Question 1

The following information is available for the Marvin Company:  What is the earnings per share for the year ended December 31,2009?

Accepted Answer

A) $1.04 
B) $1.56 
C) $7.50 
D) $7.96

Question 2

Which of the following statements about efficient capital markets is FALSE?

Accepted Answer

A) An efficient capital market is one in which market prices fully reflect all information available to the public. 
B) There are no underpriced securities in an efficient capital market. 
C) In an efficient capital market,an inactive portfolio approach to investments is an appropriate investment strategy for most investors. 
D) In an efficient capital market,if a company changes to an accounting method that increases net income,the company's market price will increase.

Question 3

The Barneveld Company reports the following information:  What is the earnings per share for the year ended December 31,2012?

Accepted Answer

A) $0.26 
B) $3.88 
C) $7.30 
D) $106.95

Question 4

Noncontrolling interests appear on a consolidated balance sheet when a parent company owns more than 50 percent but less than 100 percent of a subsidiary's common stock.

Accepted Answer

A) True 
 B)False

Question 5

The Investment in Subsidiary account appears on a consolidated balance sheet.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

A subsidiary is a company that owns more than 50 percent of another company's outstanding common stock.

Accepted Answer

A) True 
 B)False

Question 8

Presented below is the balance sheet of Hal Company at January 1,2015:   The balance sheet of Monty Company at January 1,2015 is below:
  On January 1,2015,Monty Company acquired 100 percent of the outstanding common stock of Hal Company for $260 cash.What is the amount of Total Assets on the consolidated balance sheet immediately after the acquisition of Hal Company's stock? (Assume elimination entries are completed.)

Accepted Answer

A) $0 
B) $780 
C) $1,020 
D) $1,280

Question 9

Return on sales equals gross profit divided by sales.

Accepted Answer

A) True 
 B)False

Question 10

Bobby 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 increased.The increase in market value of Wilson Company's shares will affect Bobby Company by ________.

Accepted Answer

A) increasing assets and increasing stockholders' equity 
B) decreasing investments and increasing cash 
C) increasing investments and increasing stockholders' equity 
D) no effect

Question 11

On January 1,2015,Parent Company acquired 80 percent of the outstanding shares of Subsidiary Company.At the time of the acquisition,Parent Company's total liabilities were $210.At the time of the acquisition,Subsidiary Company's total liabilities were $280.What is the amount of total liabilities on the consolidated balance sheet immediately after the acquisition of Subsidiary Company's stock? (Assume elimination entries are completed.)

Accepted Answer

A) $0 
B) $280 
C) $338 
D) $490

Question 12

Line items on common-size financial statements are expressed in percentages of some base such as total assets.

Accepted Answer

A) True 
 B)False

Question 13

The debt-to-equity ratio is used to judge a company's ________.

Accepted Answer

A) return on investment 
B) liquidity 
C) risk of insolvency 
D) marketability

Question 14

A parent company purchases 100 percent of the outstanding common stock in a subsidiary.What happens to the subsidiary the day after the purchase? Which of the following statements is FALSE?

Accepted Answer

A) The purchase by the parent company does not affect the subsidiary's books. 
B) The subsidiary ceases to exist. 
C) The subsidiary continues as a separate legal entity. 
D) The subsidiary has its own set of books.

Question 15

Brian Company purchased 10% of the outstanding shares of Wilson Company.Brian Company classifies the investments as trading securities.At the end of the year,the market value of the shares increased.The increase in market value of Wilson Company's shares will affect Brian Company by ________.

Accepted Answer

A) increasing cash and increasing investments 
B) decreasing investments and increasing stockholders' equity 
C) increasing investments and increasing stockholders' equity 
D) increasing cash and increasing stockholders' equity

Question 16

Goodwill is recognized when one company purchases another company and ________.

Accepted Answer

A) the purchase price of the acquired company exceeds the book value of the acquired company's assets 
B) the purchase price of the acquired company exceeds the book value of the acquired company's assets less liabilities 
C) the purchase price of the acquired company exceeds the fair value of the acquired company's assets 
D) the purchase price of the acquired company exceeds the fair value of the acquired company's assets less liabilities

Question 17

The Barnum Company reports the following information:  What is the debt-to-equity ratio at December 31,2012?

Accepted Answer

A) 15.7% 
B) 27.6% 
C) 43.1% 
D) 75.7%

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

The Bailey Company reports the following information:  What is the return on sales for the year ended December 31,2012?

Accepted Answer

A) 6.8% 
B) 19.5% 
C) 25.8% 
D) 42.2%

Question 20

The company that owns 100 percent of another company's stock is called the ________.The company that is controlled by another company is called the ________.

Accepted Answer

A) majority interest; minority interest 
B) controlling interest; noncontrolling interest 
C) parent; subsidiary 
D) subsidiary; segment

Exam 17: Understanding and Analyzing Consolidated Financial Statements

The following information is available for the Marvin Company: What is the earnings per share for the year ended December 31,2009?

Which of the following statements about efficient capital markets is FALSE?

The Barneveld Company reports the following information: What is the earnings per share for the year ended December 31,2012?

Noncontrolling interests appear on a consolidated balance sheet when a parent company owns more than 50 percent but less than 100 percent of a subsidiary's common stock.

The Investment in Subsidiary account appears on a consolidated balance sheet.

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

A subsidiary is a company that owns more than 50 percent of another company's outstanding common stock.

Return on sales equals gross profit divided by sales.

Bobby 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 increased.The increase in market value of Wilson Company's shares will affect Bobby Company by ________.

Line items on common-size financial statements are expressed in percentages of some base such as total assets.

The debt-to-equity ratio is used to judge a company's ________.

A parent company purchases 100 percent of the outstanding common stock in a subsidiary.What happens to the subsidiary the day after the purchase? Which of the following statements is FALSE?

Brian Company purchased 10% of the outstanding shares of Wilson Company.Brian Company classifies the investments as trading securities.At the end of the year,the market value of the shares increased.The increase in market value of Wilson Company's shares will affect Brian Company by ________.

Goodwill is recognized when one company purchases another company and ________.

The Barnum Company reports the following information: What is the debt-to-equity ratio at December 31,2012?

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.

The Bailey Company reports the following information: What is the return on sales for the year ended December 31,2012?

The company that owns 100 percent of another company's stock is called the .The company that is controlled by another company is called the .