Question 1

When preparing a consolidated balance sheet worksheet when the investment account is maintained under the simple equity method:

Accepted Answer

A) ​the parent's share of subsidiary income should be eliminated against retained earnings. 
B) ​the parent's share of the subsidiary's equity accounts may be eliminated directly against the investment account. 
C) ​any intercompany sales must be eliminated against cost of goods sold. 
D) ​the investment account should be converted to the cost method as of the end of the year. 
A) ​the parent's share of subsidiary income should be eliminated against retained earnings. 
B) ​the parent's share of the subsidiary's equity accounts may be eliminated directly against the investment account. 
C) ​any intercompany sales must be eliminated against cost of goods sold. 
D) ​the investment account should be converted to the cost method as of the end of the year. B

Question 2

A new subsidiary is being formed.The parent company purchased 70% of the shares for $20 per share.The remaining shares were sold to a variety of outside interests for an average of $18 per share.The consolidated statements will show

Accepted Answer

A) ​a gain. 
B) ​a loss. 
C) ​only cash and related equity. 
D) ​goodwill. 
A) ​a gain. 
B) ​a loss. 
C) ​only cash and related equity. 
D) ​goodwill. D

Question 3

Company P owns a 90% interest in Company S.Company S has outstanding $100,000 of 10% bonds that were sold at face value and have 6 years to maturity as of the balance sheet date.Company P owns $70,000 of the bonds and has a remaining unamortized book value of $66,000.Company S bonds will be presented on the consolidated balance sheet as

Accepted Answer

A) ​bonds payable, $30,000. 
B) ​bonds payable, $34,000. 
C) ​bonds payable, $100,000. 
D) ​bonds payable will not appear. 
A) ​bonds payable, $30,000. 
B) ​bonds payable, $34,000. 
C) ​bonds payable, $100,000. 
D) ​bonds payable will not appear. A

Question 4

Partridge purchased a 60% interest in Sparrow on January 1, 2016, for $240,000.At the time of the purchase, Sparrow had the following stockholders' equity: 
$$\begin{array} { l r } 
\text { Common stock ( } \$ 10 \text { par) } & \$ 80,000 \
\text { Retained earnings } & \underline { 120,000 } \
\text { Total stockholders' equity } & \$ 200,000
\end{array}$$
 Any excess is attributable to equipment with a 10-year life.On January 1, 2016, the retained earnings of Sparrow was $175,000.During the first 6 months of 2016, $25,000 was earned by Sparrow.The entire investment was sold for $300,000 on July 1, 2016.The gain (loss) was ____.

Accepted Answer

A) $87,000 
B) $78,000 
C) $12,000 
D) $60,000 
A) $87,000 
B) $78,000 
C) $12,000 
D) $60,000

Question 5

Pine Company purchased a 60% interest in the Scent Company on January 1, 2016 for $360,000.On that date, the stockholders' equity of Scent Company was $450,000.Any excess cost on 1/1/16 was attributable to goodwill.Pine purchased another 20% interest on January 1, 2019 for $200,000.On January 1, 2019, Scent Company's stockholders' equity was $700,000, the entire increase due to retained earnings.The goodwill balance on the December 31, 2019, balance sheet is ____.

Accepted Answer

A) ​$100,000 
B) ​$60,000 
C) ​$0 
D) ​$150,000 
A) ​$100,000 
B) ​$60,000 
C) ​$0 
D) ​$150,000

Question 6

Parent Company owns an 80% interest in Subsidiary Company.Subsidiary Company has outstanding $200,000 of 8% bonds that were sold at face value and have 5 years to mature from the balance sheet date.Parent Company owns 75% of the bonds and has a remaining unamortized book value of $145,000.Subsidiary Company bonds will be presented on the consolidated balance sheet as

Accepted Answer

A) ​bonds payable, $55,000 
B) ​bonds payable, $50,000 
C) ​bonds payable, $ 5,000 
D) ​bonds payable, $ 40,000 
A) ​bonds payable, $55,000 
B) ​bonds payable, $50,000 
C) ​bonds payable, $ 5,000 
D) ​bonds payable, $ 40,000

