Question 1

In the consolidated income statement of Wattlebird Corporation and its 85% owned Forest subsidiary,the noncontrolling interest share was reported at $45,000.Assume the book value and fair value of Forest's net assets were equal at the acquisition date.What amount of net income did Forest have for the year?
A)$52,941
B)$38,250
C)$235,000
D)$300,000

Accepted Answer

D

Question 2

Subsequent to an acquisition,the parent company and consolidated financial statement amounts would not be the same for
A)investments in unconsolidated subsidiaries.
B)investments in consolidated subsidiaries.
C)capital stock.
D)ending retained earnings.

Accepted Answer

After an acquisition, investments in consolidated subsidiaries may change due to adjustments made to intangible assets, goodwill, and any additional assets or liabilities acquired. The other choices, including investments in unconsolidated subsidiaries, capital stock, and ending retained earnings, would remain the same in the parent company and consolidated financial statements.

Question 3

On January 1,2014,Packaging International purchased 90% of Shipaway Corporation's outstanding shares for $135,000 when the fair value of Shipaway's net assets were equal to the book values.The balance sheets of Packaging and Shipaway Corporations at year-end 2013 are summarized as follows: 
If a consolidated balance sheet was prepared immediately after the business combination,the noncontrolling interest would be
A)$9,000.
B)$13,500.
C)$15,000.
D)$16,667.

Accepted Answer

C

Question 4

Pardo Corporation paid $140,000 for a 70% interest in Spedeal Inc.on January 1,2014,when Spedeal had Capital Stock of $50,000 and Retained Earnings of $100,000.Fair values of identifiable net assets were the same as recorded book values.During 2014,Spedeal had income of $40,000,declared dividends of $15,000,and paid $10,000 of dividends.On December 31,2014,the consolidated financial statements will show
A)investment in Spedeal account of $170,000.
B)investment in Spedeal account of $165,000.
C)consolidated goodwill of $50,000.
D)consolidated dividends receivable of $5,000.

Accepted Answer

The answer of Pardo Corporation paid $140,000 for a 70%...

Question 5

A newly acquired subsidiary had pre-existing goodwill on its books.The parent company's consolidated balance sheet will
A)not show any value for the subsidiary's pre-existing goodwill.
B)treat the goodwill similarly to other intangible assets of the acquired company.
C)not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value.
D)always show the pre-existing goodwill of the subsidiary at its book value.

Accepted Answer

When a company acquires a subsidiary, the pre-existing goodwill on the subsidiary's books is not recognized on the consolidated balance sheet. Instead, any goodwill recognized in the acquisition is calculated based on the purchase price and the fair value of identifiable net assets acquired. Pre-existing goodwill is essentially eliminated in the consolidation process.

Question 6

Perth Corporation acquired a 100% interest in Sansone Company for $1,600,000 when Sansone had no liabilities.The book values and fair values of Sansone's assets were: 
Immediately following the acquisition,equipment will be included on the consolidated balance sheet at
A)$150,000.
B)$200,000.
C)$210,000.
D)$280,000.

Accepted Answer

The equipment, which has a book value of $200,000 and a fair value of $210,000, will be included on the consolidated balance sheet at its fair value of $210,000, as per the acquisition method. Therefore, the correct option is C.

Question 7

A subsidiary can be excluded from consolidation if
A)control does not rest with the majority owner.
B)the subsidiary is in legal reorganization.
C)the subsidiary is operating under severe foreign-exchange restrictions.
D)All of the above are correct.

Accepted Answer

All of the given options can result in a subsidiary being excluded from consolidation. If control does not rest with the majority owner, then the subsidiary cannot be consolidated as it is not a subsidiary as per the definition. If the subsidiary is in legal reorganization, it may not be possible to exercise control, and hence, it cannot be consolidated. Similarly, if the subsidiary is operating under severe foreign-exchange restrictions, it may not be possible to exercise control, and hence, it cannot be consolidated.

