Deck 8: Consolidated Cash Flows and Ownership Issues

Question 1

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What would be the balance in Hanson's investment in Marvin account on December 31,2010?

A)$236,000
B)$200,000
C)$303,000
D)$304,625.

Answer 1

D

Question 2

A Inc.owns 80% of B's outstanding voting shares.Under which of the following scenarios would A's ownership percentage of B change?

A)B Inc.announces a 2-for-1 stock split to all its common shareholders.
B)B issues an additional 10,000 voting shares.A acquires 8,000 shares of the new issue.
C)B issues an additional 10,000 voting shares.A acquires 6,400 shares of the new issue.
D)B retires 20,000 voting share,and in doing so,buy back 16,000 shares from B.

Answer 2

C

Question 3

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What would be the amount of the unamortized acquisition differential at the end of 2010?

A)Nil.
B)$30,000
C)$24,000
D)$42,000

Answer 3

D

Question 4

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What is the amount of the acquisition differential amortization for 2009?

A)$6,250
B)$4,375
C)$5,625
D)$12,000

Question 5

Assume that X Corp.controls X Corp.X constantly purchases and sells Y's voting shares on the open market while always ensuring that it maintains a controlling interest over Y.Which of the following statements pertaining to X buying and selling activity is correct?

A)X's activity has no effect on the non-controlling interest.
B)As X sells shares of Y,the non-controlling interest Increases.
C)As X sells shares of Y,the non-controlling interest decreases.
D)As X buys shares of Y,the non-controlling interest Increases.

Question 6

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What is Hanson's ownership interest in Marvin after its January 1,2010 purchase?

A)60%
B)70%
C)80%
D)90%

Question 7

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
Assuming that Hanson had no recorded goodwill prior to January 1,2009,what would be the amount of goodwill appearing on Hanson' December 31,2009 consolidated balance Sheet?

A)$80,000
B)$75,000
C)$89,900
D)$195,000

Question 8

What is the amount of unamortized acquisition differential after the sale?

A)$350,000
B)$140,000
C)$200,000
D)$300,000

Question 9

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
By how much would the non-controlling interest amount have changed as a result of the Hanson's second purchase?

A)An Increase of $37,857.
B)A decrease of $37,857.
C)An Increase of $51,900
D)A decrease of $51,900

Question 10

What is ABC's ownership interest in 123 after its sale?

A)21%
B)36%
C)56%
D)42%

Question 11

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What is the amount of goodwill arising from Hanson's January 1,2009 acquisition?

A)$80,000
B)$50,000
C)$60,000
D)$200,000

Question 12

What is the amount of the non-controlling interest at acquisition?

A)$50,000
B)$18,000
C)$8,400
D)$150,000

Question 13

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
Assuming that Hanson had no recorded goodwill prior to January 1,2009,what would be the amount of goodwill appearing on Hanson' December 31,2010 Consolidated Balance Sheet?

A)$200,000
B)$75,000
C)$293,000
D)$209,900

Question 14

What is the carrying value of the trademark after the sale?

A)$30,000
B)$18,000
C)$20,000
D)$12,600

Question 15

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What is the amount of the acquisition differential amortization for 2010?

A)$1,500
B)$7,750
C)$6,500
D)$16,500

Question 16

What is the amount of goodwill arising from this business combination?

A)$5,000
B)$150,000
C)($5,000)
D)Nil.

Question 17

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What percentage of Marvin's shares was purchased by Hanson on January 1,2009?

A)60%
B)10%
C)70%
D)90%

Question 18

What would be the balance in the investment in 123 Inc.accounts after the sale?

A)$150,000
B)$100,000
C)$210,000
D)$225,000

Question 19

What percentage of the Investment in 123 was sold by ABC?

A)14%
B)21%
C)28%
D)40%

Question 20

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
What effect (if any)would Hanson's January 1,2010 purchase have on the company's consolidated cash flows for the year?

A)There would be no effect.
B)There would be a decrease in cash of $45,000 to the consolidated entity.
C)There would be a decrease in cash of $200,000 to the consolidated entity.
D)There would be a decrease in cash of $236,000 to the consolidated entity.

Question 21

P Corp.owns 800 of Q Corp.'s 1,000 outstanding voting common shares which it accounts for using the equity method.On December 31,2009,the shareholder's equity section of Q Corp.was comprised of $15,000 in common stock and retained earnings in the amount of $450,000.
Q Corp.reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31,2010.
On January 1,2011,P Corp.sold 200 shares of its investment in Q Corp.for $125,000.On January 1,2010,the investment account had a balance of $420,000.The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What is the amount of Goodwill that arose from P's investment in Q?

