Chapter 4 Exam 2

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Questions and Answers
  • 1. 

    1.  For business combinations involving less than 100 percent ownership, the acquirer recognizes and          measures all of the following at the acquisition date except:

    • A.

      A) Identifiable assets acquired, at fair value.

    • B.

      B) Liabilities assumed, at book value.

    • C.

      C) Non-controlling interest, at fair value.

    • D.

      D) Goodwill, or a gain from bargain purchase.

    • E.

      E) None of these choices is correct.

    Correct Answer
    B. B) Liabilities assumed, at book value.
    Explanation
    In business combinations involving less than 100 percent ownership, the acquirer recognizes and measures identifiable assets acquired at fair value, non-controlling interest at fair value, and goodwill or a gain from bargain purchase. However, the acquirer does not recognize and measure liabilities assumed at book value. Therefore, the correct answer is B) Liabilities assumed, at book value.

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  • 2. 

    2-  When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value       of $70,000 and a fair value of $100,000.       What amount should have been reported for the land in a consolidated balance sheet at the acquisition           date?

    • A.

      A) $ 52,500.

    • B.

      B) $ 70,000.    

    • C.

      C) $ 75,000.

    • D.

      D) $ 92,500.

    • E.

      E) $100,000.                             

    Correct Answer
    E. E) $100,000.                             
    Explanation
       $100,000 FV of Land at Acquisition

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  • 3. 

    3.   Which of the following methods is not used to value a noncontrolling interest under circumstances       where a control premium is applied to determine the appropriate value for such interest?

    • A.

      A) Valuation models based on subsidiary discounted cash flows.

    • B.

      B) Valuation models based on subsidiary residual income projections.

    • C.

      C) Comparison with comparable investments.

    • D.

      D) The application of a safe harbor discount rate.

    • E.

      E) Fair value based on market trades.

    Correct Answer
    D. D) The application of a safe harbor discount rate.
    Explanation
    The safe harbor discount rate is not used to value a noncontrolling interest when a control premium is applied. This is because the safe harbor discount rate is a predetermined rate that is used to simplify the valuation process and provide a conservative estimate of fair value. It does not take into account the control premium that may be applied in certain circumstances. Therefore, it is not appropriate to use the safe harbor discount rate when determining the value of a noncontrolling interest with a control premium.

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  • 4. 

    4.  Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000.  The fair value of Float's         net assets was $1,850,000, and the book value was $1,500,000.  The noncontrolling interest shares of      Float Corp. are not actively traded.    What is the total amount of goodwill recognized at the date of      acquisition?

    • A.

      A) $150,000.

    • B.

      B) $250,000.

    • C.

      C) $            0.

    • D.

      D) $120,000.

    • E.

      E) $170,000.    

    Correct Answer
    A. A) $150,000.
    Explanation
    Feedback: FV $1,850,000 – FV of 100% of Float’s Stock based on Purchase Price
    ($1,600,000 / .80) $2,000,000 = ($150,000) Goodwill

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  • 5. 

    5. Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2019.  During     2019, Harbor had revenues of $2,500,000 and expenses of $2,000,000.  The amortization of fair value     allocations totaled $60,000 in 2019. Not including its investment in Harbor, Femur Co. had its own     revenues of $4,500,000 and expenses of $3,000,000 for the year 2019.     The noncontrolling interest's share of the earnings of Harbor Corp. for 2019 is calculated to be

    • A.

      A) $132,000.

    • B.

      B) $150,000.

    • C.

      C) $168,000.

    • D.

      D) $160,000.

    • E.

      E) $0.

    Correct Answer
    A. A) $132,000.
    Explanation
    Revenue $2,500,000 – Expenses $2,000,000 = $500,000 – $60,000 = $440,000 × .30 = $132,000

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  • 6. 

    6- Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2019.  For 2019,     Kailey reported revenues of $810,000 and expenses of $630,000, not including its investment in         Denber, and all reflected evenly throughout the year.  The annual amount of amortization related to this     acquisition was $15,000.      In consolidation, the total amount of expenses related to Kailey, and to Denber’s acquisition of Kailey,          for 2019 is determined to be

    • A.

