Chapter 4, 5, 6 MCQ

In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true? A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement. B) U.S. GAAP and IFRS both require acquisition-date fair value measurement. C) U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement. D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement. E) U.S. GAAP and IFRS both apportion goodwill to the parent only.

U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement

Which of the following statements is false concerning variable interest entities (VIEs)? A) Sometimes VIEs do not have independent management. B) Most VIEs are established for valid business purposes. C) VIEs may be formed as a source of low-cost financing. D) VIEs have little need for voting stock. E) A VIE cannot take the legal form of a partnership or corporation.

a VIE cannot take the legal form of a partnership or corporation

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.

a gain or loss must be recognized by both parent and subsidiary companies

Parent sold land to its subsidiary for a gain in 2010. The subsidiary sold the land externally for a gain in 2013. Which of the following statements is true? A) A gain will be reported in the consolidated income statement in 2010. B) A gain will be reported in the consolidated income statement in 2013. C) No gain will be reported in the 2013 consolidated income statement. D) Only the parent company will report a gain in 2013. E) The subsidiary will report a gain in 2010.

a gain will be reported in the consolidated income statement in 2013

Which of the following statements is true regarding an intra-entity sale of land? A) A loss is always recognized but a gain is eliminated in a consolidated income statement. B) A loss and a gain are always eliminated in a consolidated income statement. C) A loss and a gain are always recognized in a consolidated income statement. D) A gain is always recognized but a loss is eliminated in a consolidated income statement. E) A gain or loss is eliminated by adjusting stockholders' equity through comprehensive income.

a loss and a gain are always eliminated in a consolidated income statement

If newly issued debt is issued from a parent to its subsidiary, which of the following statements is false? A) Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment. B) There will be $0 net gain or loss on the bond transaction. C) Interest expense needs to be eliminated on the consolidated income statement. D) Interest revenue needs to be eliminated on the consolidated income statement. E) A net gain or loss on the bond transaction will be reported.

a net gain or loss on the bond transaction will be reported

An intra-entity sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale? A) A worksheet entry is made with a debit to investment in subsidiary for an upstream transfer. B) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. C) A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method. D) A worksheet entry is made with a debit to retained earnings for an upstream transfer, regardless of the method used to account for the investment. E) No worksheet entry is necessary.

a worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method

An intra-entity sale took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year following the sale? A) A worksheet entry is made with a debit to retained earnings for an upstream transfer. B) A worksheet entry is made with a credit to retained earnings for an upstream transfer. C) A worksheet entry is made with a debit to retained earnings for a downstream transfer. D) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. E) No worksheet entry is necessary.

a worksheet entry is made with a credit to retained earnings for an upstream transfer

An intra-entity sale took place whereby the transfer price exceeded the book value of a depreciable asset. Which statement is true for the year following the sale? A) A worksheet entry is made with a debit to gain for a downstream transfer. B) A worksheet entry is made with a debit to gain for an upstream transfer. C) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method. D) A worksheet entry is made with a debit to retained earnings for a downstream transfer, regardless of the method used account for the investment. E) No worksheet entry is necessary.

a worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method

Which of the following statements is true concerning variable interest entities (VIEs)? 1) The role of the VIE equity investors can be fairly minor. 2) A VIE may be created specifically to benefit its sponsoring firm with low-cost financing. 3) VIE governing agreements often limit activities and decision making. 4) VIEs usually have a well-defined and limited business activity. A) 2 and 4. B) 2, 3, and 4. C) 1, 2, and 4. D) 1, 2, and 3. E) 1, 2, 3, and 4.

1, 2, 3, and 4

How do intra-entity sales of inventory affect the preparation of a consolidated statement of cash flows? A) They must be added in calculating cash flows from investing activities. B) They must be deducted in calculating cash flows from investing activities. C) They must be added in calculating cash flows from operating activities. D) Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required. E) They must be deducted in calculating cash flows from operating activities.

because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required

In measuring non-controlling interest at the date of acquisition, which of the following would not be indicative of the value attributed to the non-controlling interest? A) Fair value based on stock trades of the acquired company. B) Subsidiary cash flows discounted to present value. C) Book value of subsidiary net assets. D) Projections of residual income. E) Consideration transferred by the parent company that implies a total subsidiary value.

