Goodwill) 25% = (100,000 + 20,000) x 25% = 30,000.

During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000. Based on the information provided, what amount would be reported by Devon Company as investment in Regan Company common stock? $180,000 $330,000 $150,000 $312,000

$312,000 Reason: Investment in Regan = Cash 50,000 + Land 100,000 + Building 180,000 - Accumulated Depreciation [(180,000/30yrs) x 3yrs = 18,000] = 312,000

Sub Company sells all its output at 20 percent above cost to Par Corporation. Par purchases its entire inventory from Sub. The incomes reported by the companies over the past three years are as follows: Year Sub's Net Income Par's Operating Income 20X6 150,000 225,000 20X7 135,000 360,000 20X8 240,000 450,000 Sub Company sold inventory for $300,000, $262,500 and $337,500 in the years 20X6, 20X7, and 20X8 respectively. Par Company reported ending inventory of $105,000, $157,500 and $180,000 for 20X6, 20X7, and 20X8 respectively. Par acquired 70 percent of the ownership of Sub on January 1, 20X6, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Sub Company. Based on the information given above, what will be the consolidated net income for 20X6? $357,500 $317,750 $490,000 $375,000

$357,500 Reason: Sub sells at 20% markup over the cost. This means the Inventory On Hand for Par includes intercompany profit from Sub. 20X6 Unrealized Profit for Inventory on Hand = [(105,000 / (1.2) - 105,000] = 17,500 20X6 Consolidated NI = Par's Operating Income + Sub's NI - Unrealized Profit for Inventory on Hand = 225,000 + 150,000 - 17,500 = 357,500

On December 31, 20X8, Pancake Company acquired controlling ownership of Syrup Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow: Pancake Syrup Consolidated Cash $80,000 $30,000 $110,000 Accounts Receivable 50,000 ? 78,000 Inventory 60,000 50,000 115,000 Buildings and Equipment 200,000 140,000 365,000 Less: Accumulated Depreciation (50,000) (28,000) (78,000) Investment in Syrup Stock ? Goodwill 15,000 Total Assets $464,000 $230,000 $605,000 Accounts Payable $60,000 $32,000 $82,000 Wages Payable ? ? 78,000 Notes Payable 100,000 60,000 160,000 Common Stock 100,000 50,000 ? Retained Earnings 154,000 60,000 ? Noncontrolling Interest 31,000 Total Liabilities and Equities ? $230,000 $605,000 During 20X8, Pancake Company provided consulting services to Syrup Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8. Based on the information given, what balance in accounts receivable did Syrup Company report at December 31, 20X8? $48,000 $38,000 $28,000 $40,000

$38,000 Reason: Accounts Receivable = Total Assets 430,000 - Cash 30,000 - Inventory 50,000 - P/E 140,000 + Accumulated Dep 28,000 = 38,000

Spice Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in10 years and pay interest semiannually on January 1 and July 1. Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31, 20X8, for $125,000. Pumpkin owns 75 percent of Spice's voting common stock. Spice's partial bond amortization schedule is as follows: PMT# Int PMT Int Exp Amort of Disc (Prem) PreM (Disc) BP CV of Bonds 0 1/1/20X4 10,000.00 200,000.00 210,000.00 1 7/1/20X4 10,000.00 9,684.96 (315.04) 9,684.96 200,000.00 209,684.96 2 1/1/20X5 10,000.00 9,670.43 (329.57) 9,355.38 200,000.00 209,355.38 3 7/1/20X5 10,000.00 9,655.23 (344.77) 9,010.61 200,000.00 209,010.61 4 1/1/20X6 10,000.00 9,639.33 (360.67) 8,649.94 200,000.00 208,649.94 5 7/1/20X6 10,000.00 9,622.69 (377.31) 8,272.63 200,000.00 208,272.63 6 1/1/20X7 10,000.00 9,605.29 (394.71) 7,877.92 200,000.00 207,877.92 7 7/1/20X7 10,000.00 9,587.09 (412.91) 7,465.01 200,000.00 207,465.01 8 1/1/20X8 10,000.00 9,568.04 (431.96) 7,033.05 200,000.00 207,033.05 9 7/1/20X8 10,000.00 9,548.12 (451.88) 6,581.18 200,000.00 206,581.18 10 1/1/20X9 10,000.00 9,527.28 (472.72) 6,108.46 200,000.00 206,108.46 11 7/1/20X9 10,000.00 9,505.48 (494.52) 5,613.94 200,000.00 205,613.94 12 1/1/20X0 10,000.00 9,482.68 (517.32) 5,096.62 200,000.00 205,096.62 Based on the information given above, what amount of constructive gain or loss will be allocated to noncontrolling interest in20X8 consolidated financial statements? $20,277 loss $20,277 gain $4,819 gain $2,223 loss

$4,819 gain

Phips Co. purchases 100 percent of Sips Company on January 1, 20X2, when Phips' retained earnings balance is $320,000 and Sips' is $120,000. During 20X2, Sips reports $20,000 of net income and declares $8,000 of dividends. Phips reports $125,000 of separate operating earnings plus $20,000 of equity-method income from its 100 percent interest in Sips; Phips declares dividends of $35,000. Based on the preceding information, what is Phips' post-closing retained earnings balance on December 31, 20X2? $410,000 $305,000 $465,000 $430,000