      A) $153,750.

    • B.

      B) $161,250.

    • C.

      C) $205,000.

    • D.

      D) $210,000.

    • E.

      E) $215,000.

    Correct Answer
    E. E) $215,000.
    Explanation
    Expenses $630,000 × 4/12 = $210,000; Amortization $15,000 × 4/12 = $5,000 = $215,000

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  • 7. 

    7- MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that      resulted in the recognition of goodwill.  Nomes owned a piece of land that cost $250,000 but was      worth $600,000 at the date of acquisition.  What value would be attributed to this land in a      consolidated balance sheet at the date of acquisition?

    • A.

                 A) $250,000.

    • B.

      B) $150,000.

    • C.

      C) $600,000.        

    • D.

      D) $360,000.

    • E.

      E) $460,000.

    Correct Answer
    C. C) $600,000.        
    Explanation
      FV of the Land $600,000

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  • 8. 

    8-  Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp.  Raxston currently owes      Kordel $500,000 for inventory acquired over the past few months.  In preparing consolidated financial      statements, what amount of Raxston’s liability should be eliminated?

    • A.

      A) $375,000

    • B.

      B) $125,000

    • C.

      C) $300,000

    • D.

      D) $500,000        

    • E.

      E) $0.

    Correct Answer
    D. D) $500,000        
    Explanation
      BV & FV of the Existing Receivable $500,000

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  • 9. 

    9- Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was     $560,000.  The Royce stock was not actively traded.  On the date of acquisition, Park had equipment     (with a ten-year life) that was undervalued in the financial records by $140,000.  One year later, the     two companies provided the selected amounts shown below. Additionally, no dividends have been     paid. What amount of consolidated net income for 2020 is attributable to Royce’s controlling interest?

    • A.

      A) $686,000.

    • B.

      B) $560,000.

    • C.

      C) $644,000.

    • D.

      D) $635,600.

    • E.

      E) $691,600.

    Correct Answer
    D. D) $635,600.
    Explanation
    [Parent’s Income ($1,260,000 - $700,000 = $560,000)] + [Sub’s Income ($560,000 - $420,000) × .60 = $84,000] – [Excess Equipment Amortization for 2020 ($140,000 / 10) × .60 = $8,400] = $635,600

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  • 10. 

    10- On January 1, 2019, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: On January 2, 2019, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz.  Shares of Spraz are not actively traded on the market. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2019.  The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill.               What amount represents consolidated current assets at January 2, 2019?

    • A.

      A) $127,000.

    • B.

      B) $129,800.

    • C.

      C) $143,800.

    • D.

      D) $148,000.

    • E.

      E) $135,400.

    Correct Answer
    D. D) $148,000.
    Explanation
    [Parent’s Current Assets $99,000] + [Sub’s Current Assets $28,000] + [Excess Consideration to
    Inventory ($105,000 - $70,000 = $35,000 × .60) $21,000] = $148,000

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  • 11. 

    11- When a parent uses the equity method throughout the year to account for its 80% investment in an       acquired subsidiary, which of the following statements is false at the date immediately preceding the       date on which adjustments are made on the consolidated worksheet?

    • A.

      A) Parent company net income equals controlling interest in consolidated net income.

    • B.

      B) Parent company retained earnings equals consolidated retained earnings.

    • C.

      C) Parent company total assets equals consolidated total assets.

    • D.

      D) Parent company dividends equals consolidated dividends.

    • E.

      E) Goodwill is not recorded on the parent’s books.

    Correct Answer
    C. C) Parent company total assets equals consolidated total assets.
    Explanation
    The equity method is used when a parent company has significant influence over an acquired subsidiary, but does not have full control. Under the equity method, the parent company records its share of the subsidiary's net income as an increase in its investment account. Therefore, the parent company's net income will not be equal to the controlling interest in consolidated net income. The same logic applies to dividends, as the parent company's dividends will not be equal to the consolidated dividends. However, the parent company's total assets will be equal to the consolidated total assets, as the parent company's investment in the subsidiary is included in the consolidated financial statements. Therefore, the statement that is false is C) Parent company total assets equals consolidated total assets.

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  • 12. 

    12-  When a parent uses the initial value method throughout the year to account for its 80% investment in        an acquired subsidiary, which of the following statements is true at the date immediately preceding        the date on which adjustments are made on the consolidated worksheet?

    • A.

      A) Parent company net income equals consolidated net income.

    • B.

      B) Parent company retained earnings equals consolidated retained earnings.

    • C.

      C) Parent company total assets equals consolidated total assets.

    • D.

      D) Parent company dividends equal consolidated dividends.

    • E.

      E) Goodwill is recorded on the parent’s books.

    Correct Answer
    D. D) Parent company dividends equal consolidated dividends.
    Explanation
    The initial value method is used to account for the parent company's investment in the acquired subsidiary. This method involves recording the investment at its initial value and then adjusting it for the parent company's share of the subsidiary's net income or loss. Since the parent company dividends are equal to the consolidated dividends, it means that the parent company's share of the subsidiary's dividends is accounted for in the consolidated financial statements. Therefore, option D is the correct statement at the date immediately preceding the adjustments on the consolidated worksheet.

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  • 13. 

    13.  In a step acquisition, which of the following statements is false?

    • A.

      A) The acquisition method views a step acquisition essentially the same as a single step acquisition.

    • B.

      B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year.

    • C.

      C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.

    • D.

      D) Obtaining control through a step acquisition is a significant measurement event.

    • E.

      E) Pre-acquisition earnings are not included in the consolidated income statement.

    Correct Answer
    C. C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
  • 14. 

    14-  Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing        common stock?

    • A.

      A) The parent recognizes a larger percent of subsidiary income.

    • B.

      B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation.

    • C.

      C) The book value of the subsidiary will increase.

    • D.

      D) The parent's percent ownership in subsidiary will increase.

    • E.

      E) Noncontrolling interest in subsidiary's net income will decrease.

    Correct Answer
    C. C) The book value of the subsidiary will increase.
    Explanation
    When a parent company acquires additional common stock of its subsidiary, the book value of the subsidiary does not increase. The book value represents the net assets of the subsidiary, and acquiring more common stock does not change the net assets. It may affect the parent's percent ownership in the subsidiary and the recognition of subsidiary income, but it does not directly impact the book value.

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  • 15. 

    15-  When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following        statements is true?

    • A.

      Income from subsidiary is not recognized until there is an entire year of consolidated  operations.

    • B.

      B) Income from subsidiary is recognized from date of acquisition to year-end.

    • C.

      C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.

    • D.

      D) No goodwill can be recognized.

    • E.

      E) Income from subsidiary is recognized for the entire year.

    Correct Answer
    B. B) Income from subsidiary is recognized from date of acquisition to year-end.
    Explanation
    When a subsidiary is acquired sometime after the first day of the fiscal year, the income from the subsidiary is recognized from the date of acquisition to the year-end. This means that the financial statements will reflect the income generated by the subsidiary during that period. This is in accordance with the accrual accounting principle, which states that revenue should be recognized when it is earned, regardless of when the cash is received. Therefore, the correct answer is B) Income from subsidiary is recognized from date of acquisition to year-end.

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  • 16. 

    16-  When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year,         which of the following statements is true of the subsidiary with respect to the presentation of         consolidated financial statement information?

    • A.

      A) Pre-acquisition earnings are deducted from consolidated revenues and expenses.

    • B.

      B) Pre-acquisition earnings are added to consolidated revenues and expenses.

    • C.

      C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity.

    • D.

      D) Pre-acquisition earnings are added to the beginning consolidated stockholders' equity.

    • E.

      E) Pre-acquisition earnings are ignored in the consolidated income statement.

    Correct Answer
    E. E) Pre-acquisition earnings are ignored in the consolidated income statement.
    Explanation
    When a subsidiary is acquired on a date other than the first day of the fiscal year, the pre-acquisition earnings of the subsidiary are not included in the consolidated income statement. This is because the consolidated income statement only includes the earnings of the subsidiary from the date of acquisition onwards. The pre-acquisition earnings are considered to belong to the previous owners of the subsidiary and are not relevant to the consolidated financial statement. Therefore, they are ignored in the consolidated income statement.

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  • 17. 

    17- All of the following statements regarding the sale of subsidiary shares are true except which of the        following?

    • A.

      A) The use of specific identification based on serial number is acceptable.

    • B.

      B) The use of the FIFO assumption is acceptable.

    • C.

      C) The use of the averaging assumption is acceptable.

    • D.

      D) The use of specific LIFO assumption is acceptable.

    • E.

      E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

    Correct Answer
    D. D) The use of specific LIFO assumption is acceptable.
    Explanation
    The correct answer is D) The use of specific LIFO assumption is acceptable. The use of specific LIFO (Last-In, First-Out) assumption is not acceptable in the sale of subsidiary shares. LIFO assumes that the most recently acquired shares are the first to be sold, which is not appropriate in the sale of subsidiary shares as they may have been acquired at different times and prices. The use of specific identification based on serial number, FIFO (First-In, First-Out) assumption, and averaging assumption are all acceptable methods for determining the cost of the shares sold. Additionally, the parent company must determine whether consolidation is still appropriate for the remaining shares owned after the sale of subsidiary shares.

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  • 18. 

    18-  Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2019,        and an additional 10% on January 1, 2020. Total annual amortization of $6,000 relates to the first        acquisition. George reports the following figures for 2020:      Revenues   $500,000      Expenses 400,000      Retained earnings, 1/1/20 300,000      Dividends paid 50,000      Common stock 200,000     Without regard for this investment, Keefe independently earns $300,000 in net income during 2020.     All net income is earned evenly throughout the year.      What is the controlling interest in consolidated net income for 2020?

    • A.

      A) $380,000.

    • B.

      B) $375,200.

    • C.

      C) $375,800.

    • D.

      D) $376,000.

    • E.

      E) $400,000.

    Correct Answer
    B. B) $375,200.
    Explanation
    Keefe owns 80% of George for the entire year of 2020. Keefe’s share of consolidated net income: 100,000 sub income – 6,000 amortization = 94,000 × .80= 75,200 from Sub + 300,000 internally generated

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  • 19. 

    19- McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash.            This amount is reflective of Hogan’s total acquisition-date fair value.  Hogan's stockholders' equity       consisted of common stock of $160,000 and retained earnings of $80,000.  An analysis of Hogan's net       assets revealed the following: Any excess consideration transferred over fair value is attributable to an unamortized patent with a            useful life of 5 years.  The acquisition value attributable to the noncontrolling interest at January 1,         2019 is:

    • A.

      A) $23,400.

    • B.

      B) $24,000.

    • C.

      C) $24,900.

    • D.

      D) $26,000.                         

    • E.

      E) $20,000.

    Correct Answer
    D. D) $26,000.                         
    Explanation
            $234,000 / .90 = $260,000 × .10 = $26,000

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  • 20. 

    20-  Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019.  Demers reported            common stock of $300,000 and retained earnings of $210,000 on that date.  Equipment was        undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year        remaining life.  Any excess consideration transferred over fair value was attributed to goodwill with        an indefinite life.  Based on an annual review, goodwill has not been impaired. Demers earns income        and pays dividends as follows: Assume the equity method is applied. Compute Pell's Investment in Demers account balance at        December 31, 2019.

    • A.

      A) $580,000.

    • B.

      B) $574,400.

    • C.

      C) $548,000.

    • D.

      D) $542,400.

    • E.

      E) $541,000.

    Correct Answer
    D. D) $542,400.
    Explanation
    Initial Investment $500,000 + Controlling Interest Share of [Net Income for 2019 ($100,000 × .80)
    – Dividends for 2019 ($40,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] =
    $542,400

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  • 21. 

    21- Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019.  Demers reported                 common stock of $300,000 and retained earnings of $210,000 on that date.  Equipment was       undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year       remaining life.  Any excess consideration transferred over fair value was attributed to goodwill with       an indefinite life.  Based on an annual review, goodwill has not been impaired. Demers earns income       and pays dividends as follows: Assume the initial value method is applied.  Compute Pell's investment in Demers at December            31, 2019.

    • A.

      A) $500,000.           

    • B.

      B) $574,400.

    • C.

      C) $625,000.

    • D.

      D) $542,400.

    • E.

      E) $532,000.

    Correct Answer
    A. A) $500,000.           
    Explanation
     Initial Investment = $500,000

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  • 22. 

    22-  Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019.  Demers reported        common stock of $300,000 and retained earnings of $210,000 on that date.  Equipment was        undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year        remaining life.  Any excess consideration transferred over fair value was attributed to goodwill with        an indefinite life.  Based on an annual review, goodwill has not been impaired.        Demers earns income and pays dividends as follows:        Assume the partial equity method is applied.  Compute Pell's investment in Demers at December 31,        2019.

    • A.

      A) $625,000.

    • B.

      B) $574,400.

    • C.

      C) $548,000.

    • D.

      D) $542,400.

    • E.

      E) $532,000.

    Correct Answer
    C. C) $548,000.
    Explanation
    Initial Investment $500,000 + Controlling Interest Share of [Net Income for 2019 ($100,000 × .80) –
    Dividends for 2019 ($40,000 × .80)] = $548,000

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  • 23. 

    23-   Parsons Company acquired 90% of Roxy Company several years ago for which the consideration         transferred included an amount paid for goodwill of $200,000 at that date.  During 2020 an analysis         of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000.         At what amount would consolidated goodwill be reported for 2020?

    • A.

      A) $150,000

    • B.

      B) $200,000.

    • C.

      C) $  50,000.

    • D.

      D) $           0.

    • E.

      E) $135,000.

    Correct Answer
    A. A) $150,000
    Explanation
    (Recorded Goodwill $200,000) – (2020 Goodwill Impairment $50,000) = $150,000 Reported Goodwill for 2020

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  • 24. 

    24- In comparing U.S. GAAP and International Financial Reporting Standards (IFRS) with regard to a       basis for measurement of a noncontrolling interest, which of the following is true?

    • A.

      A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree’s identifiable net asset fair value measurement.

    • B.

      B) U.S. GAAP and IFRS both require acquisition-date fair value measurement.

    • C.

      C) U.S. GAAP and IFRS both require the acquiree’s identifiable net asset fair value measurement

    • D.

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

    • E.

      E) U.S. GAAP and IFRS both apportion goodwill to the parent only.

    Correct Answer
    D. D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement
    Explanation
    U.S. GAAP requires the measurement of noncontrolling interest at fair value as of the acquisition date, while IFRS allows an option for fair value measurement as of the acquisition date. This means that under U.S. GAAP, the noncontrolling interest is measured at its fair value at the time of acquisition, while under IFRS, there is flexibility in choosing the measurement method for the noncontrolling interest. Therefore, option D is the correct answer.

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  • 25. 

    25- On January 1, 2011, Punch Corporation purchased 80% of the common stock of Soopy Co. Separate        balance sheet data for the companies at the acquisition date(after the acquisition) are given below: At the date of the acquisition, the book values of Soopy's net assets were equal to the fair value except for Soopy's inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts. What amount of Inventory will be reported?

    • A.

      A) $170,000

    • B.

      B) $169,000

    • C.

      C) $186,500

    • D.

      D) $192,000

    Correct Answer
    D. D) $192,000
    Explanation
    Combined inventory of $132,000 plus $38,000 plus the excess of the fair value over the book value of $22,000

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  • 26. 

    26- On consolidated working papers, a subsidiary's net income is

    • A.

      A) deducted from beginning consolidated retained earnings.

    • B.

      B) deducted from ending consolidated retained earnings.

    • C.

      C) allocated between the noncontrolling interest share and the parent's share.

    • D.

      D) only an entry in the parent company's general ledger.

    Correct Answer
    C. C) allocated between the noncontrolling interest share and the parent's share.
    Explanation
    On consolidated working papers, a subsidiary's net income is allocated between the noncontrolling interest share and the parent's share. This is because when preparing consolidated financial statements, the parent company needs to account for the portion of the subsidiary's net income that belongs to the noncontrolling shareholders. This allocation ensures that the financial statements accurately reflect the interests and ownership of both the parent and the noncontrolling shareholders in the consolidated entity.

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  • 27. 

    27-  In contrast with single entity organizations, consolidated financial statements include which of the        following in the calculation of cash flows from operating activities under the indirect method?

    • A.

      A) Cash paid to employees

    • B.

      B) Noncontrolling interest dividends paid

    • C.

      C) Noncontrolling interest share

    • D.

      D) Proceeds from the sale of land

    Correct Answer
    C. C) Noncontrolling interest share
    Explanation
    Consolidated financial statements are prepared when a company has subsidiaries or other entities under its control. In contrast to single entity organizations, consolidated financial statements include the financial information of all subsidiaries and entities controlled by the company. When calculating cash flows from operating activities under the indirect method, the noncontrolling interest share is included. This is because the noncontrolling interest represents the portion of the subsidiary's equity that is not owned by the parent company, and it is necessary to include this share in order to accurately reflect the cash flows generated by the subsidiary.

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  • 28. 

    28- When preparing the consolidation workpaper for a company and its controlled subsidiary, which of        the following would be used for the entities being consolidated?

    • A.

      A) Post-closing trial balances

    • B.

      B) Adjusted trial balances

    • C.

      C) Unadjusted trial balances

    • D.

      D) The adjusted trial balance for the parent and the unadjusted trial balance for all controlled       Subsidiaries

    Correct Answer
    B. B) Adjusted trial balances
    Explanation
    When preparing the consolidation workpaper for a company and its controlled subsidiary, the adjusted trial balances would be used for the entities being consolidated. Adjusted trial balances are prepared after adjusting entries have been made to the trial balances. These adjustments ensure that all revenues, expenses, assets, and liabilities are properly recorded and reflect the true financial position of the company. Therefore, using the adjusted trial balances for consolidation purposes would provide the most accurate and reliable information for the consolidated financial statements.

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  • 29. 

    Item 29 and 30 are based on the following: On January 2, 20X8, Par Company acquired 75% of Kidd Company’s outstanding common stock. Selected balance sheet data at December 31, 20X8, are as follows:       Activities Pare Company Kidd Compay Total Assets Liabilities Common Stock Retained Earning $420,000 ======== $120,000   100,000   200,000  $ 420,000 ============ $180,000 ========= $   60,000      50,000      70,000 $ 180,000 ========== 29 In Pare’s December 31, 20X8, consolidated balance sheet, what amount should be reported as minority interest in net assets?

    • A.

      $ 0

    • B.

      $30,000               

    • C.

      $45,000

    • D.

      $105,000.

    Correct Answer
    B. $30,000               
    Explanation
       X                       180,000 – 60,000 = 120,000 X25% = 30,000     

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  • 30. 

    1. In its consolidated balance sheet at December 31, 20X8, what amount should Pare report as common stock outstanding?

    • A.

      $50,000

    • B.

      $100,000   

    • C.

      $137,500

    • D.

      $150,000

    Correct Answer
    B. $100,000   
    Explanation
    The amount of common stock outstanding should be reported as $100,000. This is because common stock represents the ownership interest in a company and is typically issued to shareholders in exchange for their investment in the company. The balance sheet reflects the financial position of the company at a specific point in time, and the common stock outstanding represents the total value of the shares issued to shareholders. Therefore, the correct answer is $100,000.

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  • 31. 

    1. At the time Hyman Corporation become a subsidiary of Duane Corporation, Hyman switched depreciation of its plant assets from the straight line method to the Sum of the year digits method using by Duane. As to Hyman, this change was a:

    • A.

      Change in accounting estimate.

    • B.

      Correction of an error.

    • C.

      Change of accounting principle. 

    • D.

      Change in reporting entity.

    Correct Answer
    C. Change of accounting principle. 
    Explanation
    The switch from the straight line method to the Sum of the year digits method represents a change in the overall approach to accounting for depreciation. This change is considered a change in accounting principle because it involves a different method of calculating and reporting depreciation expenses.

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