Question 7

If the sale of an investment in a subsidiary is deemed to be a disposal of a component of the entity, the appropriate accounting treatments for the results its operations for the period and the gain or loss on the sale are: Results of Operations for the Period Gain or Loss on the Sale

Accepted Answer

A) ​Normal recurring operations Extraordinary item 
B) ​Discontinued operations Discontinued operations 
C) ​Normal recurring operations Normal recurring operations 
D) ​Normal recurring operations Discontinued operations 
A) ​Normal recurring operations Extraordinary item 
B) ​Discontinued operations Discontinued operations 
C) ​Normal recurring operations Normal recurring operations 
D) ​Normal recurring operations Discontinued operations

Question 8

Company P has consistently sold merchandise for resale to its subsidiary at a gross profit of 20%.There were intercompany goods in both the subsidiary's beginning and ending inventory.As a result of these sales, which of the following amounts must be adjusted for when preparing only a consolidated balance sheet? ?
$\begin{array}{ccc}
\text { Sales Profit } & \text { Beginning } & \text { Ending } \
\text { by Co. P during } & \text { Inventory } & \text { Inventory } \
\text { the Year } & \text { Profit } & \text { Profit }
\end{array}$
A)$\begin{array}{lcc}
&&\text {Yes } &&&&& \text { Yes } &&&& \text { Yes } \\end{array}$
B)$\begin{array}{lcc} &&\text {Yes } &&&&& \text { No }  &&&& \text { Yes } \\end{array}$
C)$\begin{array}{lcc} &&\text {No } & &&&& \text { No } & &&& \text { Yes } \\end{array}$
D)$\begin{array}{lcc} &&\text {No } & &&&& \text { No } & &&&& \text { No }
\end{array}$

Accepted Answer

The answer of Company P has consistently sold merchandise for...

Question 9

On January 1, 2016, Company P purchased a 90% interest in Company S for $360,000.Company P prepared the following determination and distribution of excess schedule at that time:
?
?
 $\begin{array}{lrrr}
\text { D\&D Schedule } & \text { Entity } & \text { Parent } & \text { NCI } \
\text { Entity Fair Value } & \$ \underline{400,000} & 360,000 & 40,000 \
\text { Book value: } & & & \
\quad \text { Paid-In Capital - Common } & 200,000 & & \
\quad \text { Retained Earnings } & \underline{100,000} & & \
\quad \text { Book value: } & \underline{\underline{300,000}} & \underline{270,000} & \underline{\underline{30,000}} \
\text { Excess } & \underline{\underline{100,000}} & \underline{90,000} & \underline{\underline{10,000}} \
\text { Building } &60,000 & 20 \text { years } & 3,000 \
\text { Goodwill } & \underline{40,000} & & \
\text { Total } & \underline{100,000} & &
\end{array}$
 Company S had income of $30,000 for 2016 and $40,000 for 2017.No dividends were paid.Company P sold its entire investment in Company S on January 1, 2019, for $340,000.
?
Required:
Prepare Company P's entries to record the sale assuming that Company P used the 
a.simple equity method to reflect its investment in Company S.
b.cost method to reflect its investment in Company S.

Accepted Answer

The answer of On January 1, 2016, Company P purchased...

Question 10

Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 2019, when Seed Company had the following stockholders' equity: 
$$\begin{array} { l r } 
\text { Common stock, } \$ 10 \text { par } & \$ 300,000 \
\text { Cumulative preferred stock, } 10 \% , \$ 10 \text { par } & 100,000 \
\text { Paid-in excess of par, common } & 50,000 \
\text { Retained earnings } & 200,000
\end{array}$$ Any excess of cost over book value on the common stock purchase was attributed to goodwill.Page does not hold any of Seed's preferred stock.Seed had net income of $40,000 during 2019 and paid no dividends.

The preferred stock is two years in arrears on January 1, 2019.The non-controlling interest share of 2019 net income was ____.