$430,000 Reason: Post-Closing Retained Earnings = Beg. Retained Earnings + Operating Income + Equity Income - Dividends = 320,000 + 125,000 + 20,000 - 35,000 = 430,000

On January 1, 20X9, Princeton Company acquired 80 percent of the common stock and 60 percent of the preferred stock of Stanford Company, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Stanford Company held by the noncontrolling interest was $100,000. Stanford Company's balance sheet contained the following balances: Preferred Stock ($5 par value) $ 100,000 Common Stock ($10 par value) 200,000 Retained Earnings 300,000 Total Stockholders' Equity $ 600,000 For the year ended December 31, 20X9, Stanford Company reported net income of $100,000 and paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of 10 percent. Based on the preceding information, the consolidating entry to prepare the consolidated financial statements for Princeton Company as of December 31, 20X9 will include a credit to Investment in Stanford Company—Common Stock for: $400,000 $506,000 $448,000 $500,000

$448,000 Reason: Princeton's CS investment = 400,000 Share of Stanford's NI = 100,000 x 80% = 80,000 Share of Stanford Div = 40,000 x 80% = 32,000 Investment in Stanford = 400,000 + 80,000 - 32,000 = 448,000

On October 1, 20X3, Pole Corporation paid $450,000 for all of Stick Company's outstanding common stock. On that date, the book values and fair values of Stick's recorded assets and liabilities were as follows: Book Value Fair Value Cash and Receivables $75,000 $75,000 Inventory 155,000 160,000 Buildings and Equipment (net) 260,000 320,000 Liabilities (150,000) (150,000) Net Assets $340,000 $405,000 Based on the preceding information, what amount should be allocated to goodwill in the consolidated balance sheet prepared immediately after the combination? $65,000. $110,000. $0. $45,000.

$45,000 Reason: Goodwill calculated by the Consideration Given - FV of net identifiable assets. Goodwill = 450,000 - 405,000 = 45,000

On December 31, 20X8, Pluto acquired 100 percent of Saturn's common stock for $300,000. Balance sheet information for Saturn just prior to the acquisition is given here: Cash and Receivable 35,000 Inventory 75,000 Land 100,000 Building and Equipment (net) 220,000 Total Assets 430,000 Accounts Payable 65,000 Bonds Payable 150,000 Common Stock 100,000 Retained Earnings 115,000 Total Liabilities and Equity 430,000 At the date of business combination, Saturn's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, land which had a fair value of $125,000 and buildings and equipment (net), which had a fair value of $250,000. Based on the information given above, what amount of goodwill will be included in the consolidated balance sheet immediately following the acquisition?

$45,000 Reason: Total FV of Assets = Cash/Receivables 35,000 + Inventory 60,000 + Land 125,000 + P/E (net) 250,000 - AP (65,000) - BP (150,000) = 255,000 Consideration Given = 300,000 Goodwill = 300,000 - 255,000 = 45,000

Patch Corporation purchased land from Sub1 Corporation for $350,000 on December 3, 20X5. This purchase followed a series of transactions between Patch-controlled subsidiaries. On January 23, 20X5, Sub3 Corporation purchased the land from a nonaffiliate for $240,000. It sold the land to Sub2 Company for $220,000 on July 15, 20X5, and Sub2 sold the land to Sub1 for $305,000 on September 5, 20X5. Patch has control of the following companies: Sub Ownership% 20X5 NI Sub3 60% $60,000 Sub2 90% $140,000 Sub1 70% $90,000 Patch reported income from its separate operations of $345,000 for 20X5. Based on the preceding information, what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5? $635,000 $474,000 $110,000 $525,000

$474,000 Reason: All intercompany transactions must be eliminated. Intercompany Sale from Sub3 to Sub2 = 220,000 - 240,000 = Loss 20,000. Intercompany Sale from Sub2 to Sub1 = 305,000 - 220,000 = Gain 85,000. Intercompany Sale from Sub1 to Patch = 350,000 - 305,000 = Gain 45,000. Share of Sub3 Net Income = (Income + Loss - Gain) x interest% = 60,000 + 20,000 x 60% = 48,000. Share of Sub2 Net Income = (Income + Loss - Gain) x interest% = 140,000 - 85,000 x 90% = 49,500. Share of Sub1 Net Income = (Income + Loss - Gain) x interest% = 90,000 - 45,000 x 70% = 31,500. Income assigned to controlling interest = 48,000 + 49,500 + 31,500 = 474,000.

