Deck 17: Understanding and Analyzing Consolidated Financial Statements

Question 1

Jerome Company purchased common stock in Gonzalez Company.Jerome Company treats the investment as available-for-sale securities.During the current year,Gonzalez Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jerome Company owns 10% of the outstanding shares of Gonzalez Company.Gonzalez Company's dividend will affect Jerome Company by ________.

A) increasing cash and investments by $100,000
B) increasing investments and investment revenue by $100,000
C) increasing cash and investment revenue by $100,000
D) increasing cash and decreasing investments by $100,000

Answer 1

C

Question 2

An investor holds 5% of the outstanding stock of an investee.Securities that the investor company buys only with the intent to resell them shortly are called ________.

A) available-for-sale securities
B) equity method securities
C) trading securities
D) options

Answer 2

C

Question 3

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?

A) increasing cash and investments by $400,000
B) increasing stockholders' equity and investments by $400,000
C) increasing cash and stockholders' equity by $400,000
D) no effect

Answer 3

D

Question 4

An investor in available-for-sale securities has the following information available at December 31,2012:
Market value of trading securities $\quad \$8,000$
Acquisition cost of trading securities $\quad \$9,000$
How does the investor report the change in market value on the available-for-sale securities at December 31,2012?

A) unrealized loss of $1,000 on income statement
B) unrealized gain of $1,000 on income statement
C) $1,000 is added to accumulated other comprehensive income account on the balance sheet
D) $1,000 is subtracted from the accumulated other comprehensive income account on the balance sheet

Question 5

Randall 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 Randall Company's investment in Boulder Company is $44 million.What accounts on Randall Company's books would be affected by the dividends of Boulder Company?

A) none
B) Cash increase $2 million and Investment Revenue increases $2 million
C) Cash increase $5 million and Investment Revenue increases $5 million
D) Cash increase $2 million and Investments decrease $2 million

Question 6

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?

A) No entry is needed.
B) Cash increases $11 million and Stockholders' equity increases $11 million.
C) Investments increase $11 million and Stockholders' equity increases $11 million.
D) Investments increase $1 million and Stockholders' equity increases $1 million.

Question 7

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

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

Question 8

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 ________.

A) increasing investments by $1,600,000
B) increasing investments and cash by $2,000,000
C) increasing cash and stockholders' equity by $400,000
D) increasing cash and decreasing investments by $1,600,000

Question 9

Arizona Company has 40,000 shares of its common stock outstanding.Mexico Company owns 5,000 shares of Arizona Company's stock.Which of the following methods should Mexico Company use to account for its investment in Arizona Company?

A) market-value
B) equity
C) consolidated
D) available-for-sale

Question 10

Robert 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 Robert Company's investment in Boulder Company is $44 million.What accounts on Robert Company's books would be affected by the net income of Boulder Company?

A) none
B) Investments increase $15 million and Investment Revenue increases $15 million
C) Cash increases $15 million and Investment Revenue increases $15 million
D) Investments increase $6 million and Investment Revenue increases $6 million

Question 11

Van Dover Company purchased common stock in Sanchez Company.During the current year,Sanchez Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Van Dover Company owns 30% of the outstanding shares of Sanchez Company.Sanchez Company's dividend will affect Van Dover Company by ________.

A) increasing cash and stockholders' equity by $300,000
B) increasing investments and stockholders' equity by $300,000
C) increasing cash and decreasing investments by $300,000
D) increasing cash and increasing investments by $300,000

Question 12

An investor in trading securities has the following information available at December 31,2012:
Market value of trading securities $\quad \$8,000$
Acquisition cost of trading securities $\quad \$9,000$
How does the investor report the change in market value on the trading securities at December 31,2012?

A) unrealized loss of $1,000 on income statement
B) unrealized gain of $1,000 on income statement
C) $1,000 is added to other comprehensive income account on the balance sheet
D) $1,000 is subtracted from the other comprehensive income account on the balance sheet

Question 13

An investor holds 5% of the outstanding stock of an investee.The investor plans to sell the stock in two months.The investor reports the dividends received from the stock as ________.

A) an increase in the investment account
B) a decrease in the investment account
C) dividend revenue on the income statement
D) equity in earnings of the investee on the income statement

Question 14

An investor holds 1% of the outstanding stock of an investee.The investor plans to hold the stock for a long time.The investor reports the dividends received from the stock as ________.

A) an increase in the investment account
B) a decrease in the investment account
C) dividend revenue on the income statement
D) equity in earnings of the investee on the income statement

Question 15

Wyoming Company has 40,000 shares of its common stock outstanding.Dakota Company owns 35,000 shares of Wyoming Company's stock.Which of the following methods should Dakota Company use to account for its investment in Wyoming Company?

