Question 1

Company P had 300,000 shares of common stock outstanding.It owned 80% of the outstanding common stock of S.S owned 20,000 shares of P common stock.In the consolidated balance sheet, Company P's outstanding common stock may be shown as
A)​285,000 shares.
B)​300,000 shares.
C)​300,000 shares, less 20,000 shares of treasury stock.
D)​300,000 shares, footnoted to indicate that S holds 20,000 shares.

Accepted Answer

The answer of Company P had 300,000 shares of common...

Question 2

On January 1, 2016, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company for $350,000.On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding.Other paid-in capital and retained earnings were $150,000 and $200,000 respectively.On January 1, 2016, any excess of cost over book value is due to a patent, to be amortized over 15 years.Parent Company uses the simple equity method to account for its investment in Sub.
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Subsidiary's net income and dividends for two years were:
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 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Net income } & \$ 50,000 & \$ 90,000 \
\text { Dividends } & 10,000 & 30,000
\end{array}$$ On January 1, 2017, Subsidiary Company sold an additional 2,500 shares of common stock to non-controlling shareholders for $50 per share.
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In the last quarter of 2017, Subsidiary Company sold goods to Parent Company for $40,000.Subsidiary's usual gross profit on intercompany sales is 40%.On December 31, $7,500 of these goods are still in Parent's ending inventory.
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Required:
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Complete the Figure 8-6 worksheet for consolidated financial statements for 2017.
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?

Accepted Answer

The answer of On January 1, 2016, Parent Company purchased...

Question 3

A owns 80% of B and 20% of C.B owns 32% of C, and C owns 10% of A.Which interest will be considered NCI in the consolidated balance sheet?
A)​20% of B and 48% of C
B)​10% of A
C)​10% of A and 48% of C
D)​There will not be a non-controlling interest.

Accepted Answer

In the consolidated balance sheet, the non-controlling interest (NCI) is the portion of equity in a subsidiary not attributable to the parent company. A owns 80% of B, so 20% of B is NCI. A's effective ownership in C is 52% (80% of B's 32% in C plus A's direct 20% in C), making 48% of C NCI.

Question 4

Manke Company owns a 90% interest in Neske Company.Neske, in turn, owns a 10% interest in Manke.Neske has 10,000 common stock shares outstanding, and Manke has 20,000 common stock shares outstanding.How many shares would each firm show as outstanding in the consolidated balance sheet, under the treasury stock method?
A)​Manke, 20,000
B)​Manke, 20,000; Neske, 1,000
C)​Manke, 18,000; Neske, 1,000
D)​Manke, 18,000

Accepted Answer

Under the treasury stock method, the shares held by the parent company are not considered outstanding. Therefore, for Manke, the outstanding shares would be 20,000 - (20,000 x 10%) = 18,000. For Neske, its 10% ownership in Manke means that only 10% of Manke's outstanding shares are considered outstanding for Neske, which is 18,000 x 10% = 1,800. However, Neske only has 10,000 shares outstanding, so it can only hold 1,000 shares as treasury stock. Therefore, Neske's outstanding shares in the consolidated balance sheet would be 10,000 - 1,000 = 9,000. Therefore, the correct choice is C, where Manke would show 18,000 shares as outstanding and Neske would show 9,000 shares as outstanding.

Question 5

On January 1, 2016, Parent Company purchased 9,000 shares of the common stock of Subsidiary Company for $405,000.On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding.Other paid-in capital and retained earnings were $150,000 and $200,000 respectively.On January 1, 2016, any excess of cost over book value is due to a patent, to be amortized over 10 years.
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Subsidiary's net income and dividends for two years were:
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 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Netincome } & \$ 50,000 & \$ 80,000 \
\text { Dividends } & 10,000 & 20,000
\end{array}$$ On January 1, 2017, Subsidiary Company sold an additional 2,000 shares of common stock for $50 per share.Parent purchased 1,200 shares of the new issue, and non-controlling shareholders purchased the other 800.
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For both 2016 and 2017, Parent Company has applied the simple equity method.
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Required:
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a.Prepare a schedule that measures Parent's change in interest ownership effective with Sub's issuance of the 2,000 shares and Parent's acquisition of 1,200 of those shares.?
b.Prepare Parent's journal entry to record its purchase of the 1,200 shares on 1/1/17
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c.Prepare a schedule showing the 12/31/17 balance of Parent's Investment in Sub account

Accepted Answer

The answer of On January 1, 2016, Parent Company purchased...