A)Nil.
B)$18,000
C)$36,000
D)$6,000

Question 22

X owns 70% of Y which in turn owns 25% of Z.X also owns 20% of Z.Which of the following statements is correct?

A)X has direct control over Z.
B)X has indirect control over Z.
C)X has no control over Z.
D)X has contingent control over Z.

Question 23

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
What would be the amount of the unamortized acquisition differential on December 31,2009?

A)$40,000
B)$125,000
C)$50,000
D)$80,000

Question 24

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
Approximately what percentage of the non-controlling interest was due to G's own earnings?

A)19%
B)45%
C)30%
D)5%

Question 25

Assuming that A acquired a controlling interest in B through numerous small acquisitions,what would be appropriate accounting with respect to these acquisitions?

A)An acquisition differential must be computed following each purchase.
B)The equity method must be adopted retroactively once 20% ownership is obtained.
C)The purchases should all be grouped together and treated as a single block purchase.
D)The cost method should be used until a controlling interest is acquired.

Question 26

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
What is the amount of non-controlling interest that would appear on A Inc.'s Consolidated Income Statement?

A)$660,000
B)$396,375
C)$400,000
D)Nil.

Question 27

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
What is the Consolidated Net Income for the year?

A)$2,170,000
B)$660,000
C)$1,510,000
D)$1,773,625

Question 28

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
Approximately what percentage of the non-controlling interest was due to Y's own earnings?

A)19%
B)45%
C)30%
D)5%

Question 29

Assuming no intercompany transactions,what effect would the elimination of the parent's ownership interest in the shareholder equity of the subsidiary against the investment in the subsidiary have on the preparation have on the preparation of financial statements?

A)The difference arising from the elimination entry would yield the unamortized purchase price discrepancy on that date.
B)The difference arising from the elimination entry would give the purchase price discrepancy amortized to date.
C)The difference arising from the elimination entry would be allocated to goodwill.
D)The difference arising from the elimination entry would provide the balance in the non-controlling interest account.

Question 30

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
What is the net Income for the combined entity?

A)$2,170,000
B)$660,000
C)$1,510,000
D)$1,773,625

Question 31

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
What would be the amount of cash appearing on Whine's December 31,2009 Consolidated Balance Sheet?

A)$450,000
B)$610,000
C)$850,000
D)$810,000

Question 32

A owns 80% of B,which in turn owns 55% of C.Which of the following statements is correct?

A)A has direct control over C.
B)A has indirect control over C.
C)A has no control over C.
D)A has contingent control over C.

Question 33

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
Approximately what percentage of the non-controlling interest was due to J's own earnings?

A)19%
B)45%
C)30%
D)5%

Question 34

P Corp.owns 800 of Q Corp.'s 1,000 outstanding voting common shares which it accounts for using the equity method.On December 31,2009,the shareholder's equity section of Q Corp.was comprised of $15,000 in common stock and retained earnings in the amount of $450,000.
Q Corp.reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31,2010.
On January 1,2011,P Corp.sold 200 shares of its investment in Q Corp.for $125,000.On January 1,2010,the investment account had a balance of $420,000.The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
How much of the acquisition differential was allocated to patents?

A)$36,000
B)$18,000
C)$6,000
D)Nil.

Question 35

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
What would be Whine's ownership interest in Dine following Chompster's purchase of Whine's shares?

A)75%
B)80%
C)60%
D)64%

Question 36

P Corp.owns 800 of Q Corp.'s 1,000 outstanding voting common shares which it accounts for using the equity method.On December 31,2009,the shareholder's equity section of Q Corp.was comprised of $15,000 in common stock and retained earnings in the amount of $450,000.
Q Corp.reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31,2010.
On January 1,2011,P Corp.sold 200 shares of its investment in Q Corp.for $125,000.On January 1,2010,the investment account had a balance of $420,000.The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
How much of the acquisition differential was allocated to equipment?

A)$36,000
B)$18,000
C)$6,000
D)Nil.

Question 37

Any unallocated portion of the difference between a parent's ownership interest in the shareholder equity of a subsidiary against the investment in that subsidiary would be:

A)allocated to goodwill.
B)attributable to the non-controlling interest.
C)expensed.
D)pro-rated across all identifiable assets and liabilities.