Pail Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of Shovel Corporation at underlying book value on January 1, 20X9. At that date, the fair value of the noncontrolling interest in Shovel's common stock was equal to 20 percent of the book value of its common stock. Shovel's balance sheet at the time of acquisition contained the following balances: Total Assets $600,000 Total Liabilities $90,000 Preferred Stock 100,000 Common Stock 150,000 Retained Earnings 260,000 Total Liabilities and Equities $600,000 The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1, 20X9. All of the $5 par value preferred shares are callable at $6 per share. During 20X9, Shovel reported net income of $100,000 and paid no dividends. Based on the preceding information, the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1, 20X9, is: $42,000 $40,000 $36,000 $48,000

$48,000 Reason: NCI in Common Stock = 20% of BV. NCI in Preferred Stock = 80% (100% - 20%) of BV. NCI = PS x 80% = 100,000 x 80% = 80,000 Arrears = 80,000 × 10% × 4 = 32,000 Preferred stock interest = 80,000 - 32,000 = 48,000

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively. Based on the preceding information, what is the par value of Nash's common stock? $1 $5 $18 $6

$5 Reason: Total Equity Before = Total Par Value of Nash's Stock Outstanding + Additional Paid In Capital = 750,000 + 200,000 = 950,000. Total Equity After = 840,000 + 560,000 = 1,400,000 Total Change in Shares = 1,400,000 - 950,000 = 450,000 Market Price for Stock = 25 per share # of Shares issued = 450,000 / 25 = 18,000 Par Value per share = total par value / shares issued: (750,000 + 840,000) / 18,000 = 5 per share

Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7, at underlying book value. On that date, the fair value of noncontrolling interest was equal to 10 percent of the book value of Scrooge Corporation. Pilfer purchased inventory from Scrooge for $90,000 on August 20, 20X8, and resold 70 percent of the inventory to unaffiliated companies on December 1, 20X8, for $100,000. Scrooge produced the inventory sold to Pilfer for $67,000. The companies had no other transactions during 20X8. Based on the information given above, what amount of consolidated net income will be assigned to the controlling interest for 20X8? $51,490 $53,100 $37,000 $20,100

$51,490 Reason: Consolidated Sales = 100,000. Consolidated COGS is 67,000 x 70% = 46,900 NCI Realized Profit: Sub's Profit = 90,000 - 67,000 = 23,000 NCI Profit = 23,000 x 10% = 2,300 NCI Realized Profit = 2,300 x 70% = 1,610 Consolidated Entity Profit = 100,000 - 46,900 = 53,100 CI Profit = Consolidated Entity Profit - NCI Realized Profit = 53,100 - 1,610 = 51,490

Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined to be $510,000 on that date. Based on the preceding information, what amount will be recorded by Zenith as its investment in Plummet, if it paid $500,000 for the acquisition? $400,000 $510,000 $500,000 $610,000

$510,000 Reason: Zenith takes the fair value of Plummet's asset and the excess becomes goodwill.

On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol accounts for its investment in Shipping at cost. Shipping's retained earnings was $75,000 on the date of acquisition. On December 31, 20X4, the trial balance data for the two companies are as follows: Plimsol Co. Shipping Corp. Item Debit Credit Debit Credit Current Assets $ 100,000 $ 75,000 Depreciable Assets (net) 200,000 150,000 Investment in Shipping Corp. 125,000 Other Expenses 60,000 45,000 Depreciation Expense 20,000 15,000 Dividends Declared 25,000 15,000 Current Liabilities $ 40,000 $ 25,000 Long-Term Debt 75,000 50,000 Common Stock 100,000 50,000 Retained Earnings 150,000 75,000 Sales 150,000 100,000 Dividend Income, Shipping Corp. 15,000 Total Balance $ 530,000 $ 530,000 $ 300,000 $ 300,000 Based on the information provided, what amount of total assets will be reported in the consolidated balance sheet prepared on December 31, 20X4? $650,000 $525,000 $425,000 $630,000

$525,000 Reason: Consolidated Assets = Plimsol's Assets + Shipping's Assets = 300,000 + 225,000 = 525,000. Total assets consist of current assets and depreciated assets.

Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees of $4,000. Based on the preceding information, under the acquisition method, what amount relating to the business combination would be expensed? $72,000 $53,000 $19,000 $63,000

$53,000 Reason: Business Combination Expenses = Finder's fees + Legal fees = 40,000 + 13,000 = 53,000

Pole Corporation owns 65 percent of Stick Company's stock. At the end of 20X3, Pole and Stick reported the following partial operating results and inventory balances: Pole Stick Total Sales 750,000 200,000 Sales to Stick Company 150,000 Sales to Pole Corporation 75,000 Stick Net income 35,000 Pole Operating income (excluding investment income from Stick): 73,000 Inventory on hand, December 31, 20X3, purchased from: Stick Company 11,000 Pole Corporation 62,000 Pole regularly prices its products at cost plus a 40 percent markup for profit. Stick prices its sales at cost plus a 25 percent markup. The total sales reported by Pole and Stick include both intercompany sales and sales to nonaffiliates. Based on the information given above, what balance will be reported for inventory in the consolidated balance sheet for December 31, 20X3? $73,000 $44,286 $53,086 $8,800

$53,086 Reason: Pole adds 40% mark-up over the cost while selling. This means the Inventory On Hand for Stick includes intercompany profit from Pole. Inventory On Hand for Stick = 62,000. Inventory On Hand at cost = 62,000 / (1+40%) = 44,286 Stick adds 25% mark-up over the cost while selling. It means Inventory for Pole Corporation includes intercompany profit from Stick. Unsold Inventory for Pole = 11,000 Inventory On Hand at cost = 11,000 / (1+25%) = 8,800 Total Inventory On Hand at cost = 44,286 + 8,800 = 53,086