book value of subsidiary net assets

Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows? A) Cash flows from operating activities. B) Cash flows from investing activities. C) Cash flows from financing activities. D) Supplemental schedule of noncash investing and financing activities. E) They do not appear in the consolidated statement of cash flows.

cash flows from financing activities

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants? A) Parent's earnings per share plus subsidiary's earnings per share. B) Parent's net income divided by parent's number of shares outstanding. C) Consolidated net income divided by parent's number of shares outstanding. D) Average of parent's earnings per share and subsidiary's earnings per share. E) Consolidated income divided by total number of shares outstanding for the parent and subsidiary.

consolidated net income divided by parent's number of shares outstanding

Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer? A) Subsidiary net income is not affected by a gain on bond transaction. B) Subsidiary net income is not affected by a loss on bond transaction. C) Parent Company net income is not affected by a gain on bond transaction. D) Parent Company net income is not affected by a loss on bond transaction. E) Consolidated net income is not affected by a gain or loss on bond transaction.

consolidated net income is not affected by a gain or loss on a bond transaction

A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock is noncumulative. The current year's dividend was paid. How is the non-controlling interest in the subsidiary's net income assigned? A) Income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock and their relative par values. B) There is no allocation to the non-controlling interest because there are no dividends in arrears. C) Income is assigned as 40 percent of the preferred stock dividends. D) Income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends. E) Income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends.

income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends

For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: A) identifiable assets acquired, at fair value. B) liabilities assumed, at book value. C) non-controlling interest, at fair value. D) goodwill or a gain from bargain purchase. E) none of these choices is correct.

liabilities assumed, at book value

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity? A) The power to direct the most significant economic performance activities. B) The power through voting or similar rights to direct activities which significantly impact economic performance. C) The obligation to absorb potentially significant losses of the entity. D) No ability to make decisions about the entity's activities. E) The right to receive potentially significant benefits of the entity.

no ability to make decisions about the entity's activities

If a subsidiary issues a stock dividend, which of the following statements is true? A) Investment in subsidiary on the parent's books will increase. B) Investment in subsidiary on the parent's books will decrease. C) Additional paid-in capital on the parent's books will increase. D) Additional paid-in capital on the parent's books will decrease. E) No adjustment is necessary.

no adjustment is necessary

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method? A) Parent's dividends would be subtracted as a financing activity. B) Gain on sale of land would be deducted from net income. C) Non-controlling interest in net income of subsidiary would be added to net income. D) Proceeds from the sale of long-term investments would be added to investing activities. E) Loss on sale of equipment would be added to net income.

non-controlling interest in net income of subsidiary would be added to net income

Which of the following statements is true concerning an intra-entity transfer of a depreciable asset? A) Non-controlling interest in subsidiary's net income is never affected by a gain on the transfer. B) Non-controlling interest in subsidiary's net income is always affected by a gain on the transfer. C) Non-controlling interest in subsidiary's net income is affected by a downstream gain only. D) Non-controlling interest in subsidiary's net income is affected only when the transfer is upstream. E) Non-controlling interest in subsidiary's net income is increased by an upstream gain in the year of transfer.

non-controlling interest in subsidiary's net income is affected only when the transfer is upstream. E) Non-controlling interest in

MacDonald, Inc. owns 80 percent of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows? A) Include 80 percent as a decrease in the investing section. B) Include 100 percent as a decrease in the investing section. C) Include 80 percent as a decrease in the operating section. D) Include 100 percent as an increase in the operating section. E) Not reported in the consolidated statement of cash flows.

not reported in the consolidated statement of cash flows

Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the current year, Donald made $75,000 in sales to Wolff. How does this transfer affect the consolidated statement of cash flows? A) Included as a decrease in the investing section. B) Included as an increase in the operating section. C) Included as a decrease in the operating section. D) Included as an increase in the investing section. E) Not reported in the consolidated statement of cash flows.

not reported in the consolidated statement of cash flows

When a parent uses the initial value method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is true before making adjustments on the consolidated worksheet? A) Parent company net income equals consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equal consolidated dividends. E) Goodwill needs to be recognized on the parent's books.