Accepted Answer

A) $3,200 
B) $6,000 
C) $8,000 
D) $16,000 
A) $3,200 
B) $6,000 
C) $8,000 
D) $16,000

Question 11

Patten Company purchased an 80% interest in Salty Inc.on January 1, 2016, for $500,000 when the stockholders' equity of Salty was $500,000.Any excess of cost was attributed to a building with a 20-year life.On July 1, 2019, Patten sold part of its investment and reduced its ownership interest to 60%.Salty earned $62,000, evenly, during 2019.The NCI share of 2019 consolidated income is

Accepted Answer

A) ​$10,000 
B) ​$12,400 
C) ​$16,725 
D) ​$43,400 
A) ​$10,000 
B) ​$12,400 
C) ​$16,725 
D) ​$43,400

Question 12

When you create an income distribution schedule for consolidated net income, the distributions:

Accepted Answer

A) ​are allocated equally between Company P and Company S. 
B) ​should use the controlling/noncontrolling interest ownership with respect to both common and preferred shares. 
C) ​for the parent Company P should convert its investment to its equity balance if it is not using the cost method. 
D) ​none of the above 
A) ​are allocated equally between Company P and Company S. 
B) ​should use the controlling/noncontrolling interest ownership with respect to both common and preferred shares. 
C) ​for the parent Company P should convert its investment to its equity balance if it is not using the cost method. 
D) ​none of the above

Question 13

On January 1, 2016, Patrick Company purchased 60% of the common stock of Solomon Company for $180,000.On this date, Solomon had common stock, other paid-in capital, and retained earnings of $20,000, $60,000, and $120,000 respectively.
?
On January 1, 2016, the only tangible asset of Solomon that was undervalued was land, which was worth $15,000 more than book value.
?
On January 1, 2017, Patrick Company purchased an additional 30% of the common stock of Solomon Company for $140,000.
?
Net income and dividends for 2 years for Solomon Company were:
?
?
 $$\begin{array} { l r r } 
& 2016 & 2017 \
\text { Net income for year } & \$ 50,000 & \$ 80,000 \
\text { Dividends, paid-in December } & 0 & 50,000
\end{array}$$  In the last quarter of 2017, Solomon sold $80,000 of goods to Patrick, at a gross profit rate of 30%.On December 31, 2017, $20,000 of these goods are in Patrick's ending inventory.In both 2016 and 2017, Patrick has accounted for its investment in Solomon using the simple equity method.
?
Required:
? 
a.Using the information from the scenario or on the separate worksheet, prepare necessary determination and distribution of excess schedules for the two purchases.?
?
b.Complete the Figure 7-2 worksheet for consolidated financial statements for 2017.?
?
   ?

Accepted Answer

D&D schedule for first acquisition:
?
 @#IMG-DLM&

Question 14

In the year a parent sells its entire subsidiary investment, the results of subsidiary operations prior to the sale date are

Accepted Answer

A) ​consolidated to the point of sale. 
B) ​shown on the balance sheet in the stockholders' equity section as an adjustment to retained earnings. 
C) ​not reflected on any of the parent's statements. 
D) ​not consolidated. 
A) ​consolidated to the point of sale. 
B) ​shown on the balance sheet in the stockholders' equity section as an adjustment to retained earnings. 
C) ​not reflected on any of the parent's statements. 
D) ​not consolidated.

Question 15

On January 1, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $300,000.Any excess of cost over book value on this date is attributed to a patent, to be amortized over 10 years.
?
On this date, Subsidiary had total shareholders' equity as follows:
?
?
 $$\begin{array} { l r } 
8 \% \text { Preferred Stock, } \$ 100 \text { par } & \$ 100,000 \
\text { Common Stock, } \$ 10 \text { par } & 50,000 \
\text { Other Paid-in Capital } & 120,000 \
\text { Retained Earnings } & 180,000 \
\text { Total } & \$ 450,000
\end{array}$$ The 8% preferred stock is cumulative, non-participating, and has a liquidating value of par plus dividends in arrears.There were no preferred dividends in arrears on January 1, 2016.
?
During 2016, Subsidiary had a net loss of $10,000 and paid no dividends.In 2017, Subsidiary had net income of $20,000, but paid no dividends.In 2019, Subsidiary had net income of $100,000 and paid dividends, on preferred and common, totaling $50,000.
?
On January 1, 2017, Parent purchased $50,000 par value of Subsidiary's preferred stock for $52,000.At year end, the preferred is still held as an investment.
?
Required:
? 
a.) Prepare Parent's journal entries for its investment in the subsidiary's preferred stock for 2017 and 2019.
b.) Calculate the increase in equity resulting from the retirement of preferred stock.
c.) Prepare the entries needed to eliminate the parent's investment in the subsidiary's preferred stock for the 2019 consolidated worksheet.

