Question 1

On December 31,2009,Rudd Company acquired 80 percent of the common stock of Wilton Company.At the time,Rudd held land with a book value of $100,000 and a fair value of $260,000;Wilton held land with a book value of $50,000 and fair value of $600,000.Using the parent company theory,at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

Accepted Answer

A)  $550,000
B)  $590,000
C)  $700,000
D)  $860,000 B

Question 2

Small-Town Retail owns 70 percent of Supplier Corporation's common stock.For the current financial year,Small-Town and Supplier reported sales of $450,000 and $300,000 and expenses of $290,000 and $240,000,respectively.
-Based on the preceding information,what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach?

Accepted Answer

A)  $210,000
B)  $202,000
C)  $160,000
D)  $220,000 D

Question 3

Quid Corporation acquired 60 percent of Pro Company's common stock on December 31,2004.Goodwill (attributable to Quid's acquisition of Pro shares)of $150,000 was reported in the consolidated financial statements at December 31,2004.Proprietary theory approach was used in determining this amount.What is the amount of goodwill to be reported under entity theory approach?

Accepted Answer

A)  $150,000
B)  $200,000
C)  $250,000
D)  $100,000 C

Question 4

In which of the following cases would consolidation be inappropriate?

Accepted Answer

A)  The subsidiary is in bankruptcy.
B)  Subsidiary's operations are dissimilar from those of the parent.
C)  The parent owns 90 percent of the subsidiary's common stock,but all of the subsidiary's nonvoting preferred stock is held by a single investor.
D)  Subsidiary is foreign.

Question 5

Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation,its bitter rival,by issuing bonds with a par value and fair value of $150,000.Immediately prior to the acquisition,Beta reported total assets of $500,000,liabilities of $280,000,and stockholders' equity of $220,000.At that date,Standard Video reported total assets of $400,000,liabilities of $250,000,and stockholders' equity of $150,000.Included in Standard's liabilities was an account payable to Beta in the amount of $20,000,which Beta included in its accounts receivable.
-Based on the preceding information,what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition?

Accepted Answer

A)  $500,000
B)  $530,000
C)  $280,000
D)  $660,000

Question 6

Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,2006.Goodwill (attributable to Quid's acquisition of Pro shares)of $300,000 was reported in the consolidated financial statements at December 31,2006.Parent company approach was used in determining this amount.What is the amount of goodwill to be reported under proprietary theory approach?

Accepted Answer

A)  $300,000
B)  $400,000
C)  $150,000
D)  $100,000

Question 7

Consolidated financial statements tend to be most useful for:

Accepted Answer

A)  Creditors of a consolidated subsidiary.
B)  Investors and long-term creditors of the parent company.
C)  Short-term creditors of the parent company.
D)  Stockholders of a consolidated subsidiary.

Question 8

Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo.Company Esstwo owns 100 percent of Company Essthree.Consolidated financial statements should be prepared to report the financial status and results of operations for:

Accepted Answer

A)  Pea.
B)  Pea plus Essone.
C)  Pea plus Essone plus Esstwo.
D)  Pea plus Essone plus Esstwo plus Essthree.

Question 9

Roland Company acquired 100 percent of Garros Company's voting shares in 2007.During 2008,Garros purchased tennis equipment for $30,000 and sold them to Roland for $55,000.Roland continues to hold the items in inventory on December 31,2008.Sales for the two companies during 2008 totaled $655,000,and total cost of goods sold was $420,000.Which of the following observations will be true if no adjustment is made to eliminate the intercorporate sale when a consolidated income statement is prepared for 2008?

Accepted Answer

A)  Sales would be overstated by $30,000.
B)  Cost of goods sold will be understated by $25,000.
C)  Net income will be overstated by $25,000.
D)  Consolidated net income will be unaffected.

Question 10

On January 3, 2009, Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 2009, are as follows:
  
-Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31,2009,consolidated balance sheet?

Accepted Answer

A)  $90,000
B)  $54,000
C)  $36,000
D)  $0

Question 11

Elbonia Corporation,a 100 percent subsidiary of Atomic Corporation,caters to its parent's entire inventory requirements.In 2007,Elbonia produced inventory at a cost of $36,000 and sold it to Atomic for $75,000.Atomic held all the items in inventory on January 1,2008.During 2008,Atomic sold all the units for $98,000.Assume that the companies had no other transactions during 2007 and 2008.
-Based on the preceding information,what amount would be reported in the consolidated financial statements for inventory on January 1,2008?