parent company dividends equal consolidates dividends

In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true? A) Parent company earnings per share equals consolidated earnings per share when the equity method is used. B) Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used. C) Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value. D) Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value. E) Preferred dividends are not deducted from net income for consolidated earnings per share.

parent company earnings per share equals consolidated earnings per share when the equity method is used

When a parent uses the partial equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet? A) Parent company net income will equal controlling interest in consolidated net income when initial value, book value, and fair value of the investment are equal. B) Parent company net income will exceed controlling interest in consolidated net income when fair value of depreciable assets acquired exceeds book value of depreciable assets. C) Parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired. D) Goodwill will be recognized if acquisition value exceeds fair value of net assets acquired. E) Subsidiary net assets are valued at their book values before consolidating entries are made.

parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired

When a parent uses the equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet? A) Parent company net income equals controlling interest in consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equals consolidated dividends. E) Goodwill will not be recorded on the parent's books.

parent company total assets equals consolidated total assets

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true in the presentation of consolidated financial statements? A) Preacquisition earnings are deducted from consolidated revenues and expenses. B) Preacquisition earnings are added to consolidated revenues and expenses. C) Preacquisition earnings are deducted from the beginning consolidated stockholders' equity. D) Preacquisition earnings are added to the beginning consolidated stockholders' equity. E) Preacquisition earnings are ignored in the consolidated income statement.

preacquisition earnings are ignored in the consolidated income statements

Jax Company uses the acquisition method for accounting for its investment in Saxton Company. Jax sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the following statements is true? A) The difference between selling price and acquisition value is recorded as a realized gain or loss. B) The difference between selling price and acquisition value is recorded as an unrealized gain or loss. C) The difference between selling price and carrying value is recorded as a realized gain or loss. D) The difference between selling price and carrying value is recorded as an unrealized gain or loss. E) The difference between selling price and carrying value is recorded as an adjustment to retained earnings.

the difference between selling price and carrying value is recorded as a realized gain or loss

On January 1, 2013, 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 2013? 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 the debt. E) The difference does not influence the consolidated financial statements.

the difference is treated as a gain from extinguishment of the debt

A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true? A) The investment in subsidiary will decrease. B) Additional paid-in capital will decrease. C) Retained earnings will increase. D) The investment in subsidiary will increase. E) No adjustment will be necessary.

the investment in subsidiary will increase

A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true? A) The parent's additional paid-in capital will be increased. B) The parent's investment in subsidiary will be increased. C) The parent's retained earnings will be increased. D) The parent's additional paid-in capital will be decreased. E) The parent's retained earnings will be decreased.

the parent's additional paid-in capital will be decreased

Which one of the following characteristics of preferred stock would make the stock a dilutive security for earnings per share? A) The preferred stock is callable. B) The preferred stock is convertible. C) The preferred stock is cumulative. D) The preferred stock is noncumulative. E) The preferred stock is participating.

the preferred stock is convertible

Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements? A) The sponsoring firm has the obligation to absorb potentially significant losses of the VIE. B) The sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership. C) The sponsoring firm has the right to receive potentially significant benefits of the VIE. D) The sponsoring firm has power through voting rights to direct the entity's activities that significantly impact economic performance. E) The sponsoring firm is a primary beneficiary fo the VIE.

the sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership

All of the following statements regarding the sale of subsidiary shares are true except which of the following? A) The use of specific identification based on serial number is acceptable. B) The use of the FIFO assumption is acceptable. C) The use of the averaging assumption is acceptable. D) The use of specific LIFO assumption is acceptable. E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

the use of specific LIFO assumption is acceptable

Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows? A) Cash flows from operating activities. B) Cash flows from investing activities. C) Cash flows from financing activities. D) Supplemental schedule of noncash investing and financing activities. E) They do not appear in the consolidated statement of cash flows.

they do not appear in the consolidated statement of cash flows

Where do intra-entity sales of inventory appear in a consolidated statement of cash flows? A) They do not appear in the consolidated statement of cash flows. B) Supplemental schedule of noncash investing and financing activities. C) Cash flows from operating activities. D) Cash flows from investing activities. E) Cash flows from financing activities.