Question 6

On 1/1/16 Poncho acquired an 80% interest in Stroller for $560,000 when Stroller's equity consisted of $530,000 paid-in capital and $100,000 Retained Earnings.Any excess of purchase price over was attributed to goodwill.
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On January 1, 2021, Stroller had the following stockholders' equity:
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 $$\begin{array} { l r } 
\text { Common stock } ( \$ 20 \text { par) } & \$ 180,000 \
\text { Paid-in capital in excess of par } & 350,000 \
\text { Retained earnings } & 220,000 \
\quad \text { Total stockholders' equity } & \$ 750,000 \

\end{array}$$ On January 2, 2021, Company S sold 1,000 additional shares to non-controlling shareholders in a public offering for $50 per share.Stroller's net income for 2021 was 80,000.Poncho uses the simple equity method to record its investment in Stroller.
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Required: 
a.Prepare Poncho's journal entry to adjust its Investment in Stroller account on January 2, 2021.Assume that Poncho has $500,000 additional paid-in capital.
b.Determine the carrying value of Poncho's Investment in Stroller account on December 31, 2021.

Accepted Answer

The answer of On 1/1/16 Poncho acquired an 80% interest...

Question 7

Parrot, Inc.purchased a 60% interest in Swallow Company on January 1, 2016, for $204,000.Any excess of cost was attributable to goodwill.
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On January 1, 2019, Swallow purchased 2,400 of its shares held by non-controlling stockholders for $50 per share.Swallow equity balances on various dates were as follows:
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 $\begin{array}{lrrr}
&\text { January } 1, & \text { December 31, } & \text { January 1, } \
&\underline{2016} & \underline{2018} & \underline{2020}\
\text { Capital stock }(\$ 10 \text { par }) & \$ 120,000 & \$ 120,000 & \$ 120,000 \
\text { Paid-in capital in excess of par } & 60,000 & 60,000 & 60,000 \
\text { Retained earnings } & 160,000 & 240,000 & 340,000 \
\text { Treasury stock (at cost) }{ }^{*} & & & (120,000) \
\quad{ }^{(}(2,400 \times \$ 50) & & &
\end{array}$
 Parrot maintains its investment at cost; Swallow recorded the purchase of its shares as treasury stock at cost.
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Required:
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Prepare the necessary determination and distribution of excess schedules and all Figure 8-7 worksheet eliminations and adjustments on the following partial worksheet prepared on December 31, 2020:
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?

Accepted Answer

The answer of Parrot, Inc.purchased a 60% interest in Swallow...

Question 8

When a subsidiary owns shares of the parent, the subsidiary's investment account
A)​should be accounted for using the equity method.
B)​is not eliminated so the subsidiary's investment in the parent is displayed on the balance sheet.
C)​is maintained at its original cost since the shares have no claim on income.
D)​may be accounted for using the cost, equity or sophisticated equity method.

Accepted Answer

The subsidiary's investment in the parent is maintained at its original cost because these shares do not have a claim on the income of the parent company. This approach reflects the investment without implying any income generation from these shares for the subsidiary.

Question 9

Paula Inc.purchased an 80% interest in the Sharon Co.for $480,000 on January 1, 2016, when Sharon Co.had the following stockholders' equity:
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 $\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par } & \$ 200,000 \
\text { Retained earnings } & \underline{300,000} \
\text { Total equity } & \$ \underline{500,000}
\end{array}$
 Any excess is attributable to goodwill.
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On January 1, 2018, Sharon Co.purchased a 10% interest in the Paula Inc.at a price equal to book value.Both firms maintain investments under the cost method.
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Required:
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a.Complete the Figure 8-11 partial worksheet for December 31, 2018, assuming the use of the treasury stock method.?
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b.Calculate the distribution of income for 2018, assuming that internally generated net income is $50,000 for Paula and $20,000 for Sharon.?
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Accepted Answer

The answer of Paula Inc.purchased an 80% interest in the...

Question 10

When a subsidiary issues a stock dividend, an amount equal to the fair value of the shares should be removed from retained earnings and transferred to paid-in-capital in excess of par, if the distribution:
A)​is less than 20% of the previously outstanding shares.
B)​exceeds 20% of the previously outstanding shares.
C)​is more than 50% of the previously outstanding shares.
D)​does not exceed 20% to 25% of the previously outstanding shares.

Accepted Answer

The answer of When a subsidiary issues a stock dividend,...

