Deck 8: Consolidated Cash Flows and Changes in Ownership

Question 1

A) $100,000.
B) $150,000.
C) $210,000.
D) $225,000.

Answer 1

C

Question 2

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 chapters) earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What would be the amount of the unamortized acquisition differential (excluding goodwill) at the end of 2013?

A) Nil.
B) $35,000.
C) $37,500.
D) $42,000.

Answer 2

B

Question 3

A) ($5,000).
B) Nil.
C) $5,000.
D) $150,000.

Answer 3

D

Question 4

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 chapters) earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. Assuming that Hanson had no recorded goodwill prior to January 1, 2012, what would be the amount of goodwill appearing on Hanson's December 31, 2012 consolidated balance sheet?

A) $75,000.
B) $80,000.
C) $117,000.
D) $195,000.

Question 5

A) $84,000.
B) $140,000.
C) $200,000.
D) $300,000.

Question 6

A) A loss of $42,000.
B) A loss of $4,000.
C) A gain of $4,000.
D) A gain of $54,000.

Question 7

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 chapters) earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What is the amount of the acquisition differential amortization for 2012 (excluding goodwill impairment)?

A) $4,375
B) $5,625
C) $6,250
D) $12,000

Question 8

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. By how much would the non-controlling interest amount have changed as a result of the Hanson's second purchase?

A) A decrease of $43,975.
B) A decrease of $37,857.
C) An increase of $37,857.
D) An increase of $43,975.

Question 9

A Inc. owns 80% of B's outstanding voting shares. Under which of the following scenarios would A's ownership percentage of B change?
A)

A) B Inc. announces a 2-for-1 stock split to all its common shareholders.
B) B issues an additional 10,000 voting shares; A acquires 8,000 shares of the new issue.
C) B issues an additional 10,000 voting shares; A acquires 6,400 shares of the new issue.
D) B retires 20,000 voting share, and in doing so, buy back 16,000 shares from

Question 10

A) 14%
B) 21%
C) 28%
D) 40%

Question 11

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 chapters) earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What is the amount of the acquisition differential amortization (excluding goodwill impairment) for 2013?

A) $1,500.
B) $6,250.
C) $7,750.
D) $8,750.

Question 12

Assume that X Corp. controls Y Corp., X constantly purchases and sells Y's voting shares on the open market while always ensuring that it maintains a controlling interest over Y. Which of the following statements pertaining to X buying and selling activity is correct?

A) X's activity has no effect on the non-controlling interest.
B) As X sells shares of Y, the non-controlling interest increases.
C) As X sells shares of Y, the non-controlling interest decreases.
D) As X buys shares of Y, the non-controlling interest increases.

Question 13

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What percentage of Marvin's shares was purchased by Hanson on January 1, 2012?

A) 10%
B) 60%
C) 70%
D) 90%

Question 14

A) $8,400.
B) $18,000.
C) $50,000.
D) $150,000.

Question 15

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. Assuming that Hanson had no recorded goodwill prior to January 1, 2012, what would be the amount of goodwill appearing on Hanson' December 31, 2013 Consolidated Balance Sheet?

A) $75,000
B) $136,500
C) $195,000
D) $209,900

Question 16

A) $12,600.
B) $18,000.
C) $20,000.
D) $30,000.

Question 17

On January 1, 2012, Hanson Inc would Hanson's January 1, 2013 purchase have on the company's consolidated cash flows for the year?

A) There would be no effect.
B) There would be a decrease in cash of $45,000 to the consolidated entity.
C) There would be a decrease in cash of $200,000 to the consolidated entity.
D) There would be a decrease in cash of $236,000 to the consolidated entity.

Question 18

On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What is the amount of goodwill arising from Hanson's January 1, 2012 acquisition?

A) $50,000.
B) $60,000.
C) $80,000.
D) $200,000.

Question 19

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What is Hanson's ownership interest in Marvin after its January 1, 2013 purchase?

A) 60%
B) 70%
C) 80%
D) 90%

Question 20

A) 21%
B) 36%
C) 42%
D) 56%

Question 21

A) Nil.
B) $6,000.
C) $8,000.
D) $12,000.

Question 22

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount of goodwill appearing on the December 31, 2012 Consolidated Balance Sheet would be:

A) Nil.
B) $10,000.
C) $20,000.
D) $30,000.

Question 23

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the gain or loss arising from Dine's share issue to Chompster?

A) A loss of $4,000.
B) A loss of $2,400.
C) A gain of $2,400.
D) A gain of $4,000.

Question 24

A) Nil.
B) $6,000.
C) $18,000.
D) $36,000.

Question 25

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of cash appearing on Whine's December 31, 2012 Consolidated Balance Sheet (after the issue of shares to Chompster)?