Question 8

On July 1,2014,when Salaby Company's total stockholders' equity was $360,000,Pogana Corporation purchased 14,000 shares of Salaby's common stock at $30 per share.Salaby had 20,000 shares of common stock outstanding both before and after the purchase by Pogana,and the book value of Salaby's net assets on July 1,2014 was equal to the fair value.On a consolidated balance sheet prepared at July 1,2014,goodwill would be
A)$60,000.
B)$85,714.
C)$100,000.
D)$240,000.

Accepted Answer

The answer of On July 1,2014,when Salaby Company's total stockholders'...

Question 9

Percy Inc.acquired 80% of the outstanding stock of Sillson Company in a business combination.The book values of Sillson's net assets are equal to the fair values except for the building,whose net book value and fair value are $500,000 and $800,000,respectively.At what amount is the building reported on the consolidated balance sheet?
A)$400,000
B)$500,000
C)$640,000
D)$800,000

Accepted Answer

The answer of Percy Inc.acquired 80% of the outstanding stock...

Question 10

Pinata Corporation acquired an 80% interest in Smackem Inc.for $130,000 on January 1,2014,when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000.Assume the fair value and book value of Smackem's net assets were equal on January 1,2014.Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31,2014,are shown below. 
Smackem's separate income statement must have reported net income of
A)$13,750.
B)$14,750.
C)$15,750.
D)$15,250.

Accepted Answer

The answer of Pinata Corporation acquired an 80% interest in...

Question 11

From the standpoint of accounting theory,which of the following statements is the best justification for the preparation of consolidated financial statements?
A)In substance the companies are separate,but in form the companies are one entity.
B)In substance the companies are one entity,but in form they are separate.
C)In substance and form the companies are one entity.
D)In substance and form the companies are separate entities.

Accepted Answer

The best justification for the preparation of consolidated financial statements is that in substance the companies are one entity, but in form they are separate. This means that although the companies may have separate legal identities and may operate in different locations or in different industries, they are ultimately controlled by the same group of individuals or organizations and function as a single economic entity. Consolidated financial statements provide a more accurate picture of the financial performance of the group as a whole, rather than just individual companies, and are necessary for investors and other stakeholders to make informed decisions about the group's financial health.

Question 12

Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock.On the consolidated financial statements of Panini Corporation and Strathmore,Malone is
A)an affiliate.
B)a noncontrolling interest.
C)an equity investee.
D)a related party.

Accepted Answer

Malone Corporation owns a minority interest (15%) in Strathmore Company, making it a noncontrolling interest for Panini Corporation. Noncontrolling interest refers to the portion of a subsidiary's equity that is not held by the parent company, and it is reported separately on the consolidated financial statements.

Question 13

In the preparation of consolidated financial statements,which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?
A)All revenues,expenses,gains,losses,receivables,and payables
B)All revenues,expenses,gains,and losses but not receivables and payables
C)Receivables and payables but not revenues,expenses,gains,and losses
D)Only sales revenue and cost of goods sold

Accepted Answer

All intercompany transactions must be eliminated, including revenues, expenses, gains, losses, receivables, and payables. This is to ensure that the consolidated financial statements reflect only transactions with external third parties and not internal transactions between the subsidiaries.

Question 14

Pregler Inc.has 70% ownership of Sach Company,but should exclude Sach from its consolidated financial statements if
A)Sach is in a regulated industry.
B)Pregler uses the equity method for Sach.
C)Sach is in legal reorganization.
D)Sach is in a foreign country and records its books in a foreign currency.

Accepted Answer

Sach is in legal reorganization, indicating that it is undergoing significant financial difficulties or is experiencing legal issues that require separate reporting. In such cases, excluding it from the consolidated financial statements of Pregler Inc. would provide a better representation of the financial status of the company. Options A, B, and D are incorrect because they do not provide a sufficient reason for excluding Sach from the consolidated financial statements.

Question 15

On June 1,2014,Puell Company acquired 100% of the stock of Sorrell Inc.On this date,Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000.On December 31,2014,Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000.The amount of Retained Earnings that appeared in the December 31,2014 consolidated balance sheet was
A)$120,000.
B)$130,000.
C)$170,000.
D)$180,000.