Question 38

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
What would be the gain or loss arising from Dine's share issue to Chompster?

A)A loss of $4,000
B)A gain of $4,000
C)A gain of $2,400
D)A loss of $2,400

Question 39

P Corp.owns 800 of Q Corp.'s 1,000 outstanding voting common shares which it accounts for using the equity method.On December 31,2009,the shareholder's equity section of Q Corp.was comprised of $15,000 in common stock and retained earnings in the amount of $450,000.
Q Corp.reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31,2010.
On January 1,2011,P Corp.sold 200 shares of its investment in Q Corp.for $125,000.On January 1,2010,the investment account had a balance of $420,000.The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What was the amount of acquisition differential amortization for 2010?

A)$6,000
B)$8,000
C)$12,000
D)Nil.

Question 40

The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
Approximately what percentage of the non-controlling interest was due to D's own earnings?

A)19%
B)45%
C)30%
D)5%

Question 41

Which of the following statements pertaining to preferred shares is correct?

A)If the preferred shares are participating only the current year's Net Income would be allocated to the preferred shares.
B)If the preferred shares are non-cumulative dividends are never in arrears.
C)If the preferred shares are participating the current year's Net Income would be allocated to the shares only if the subsidiary is fully owned by the parent.
D)There can never be any dividends in arrears when preferred shares are participating.

Question 42

The following information pertains to questions
The financial statements of Lime Inc.and its subsidiary Stone Corp.on December 31,2011 are shown below: Other Information:
On January 1,2008 Stone's balance sheet showed the following shareholders equity: On this date,Lime acquired 80,000 common shares for $900,000.
* Stone's preferred share dividends were one year in arrears on that date.
Stone's Fair Values approximated its book values on that date with the following exceptions:
Inventory had a fair value that was $30,000 higher than its book value.Plant and equipment had a fair value $10,000 lower than their book value.
The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
Intercompany sales of inventory for the year were as follows: On January 1,2009,Stone sold equipment to Lime for $30,000.The equipment had a carrying value of $25,000 on that date and an estimated useful life of 3 years.The inventory on hand at the start of 2011 was sold to outsiders during the year.Both companies are subject to a tax rate of 40%.There were no dividends in arrears on December 31,2011.Lime uses the cost method to account for its investment in Stone.
Prepare Lime's December 31,2011 Consolidated Balance Sheet.

Question 43

The following information pertains to questions
The financial statements of Lime Inc.and its subsidiary Stone Corp.on December 31,2011 are shown below: Other Information:
On January 1,2008 Stone's balance sheet showed the following shareholders equity: On this date,Lime acquired 80,000 common shares for $900,000.
* Stone's preferred share dividends were one year in arrears on that date.
Stone's Fair Values approximated its book values on that date with the following exceptions:
Inventory had a fair value that was $30,000 higher than its book value.Plant and equipment had a fair value $10,000 lower than their book value.
The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
Intercompany sales of inventory for the year were as follows: On January 1,2009,Stone sold equipment to Lime for $30,000.The equipment had a carrying value of $25,000 on that date and an estimated useful life of 3 years.The inventory on hand at the start of 2011 was sold to outsiders during the year.Both companies are subject to a tax rate of 40%.There were no dividends in arrears on December 31,2011.Lime uses the cost method to account for its investment in Stone.
Compute the Goodwill on the date of the acquisition.

Question 44

Which of the following statements pertaining to the cash flow statement is correct?

A)Under IAS 7 both net cash outflows and the details in the changes in non-cash accounts are presented on the cash flow statement.
B)Under IAS 7 only the net cash outflow from a business combination should be presented on the cash flow statement.
C)Under IAS 7 both cash outflows and changes in non-cash items are disclosed in the notes to the financial statements.
D)None of the above.

Question 45

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
What would be the amount of the non-controlling interest appearing on Whine's Consolidated Balance Sheet as at December 31,2009?

