1. A statutory ______________ results when one company acquires all the net assets of another company and the acquired company ceases to exist as a separate legal entity. (Points: 4) a. acquisition. b. combination. c. consolidation.
d. merger.
2. Under the economic unit concept, non-controlling interest in net assets is treated as (Points: 4) a. a liability. b. an asset. c. stockholders' equity. d. an expense.
3. The parent company concept adjusts subsidiary net asset values for the (Points: 4) a. differences between cost and fair value.
between cost and book boo k value . b. differences between c. total fair value implied by the price paid p aid by the parent. d. total cost implied by the price paid p aid by the parent.
4. SFAS 141R requires that all business combinations be accounted for using (Points: 4) the pooling of interests method.
the acquisition method. either the acquisition or the pooling of interests methods. neither the acquisition nor the pooling of interests methods.
5. On May 1, 2011, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2011, follow: On May 1, 2011, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is
the amount of goodwill resulting from the business combination? (Points: 4) $0. $112,000. $140,000. $28,000.
6. Following its acquisition of the net assets of Sandy Company, Potter Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows:
Based on the preceding information, what amount of goodwill will be reported repo rted for this division if its fair value is determined to be $200,000? (Points: 4) $0 $60,000 $30,000
$10,000
7. On the consolidated balance sheet, consolidated stockholders' equity is: (Points: 4) equal to the sum of the parent and subsidiary stockholders' equity. greater than the parent's stockholders' equity. less than the parent's stockholders' equity.
equal to the parent's stockholders' equity .
8. Majority-owned subsidiaries should be excluded from the consolidated statements when: (Points: 4) control does not rest with the majority owner. the subsidiary operates under governmentally imposed uncertainty. a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls.
any of these circumstances circumstances exist .
9. Which of the following is a limitation of consolidated cons olidated financial statements? (Points: 4)
Consolidated statements provide no benefit for the stockholders and creditors of the parent company.
Consolidated statements of highly diversified companies cannot be compared with industry standards. Consolidated statements are beneficial only when the consolidated companies operate within the same industry. Consolidated statements are beneficial only when the consolidated companies operate in different industries.
10. On January 1, 2011, Polk Company and Sigler Company had condensed balance sheets as follows:
On January 2, 2011 Polk borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sigler. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land. On Polk's January 2, 2011 consolidated balance sheet, Current liabilities should be: (Points: 4) $200,000.
$184,000. $160,000. $120,000.
11. In which of the following cases would consolidation be inappropriate? (Points: 4) The subsidiary is in bankruptcy ban kruptcy. Subsidiary's operations are dissimilar from those of the parent. The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor. Subsidiary is foreign.
12. Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing
24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment. Prior should record investment income from Sanderson during 2011 of: (Points: 4) $18,000. $60,000.
$48,000. $33,600.
13. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Company's December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated work paper on December 31, 2011? (Points: 4) $52,000 $65,000 $62,000 $108,000
14. Hall, Inc., owns 40% of the outstanding stock of Gloom Company. During 2011, Hall received a $4,000 cash dividend from Gloom. What effect did this dividend have on Hall's 2011 financial statements? (Points: 4) Increased total assets. Decreased total assets. Increased income.
Decreased investment account.
15. Parkview Company acquired a 90% interest in Sutherland Company on December 31,
2010, for $320,000. During 2011 Sutherland had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Sutherland Company account at the end of 2011 of: (Points: 4) $335,000 $333,500 $313,700
$320,000
16. In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash flows from operating activities, a ctivities, the amount of the non-controlling non -controlling interest in consolidated income is: (Points: 4) combined with the controlling interest in consolidated net income . deducted from the controlling interest in consolidated net income. reported as a significant noncash investing and financing activity in the notes. reported as a component of cash flows from financing activities.
17. Porter Company acquired an 80% interest in Strumble Company on January 1, 2010, for $270,000 cash when Strumble Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strumble Company made $30,000 in 2010 and paid no dividends. Porter Company's separate income in 2010 was $375,000. Controlling interest in consolidated net income for 2010 is: (Points: 4) $405,000. $399,000.
$396,000. $375,000.
18. Scooter Company, a 70%-owned subsidiary of Pusher Corporation, reported net income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Scooter's identifiable net assets at the date of the business combination was $45,000. The noncontrolling interest in net income of Scooter for Year 3 was: (Points: 4)
$58,500. $13,500. $27,000. $72,000.
19. Goodwill represents the excess of the implied value of an acquired company over the: (Points: 4) aggregate fair values of identifiable assets less liabilities assumed . aggregate fair values of tangible assets less liabilities assumed. aggregate fair values of intangible assets less liabilities assumed. book value of an acquired company.
20. The SEC requires the use of push down accounting when the ownership change is greater than: (Points: 4) 50% 80% 90%
95%
21. On January 1, 2010, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2010, consolidated balance sheet, goodwill would be reported at: (Points: 4) $152,000.
$177,143. $80,000. $0.
22. Sales from one subsidiary to another are called (Points: 4)
downstream sales. upstream sales. intersubsidiary sales.
horizontal sales.
23. Failure to eliminate intercompany sales would result in an overstatement of consolidated (Points: 4) net income. gross profit.
cost of sales. all of these.
24. In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should: (Points: 4) not be eliminated.
be eliminated in full. be eliminated to the extent of the parent company's controlling interest in the subsidiary. be eliminated to the extent of the non-controlling interest in the subsidiary.
25. P Corporation acquired a 60% interest in S Corporation on January 1, 2011, at book value equal to fair value. During 2011, P sold merchandise that cost $135,000 to S for $189,000. One-third of this merchandise remained in S's inventory at December 31, 2011. S reported net income of $120,000 for 2011. P's income from S for 2011 is: (Points: 4) $36,000. $50,400.
