Exam 17: Understanding and Analyzing Consolidated Financial Statements

Company B has 40,000 shares of its common stock outstanding.Company A owns 5,000 shares of Company B stock.Company A should use the _____ method to account for its investment in Company B.

Below is the balance sheet for Scott Company: Scott 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 20X6 cash of Scott Company.

Brian Company purchased 40% 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 following are the income statements and balance sheets for Touchdown 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 return on stockholders' equity for Touchdown Company in 20X2 is _____.

Goodwill is not considered to have a perpetual life.

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.The _____ method should be used to account for the investment.

The parent-subsidiary relationship requires special accounting treatment.

Jeff Company purchased, as a long-term investment, common stock of Garcia Company.During the current year, Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jeff Company owns 10% of the outstanding shares of Garcia Company.Garcia Company's net income will affect Jeff Company by _____.

Vince Company purchased common stock of Gill Company as a long-term investment.During the current year, Gill Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Vince Company owns 30% of Gill Company.The dividend paid by Gill Company will affect Vince Company by _____.

The following information has been extracted from the books of the Flanker Company: Current assets: Current liabilities: Cash \ 86 Accts payable \ 78 Accounts receivable 130 Wages payable 68 Inventory 140 Taxes payable 28 Total \3 56 Total \1 74 The current ratio for Flanker Company is _____.

The following are the income statements and balance sheets for Huddle 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 return on sales for Huddle Company in 20X2 is _____.

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 earnings per share for 20X2 is _____.

Which of the following statements is incorrect with respect to creditors and equity investors?

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.If Hall Company generated net income during 20X2 of $30, and none of the income resulted from intercompany sales, _____ would be the amount of the elimination entry at the end of 20X6.

Elway Company acquired 80% of the outstanding shares of Warner Company for $152 in cash.Elway Company's assets prior to the acquisition were $700.Warner Company's assets before the acquisition were $400.The total assets that would appear on the consolidated balance sheet prepared immediately after the acquisition of Warner Company's stock is: _____.

Suppose Rock Company acquires 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 to reflect the year-end market value and by how much?

Since research indicates that investors are apparently not fooled by the format of the information, accounting regulators should focus on disclosure issues.

On January 1, 20X6, Jane Company acquired 80% of the outstanding shares of Tarzan Company for $152 in cash.Tarzan Company's total assets and total liabilities were $450 and $260, respectively.The balance of the minority interest on the consolidated balance sheet immediately after the acquisition of Tarzan Company's stock is _____.

The following are the income statements and balance sheets for Thomas Company: 20X9 Sales only credit sales) \ 1,606.0 Less cost of goods sold Gross profit \ 544.0 Less operating expenses 322.0 Operating income \ 222.0 Less other expense: Interest 9.6 Income before tax \ Lessincome tax expense 85.0 Net income \ 127.4 20X9 20X8 20X9 20X8 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 dividend?payout ratio for Thomas Company in 20X9 is _____.

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 current-debt-to-equity ratio for 20X2 is _____.