A) $450,000.
B) $610,000.
C) $850,000.
D) $810,000.

Question 26

All intercompany investments are accounted for using the equity method. The Net Incomes for these companies for the year ended December 31, 2012 were as follows: Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2012 are shown below: All companies are subject to a 25% tax rate. How much is A Inc.'s Consolidated Net Income for 2012?

A) $1,510,000.
B) $1,773,625.
C) $1,796,125.
D) $2,170,000.

Question 27

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What would be the balance in Hanson's investment in Marvin account on December 31, 2013?

A) $303,000.
B) $347,900.
C) $348,925.
D) $349,950.

Question 28

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount of common shares appearing on the December 31, 2012 Consolidated Balance Sheet would be:

A) $500,000.
B) $660,000.
C) $770,000.
D) $860,000.

Question 29

Assuming that A acquired a controlling interest in B through numerous small acquisitions, what would be appropriate accounting with respect to these acquisitions?

A) An acquisition differential must be computed following each purchase.
B) The equity method must be adopted retroactively once 20% ownership is obtained.
C) The purchases should all be grouped together and treated as a single block purchase.
D) The cost method should be used until a controlling interest is acquired.

Question 30

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. chapters) the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of the unamortized acquisition differential on December 31, 2012?

A) $40,000.
B) $50,000.
C) $80,000.
D) $125,000.

Question 31

A) Nil.
B) $80,000.
C) $295,200.
D) $370,200.

Question 32

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows: Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What effect would the purchase at January 1, 2013 have on the consolidated equity of Hanson?

A) There would be no effect.
B) There would be a reduction in consolidated retained earnings of $1,025.
C) There would be a reduction in consolidated contributed surplus of $1,025.
D) There would be an increase in consolidated retained earnings of $1,025.

Question 33

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of the non-controlling interest appearing on Whine's Consolidated Balance Sheet as at December 31, 2012 after the issue of shares to Chompster?

A) $125,000.
B) $222,000.
C) $264,000.
D) $282,600.

Question 34

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. All intercompany investments are accounted for using the equity method. The Net Incomes for these companies for the year ended December 31, 2012 were as follows: Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2012 are shown below: All companies are subject to a 25% tax rate. What is the Consolidated Net Income for the year attributable to the shareholders of A Inc.?

A) $1,510,000.
B) $1,796,125.
C) $1,817,500.
D) $2,170,000.

Question 35

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. All intercompany investments are accounted for using the equity method. The Net Incomes for these companies for the year ended December 31, 2012 were as follows: Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2012 are shown below: All companies are subject to a 25% tax rate. How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2012?

A) Nil.
B) $382,500.
C) $373,875.
D) $400,000.

Question 36

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount of retained earnings appearing on the December 31, 2012 Consolidated Balance Sheet would be:

A) $384,000.
B) $396,000.
C) $400,000.
D) $402,400.

Question 37

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. chapters) the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of the non-controlling interest appearing on Whine's Consolidated Balance Sheet as at December 31, 2012 before the issue of shares to Chompster?

A) $125,000.
B) $160,000.
C) $222,000.
D) $264,000.

Question 38

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be Whine's ownership interest in Dine following Chompster's purchase of shares in Dine?

A) 60%
B) 64%
C) 75%
D) 80%

Question 39

A) Nil.
B) $6,000.
C) $18,000.
D) $36,000.

Question 40

A) Nil.
B) $6,000.
C) $18,000.
D) $36,000.

Question 41

Which of the following is not included in the amount of shareholders' equity allocated to the holders of the preference shares on the consolidated balance sheet?

A) The stated or par value of the preference shares.
B) Cumulative dividends in arrears on the preference shares.
C) Contributed surplus arising from the issue of preference shares.
D) Redemption premium payable on redemption of preference shares.

Question 42

What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?

A) It should be treated as an adjustment to goodwill.
B) It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C) It should be expensed in the current year.
D) It should be adjusted to a contributed surplus or retained earnings account.

Question 43

Which of the following statements pertaining to preferred shares is correct?

A) If the preferred shares are participating, only the current year's Net Income would be allocated to the preferred shares.
B) If the preferred shares are non-cumulative, only the current year's Net Income would be allocated to preferred shares, since dividends are never in arrears with non-cumulative preferred shares.
C) If the preferred shares are participating, the current year's Net Income would be allocated to the shares, only if the subsidiary is fully owned by the parent.
D) There can never be any dividends in arrears when preferred shares are participating.

Question 44

A) It will not change.
B) It will increase by $150,000.
C) It will decrease by $144,000.
D) It will decrease by $150,000.

Question 45

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. chapters) the shares): Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount appearing under equipment on the December 31, 2012 Consolidated Balance Sheet would be:

A) $690,000.
B) $710,000.
C) $772,500.
D) $785,000.