A) market-value
B) equity
C) consolidated financial statements
D) cost

Question 16

An investor holds 5% of the outstanding stock of an investee.Securities that the investor company does not intend to sell in the near future are called ________.

A) trading securities
B) options
C) available-for-sale securities
D) equity method securities

Question 17

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?

A) Cash decreases $40 million and Investments increase $40 million
B) Cash decreases $40 million and Stockholders' Equity increase $40 million
C) Investments increase $40 million and Accounts Payable increase $40 million
D) No entry

Question 18

California Company has 40,000 shares of its common stock outstanding.Utah Company owns 15,000 shares of California Company's stock.Which of the following methods should Utah Company use to account for its investment in California Company?

A) market-value
B) equity
C) consolidated
D) available-for-sale

Question 19

Randy Company acquired 40% of the voting stock of Biel Company for $40 million.At the end of Year 1,Biel Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Randy Company's investment in Biel Company is $44 million.The ________ method should be used by Randy Company to account for the investment.

A) market-value
B) consolidated
C) cost
D) equity

Question 20

Branson Company purchased 40% of the outstanding shares of Missouri 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 Missouri Company's shares will affect Branson Company in which of the following ways?

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

Question 21

Rainbow Company acquired 100 percent of the outstanding common stock of Ribbon Company.At the date of acquisition,no goodwill was involved and the book value of the assets and liabilities of Ribbon Company equal their fair values.Immediately after the acquisition,an elimination entry is prepared in order to prepare consolidated financial statements.Which of the following accounts are affected by the elimination entry?

A) Investment in Ribbon Company and Investment Revenue
B) Stockholders' Equity of Ribbon Company and Investment Revenue
C) Fixed Assets of Ribbon Company and Investment Revenue
D) Investment in Ribbon Company and Stockholders' Equity of Ribbon Company

Question 22

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

Question 23

An investor that has effective control over an investee usually owns ________ of the investee's stock.

A) less than 20 percent
B) more than 20 percent
C) more than 40 percent
D) more than 50 percent

Question 24

Under the equity method of accounting for investments,the investor recognizes income for ________.

A) the investor's share of income earned by the investee company
B) dividends received from the investee company
C) the change in market value of the investee company's stock
D) the amortization of goodwill associated with the investee company

Question 25

Accountants require investors with significant influence,but not control,over the decisions of an investee firm to use the ________ method.

A) equity
B) cost
C) market value
D) lower of cost or market

Question 26

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?

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 27

On January 1,2014,Jonathon Company purchased common stock in Garcia Company for $1,000,000.Jonathon Company treats the investment as trading securities.During 2014,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jonathon Company owns 10% of the outstanding shares of Garcia Company.The market value of the investment at December 31,2014 is $1,100,000.What is the balance in the Investment account at December 31,2014?

A) $1,000,000
B) $1,100,000
C) $1,400,000
D) $1,500,000

Question 28

Accountants require investors without significant influence over the decisions of an investee firm to use the ________ method.

A) equity
B) cost
C) market value
D) lower of cost or market

Question 29

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?

A) adjustment to Investment account
B) unrealized gain of $2,000 on income statement
C) adjustment to " other comprehensive income" account
D) not reported

Question 30

When a company owns less than 20 percent of the common stock of another company,the market value method of accounting for investments in equity securities is used.

Question 31

On January 1,2014,Jeff Company purchased common stock in Garcia Company for $1,000,000.Jeff Company treats the investment as available-for-sale securities.During 2014,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Jeff Company owns 10% of the outstanding shares of Garcia Company.The market value of the investment at December 31,2014 is $1,100,000.What is the balance in the Investment account at December 31,2014?

A) $1,000,000
B) $1,100,000
C) $1,400,000
D) $1,500,000

Question 32

Accountants require investors that have control over the decisions of an investee firm to use the ________ method.

A) consolidated financial statements
B) cost
C) market value
D) lower of cost or market

Question 33

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.

Question 34

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.

Question 35

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 ________.

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

Question 36

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.

Question 37

Under the equity method of accounting for investments,the acquisition cost of an investment is adjusted for ________.

A) dividends received only
B) investor's share of earnings or losses of investee after investment date only
C) changes in market value of investment
D) dividends received and investor's share of earnings or losses of investee after investment date

Question 38

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?

A) none
B) Cash increase $44 million and Stockholders' Equity increase $44 million
C) Investments increase $44 million and Stockholders' Equity increase $44 million
D) Investments increase $4 million and Stockholders' Equity increase $4 million

Question 39

For trading securities,changes in the market value of the securities are included in ________.For available-for-sale securities,changes in the market value of the securities are included in ________.