Question 11

On January 1, 2016, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary Company for $317,500.On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $50,000, $100,000, and $200,000 respectively.Any excess of cost over book value is due to goodwill.
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On January 1, 2017, Subsidiary purchased, from its non-controlling shareholders, 1,000 shares of its common stock, 10% of the stock outstanding on that date.The price paid was $44,000.The trial balances of Parent and Sub as of 12/31/17 are given below:
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  Required (round all amounts to whole dollars; round percentages to one decimal: XX.X%) 
a.Prepare the D&D schedule for the 1/1/16 acquisition.
b.Prepare a schedule to determine the change in Parent's interest in Sub.
c.Prepare the journal entry the parent needed to adjust its interest in Sub.(Note that it has already been included in the parent's trial balance.)
d.Prepare, in journal form, all elimination entries necessary for the 12/31/17 consolidation worksheet.?

Accepted Answer

The answer of On January 1, 2016, Parent Company purchased...

Question 12

On January 1, 2016, Parent Company purchased 8,000 shares of the common stock of Subsidiary Company for $350,000.On this date, Subsidiary had 20,000 shares of $5 par common stock authorized, 10,000 shares issued and outstanding.Other paid-in capital and retained earnings were $150,000 and $200,000 respectively.On January 1, 2016, any excess of cost over book value is due to a patent, to be amortized over 15 years.Parent Company uses the simple equity method to account for its investment in Sub.
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Subsidiary's net income and dividends for two years were:
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 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Netincome } & \$ 50,000 & \$ 90,000 \
\text { Dividends } & 10,000 & 30,000
\end{array}$$ On January 1, 2017, Subsidiary Company sold an additional 2,500 shares of common stock to non-controlling shareholders for $50 per share.
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In the last quarter of 2017, Subsidiary Company sold goods to Parent Company for $40,000.Subsidiary's usual gross profit on intercompany sales is 40%.On December 31, $7,500 of these goods are still in Parent's ending inventory.
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Required: Prepare the following items 
a.Determination and distribution schedule effective 1/1/16
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b.Parent's journal entry to record change in ownership interest due to Sub's issuance of additional shares on 1/1/17.Support with schedule of Parent's ownership interest before and after the 1/1/17 issuance.?
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c.All necessary elimination entries necessary to prepare the consolidating worksheet on 12/31/17
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Accepted Answer

The answer of On January 1, 2016, Parent Company purchased...

Question 13

Plum Inc.acquired 90% of the capital stock of Sterling Co.on 1/1/16 at a cost of $540,000.On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. ​
On 1/1/16 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share.Internally generated net income was $50,000 for Plum and $40,000 for Sterling.
Consolidated net income for 2017 is
A)​$90,000
B)​$86,000
C)​$83,500
D)​$70,000

Accepted Answer

The answer of Plum Inc.acquired 90% of the capital stock...

Question 14

a.What would be Company P's investment balance given the following information:
Company P's ownership interest of Company S is 90%.The original cost of the investment is $500,000.The beginning retained earnings of Company S in prior to a dividend was $100,000 and two years later retained earnings of Company S was $280,000.
b.Record the journal entry to record equity income under the simple equity method at the end of two years for Company P, assuming the second year's income for Company S was $100,000 and no dividend declarations were made.

Accepted Answer

The answer of a.What would be Company P's investment balance...

Question 15

On January 1, 2016, Prism Company purchased 7,500 shares of the common stock of Sight Company for $495,000.On this date, Sight had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and outstanding.Other paid-in capital and retained earnings were $200,000 and $300,000 respectively.On January 1, 2016, any excess of cost over book value is due to a patent, to be amortized over 15 years.
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Sight's net income and dividends for two years were:
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 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Net income } & \$ 50,000 & \$ 80,000 \
\text { Dividends } & 10,000 & 20,000
\end{array}$$ In November 2016, Sight Company declared a 10% stock dividend at a time when the market price of its common stock was $50 per share.The stock dividend was distributed on December 31, 2016.
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For both 2016 and 2017, Prism Company has accounted for its investment in Sight using the cost method.
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During 2016, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 2016.During 2017, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 2017.Sight's gross profit on intercompany sales is 40%.
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Required:
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Complete the Figure 8-2 worksheet for consolidated financial statements for 2017.
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  ?

Accepted Answer

The answer of On January 1, 2016, Prism Company purchased...

Question 16

Plum Inc.acquired 90% of the capital stock of Sterling Co.on 1/1/16 at a cost of $540,000.On this date Sterling had equipment (10-year life) carried at $200,000 under market and total equity amounting to $350,000. ​
On 1/1/16 Sterling acquired 5% (10,000 shares) of Plum's outstanding common stock for $3 per share.Internally generated net income was $50,000 for Plum and $40,000 for Sterling.The non-controlling interest in consolidated net income is
A)​$2,000
B)​$18,000
C)​$7,500
D)​$6,800

Accepted Answer

The non-controlling interest in consolidated net income is calculated as 10% of Sterling's net income, which is $40,000. Therefore, 10% of $40,000 is $4,000. However, since Sterling owns 5% of Plum, the non-controlling interest is reduced by 5% of Plum's net income, which is $50,000. So, 5% of $50,000 is $2,500. The non-controlling interest is $4,000 - $2,500 = $1,500, but the closest option is $2,000.