Accepted Answer

A)  $39,000
B)  $36,000
C)  $75,000
D)  $0

Question 12

Small-Town Retail owns 70 percent of Supplier Corporation's common stock.For the current financial year,Small-Town and Supplier reported sales of $450,000 and $300,000 and expenses of $290,000 and $240,000,respectively.
-Based on the preceding information,what is the amount of net income to be reported in the consolidated income statement for the year under the parent company theory approach?

Accepted Answer

A)  $220,000
B)  $202,000
C)  $160,000
D)  $200,000

Question 13

Elbonia Corporation,a 100 percent subsidiary of Atomic Corporation,caters to its parent's entire inventory requirements.In 2007,Elbonia produced inventory at a cost of $36,000 and sold it to Atomic for $75,000.Atomic held all the items in inventory on January 1,2008.During 2008,Atomic sold all the units for $98,000.Assume that the companies had no other transactions during 2007 and 2008.
-Based on the preceding information,what amount would be reported in the consolidated financial statements for cost of goods sold for 2008?

Accepted Answer

A)  $0
B)  $39,000
C)  $36,000
D)  $98,000

Question 14

Elbonia Corporation,a 100 percent subsidiary of Atomic Corporation,caters to its parent's entire inventory requirements.In 2007,Elbonia produced inventory at a cost of $36,000 and sold it to Atomic for $75,000.Atomic held all the items in inventory on January 1,2008.During 2008,Atomic sold all the units for $98,000.Assume that the companies had no other transactions during 2007 and 2008.
-Based on the preceding information,what amount would be reported in the consolidated financial statements for cost of goods sold for 2007?

Accepted Answer

A)  $39,000
B)  $36,000
C)  $75,000
D)  $0

Question 15

FASB issued Interpretation No.46 R related to the Consolidation of Variable Interest Entities.Why does FASB have difficulty in prescribing when these entities are consolidated?

Accepted Answer

The answer of FASB issued Interpretation No.46 R related to...

Question 16

Consolidated financial statements are required by GAAP in certain circumstances.This information can be very useful to stockholders and creditors.Yet,there are limitations to these financial statements for which the users must be aware.What are at least three (3)limitations of consolidated financial statements?

Accepted Answer

The answer of Consolidated financial statements are required by GAAP...

Question 17

Zeta Corporation and its subsidiary reported consolidated net income of $320,000 for the year ended December 31,2008.Zeta owns 80 percent of the common shares of its subsidiary,acquired at book value.Noncontrolling interest was assigned income of $30,000 in the consolidated income statement for 2008.What is the amount of separate operating income reported by Zeta for the year?

Accepted Answer

A)  $170,000
B)  $150,000
C)  $120,000
D)  $200,000

Question 18

On January 3,2009,Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash.At the acquisition date,the book values and fair values of Frazer's assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer.The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 2009.
 
-Based on the preceding information,what will be the amount of net income reported by Frazer Corporation in 2009?

Accepted Answer

A)  $44,000
B)  $55,000
C)  $66,000
D)  $36,000

Question 19

In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Stockholders' Equity section of the Balance Sheet.
a.What is a non-controlling interest?
b.Why must it be reported in the financial statements as an element of equity rather than a liability?

Accepted Answer

The answer of In reading a set of consolidated financial...

Question 20

On January 1,2009,Gold Rush Company acquires 80 percent ownership in California Corporation for $200,000.The fair value of the noncontrolling interest at that time is determined to be $50,000.It reports net assets with a book value of $200,000 and fair value of $230,000.Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time,excluding its investment in California.What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice?

Accepted Answer

A)  $50,000
B)  $30,000
C)  $40,000
D)  $20,000

Exam 3: The Reporting Entity and Consolidated Financial Statements

In which of the following cases would consolidation be inappropriate?

Consolidated financial statements tend to be most useful for:

Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo.Company Esstwo owns 100 percent of Company Essthree.Consolidated financial statements should be prepared to report the financial status and results of operations for:

FASB issued Interpretation No.46 R related to the Consolidation of Variable Interest Entities.Why does FASB have difficulty in prescribing when these entities are consolidated?