On January 1, 20X8, Parent Company acquired 90 percent ownership of Subsidiary Corporation, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 10 percent of the book value of Subsidiary Corporation. On Mar 17, 20X8, Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the entire inventory to an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8. Based on the information given above, what amount of consolidated net income will be assigned to the controlling shareholders for 20X8? $55,000 $52,200 $59,000 $58,000

$55,000 Reason: Total consolidated income = 120,000 - 62,000 = 58,000 Subsidiary's Income = 120,000 - 90,000 = 30,000 NCI share of income = 30,000 x 10% = 3,000 Consolidated NI - NCI in Income for 20X8 = 58,000 - 3,000 = 55,000

On January 1, 20X9, Paradox Company acquired all of Sirius Company's common shares, for $365,000 cash. On that date, Sirius's balance sheet appeared as follows: Assets Cash and Receivables $50,000 Inventory 80,000 Land 50,000 Buildings and Equipment(net) 200,000 Total $380,000 Liabilities Current Payables $30,000 Notes Payable 50,000 Stockholders' Equity Common Stock 100,000 Additional Capital 150,000 Retained Earnings 50,000 Total $380,000 The fair values of all of Sirius's assets and liabilities were equal to their book values except for inventory that had a fair value of $85,000, land that had a fair value of $60,000, and buildings and equipment that had a fair value of $250,000. Buildings and equipment have a remaining useful life of 10 years with zero salvage value. Paradox Company decided to employ push-down accounting for the acquisition. Subsequent to the combination, Sirius continued to operate as a separate company. Based on the preceding information, what amount will be present in the revaluation capital account, when consolidating entries are prepared?

$65,000 Reason: Price paid by Paradox = 365,000 Sirius Book value of net assets = Total assets - Current payables - Notes payables = 380,000 - 30,000 - 50,000 = 300,000 Amount present in the revaluation capital account = $365,000 - $300,000 = $65,000 The amount that will be present in the revaluation capital account will be the difference between the price paid to acquire all the shares of Sirius and the book value of its net assets.

Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 20X9. On the date of acquisition, Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $500,000 and fair value of $500,000. At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? $500,000 $550,000 $650,000 $375,000

$650,000 Reason: Princeton's BV of Land + Sheffield's FV of Land = 150,000 + 500,000 = 650,000

Pone Company purchased 100 percent of Sone Inc. on January 1, 20X9 for $625,000. Sone reported earnings of $76,000 and declared dividends of $8,000 during 20X9. Based on the preceding information and assuming Pone uses the equity method to account for its investment in Sone, what is the balance in Pone's Investment in Sone account on December 31, 20X9, prior to consolidation? $617,000 $693,000 $625,000 $633,000

$693,000 Reason: Investment in Pone = Purchase Price + Share of Sub's NI - Share of Sub's Dividends = 625,000 + 76,000 - 8,000 = 693,000

Paul Corporation owns 70 percent of the voting common shares of Sally Corporation, purchased at book value. Noncontrolling interest was assigned $21,000 of income in the 20X0 consolidated income statement. What amount of net income did Sally Corporation report for the year? $30,000 $70,000 $63,000 $147,000

$70,000 Reason: Consolidated Income = NCI's Share of Income / NCI ownership percentage = 21,000 / 30% = 70,000

On January 1, 20X8, Potter Corporation acquired 90 percent of Shoemaker Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date. Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker. On December 31, 20X9, the trial balances of the two companies are as follows: Accounts Potter Shoemaker Current Assets $200,000 $140,000 Depreciable Assets 350,000 250,000 Investment in Shoemaker Corp. 162,000 Depreciation Expense 27,000 10,000 Other Expenses 95,000 60,000 Dividends Declared 20,000 10,000 Accumulated Depreciation $118,000 80,000 Current Liabilities 100,000 80,000 Long-Term Debt 100,000 50,000 Common Stock 100,000 50,000 Retained Earnings 150,000 100,000 Sales 250,000 110,000 Income from Subsidiary 36,000 Totals $854,000 $854,000 $470,000 $470,000 Based on the preceding information, what amount would be reported as total assets in the consolidated balance sheet at December 31, 20X9? $712,000 $742,000 $805,000 $1,102,000

$742,000 Reason: Total Consolidated Assets = Current Assets + Depreciable Assets - Accumulated Depreciation = (200,000 + 140,000) + (350,000 + 250,000) - (118,000 + 80,000) = 742,000

Protective Corporation acquired 70 percent of the common shares and 60 percent of the preferred shares of Safety Corporation at underlying book value on January 1, 20X6. At that date, the fair value of the noncontrolling interest in Safety's common stock was equal to 30 percent of the book value of its common stock. Safety's balance sheet at the time of acquisition contained the following balances: Assets $ 700,000 Total Assets $ 700,000 Liabilities $ 110,000 Preferred Stock 100,000 Common Stock 200,000 Retained Earnings 290,000 Total Liabilities and Equities $ 700,000 The preferred shares are cumulative and have an 8 percent annual dividend rate and are three years in arrears on January 1, 20X6. All of the $10 par value preferred shares are callable at $12 per share. During 20X6, Safety reported net income of $80,000 and paid no dividends. Based on the preceding information, what is Safety's contribution to consolidated net income for 20X6? $56,000 $72,000 $48,000 $80,000

$80,000 Reason: Safety's reported NI of 80,000 is contributed to the consolidated net income. It will be distributed between CI and NCI in the relevant proportion.

