Exam 17: Understanding and Analyzing Consolidated Financial Statements

Vanessa Company purchased common stock in Gilmore Company.During the current year,Gilmore Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Vanessa Company owns 40 percent of the outstanding shares of Gilmore Company.Gilmore Company's net income will affect Vanessa Company by ________.

Goodwill can only be recognized when one company acquires another company.

On January 1,2015,Bernie Company acquired 80 percent of the outstanding shares of Conner Company for $120.At the time of the acquisition,Conner Company's total assets were $550 and total liabilities were $400.The book value and fair value of Conner's assets and liabilities were equal.What is the balance in the Investment in Conner Company account on the consolidated balance sheet immediately after the acquisition of Conner Company's stock? (Assume elimination entries are completed.)

Comparing a company's debt-to-equity ratio for 2014 to the debt-to-equity ratios for 2014 from other companies in the same industry is called a(n)________.

Rambo Company acquired 40% of the voting stock of Boulder Company for $40 million.At the end of Year 1,Boulder Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Rambo Company's investment in Boulder Company is $44 million.At the time of the acquisition,what accounts would be affected on the books of Rambo Company?

Investments acquired with the intent to resell them in the near future are called trading securities.

Bart Company acquired 10 percent of the voting stock of Ernie Company for $10 million.Bart Company plans to keep the investment for several years.At the end of Year 1,Ernie Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Bart Company's investment in Ernie Company is $11 million.What entry is necessary at the end of Year 1 to account for the change in market value of Bart Company's investment in Ernie Company?

On January 1,2014,a parent company purchased 100 percent of the stock in a subsidiary.On January 1,2014,no goodwill was recorded and the book value of the subsidiary's assets equals the market value of the subsidiary's assets.On December 31,2014,the two companies report the following data: Parent Company Net Income for Past Year \ 100 million Subsidiary Company Net Income for Past Year \ 50 million What is the consolidated net income for the year ended December 31,2014?

On January 1,2012,a parent company acquired all of the stock of a subsidiary.The following data is available: Parent Company Subsidiary Total assets \ 650 \ 400 Total liabilities \ 200 \ 190 Total stockholders' equity \ 450 \ 210 The acquisition by the parent company represents a 100 percent interest in the subsidiary.On January 1,2012,the fair value of the subsidiary's assets and liabilities are equal to their book value.The parent company paid $250 for the 100 percent interest in the subsidiary.What amount of goodwill is implied in the purchase?

Goodwill from the purchase of another company appears on the consolidated balance sheet as a ________.

If an investor uses the equity method to account for a long-term equity investment,then the investor records income when the investee reports net income.

Ramon Company acquired 40% of the voting stock of Boulder Company for $40 million.At the end of Year 1,Boulder Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Ramon Company's investment in Boulder Company is $44 million.What accounts will be affected on Ramon Company's books to account for the increase in market value of the investment at the end of Year 1?

On January 1,2012,Remkus Company acquired all of the stock of a subsidiary.The following data is available: Remkus Company Subsidiary Total assets \ 650 \ 400 Total liabilities \ 200 \ 190 Total stockholders' equity \ 450 \ 210 The acquisition by Remkus Company represents a 100 percent interest in the subsidiary.On January 1,2012,the fair value of the subsidiary's assets and liabilities are equal to the book value.Remkus Company paid $250 for the 100 percent interest in the subsidiary.On January 1,2012,what is the total stockholders' equity on the consolidated balance sheet? (Assume elimination entries are completed.)

John Company purchased common stock in Garcia Company.John Company treats the investment as available-for-sale securities.During the current year,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that John Company owns 10% of the outstanding shares of Garcia Company.Garcia Company's net income will affect John Company in which of the following ways?

If an investor uses the equity method to account for a long-term equity investment,then the investor records income when the investee pays a dividend.

An efficient capital market is one in which an order to trade can be placed and executed in a short period of time.

To prepare common size income statements,percentages for line items are usually based on ________.To prepare common size balance sheets,percentages for line items are usually based on ________.

Brankov Company purchased common stock in Ramona Company for $400,000.In the current year,Ramona Company reported net income of $50,000 and paid a dividend of $32,000.At the end of the year,the market value of the investment in Ramona Company was $410,000. Required: A) Assume Brankov Company owns 10% of the shares of Ramona Company. Brankov Company considers the investment to be available-for-sale securities. Show the effects of the transactions above on the accounts of Brankov Company using the balance sheet equation. B) Assume Brankov Company owns 25% of the shares of Ramona Company. Show the effects of the transactions above on the accounts of Brankov Company using the balance sheet equation.

All other things equal,a higher current ratio indicates that ________.

An investor in securities accounted for by the equity method has the following information available at December 31,2012: Market value of securities $\quad \$10,000$ Acquisition cost of securities $\quad \$8,000$ How does the investor report the change in market value on the securities at December 31,2012?