Deck 5: Consolidation Subsequent to Acquisition Date

Question 1

The rationale behind allocating goodwill across a subsidiary's various cash-generating units is:

A) that doing so will result in more accurate asset valuations.
B) that it is necessary to comply with IASB requirements.
C) that doing so would facilitate comparisons between operating segments.
D) that the cash-generating units will benefit from the synergies of the combination.

Answer 1

D

Question 2

Intangible assets with definite useful lives should be amortized:

A) over their useful lives.
B) over the time periods provided under IAS 36 which prescribes amortization periods for different classes of assets.
C) under the applicable capital cost allowance rates provided by the Canada Revenue
Agency.
D) not at all.

Answer 2

A

Question 3

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. What would be the net income reported on Errant's Consolidated Income Statement on December 31, 2012? (Assume that Errant's income for the year does not include any income from Grub.)

A) $90,000.
B) $160,000.
C) $230,000.
D) $250,000.

Answer 3

C

Question 4

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. If Errant paid no dividends during 2012, what amount of retained earnings would appear on Errant's Consolidated Balance Sheet as at December 31, 2012?

A) $60,000.
B) $130,000.
C) $160,000.
D) $300,000.

Question 5

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. Assuming that Errant uses the Cost Method, what would be the journal entry to record the dividends received by Errant during the year?

A)
B)
C)
D)

Question 6

Which of the following statements best describes the accounting treatment of Intangible Assets with indefinite lives?

A) All intangible assets are written down when their carrying values exceed their fair market values.
B) With the exception of Goodwill, all intangible assets are written down when their carrying values exceed their fair market values.
C) All intangible assets are written down when their carrying values exceed their undiscounted future cash flows.
D) The recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount than no impairment exists; otherwise, there is an impairment and the asset is written down to its recoverable amount.

Question 7

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. What would be the journal entry to record the dividends received by Errant during the year?

A)
B)
C)
D)

Question 8

Testing intangible assets with indefinite useful lives for impairment:

A) occurs every year.
B) occurs when only there has been an indication of an impairment in the value of the asset such as a reduction in cash flow generation, idle assets, etc.
C) never occurs because the asset has an indefinite useful life.
D) whenever required by the company's auditors.

Question 9

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. What would be Errant's journal entry to record the amortization of the acquisition differential (excluding any goodwill impairment) on December 31, 2012? (Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.)

A)
B)
C)
D)

Question 10

Under the Equity Method, which of the following statements is TRUE?

A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
D) The parent's investment in the Subsidiary is recorded at Cost and reduced by any excess dividends received from the subsidiary.

Question 11

Consolidated Retained Earnings include:

A) consolidated net income less any dividends declared by either the parent or the subsidiary.
B) consolidated net income less any dividends declared by the parent only.
C) the parent's net income plus its share of the subsidiary's income less any dividends declared by either the parent or the subsidiary.
D) the parent's share of consolidated net income less any dividends declared by the parent.

Question 12

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. How much Goodwill will be carried on Grub's Balance Sheet on December 31, 2012?

A) Nil.
B) ($24,000).
C) $20,000.
D) $24,000.

Question 13

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. What would be Errant's journal entry to record Grub's Net Income for 2012?

A)
B)
C)
D) No entry is required.

Question 14

Consolidated Net Income is equal to:

A) the sum of the net incomes of both the parent and its subsidiaries.
B) the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends.
C) the parent's net income excluding any income arising from its investment in the subsidiary.
D) the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill.

Question 15

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. The amount of goodwill arising from this business combination is:

A) Nil.
B) ($24,000).
C) $12,000.
D) $24,000.

Question 16

Prior to July 2001, the required treatment of Goodwill was:

A) to amortize it over its useful life, to a maximum of 40 years.
B) to amortize it over its useful life, to a maximum of 20 years.
C) to re-allocate a portion of it to other intangible assets.
D) to capitalize but not amortize the amount.

Question 17

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. Which of the following journal entries would be required on December 31, 2012 to record the Impairment of the Goodwill?

A) No entry is required.
B)
C)
D)

Question 18

A Company sells inventory to its Subsidiary, B Company at a mark-up of 20% on cost. Of what significance is this transaction, should A wish to prepare Consolidated Financial Statements? The inventory is still in B's warehouse at year end.

A) This is not significant. Any inter-company profits are eliminated during the Consolidation process.
B) A's net income will be under-stated.
C) B's income will be over-stated.
D) There will be unrealized profits in inventory which will only be realized once B sells this inventory to outsiders.

Question 19

An impairment loss can be reversed when:

A) there is an indication that the impairment loss no longer exists or has been reduced and there has been a change in the estimates used to determine the assets recoverable amount.
B) with the exception of goodwill, all intangible assets carrying values exceed their fair market values.
C) the intangible assets carrying values exceed their undiscounted future cash flows.
D) with the exception of goodwill, the recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount then the impairment loss previously recorded is reversed.