Accepted Answer

?a.
?
 @#IMG-DLM& ?

Question 16

Which of the following is not true of an investor's investment in the preferred stock of an investee?

Accepted Answer

A) ​Because preferred stock normally does not carry voting rights, an investor many not have controlling interest if owning 100% of the preferred stock. 
B) ​The investor's purchase of investee's outstanding preferred stock viewed of a retirement of the stock. 
C) ​Preferred stock is included in the Determination and Distribution of Excess Schedule to calculate goodwill. 
D) ​Preferred stock dividends reduce the income available to the NCI. 
A) ​Because preferred stock normally does not carry voting rights, an investor many not have controlling interest if owning 100% of the preferred stock. 
B) ​The investor's purchase of investee's outstanding preferred stock viewed of a retirement of the stock. 
C) ​Preferred stock is included in the Determination and Distribution of Excess Schedule to calculate goodwill. 
D) ​Preferred stock dividends reduce the income available to the NCI.

Question 17

Company P Industries purchased a 70% interest in Company S on January 1, 2016, and prepared the following determination and distribution of excess schedule:
​
​
   Since the purchase, there have been the following intercompany transactions:
​
​
   Required:
​
Complete the following schedule to adjust the retained earnings of the non-controlling and controlling interest on the December 31, 2020, worksheet for a consolidated balance sheet only.Company P uses the simple equity method to account for its investment.
​

Accepted Answer

The answer of Company P Industries purchased a 70% interest...

Question 18

On January 1, 2016, Pepper Company purchased 90% of the common stock of Salt Company for $360,000 when Salt had total shareholders' equity as follows:
?
?
 $$\begin{array} { l r } 
8 \% \text { Preferred Stock, } \$ 100 \text { par } & \$ 100,000 \
\text { Common Stock, } \$ 10 \text { par } & 50,000 \
\text { Other Paid-in Capital } & 120,000 \
\text { Retained Earnings } & 180,000 \
\quad \text { Total } & \$ 450,000
\end{array}$$ Any excess of cost over book value on this date is attributed to a patent, to be amortized over 10 years.The 8% preferred stock is cumulative, non-participating, and has a liquidating value of par plus dividends in arrears.There were no preferred dividends in arrears on January 1, 2016.Pepper elected to account for its investment in Salt using the cost method.
?
During 2016, Salt had a net loss of $10,000 and paid no dividends.In 2017, Salt had net income of $100,000 and paid dividends totaling $36,000.
?
During 2017, Salt sold merchandise to Pepper for $40,000, of which $20,000 is still held by Pepper on December 31, 2017.Salt's usual gross profit is 40%.
?
Required:
?
Complete the Figure 7-8 worksheet for consolidated financial statements for the year ended December 31, 2017.
?
   ?

Accepted Answer

Answer 7-8.
?
?
 @#IMG-DLM& ?
 @#IMG-DLM& Eliminations and A

Question 19

Pepin Company owns 75% of Savin Corp.Savin's net income in the current year was $60,000.Savin also has 10,000 shares of 4% cumulative preferred $10 par value stock outstanding.When Pepin purchased Savin, the excess purchase price of $50,000 was attributable to a patent having a life of 10 years.How much income is attributable to the controlling interest?

Accepted Answer

A) ​$45,000 
B) ​$41,250 
C) ​$37,250 
D) ​$38,250 
A) ​$45,000 
B) ​$41,250 
C) ​$37,250 
D) ​$38,250

Question 20

When a parent sells its subsidiary interest, a gain (loss) is recognized if the parent ?
$\begin{array}{l}
&\text { sells its  } &\text{ sells part but } &\text{  sells part and }\
& \text { entire investment } &\text { retains control} &\text { loses control } \\end{array}$
A)$\begin{array}{l}&&&\text {Yes } &&&&& & \text { Yes } &&&&& \text { No } \\end{array}$
B)$\begin{array}{l}&&&\text {Yes } &&&&&& & \text { No } &&&& \text { Yes } \\end{array}$
C)$\begin{array}{l}&&&\text {No } &&&&&& & \text { No }&&&& & \text { No } \\end{array}$
D)$\begin{array}{l}&&&\text {No } &&&&&& & \text { No } &&&&& \text { Yes }
\end{array}$

Accepted Answer

The answer of When a parent sells its subsidiary interest,...