they do not appear in the consolidated statement of cash flows

How do subsidiary stock warrants outstanding affect consolidated earnings per share? A) They will be included in both basic and diluted earnings per share if they are dilutive. B) They will only be included in diluted earnings per share if they are dilutive. C) They will only be included in basic earnings per share if they are dilutive. D) Only the warrants owned by the parent company affect consolidated earnings per share. E) Because the warrants are for subsidiary shares, there will be no effect on consolidated earnings per share.

they will only be included in diluted earnings per share if they are dilutive

Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intra-entity transaction, to whom would the loss be attributed? A) To Safire because the bonds were issued by Safire. B) The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt. C) The loss should be amortized over the life of the bonds and need not be attributed to either party. D) The loss should be deferred until it can be determined to whom the attribution can be made. E) To Regency because Regency is the controlling party in the business combination.

to regency because regency is the controlling party in the business combination

On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized? A) Proportionately over a designated period of years. B) When Wood Co. sells the land to a third party. C) No gain can be recognized. D) As Wood uses the land. E) When Wood Co. begins using the land productively.

when Wood Co. sells the land to a third party

During 2012, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14,000 gain realized? A) When the goods are sold to a third party by Lord. B) When Lord pays Von for the goods. C) When Von sold the goods to Lord. D) When Lord receives the goods. E) No gain can be recognized since the transaction was between related parties.

when the goods are sold to a third party by Lord

A variable interest entity can take all of the following forms except a(n) A) Trust. B) Partnership. C) Joint venture. D) Corporation. E) Estate.

estate

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? A) If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss. B) If control continues, the difference between selling price and acquisition value is an unrealized gain or loss. C) If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital. D) If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss. E) If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings.

if control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? A) If majority control is still maintained, consolidated financial statements are still required. B) If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required. C) If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required. D) If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required. E) A gain or loss calculation must be prepared if control is lost.

if majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are required

In a step acquisition, which of the following statements is false? A) The acquisition method views a step acquisition essentially the same as a single step acquisition. B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year. C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year. D) Obtaining control through a step acquisition is a significant remeasurement event. E) Preacquisition earnings are not included in the consolidated income statement.

income from subsidiary is computed for the entire year for a new purchase acquired during the year

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? A) Income from subsidiary is not recognized until there is an entire year of consolidated operations. B) Income from subsidiary is recognized from date of acquisition to year-end. C) Excess cost over acquisition value is recognized at the beginning of the fiscal year. D) No goodwill can be recognized. E) Income from subsidiary is recognized for the entire year.

income from subsidiary is recognized from date of acquisition to year-end

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest? A) Income from subsidiary will be lower by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers. B) Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers. C) Income from subsidiary will be reduced for downstream ending inventory profits but not for upstream profits, before the non-controlling interest. D) Income from subsidiary will be reduced for upstream ending inventory profits but not for downstream profits, before the non-controlling interest. E) Income from subsidiary will be the same for upstream and downstream profits.

income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers

When comparing the difference between an upstream and downstream transfer of inventory, and using the initial value method, which of the following statements is true when there is a non-controlling interest? A) Income from subsidiary will be lower by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers. B) Income from subsidiary will be higher by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers. C) Income from subsidiary will be reduced for downstream ending inventory profit but not for upstream profit, before the effect of the non-controlling interest. D) Income from subsidiary will be reduced for upstream ending inventory profit but not for downstream profit, before the effect of the non-controlling interest. E) Income from subsidiary will be the same for upstream and downstream profit.

income from subsidiary will be lower by the amount of the ending inventory profit multiplied by the non-controlling interest percentage for downstream transfers

A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the non-controlling interest in the subsidiary's net income assigned? A) Income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock. B) There is no allocation to the non-controlling interest because the parent owns 100% of the common stock and net income belongs to the residual owners. C) Income is assigned as 40 percent of the preferred stock dividends. D) Income is assigned as 40 percent of the subsidiary's income before preferred stock dividends. E) Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

income is assigned as 40 percent of the preferred stock dividends

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition? A) Any gain or loss is deferred on a consolidated income statement. B) Any gain or loss is recognized on a consolidated income statement. C) Interest revenue on the affiliated debt is recognized on a consolidated income statement. D) Interest expense on the affiliated debt is recognized on a consolidated income statement. E) Consolidated retained earnings is adjusted for the difference between the purchase price and the carrying value of the bonds.