Question 20

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2012. On that date, Grub Inc. had common stock and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The Balance Sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: The net incomes for Errant and Grub for the year ended December 31, 2012 were $160,000 and $90,000 respectively. Grub paid $9,000 in Dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2012 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. The amount of Retained Earnings appearing on the Consolidated Balance Sheet as at January 1, 2012 would be:

A) $60,000.
B) $70,000.
C) $130,000.
D) $160,000.

Question 21

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The amount of other expenses appearing on Big Guy's June 30, 2014 Consolidated Income Statement would be:

A) $11,600.
B) $12,000.
C) $13,000.
D) $13,400.

Question 22

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The amount of Goodwill arising from this business combination is:

A) Nil.
B) -$40,000.
C) $50,000.
D) $64,000.

Question 23

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid Dividends of $10,000. Assuming that GNR owned 80% of NMX instead of 100%, what would be the effect on GNR's investment in NMX account under the Cost Method?

A) An increase of $24,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.

Question 24

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The amount of Non-Controlling Interest on Big Guy's Consolidated Balance Sheet on July 1, 2011 would be:

A) $0.
B) $88,000.
C) $90,000.
D) $270,000.

Question 25

The consolidation elimination entry required to remove any dividends received from a subsidiary prior to the preparation of Consolidated Financial statements (assuming that the parent uses the cost method to record its investment in the sub) would be:

A)
B)
C)
D)

Question 26

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid Dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?

A) An increase of $24,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.

Question 27

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid Dividends of $10,000. Assuming once again that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method if GNR received $9,000 in dividends from NMX?

A) An increase of $23,000.
B) An increase of $1,000
C) No effect.
D) A decrease of $1,000.

Question 28

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The amount of non-controlling interest appearing on Big Guy's June 30, 2014 Consolidated Income Statement would be:

A) Nil.
B) $2,000.
C) $2,120.
D) $3,600.

Question 29

Consolidated Shareholders' Equity:

A) does not include any noncontrolling Interest.
B) is equal to the sum of the Shareholders' Equity Sections of the parent and the subsidiary.
C) is equal to that of the parent company under the Equity Method.
D) is higher under the Equity Method when the subsidiary does not declare dividends.

Question 30

Which of the following adjustments (if any) to Retained Earnings is necessary for the preparation of the Consolidated Balance Sheet?

A) Under both the Cost and Equity methods, the parent must record its share of its
Subsidiary's income.
B) Under both the Cost and Equity methods, the parent must record its share of its
Subsidiary's income less any dividends received from the subsidiary.
C) No adjustment is required under either the Cost or the Equity methods.
D) No adjustment is required if the parent has been using the Equity Method.

Question 31

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. What amount of dividends would appear on Big Guy's Consolidated Statement of Retained Earnings as at June 30, 2014?

A) $2,000.
B) $20,000.
C) $21,600.
D) $22,000.

Question 32

Any excess of fair value over book value attributable to land on the date of acquisition is to be:

A) allocated to other identifiable assets.
B) capitalized and amortized.
C) charged to Retained Earnings on the date of acquisition.
D) taken into income when the Land is sold.

Question 33

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The amount of interest expense appearing on Big Guy's June 30, 2014 Consolidated Income Statement would be:

A) $36000.
B) $57,600.
C) $62,400.
D) $63,000.

Question 34

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid Dividends of $10,000. Assuming that GNR Inc. uses the Cost Method, what effect would the above information have on GNR's investment in NMX account?

A) An increase of $10,000.
B) An increase of $30,000.
C) An increase of $40,000
D) No effect.

Question 35

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The Net Income attributable to Big Guy appearing on Big Guy's Consolidated Income Statement on June 30, 2014 would be:

A) $216,080.
B) $218,480.
C) $228,480.
D) $279,600.

Question 36

If the parent company used the equity method to account for its investment and the subsidiary company showed a profit for the past year, the consolidation elimination entry required to remove a subsidiary's income from the parent's books prior to the preparation of Consolidated Financial statements would be:

A)
B)
C)
D)

Question 37

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014:

A) $9,600.
B) $12,000.
C) $360,000.
D) The investment in Humble Account would not appear on the Consolidated Balance Sheet.

Question 38

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014:

A) Nil.
B) $30,000.
C) $40,000.
D) $50,000.

Question 39

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid Dividends of $10,000. Assuming that GNR Inc. uses the Equity Method, what effect would the above information have on GNR's investment in NMX account?

A) An increase of $10,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.

Question 40

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014: An impairment test conducted in September 2012 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2014, Humble Inc. borrowed $20,000 in Cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies. The amount of depreciation expense appearing on Big Guy's June 30, 2014 Consolidated Income Statement would be:

A) $113,400.
B) $113,720.
C) $115,000.
D) $116,280.

Question 41

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2011. On that date, Humble Corp. had Common Stock and Retained Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2021. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The Balance Sheets of Both Companies, as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended June 30, 2014:

A) $872,000.
B) $878,600.
C) $881,800.
D) $885,000.