A)$125,000
B)$264,000
C)$222,000
D)$160,000

Question 46

The following information pertains to questions
The trial balances of Ash Inc.and its subsidiary Cinder Corp.on December 31,2006 are shown below: Other Information:
Ash acquired Cinder in three stages:
January 1,2006: Ash purchased 10,000 shares for $100,000.Cinder's Retained Earnings were $40,000 on that date.
January 1,2008: Ash purchased 30,000 shares for $450,000.Cinder's Retained Earnings were $80,000 on that date.
December 31,2009: Ash purchased 20,000 shares for $150,000.Cinder's Retained Earnings were $100,000 on that date.
Cinder was incorporated on January 1,2004.On that date,Cinder issued 100,000 voting shares.Any difference between the cost and book value for each acquisition is attributable entirely to trademarks,which are to be amortized over 5 years.The company has neither issued nor retired shares since the Date of Incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1,2008.These assets had a 10 year remaining life.
Intercompany Sales of Inventory amounted to $250,000.Unrealized inventory profits for each company are shown below for 2009.The amounts indicate the amount of profit in each company's inventory. All inventories on hand at the start of 2009 were sold to outsiders during the year.The net Incomes of both companies are evenly earned throughout the year.Both companies are subject to an effective corporate tax rate of 20%.
Compute consolidated trademarks for Ash as at December 31,2009.

Question 47

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
The amount appearing under equipment on the December 31,2010 Consolidated Balance Sheet would be:

A)$690,000
B)$710,000
C)$660,000
D)$772,500

Question 48

The following information pertains to questions
The trial balances of Ash Inc.and its subsidiary Cinder Corp.on December 31,2006 are shown below: Other Information:
Ash acquired Cinder in three stages:
January 1,2006: Ash purchased 10,000 shares for $100,000.Cinder's Retained Earnings were $40,000 on that date.
January 1,2008: Ash purchased 30,000 shares for $450,000.Cinder's Retained Earnings were $80,000 on that date.
December 31,2009: Ash purchased 20,000 shares for $150,000.Cinder's Retained Earnings were $100,000 on that date.
Cinder was incorporated on January 1,2004.On that date,Cinder issued 100,000 voting shares.Any difference between the cost and book value for each acquisition is attributable entirely to trademarks,which are to be amortized over 5 years.The company has neither issued nor retired shares since the Date of Incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1,2008.These assets had a 10 year remaining life.
Intercompany Sales of Inventory amounted to $250,000.Unrealized inventory profits for each company are shown below for 2009.The amounts indicate the amount of profit in each company's inventory. All inventories on hand at the start of 2009 were sold to outsiders during the year.The net Incomes of both companies are evenly earned throughout the year.Both companies are subject to an effective corporate tax rate of 20%.
Compute consolidated inventory for Ash as at December 31,2009.

Question 49

What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?

A)It should be treated as an adjustment to goodwill.
B)It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C)It should be expensed in the current year.
D)It should be adjusted to a contributed surplus or retained earnings account.

Question 50

The following information pertains to questions
The financial statements of Lime Inc.and its subsidiary Stone Corp.on December 31,2011 are shown below: Other Information:
On January 1,2008 Stone's balance sheet showed the following shareholders equity: On this date,Lime acquired 80,000 common shares for $900,000.
* Stone's preferred share dividends were one year in arrears on that date.
Stone's Fair Values approximated its book values on that date with the following exceptions:
Inventory had a fair value that was $30,000 higher than its book value.Plant and equipment had a fair value $10,000 lower than their book value.
The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
Intercompany sales of inventory for the year were as follows: On January 1,2009,Stone sold equipment to Lime for $30,000.The equipment had a carrying value of $25,000 on that date and an estimated useful life of 3 years.The inventory on hand at the start of 2011 was sold to outsiders during the year.Both companies are subject to a tax rate of 40%.There were no dividends in arrears on December 31,2011.Lime uses the cost method to account for its investment in Stone.
Prepare a statement of non-controlling interest as at December 31,2011.

Question 51

The following information pertains to questions
The financial statements of Lime Inc.and its subsidiary Stone Corp.on December 31,2011 are shown below: Other Information:
On January 1,2008 Stone's balance sheet showed the following shareholders equity: On this date,Lime acquired 80,000 common shares for $900,000.
* Stone's preferred share dividends were one year in arrears on that date.
Stone's Fair Values approximated its book values on that date with the following exceptions:
Inventory had a fair value that was $30,000 higher than its book value.Plant and equipment had a fair value $10,000 lower than their book value.
The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
Intercompany sales of inventory for the year were as follows: On January 1,2009,Stone sold equipment to Lime for $30,000.The equipment had a carrying value of $25,000 on that date and an estimated useful life of 3 years.The inventory on hand at the start of 2011 was sold to outsiders during the year.Both companies are subject to a tax rate of 40%.There were no dividends in arrears on December 31,2011.Lime uses the cost method to account for its investment in Stone.
Compute the Consolidated Net Income for 2011.Do not prepare an Income Statement.