On January 1, 20X6, Pumpkin Corporation acquired 70 percent of Spice Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition: Pumpkin Spice Cash $ 50,000 $ 15,000 Accounts Receivable 70,000 25,000 Inventory 30,000 20,000 Land 150,000 80,000 Buildings and Equipment 250,000 200,000 Less: Accumulated Depreciation (70,000 ) (20,000 ) Investment in Spice Co. 210,000 Total Assets $ 690,000 $ 320,000 Accounts Payable $ 40,000 $ 10,000 Bonds Payable 150,000 40,000 Common Stock 300,000 90,000 Retained Earnings 200,000 180,000 Total Liabilities and Equity $ 690,000 $ 320,000 At the date of the business combination, the book values of Spice's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000. Based on the preceding information, what amount of total assets will be reported in the consolidated balance sheet prepared immediately after the business combination? $830,000 $800,000 $1,010,000 $1,040,000

$830,000 Reason: Pumpkin's Asset Portion = Total Assets - Investment in Spice = 690,000 - 210,000 = 480,000 Spice's Asset Portion = Total Assets + Change in Inventory Value + Change in Land Value = 320,000 + (30,000 − 20,000) + (95,000 − 80,000) = 345,000 Goodwill = 210,000 + 90,000 - (180,000 + 90,000) - (30,000 − 20,000) - (95,000 − 80,000) = 5,000 Total assets reported in the consolidated B/S = 480,000 + 345,000 + 5,000 = 830,000

Postage, a holder of a $400,000 Stamp Inc. bond, collected the interest due on June 30, 20X8, and then sold the bond to DEF Inc. for $365,000. On that date the bond issuer, Stamp, a 90 percent owner of DEF, had a $450,000 carrying amount for this bond. Based on the information given above, what amount of gain or loss on bond retirement was recorded? $85,000 loss $85,000 gain $35,000 loss No gain or loss

$85,000 gain Reason: Stamp's Carrying value on Bond - DEF's purchase price for Bond = 450,000 - 365,000 = 85,000

If 1 British pound can be exchanged for 180 cents of U.S. currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds? 1/.56 1.8/1 1/1.8 1/180

1/1.8 Reason: Indirect exchange is the Number of foreign currency units divided by one local currency unit = 1 British pound / 180 cents ($1.80) of USD = 1/1.8

On January 1, 20X2, Pint Corporation acquired 80 percent of Size Corporation for $200,000 cash. Size reported net income of $25,000 each year and dividends of $5,000 each year for 20X2, 20X3, and 20X4. On January 1, 20X2, Size reported common stock outstanding of $160,000 and retained earnings of $40,000, and the fair value of the noncontrolling interest was $50,000. It held land with a book value of $90,000 and a market value of $100,000, and equipment with a book value of $40,000 and a market value of $48,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of eight years. All depreciable assets held by Size at the date of acquisition had a remaining economic life of eight years. Pint uses the equity method in accounting for its investment in Size. Based on the preceding information, what balance would Pint report as its investment in Size at January 1, 20X4? $232,000 $224,000 $240,000 $200,000

224,000 Reason: Initial investment Bal = 200,000 for 80% interest. Sub's NI = [(25,000*2yrs) x 80%] = 40,000 Sub's Dividends = [(5,000*2yrs) x 80%] = 8,000 Differential = BV 200,000 - FV 250,000 = 50,000 Differential for Land = (100,000 - 90,000) = 10,000 Differential for Equipment = (48,000 - 40,000) = 8,000 Differential Bal to Patents = (50,000 - 18,000) = 32,000 Amortized Patents = [(32/8yrs) x 2yrs] = 8,000 Investment Balance = 200,000 + 40,000 - 8,000 - 8,000 = 224,000

A newly created subsidiary sold all of its inventory to its parent at a profit in its first year of existence. The parent, in turn, sold all but 20 percent of the inventory to unaffiliated companies, recognizing a profit. The parent had no other sales during the year. The amount that should be reported as cost of goods sold in this year's consolidated income statement should be: 80 percent of the amount reported as intercompany sales by the subsidiary. 80 percent of the amount reported as cost of goods sold by the parent. 80 percent of the amount reported as cost of goods sold by the subsidiary. the amount reported as cost of goods sold by the parent minus unrealized profit in the ending inventory of the parent.

80 percent of the amount reported as cost of goods sold by the subsidiary.