Question 17

On January 1, 2016, Prism Company purchased 7,500 shares of the common stock of Sight Company for $495,000.On this date, Sight had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and outstanding.Other paid-in capital and retained earnings were $200,000 and $300,000 respectively.On January 1, 2016, any excess of cost over book value is due to a patent, to be amortized over 15 years.
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Sight's net income and dividends for two years were:
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 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Net income } & \$ 50,000 & \$ 80,000 \
\text { Dividends } & 10,000 & 20,000
\end{array}$$ In November 2016, Sight Company declared a 10% stock dividend at a time when the market price of its common stock was $50 per share.The stock dividend was distributed on December 31, 2016.
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For both 2016 and 2017, Prism Company has accounted for its investment in Sight Company using the simple equity method.
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During 2016, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 2016.During 2017, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 2017.Sight's gross profit on intercompany sales is 40%.
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Required:
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Complete the Figure 8-1 worksheet for consolidated financial statements for 2017.
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  ?

Accepted Answer

The answer of On January 1, 2016, Prism Company purchased...

Question 18

On January 1, 2016, Parent Company purchased 90% of the common stock of Sub-A Company for $90,000.On this date, Sub-A had common stock, other paid-in capital, and retained earnings of $10,000, $20,000, and $60,000 respectively.
​
On January 1, 2017, Sub-A Company purchased 80% of the common stock of Sub-B Company for $64,000.On this date, Sub-B Company had common stock, other paid-in capital, and retained earnings of $5,000, $30,000, and $40,000 respectively.
​
Any excess of cost over book value on either purchase is due to a patent, to be amortized over ten years.
​
Both Parent and Sub-A have accounted for their investments using the simple equity method.
​
During 2017, Sub-B sold merchandise to Sub-A for $20,000, of which one-fourth is still held by Sub-B on December 31, 2017.Sub-B's usual gross profit is 40%.During 2018, Sub-B sold more goods to Sub-A for $30,000, of which $10,000 is still on hand on December 31, 2018.
​
Required:
​
Complete the Figure 8-9 worksheet for consolidated financial statements for 2018.
​

Accepted Answer

The answer of On January 1, 2016, Parent Company purchased...

Question 19

On January 1, 2016, Parent Company purchased 85% of the common stock, 8,500 shares, of Subsidiary Company for $317,500.On this date, Subsidiary had common stock, other paid-in capital, and retained earnings of $50,000, $100,000, and $200,000 respectively.Any excess of cost over book value is due to goodwill.
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On January 1, 2017, Subsidiary purchased, from its non-controlling shareholders, 1,000 shares of its common stock, 10% of the stock outstanding on that date.The price paid was $44,000.
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Required (round all amounts to whole dollars; round percentages to one decimal: XX.X%)
a.Prepare an analysis to determine Parent's revised ownership interest following Sub's treasury stock transaction.
b.Complete the Figure 8-11 worksheet for consolidated financial statements for 2017
?

Accepted Answer

The answer of On January 1, 2016, Parent Company purchased...

Question 20

When a subsidiary purchases shares of the parent, on a consolidated basis:
A)​a determination and distribution schedule must be completed to determine if goodwill is present.
B)​it is considered to be the parent's purchase of treasury stock.
C)​an elimination entry must be made for the subsidiary's share of the parent's income.
D)​None of the above is correct.

Accepted Answer

When a subsidiary purchases shares of the parent, it is considered to be the parent's purchase of treasury stock. This means that the subsidiary's investment in the parent is eliminated on a consolidated basis, and the parent's equity account for treasury stock is increased by the amount paid by the subsidiary for the shares. There is no need to determine goodwill or make elimination entries for the subsidiary's share of the parent's income in this scenario.

Quiz 8: Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares

Company P had 300,000 shares of common stock outstanding.It owned 80% of the outstanding common stock of S.S owned 20,000 shares of P common stock.In the consolidated balance sheet, Company P's outstanding common stock may be shown as

A owns 80% of B and 20% of C.B owns 32% of C, and C owns 10% of A.Which interest will be considered NCI in the consolidated balance sheet?

When a subsidiary owns shares of the parent, the subsidiary's investment account

When a subsidiary issues a stock dividend, an amount equal to the fair value of the shares should be removed from retained earnings and transferred to paid-in-capital in excess of par, if the distribution:

When a subsidiary purchases shares of the parent, on a consolidated basis: