Exam 17: Understanding and Analyzing Consolidated Financial Statements

Below is the balance sheet for Janice Company: Janice Company Balance Sheet December 31 , 20X6 20X5 Current assets: Cash \ 380 \ 242 Accounts receivable 430 194 Inventory 238 388 Prepaid insurance 32 76 Total current assets \1 ,080 \9 00 Long-term assets: Fixed assets \ 406 \ 452 Less: Accumulated depreciation Total long-term assets \ 224 Total assets \ 1,214 \ 1,124 Current liabilities: Accounts payable \ 176 \ 152 Wages payable total current liabilities \ 214 \ 184 Long-term liabilities: Notes payable Total liabilities Owners' equity: Common stock \ 190 \ 160 Retained income 390 360 Total owners' equity \5 20 Total liabilities and owners' equity If a common-size balance sheet were prepared, _____ would be attributable to the 20X5 accounts payable of Janice Company.

Company B has 40,000 shares of its common stock outstanding.Company A owns 15,000 shares of Company B stock.Company A should use the _____ method to account for its investment in Company B.

Intercompany eliminations avoid double counting on consolidated financial statements

Common-size statements are particularly useful because _____.

If the fair market value of the subsidiary's assets is greater than the book value of those assets on the date that the subsidiary is acquired, the assets of the subsidiary are written up to their fair market value.

Which of the following statements is incorrect?

Presented below are the balance sheets of Monty Company and Hall Company at January 1, 20X6: Hall Company Monty Company Balance Sheet Balance Sheet January 1,206 January 1,206 Cash \ 100 Cash \ 400 Net fixed assets 400 Net fixed assets 380 Total assets \ 500 Total assets \ 780 Accounts payable \ 20 Accounts payable \1 20 Long-term bonds Long-term bonds payable 220 payable 280 Stockholders' equity Stockholders' equity Total liabilities and - Total liabilities and stockholders' equity \ 500 stockholders' equity \ 780 On January 1, 20X6, Monty Company acquired 100% of the outstanding common stock of Hall Company for $260 in cash._____ is the balance of the Investment in Hall Stock on the consolidated balance sheet immediately after the acquisition of Hall's stock.

Company B has 40,000 shares of its common stock outstanding.Company A owns 35,000 shares of Company B stock.Company A should use the _____ method to account for its investment in Company B.

Common-size statements are expressed in component percentages.

The following are the income statements and balance sheets for Goal Company: 20X2 Sales only credit sales) \1 ,606.0 Less cost of goods sold 1,062.0 Gross profit \5 44.0 Less operating expenses 322.0 Operating income \2 22.0 Less other expense: Interest 9.6 Income before tax \2 12.4 Less income tax expense 85.0 Net income \1 27.4 20X2 20X1 20X2 20X1 Current assets: Current liabilities: Cash \ 36 \ 38 Accts payable \ 98 \ 64 Accts receivable 180 144 Wages payable 18 16 Inventory 120 100 Taxes payable 28 4 Prepaid rent 20 24 Current portion Total current assets \3 56 \3 06 of long-term debt 30 6 Long-term assets: Total current Fixed assets \ 320 \ 316 liabilities \ 174 \ 90 Accum. deprec. ) ) Long-term liabilities Total long-term assets \1 14 \1 36 Total liabilities \2 40 \1 82 Owners' equity: Common stock, \ 5 par \8 0 \8 0 Retained income 150 180 Total owners' equity \2 30 \2 60 Total assets \4 70 \4 42 Total liab. and own. equity \4 70 \4 42 $\text {December 31 market price per share:}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$120\quad\quad\$106$ The average collection period in days for Goal Company in 20X2 is _____days.

Brian Company purchased 10% of the outstanding shares of Wilson Company as a long-term investment.At the end of the year the market value of the shares had increased. The increase in market value of Wilson Company shares will affect Brian Company by _____.

The statement "total liabilities should not exceed net worth" is an example of an):

Fisher Company acquired 80% of the outstanding shares of Gibbs Company for $152 in cash.The net income was $100 and $20 for Fisher Company and Gibbs Company, respectively.None of the income resulted from intercompany sales.The net income on the consolidated income statement is_____.

Julia Company acquired 80% of the outstanding shares of Roberts Company for $190 in cash.Roberts Company's total assets and liabilities were $550 and $400, respectively.The balance of the investment in Roberts Company stock on the consolidated balance sheet immediately after the acquisition of Roberts Company's stock is _____.

Financial statements are helpful to predict the future performance of a company for all of the following reasons except _____.

If a company uses the equity method to account for long?term equity investments, the company recognizes income from the investee when the investee pays a dividend.

Minority interests affect only the balance sheet of the consolidated financial statements.

The following information pertains to Barnum Company: Balance Sheet At December $31,20 \mathrm{X} 2$ Current assets \ 18,700 Current liabilities \ 7,600 Long-term assets 29,700 Long-term liabilities 13,250 Stockholders' equity 27,550 Total assets \ 48,400 Total assets \ 48,400 Barnum Company Income Statement For the Year Ended December $31,20 \mathrm{X} 2$ Sales \ 106,950 Less: Cost of goods sold Gross profit \ 45,150 Less: Operating expenses Operating income \ 13,450 Less other expenses: interest Income before taxes \ 12,150 Less: Income tax expense Net income \ 7,300 There were 1,000 shares of common stock outstanding with a market value of $75 as of December 31, 20X2.Dividends declared and paid was $5 per share.The dividend payout ratio for 20X2 is _____.

Rock Company acquired 40% of the voting stock of Hudson Company for $40 million.In year 1, Hudson Company reports net income of $15 million and pays cash dividends of $5 million.At the end of the year the market value of Rock Company's investment in Hudson Company is $44 million.What accounts would be affected on Rock Company's books at the time Hudson Company paid its dividends and by how much?

Presented below are the balance sheets of Monty Company and Hall Company at January 1, 20X6: Hall Company Monty Company Balance Sheet Balance Sheet January 1,206 January 1,206 Cash \ 100 Cash \ 400 Net fixed assets 400 Net fixed assets 380 Total assets \ 500 Total assets \ 780 Accounts payable \ 20 Accounts payable \1 20 Long-term bonds Long-term bonds payable 220 payable 280 Stockholders' equity Stockholders' equity Total liabilities and - Total liabilities and stockholders' equity \ 500 stockholders' equity \ 780 On January 1, 20X6, Monty Company acquired 100% of the outstanding common stock of Hall Company for $260 in cash._____ is the balance of the cash and other assets on the consolidated balance sheet immediately after the acquisition of Hall's stock.