Accepted Answer

The answer of On June 1,2014,Puell Company acquired 100% of...

Question 16

The unamortized excess account is
A)a contra-equity account.
B)used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values.
C)used in allocating the amounts paid for each asset and liability that are above or below their book values,especially when numerous assets or liabilities are involved.
D)the excess purchase cost that is attributable to goodwill.

Accepted Answer

The unamortized excess account is used in allocating the amounts paid for each asset and liability that are above or below their book values, especially when numerous assets or liabilities are involved. It is a contra-asset account, not a contra-equity account, and it may include goodwill but is not solely attributable to it.

Question 17

What method must be used if FASB Statement No.94 prohibits full consolidation of a 70% owned subsidiary?
A)The cost method
B)The Liquidation value
C)Market value
D)Equity method

Accepted Answer

FASB Statement No. 94 prohibits full consolidation of a subsidiary if there is no control over the subsidiary. In this case, the equity method must be used to account for the investment. The equity method is used when an investor has significant influence over but not control of the investee. This method records the investor's share of the investee's earnings and losses in the investor's income statement. Therefore, the best choice is D -The equity method.

Question 18

Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2014.During 2014,Sedacor reported net income of $130,000 and paid dividends of $40,000.At what amount should Pental's Investment in Sedacor account be reported on December 31,2014?
A)$400,000
B)$481,000
C)$490,000
D)$530,000

Accepted Answer

Pental owns 90% of Sedacor's common stock, so it has significant influence and must use the equity method to account for the investment. 
Beginning balance of investment: $400,000 
Add: Pental's share of Sedacor's net income ($130,000 x 90%): $117,000 
Less: Pental's share of Sedacor's dividends ($40,000 x 90%): $36,000 
Ending balance of investment: $481,000
Therefore, the answer is choice B.

Question 19

Pomograte Corporation bought 75% of Sycamore Company's common stock,with a book value of $900,000,on January 2,2014 for $750,000.The law firm of Dewey,Cheatam and Howe was paid $55,000 to facilitate the purchase.At what amount should Pomograte's Investment in Sycamore account be reported on January 2,2014?
A)$675,000
B)$695,000
C)$750,000
D)$845,000

Accepted Answer

The answer of Pomograte Corporation bought 75% of Sycamore Company's...

Question 20

Push-down accounting
A)requires a subsidiary to use the same accounting principles as its parent company.
B)is required when the parent company uses the equity method to account for its investment in a subsidiary.
C)is required when the parent company uses the cost method to account for its investment in a subsidiary.
D)is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary.

Accepted Answer

Push-down accounting is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary. It is also known as "pushing down" the parent company's accounting policies to the subsidiary level, effectively requiring the subsidiary to use the same accounting principles as its parent company. Push-down accounting is required when there is a change in control and the acquiring company uses the acquisition method to account for the investment in the subsidiary. It is not related to the equity or cost method of accounting for investments.

Quiz 3: An Introduction to Consolidated Financial Statements

Subsequent to an acquisition,the parent company and consolidated financial statement amounts would not be the same for

A newly acquired subsidiary had pre-existing goodwill on its books.The parent company's consolidated balance sheet will

Perth Corporation acquired a 100% interest in Sansone Company for $1,600,000 when Sansone had no liabilities.The book values and fair values of Sansone's assets were: Immediately following the acquisition,equipment will be included on the consolidated balance sheet at

A subsidiary can be excluded from consolidation if

From the standpoint of accounting theory,which of the following statements is the best justification for the preparation of consolidated financial statements?

Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock.On the consolidated financial statements of Panini Corporation and Strathmore,Malone is

In the preparation of consolidated financial statements,which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?

Pregler Inc.has 70% ownership of Sach Company,but should exclude Sach from its consolidated financial statements if

The unamortized excess account is

What method must be used if FASB Statement No.94 prohibits full consolidation of a 70% owned subsidiary?

Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2014.During 2014,Sedacor reported net income of $130,000 and paid dividends of $40,000.At what amount should Pental's Investment in Sedacor account be reported on December 31,2014?

Push-down accounting