any gain or loss is recognized on a consolidated income statement

If a subsidiary reacquires its outstanding shares from outside ownership for more than book value, which of the following statements is true? A) Additional paid-in capital on the parent company's books will decrease. B) Investment in subsidiary will increase. C) Treasury stock on the parent's books will increase. D) Treasury stock on the parent's books will decrease. E) No adjustment is necessary.

additional paid-in capital on the parent company's books will decrease

Which of the following statements is true for a consolidated statement of cash flows? A) Parent's dividends and subsidiary's dividends are deducted as a financing activity. B) Only parent's dividends are deducted as a financing activity. C) Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity. D) All of parent's dividends and non-controlling interest of subsidiary's dividends are deducted as a financing activity. E) Neither parent's or subsidiary's dividends are deducted as a financing activity.

all of parent's dividends and non-controlling interest of subsidiary's dividends are deducted as a financing activity

Goehring, Inc. owns 70 percent of Harry Corp. The consolidated income statement for a year reports $40,000 Non-controlling Interest in Harry Corp.'s Income. Harry paid dividends in the amount of $100,000 for the year. What are the effects of these transactions in the consolidated statement of cash flows for the year? A) Increase in the financing section of $70,000, and decrease in the operating section of $30,000. B) Increase in the operating section of $70,000, and decrease in the financing section of $30,000. C) Increase in the operating section of $70,000. D) Decrease in the financing section of $30,000. E) No effects.

decrease in the financing section of $30,000

Which of the following is not a potential loss or return of a variable interest entity? A) Entitles holder to residual profits. B) Entitles holder to benefit from increases in asset fair value. C) Entitles holder to receive shares of common stock. D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss. E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.

entitles holder to receive shares of common stock

Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method? A) The sale of merchandise between a parent and its subsidiary represents an arm's-length transaction and thus provides the basis for the recognition of profit on such transfers. B) Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is inappropriate because all the intra-entity transactions unsold at year-end may not be sold in the next year. C) Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is appropriate even if all the intra-entity transactions unsold at year-end may not be sold in the next year. D) Merchandise transfers from a parent to its subsidiary that have not been sold to unaffiliated parties should be included in consolidated inventory at their transfer price. E) Non-controlling interest in subsidiary's net income should not be reduced for upstream or downstream ending inventory profits.

profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is appropriate even if all the intra-entity transactions unsold at year-end may not be sold in the next year

A parent company owns a 70 percent interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares for $27 per share, and the parent buys its 70 percent interest in the new shares. Which of the following statements is true? A) Since the sale was made at the end of the year, the parent's investment account is not affected. B) Since the shares were sold for book value, the parent's investment account must be increased. C) Since the shares were sold for book value, the parent's investment account must be decreased. D) Since the shares were sold for book value and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the price of the new shares. E) None of the above.

since the shares were sold for book value and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the price of the new shares

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true? A) Since the sale was made at the end of the year, the parent's investment account is not affected. B) Since the shares were sold for less than book value, the parent's investment account must be increased. C) Since the shares were sold for less than book value, the parent's investment account must be decreased. D) Since the shares were sold for less than book value but the parent did not buy any of the shares, the parent's investment account is not affected. E) None of the above.

since the shares were sold for less than book value, the parent's investment account must be decreased

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. Which of the following statements is true? A) Since the sale was made at the end of the year, the parent's investment account is not affected. B) Since the shares were sold for more than book value, the parent's investment account must be increased. C) Since the shares were sold for more than book value, the parent's investment account must be decreased. D) Since the shares were sold for more than book value but the parent did not buy any of the shares, the parent's investment account is not affected. E) None of the above.

since the shares were sold for more than book value, the parent's investment account must be increased

All of the following are examples of variable interests except A) Guarantees of debt. B) Stock options. C) Lease residual value guarantees. D) Participation rights. E) Asset purchase options.

stock options

Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock? A) The parent recognizes a larger percent of subsidiary income. B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation. C) The book value of the subsidiary will increase. D) The parent's percent ownership in subsidiary will increase. E) Non-controlling interest in subsidiary's net income will decrease.

the book value of the subsidiary will increase