Question 52

Beta Corp.owns 80% of Gamma Corp.The Consolidated Financial Statements of Beta Corp.for 2009 and 2010 are shown below:
Beta Corp.
Consolidated Income Statement,
For the year ended December 31,2009
Other Information:
Beta purchased its interest in Gamma on January 1,2005 for $360,000 when the company's net assets were valued at $300,000.The acquisition differential was allocated equally between goodwill and equipment,which was estimated to have a remaining useful life of ten years from the acquisition date.
Gamma reported a net Income of $75,000 and paid dividends of $5,000 during 2009.
Beta issued $300,000 in bonds during the year.Beta reported an equity method net Income of $300,000 and paid $70,000 in dividends to its shareholders.
Required:
Prepare a Consolidated Statement of Cash Flows for Beta Corp.for 2009.

Question 53

The following information was derived form the 2011 Consolidated Financial statements of X Inc. ,which owns 80% of Y Inc.as well as 40% of Z Inc.:

Question 54

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
The amount of retained earnings appearing on the December 31,2009 Consolidated Balance Sheet would be:

A)$400,000
B)$416,000
C)$384,000
D)$396,000

Question 55

The following information pertains to questions
The trial balances of Ash Inc.and its subsidiary Cinder Corp.on December 31,2006 are shown below: Other Information:
Ash acquired Cinder in three stages:
January 1,2006: Ash purchased 10,000 shares for $100,000.Cinder's Retained Earnings were $40,000 on that date.
January 1,2008: Ash purchased 30,000 shares for $450,000.Cinder's Retained Earnings were $80,000 on that date.
December 31,2009: Ash purchased 20,000 shares for $150,000.Cinder's Retained Earnings were $100,000 on that date.
Cinder was incorporated on January 1,2004.On that date,Cinder issued 100,000 voting shares.Any difference between the cost and book value for each acquisition is attributable entirely to trademarks,which are to be amortized over 5 years.The company has neither issued nor retired shares since the Date of Incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1,2008.These assets had a 10 year remaining life.
Intercompany Sales of Inventory amounted to $250,000.Unrealized inventory profits for each company are shown below for 2009.The amounts indicate the amount of profit in each company's inventory. All inventories on hand at the start of 2009 were sold to outsiders during the year.The net Incomes of both companies are evenly earned throughout the year.Both companies are subject to an effective corporate tax rate of 20%.
Compute the Consolidated Cost of Goods Sold for 2009.

Question 56

The following information pertains to questions
The trial balances of Ash Inc.and its subsidiary Cinder Corp.on December 31,2006 are shown below: Other Information:
Ash acquired Cinder in three stages:
January 1,2006: Ash purchased 10,000 shares for $100,000.Cinder's Retained Earnings were $40,000 on that date.
January 1,2008: Ash purchased 30,000 shares for $450,000.Cinder's Retained Earnings were $80,000 on that date.
December 31,2009: Ash purchased 20,000 shares for $150,000.Cinder's Retained Earnings were $100,000 on that date.
Cinder was incorporated on January 1,2004.On that date,Cinder issued 100,000 voting shares.Any difference between the cost and book value for each acquisition is attributable entirely to trademarks,which are to be amortized over 5 years.The company has neither issued nor retired shares since the Date of Incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1,2008.These assets had a 10 year remaining life.
Intercompany Sales of Inventory amounted to $250,000.Unrealized inventory profits for each company are shown below for 2009.The amounts indicate the amount of profit in each company's inventory. All inventories on hand at the start of 2009 were sold to outsiders during the year.The net Incomes of both companies are evenly earned throughout the year.Both companies are subject to an effective corporate tax rate of 20%.
Prepare an acquisition differential amortization table since the acquisition date.

Question 57

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
The amount of common shares appearing on the December 31,2009 Consolidated Balance Sheet would be:

A)$500,000
B)$770,000
C)$660,000
D)$860,000

Question 58

The following information pertains to questions
Whine purchased 80% of the outstanding voting shares of Dine Inc.on December 31,2009.The Balance Sheets of both companies on that date are shown below: Chompster Inc. ,one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc.As a result of the agreement,Dine Inc.would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding)to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment which had a remaining useful life of ten years from the date of acquisition.
Whine Inc.uses the equity method to account for its investment in Dine Inc.There were no unrealized intercompany profits on December 31,2009.
The amount of goodwill appearing on the December 31,2009 Consolidated Balance Sheet would be:

A)$10,000
B)$20,000
C)$30,000
D)Nil.