ASC 805 requires contingent consideration in a business combination to be classified as: An asset An asset or equity An asset or a liability A liability or equity

A liability or equity

Which of the following describes a situation when a parent company would not consolidate a foreign subsidiary? Restrictions on transfers of property in the foreign country. Other governmentally imposed uncertainties. Restrictions on foreign exchange in the foreign country. All of the choices are correct.

All of the choices are correct.

The consolidation process consists of all the following except: Combining the financial statements of two or more legally separate companies. Combining the accounts of separate companies, creating a single set of financial statements. Closing the individual subsidiary's revenue and expense accounts into the parent's retained earnings. Eliminating intercompany transactions and holdings.

Closing the individual subsidiary's revenue and expense accounts into the parent's retained earnings.

Which of the following observations is NOT consistent with the use of push-down accounting? 1. No differential arises in the consolidation process. 2. Revaluation Capital account is eliminated in preparing consolidated statements. 3. Consolidating entries related to the differential are needed in the worksheets. 4. The revaluation capital account is part of the subsidiary's stockholders' equity.

Consolidating entries related to the differential are needed in the worksheets.

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 200,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: Date Spot Rate Forward Rate December 1, 20X8 0.89 0.90 (60 days) December 31, 20X8 0.91 0.93 (30 days) January 30, 20X9 0.92 Based on the preceding information, the entries on January 30, 20X9 related to the forward contract include a: Debit to Foreign Currency Transaction Loss, $4,000. Debit to Dollars Payable to Exchange Broker, $184,000. Credit to Foreign Currency Units (SFr), $184,000. Credit to Cash, $180,000.

Credit to Cash, $180,000

Which of the following observations is true of futures contracts? Future contracts are traded on an exchange and acquired through an exchange broker. Future contracts typically do not require a margin deposit. They are contracted through a dealer, usually a bank. They are customized to meet contracting company's terms and needs.

Future contracts are traded on an exchange and acquired through an exchange broker.

Which of the following are examples of intercompany balances and transactions that must be eliminated in preparing consolidated financial statements? I. Security holdings II. Interest and dividends III. Sales and purchases

I. Security holdings II. Interest and dividends III. Sales and purchases

A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the individual accounting records of the parent and its subsidiary: I. at the date of constructive retirement II. over the remaining term of the bonds.

II. over the remaining term of the bonds.

any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income: I. in the year of the downstream sale. II. over the period of time the sub uses the land. III. in the year the sub sells the land to an unrelated party

III. in the year the sub sells the land to an unrelated party

In the case of an investment in equity securities where the investor does not have significant influence and the investment is carried at fair value, a dividend from the investee is: A direct increase to retained earnings of the investor to offset the direct decrease to retained earnings of the investee. Income to the investor in the period of declaration. An expense to the investor in the period of declaration. A reduction of the carrying amount of the investment.

Income to the investor in the period of declaration.

On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock. There was no differential related to this transaction. The noncontrolling interest had a fair value equal to 20 percent of book value. The book value of Siena on December 31, 20X7 was as follows: Common Stock ($10 par value) $500,000 Retained Earnings 350,000 Total $850,000 On January 1, 20X8, Pisa purchased an additional 12,500 shares directly from Siena for $25 per share. Based on the preceding information, by what amount did the Investment in Siena account change? Decrease of $296,500 Increase of $296,500 Increase of $64,000 Decrease of $64,000

Increase of $296,500 Reason: Investment in Siena = 850,000 x 80% = 680,000 Total # of share on 12/31/20X7 = 500,000/10 = 50,000 share Issue of additional share = 12,500 shares Total # of share after issue = 50,000 + 12,500 = 62,500 share Pisa ownership% of share = 52,500 / 62,500 x 100 = 84% Amount proceeds from issue = 12,500 x 25 = 312,500 Total asset after reissue = 850,000 + 312,500 = 1,162,500 Share of Parent P in S account after = 1,162,500 x 84% = 976,500 Change in investment = 976,500 - 680,000 = 296,500

Consolidated financial statements tend to be most useful for: Short-term creditors of the parent company. Creditors of a consolidated subsidiary. Stockholders of a consolidated subsidiary. Investors and long-term creditors of the parent company.

Investors and long-term creditors of the parent company.

All of the following are benefits the U.S. would gain from the adoption of globally consistent accounting standards except for: Increased quality of information available to investors. Reduction in reporting costs as the need for multiple sets of financial statements decreases. Nearly seamless transition with minimal expenses related to corporate governance considerations. Continued expansion of capital markets across national borders, facilitating more efficient use of global capital.

Nearly seamless transition with minimal expenses related to corporate governance considerations.

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9 with settlement to be in 60 days. On the same date, Myway entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1 1 C$ = $ 0.945 March 1 1 C$ = 0.930 Based on the preceding information, what is the overall effect on net income of Myway's use of the forward exchange contract? Net loss of $1,000 No effect Net gain of $1,500 Net loss of $500

Net loss of $500 Reason: Jan 1 Forward Rate = 100,000 x 0.940 = 94,000 Jan 1 Spot Rate = 100,000 x 0.945 = 94,500 Effect on Net Income = 93,000 - 94,500 = -500

All of the following are management tools available for a U.S. company to hedge its net investment in a foreign affiliate except for: Foreign currency commitments Intercompany financing arrangements including intercompany transactions Forward exchange contracts None of the choices are correct.

None of the choices are correct.

Which of the following observations concerning "goodwill" is NOT correct? It must be tested for impairment at least annually. Once written down, it may be written up for recoveries. It must be reported as a separate line item in the balance sheet. A goodwill impairment loss must be reported as a separate line item within income from continuing operations unless it relates to discontinued operations.

Once written down, it may be written up for recoveries.

When one company purchases the debt of an affiliate from an unrelated party, a gain or loss on the constructive retirement of debt is recognized by which of the following? Issuing Affiliate Purchasing Affiliate Consolidated Entity A. No No Yes B. Yes Yes No C. No No No D. Yes Yes Yes Option D Option C Option B Option A

Option A

If the functional currency is the local currency of a foreign subsidiary, what exchange rates should be used to translate the items below, assuming the foreign subsidiary is in a country which has not experienced hyperinflation over three years? Equipment Inventories Depreciation Exp-Equipment A) Current Rate Current Rate Average Rate B) Historical Rate Current Rate Historical Rate C) Current Rate Current Rate Historical Rate D) Historical Rate Average Rate Average Rate Option A Option C Option D Option B

Option A Reason: The financial position and performance of an foreign subsidiary whose functional currency (not a currency of a hyperinflationary economy) shall be translated into presentation currency of the parent using the following procedures: (a) Assets & liabilities of each balance sheet are translated using closing/current rate at the date of that balance sheet; (b) Income and expenses of profit and loss a/c shall be translated at exchange rates at the dates of the transactions or using average rates (appropriate when exchange rates dont fluctuate significantly)

Pumpkin Corporation purchased land on January 1, 20X6, for $50,000. On July 15, 20X8, it sold the land to its subsidiary, Spice Corporation, for $70,000. Pumpkin owns 80 percent of Spice's voting shares. Based on the preceding information, what will be the worksheet consolidating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 20X9? Option A: Investment in Spice 20,000; Land 20,000 Option B: Land 16,000; Investment in Spice 16,000 Option C: Investment in Spice 16,000; Land 16,000 Option D: Land 20,000; Investment in Spice 20,000 Option D Option B Option A Option C

Option A Reason: 20X8 worksheet entry: Dr. Gain on sale 20,000 and Cr. Land 20,000 to remove the effects of intercompany sale. 20X9 worksheet entry: Dr. Investment in Spice 20,000 and Cr. Land 20,000 to remove the effects of intercompany sale.

Which combination of accounts and exchange rates is correct for the translation of a foreign entity's financial statements from the functional currency to U.S. dollars? Exchange Rates Accounts A) Current Salary Expense, Sales, Depreciation Expense B) Current Accounts Payable, Inventories, Investments C) Historical Common Stock, Dividends Payable, Retained Earnings D) Weighted Average Retained Earnings, Land, Inventories Option D Option C Option B Option A

Option B

Chicago based Corporation X has a number of importing transactions with companies based in UK. Importing activities result in payables. If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates? Direct Exchange Rate Indirect Exchange Rate Increases Decreases Increases Decreases A. NA NA NA NA B. Loss Gain Gain Loss C. Loss Gain NA NA D. Gain Loss Loss Gain Option A Option C Option D Option B

Option B Reason: Chicago Based Company X needs to pay in British Pounds when Direct Exchange rate increases it leads to loss and in case of direct exchange rate is decreases leads to gain vice-versa to Indirect Exchange rate. Suppose us dollar to pound is 0.8 Pounds per dollar if Pound Increases to 0.85 then X Company need to pay more than regular rate of 0.8 pounds which leads to loss and in same way if it is decreases it leads to gain and Vice versa in case of Indirect Exchange rate is given

For which of the following reporting units is the preparation of combined financial statements most appropriate? A corporation and a majority-owned subsidiary with inhomogeneous operations. A corporation and a foreign subsidiary with nonintegrated homogeneous operations. Several corporations with related operations with some common individual owners.

Several corporations with related operations owned by one individual.

When a parent owns less than 100% of a subsidiary, the noncontrolling interest shareholders are allocated their ownership percentage of income or net assets in all of the following consolidating entries except for: The amortized excess value reclassification entry The accumulated depreciation consolidation entry The excess value (differential) reclassification entry The basic investment account consolidation entry

The accumulated depreciation consolidation entry

All of the following are examples of how a parent company may lose control over a subsidiary and discontinue future consolidation, except: The subsidiary issues additional common stock. The subsidiary comes under the control of the government or other regulator. The parent sells some of its interest in the subsidiary. The subsidiary issues a stock dividend or a stock split.

The subsidiary issues a stock dividend or a stock split.

Which of the following observations is true of forward contracts? They are usually settled with a net cash amount prior to maturity date. They cannot be customized for a specific amount at a specific date. A substantial margin is required to initiate a contract. They must be completed either with the underlying's future delivery or net cash settlement.

They must be completed either with the underlying's future delivery or net cash settlement.