When preparing a consolidated balance sheet worksheet when the investment account is maintained under the simple equity method:

A new subsidiary is being formed.The parent company purchased 70% of the shares for $20 per share.The remaining shares were sold to a variety of outside interests for an average of $18 per share.The consolidated statements will show

If the sale of an investment in a subsidiary is deemed to be a disposal of a component of the entity, the appropriate accounting treatments for the results its operations for the period and the gain or loss on the sale are: Results of Operations for the Period Gain or Loss on the Sale

When you create an income distribution schedule for consolidated net income, the distributions:

In the year a parent sells its entire subsidiary investment, the results of subsidiary operations prior to the sale date are

Which of the following is not true of an investor's investment in the preferred stock of an investee?

When a parent sells its subsidiary interest, a gain (loss) is recognized if the parent ? sells its sells part but sells part and entire investment retains control loses control A) Yes Yes No B) Yes No Yes C) No No No D) No No Yes

Business Combinations: New Rules for a Long-Standing Business Practice

Consolidated Statements: Date of Acquisition

Consolidated Statements: Subsequent to Acquisition

Intercompany Transactions: Merchandise, Plant Assets, and Notes

Intercompany Transactions: Bonds and Leases

Cash Flow, Eps, and Taxation

Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares

The International Accounting Environment

Foreign Currency Transactions

Translation of Foreign Financial Statements

Interim Reporting and Disclosures About Segments of an Enterprise

Partnerships: Characteristics, Formation, and Accounting for Activities

Partnerships: Ownership Changes and Liquidations

Government and Not for Profit Accounting

Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds

Financial Reporting Issues

Accounting for Private Not-For-Profit Organizations

Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations

Estates and Trusts: Their Nature and the Accountants Role

Debt Restructuring, Corporate Reorganizations, and Liquidations

Derivatives and Related Accounting Issues

Equity Method for Unconsolidated Investments

Variable Interest Entities

Filters

Exam 7: Special Issues in Accounting for an Investment in a Subsidiary

When preparing a consolidated balance sheet worksheet when the investment account is maintained under the simple equity method:

A new subsidiary is being formed.The parent company purchased 70% of the shares for $20 per share.The remaining shares were sold to a variety of outside interests for an average of $18 per share.The consolidated statements will show

If the sale of an investment in a subsidiary is deemed to be a disposal of a component of the entity, the appropriate accounting treatments for the results its operations for the period and the gain or loss on the sale are: Results of Operations for the Period Gain or Loss on the Sale

When you create an income distribution schedule for consolidated net income, the distributions:

In the year a parent sells its entire subsidiary investment, the results of subsidiary operations prior to the sale date are

Which of the following is not true of an investor's investment in the preferred stock of an investee?

When a parent sells its subsidiary interest, a gain (loss) is recognized if the parent ? sells its sells part but sells part and entire investment retains control loses control A) Yes Yes No B) Yes No Yes C) No No No D) No No Yes

Business Combinations: New Rules for a Long-Standing Business Practice

Consolidated Statements: Date of Acquisition

Consolidated Statements: Subsequent to Acquisition

Intercompany Transactions: Merchandise, Plant Assets, and Notes

Intercompany Transactions: Bonds and Leases

Cash Flow, Eps, and Taxation

Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares

The International Accounting Environment

Foreign Currency Transactions

Translation of Foreign Financial Statements

Interim Reporting and Disclosures About Segments of an Enterprise

Partnerships: Characteristics, Formation, and Accounting for Activities

Partnerships: Ownership Changes and Liquidations

Government and Not for Profit Accounting

Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds

Financial Reporting Issues

Accounting for Private Not-For-Profit Organizations

Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations

Estates and Trusts: Their Nature and the Accountants Role

Debt Restructuring, Corporate Reorganizations, and Liquidations

Derivatives and Related Accounting Issues

Equity Method for Unconsolidated Investments

Variable Interest Entities

Filters