$54,000. $61,200.
26. P Company owns an 80% interest in S Company. During 2011, S sells merchandise to P for $200,000 at a profit of $40,000. On December 31, 2011, 50% of this merchandise is included in P's inventory. Income statements for P and S are summarized below:
Non-controlling interest in income for 2011 is: (Points: 4) $4,000. $19,200.
$20,000. $24,000. 9 0% owned subsidiary sells equipment to its parent 1. In years subsequent to the year a 90% company at a gain, the non-controlling interest in consolidated income is computed by multiplying the non-controlling interest percentage by the subsidiary's reported net income: (Points: 4) minus the net amount of unrealized gain on the t he intercompany sale. plus the net amount of unrealized gain on the intercompany sale. minus intercompany gain considered realized in the current pe riod.
plus intercompany gain considered realized in the current period.
C ompany's common stock. On January 1, 2011, Pratt 2. Pratt Corporation owns 100% of Stone Company's sold equipment with a book value of $210,000 to Stone for $300,000. Stone is depreciating the equipment over a ten-year life by the t he straight-line method. The net adjustments to compute 2011 and 2012 consolidated income would be an increase (decrease) of: (Points: 4) ($90,000) $0 ($90,000) $9,000 ($81,000) $0
($81,000) $9,000
3. In years subsequent to the upstream intercompany sale of non-depreciable assets, t he
necessary consolidated work paper entry under the cost method is to debit the (Points: 4)
Non-controlling interest and Retained Earnings (Parent) accounts, and credit t he nondepreciable asset. Retained Earnings (Parent) account and credit the non -depreciable asset. Non-depreciable asset, and credit the Non-controlling interest and Investment in Subsidiary accounts. No entries are necessary.
4. On January 1, 2010 S Corporation sold equipment that cost $120,000 and had a book value o f $48,000 to P Corporation for $60,000. P Corporation owns 100% of S Corporation and the equipment has a 4-year remaining life. What is the effect of the sale on P Corporation's Equity from Subsidiary Income account for 2011? (Points: 4) no effect increase of $12,000. decrease of $12,000.
increase of $3,000.
5. Parks Corporation owns 100% of Starr Company's common stock. On January 1, 2011, Parks sold equipment with a book value of $350,000 to Starr for $500,000. Starr is depreciating the equipment over a ten-year life by the t he straight-line method. The net adjustments to compute 2011 and 2012 consolidated income would be an increase (decrease) of (Points: 4) ($150,000) $0 ($150,000) $15,000 ($135,000) $0
($135,000) $15,000
6. In January 2008, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $990,000. S Company's original cost for this equipment was $1,000,000 and had accumulated depreciation of $100,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2011 for $720,000. $720, 000. What amount of gain should P Company record on its books in
2011? (Points: 4) $30,000.
$60,000. $120,000. $180,000.
7. In a troubled debt restructuring involving a modification of terms, the debtor's gain o n restructuring: (Points: 4) will equal the creditor's gain on restructuring. r estructuring. will equal the creditor's loss on restructuring. restr ucturing. may not equal the creditor's gain on restructuring.
may not equal the creditor's loss on restructuring r estructuring.
8. An involuntary petition filed by a firm's creditors whereby there are twelve or more creditors must be signed by at least: (Points: 4) two creditors.
three creditors. five creditors. six creditors.
9. Which of the following items is not a specified priority for unsecured creditors in a bankruptcy petition? (Points: 4) Administration fees incurred in administering the bankrupt's estate. Unsecured claims for wages earned within w ithin 90 days and are less than $4,650 per employee. Unsecured claims of governmental units for unpaid taxes.
Unsecured claims on credit card charges that do not exceed $3,000.
10. When a secured claim is not fully settled by the selling of the underlying collateral, the remaining portion: (Points: 4)
of the claim cannot be collected by the creditor. remains as a secured claim. is classified as an unsecured priority claim. is classified as an unsecured non-priority claim .
restruct uring agreement with their local 11. Layne Corporation entered into a troubled debt restructuring bank. The bank agreed to accept land with a carrying amount of $360,000 and a fair value of $540,000 in exchange for a note with a carrying amount of $765,000. $765, 000. Ignoring income taxes, what amount should Layne report as a gain on its income statement? (Points: 4) $0. $180,000.
$225,000. $405,000.
12. The final settlement with unsecured creditors is computed by dividing: (Points: 4) total net realizable value by total unsecured creditor c reditor claims. net free assets by total secured creditor claims. total net realizable value by total secured creditor claims.
net free assets by total unsecured creditor claims.
13. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points: 4 ) hedge of a net investment in a foreign entity. hedge of an exposed asset or liability position.
hedge of an identifiable foreign currency commitment. contract acquired to speculate in the movement of exchange rates.
14. On September 1, 2011, Swash Plating Company entered into two forward exchange contracts to purchase 250,000 Euros each in 90 days. The relevant exchange rates are as follows:
The first forward contract was to hedge a purchase of inventory on September 1, payable on December 1. On September 30, 3 0, what amount of foreign currency transaction loss should Swash Plating report in income? (Points: 4) $0. $2,500. $5,000.
$10,000.
15. Caldron Company purchased equipment for 375,000 British pounds from a supplier in London on July 3, 2011. Payment in British pounds is due on S ept. 3, 2011. The exchange rates to purchase one pound is as follows:
On its August 31, 2011, income statement, what amount should Caldron report as a foreign exchange transaction gain: (Points: 4) $18,750. $3,750.
$11,250 . $0.
16. The translation adjustment that results from translating the financial statements of a foreign subsidiary using the current rate method should be: (Points: 4) included as a separate item in the stockholders' equity section of the balance sheet.