Pluto Corporation owns 70 percent of Saturn Company's stock. On July 1, 20X4, Pluto sold a piece of equipment to Saturn for $56,350. Pluto had purchased this equipment on January 1, 20X1, for $63,000. The equipment's original 15-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible. Based on the information provided, while preparing the 20X4 consolidated income statement, depreciation expense will be: credited for $700 in the consolidation entries. debited for $350 in the consolidation entries. debited for $700 in the consolidation entries. credited for $350 in the consolidation entries.

credited for $350 in the consolidation entries.

Paper Corporation owns 75 percent of Scissor Company's stock. On July 1, 20X8, Paper sold a building to Scissor for $33,000. Paper had purchased this building on January 1, 20X6, for $36,000. The building's original eight-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The building's residual value is considered negligible. Based on the information provided, while preparing the 20X8 consolidated income statement, depreciation expense will be: debited for $1,500 in the consolidating entries. credited for $750 in the consolidating entries. debited for $750 in the consolidating entries. credited for $1,500 in the consolidating entries.

credited for $750 in the consolidating entries.

Consolidated financial statements are being prepared for Behemoth Corporation and its two wholly-owned subsidiaries that have intercompany loans of $50,000 and intercompany profits of $100,000. How much of these intercompany loans and profits should be eliminated? intercompany loans − $50,000; intercompany profits − $100,000 intercompany loans − $0; intercompany profits − $100,000 intercompany loans − $50,000; intercompany profits − $0 intercompany loans − $0; intercompany profits − $0

intercompany loans − 50,000; intercompany profits − 100,000

Using the fully adjusted equity method, an intercompany gain on an upstream sale of land is: 1. deferred by the subsidiary until the land is sold to an entity outside the consolidated group. 2. recognized by the subsidiary and the deferral is completely allocated to the controlling stockholders of the subsidiary. 3. recognized by the subsidiary and the deferral is shared between the controlling and noncontrolling stockholders of the subsidiary. 4. recognized by the parent and the deferral is shared between the controlling and noncontrolling stockholders of the subsidiary.

recognized by the subsidiary and the deferral is shared between the controlling and noncontrolling stockholders of the subsidiary.

All of the following stockholders' equity accounts of a foreign subsidiary are translated at historical exchange rates except: additional paid-in capital. retained earnings. preferred stock. common stock.

retained earnings.

A change from carrying securities at fair value to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires: 1. that the investor begins accruing income earned by the investee under the equity method at the date of acquisition of the new shares. 2. only a footnote disclosure. 3. retroactive restatement as if the investor always had used the equity method. 4. that the cumulative amount of the change be shown as a line item on the income statement, net of tax.

that the investor begins accruing income earned by the investee under the equity method at the date of acquisition of the new shares.

At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair value of $250,000. Based on the information provided, at the time of the transfer, Selvick Company should record the building at $220,000 and accumulated depreciation of $44,000. the building at $220,000 with no accumulated depreciation. the building at $176,000 with no accumulated depreciation. the building at $250,000 with no accumulated depreciation.

the building at $220,000 and accumulated depreciation of $44,000. Reason: This is an internal creation of subsidiary and the book value method is applied to transferred assets. Building BV is 220,000 and Accumulated depreciation BV [(220,000/20yrs) x 4yrs in use) is 44,000.

A wholly owned subsidiary sold land to its parent during the year at a gain. The parent continues to hold the land at the end of the year. The amount to be reported as consolidated net income for the year should equal: the parent's separate operating income, plus the subsidiary's net income. the parent's separate operating income, plus the subsidiary's net income, minus the intercompany gain. the parent's net income, plus the subsidiary's net income, minus the intercompany gain. the parent's separate operating income, plus the subsidiary's net income, plus the intercompany gain.

the parent's separate operating income, plus the subsidiary's net income, minus the intercompany gain.

Which of the following is true? When companies employ push-down accounting: 1. a special account called Revaluation Capital will appear in the consolidated balance sheet. 2. all consolidation entries are made on the books of the subsidiary rather than in consolidated worksheets. 3. the subsidiary is not substantially wholly owned by the parent. 4. the subsidiary revalues assets and liabilities to their fair values as of the acquisition date.

the subsidiary revalues assets and liabilities to their fair values as of the acquisition date.

At the end of the year, a parent acquires a wholly owned subsidiary's bonds from unaffiliated parties at a cost less than the subsidiary's carrying value. The consolidated net income for the year of acquisition should include the parent's separate operating income plus:

the subsidiary's net income increased by the gain on constructive retirement of debt.

When the local currency of a foreign subsidiary is the functional currency, the foreign subsidiary's income statement accounts would be converted to U.S. dollars by: translation using historical exchange rates. remeasurement using current exchange rates at the time of statement preparation. remeasurement using the current exchange rate at the time of statement preparation. translation using average exchange rate for the period.

translation using average exchange rate for the period.

When the local currency of a foreign subsidiary is the functional currency, the foreign subsidiary's inventory carried at cost would be converted to U.S. dollars by: remeasurement using the current exchange rate. remeasurement using historical exchange rates. translation using the current exchange rate. translation using historical exchange rates.

translation using the current exchange rate.