A) Other Comprehensive Income; Other Comprehensive Income
B) Other Comprehensive Income; Retained Earnings
C) Retained Earnings; Other Comprehensive Income
D) Retained Earnings; Retained Earnings

Question 40

On January 1,2014,Liberty Company purchased common stock in Garcia Company for $1,000,000.During 2014,Garcia Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Liberty Company owns 30% of the outstanding shares of Garcia Company.The market value of the investment at December 31,2014 is $1,100,000.What is the balance in the Investment account at December 31,2014?

A) $1,000,000
B) $1,100,000
C) $1,900,000
D) $2,200,000

Question 41

The account "Noncontrolling Interests" as reported on a balance sheet shows ________.

A) the parent company's interest in a subsidiary
B) the subsidiary's interest in a parent company
C) the outside stockholders' interest in a subsidiary
D) the outside stockholders' interest in a parent company

Question 42

Barnard Company owns a 60 percent interest in Simon Company.For the year ended December 31,2016,the net income of Barnard Company was $80 and the net income of Simon Company was $10.What is the balance in the Noncontrolling Interests account on the consolidated income statement for the year ending December 31,2016?

A) $0
B) $4
C) $6
D) $48

Question 43

When an investing company owns less than 50 percent of another company,the companies must prepare consolidated financial statements.

Question 44

French Company acquired 80 percent of the outstanding shares of Godiva Company for $152 in cash.(No goodwill was present at the time of acquisition.)The net income for the current year for French Company is $100.The net income for the current year for Godiva Company is $20.There were no intercompany sales.The book value and fair value of Godiva's assets and liabilities were equal at the acquisition date.What is the net income on the consolidated income statement for the current year?

A) $80
B) $96
C) $100
D) $116

Question 45

Presented below is the balance sheet of Harry Company at January 1,2015:
$\begin{array}{ll}\text { Cash } & \$ 100 \\\text { Net Fixed Assets } & {400} \\\text { Total Assets } & {\$ 500}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 20 \\\text { Long-term Bonds Payable } & 220 \\\text { Stockholders' Equity } & {260} \\\text { Total Liabilities and Stockholders' Equity } & \$ 500\end{array}$
The balance sheet of Marvelous Company at January 1,2015 is below:
$\begin{array}{ll}\text { Cash } & \$ 400 \\\text { Net Fixed Assets } & {380} \\\text { Total Assets } &{\$ 780}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 120 \\\text { Long-term Bonds Payable } & 280 \\\text { Stockholders' Equity } & \underline{380} \\\text { Total Liabilities and Stockholders' Equity } & \$ 780\end{array}$
On January 1,2015,Marvelous Company acquired 100 percent of the outstanding common stock of Harry Company for $260 cash.The book value and fair value of Harry's assets and liabilities were equal.
What is the amount of Total Stockholders' Equity on the consolidated balance sheet immediately after the acquisition of Harry Company's stock? (Assume elimination entries are completed.)

A) $0
B) $260
C) $380
D) $640

Question 46

Presented below is the balance sheet of Holman Company at January 1,2015:
$\begin{array}{ll}\text { Cash } & \$ 100 \\\text { Net Fixed Assets } & {400} \\\text { Total Assets } &{\$ 500}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 20 \\\text { Long-term Bonds Payable } & 220 \\\text { Stockholders' Equity } & \underline{260} \\\text { Total Liabilities and Stockholders' Equity } & \$ 500\end{array}$
The balance sheet of Beck Company at January 1,2015 is below:
$\begin{array}{ll}\text { Cash } & \$ 400 \\\text { Net Fixed Assets } &{380} \\\text { Total Assets } & {\$ 780}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 120 \\\text { Long-term Bonds Payable } & 280 \\\text { Stockholders' Equity } & \underline{380} \\\text { Total Liabilities and Stockholders' Equity } & \$ 780\end{array}$
On January 1,2015,Beck Company acquired 100 percent of the outstanding common stock of Holman Company for $260 cash.The book value and fair value of Holman's assets and liabilities were equal.Holman Company generated net income of $30 during the year ended December 31,2015.There were no intercompany sales.What is the balance in the Investment in Holman Company account on December 31,2015 before elimination entries are prepared?

A) $0
B) $30
C) $230
D) $290

Question 47

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.)

A) $0
B) $120
C) $190
D) $440

Question 48

When a company acquires all of the common stock of a subsidiary,the books of the subsidiary are no longer used.

Question 49

Presented below is the balance sheet of Holmes Company at January 1,2015:
$\begin{array}{ll}\text { Cash } & \$ 100 \\\text { Net Fixed Assets } & 400 \\\text { Total Assets } & \$ 500\end{array}$
Accounts Payable $\quad \$20$
Long-term Bonds Payable $\quad220$
Stockholders' Equity $\quad260$
Total Liabilities and Stockholders' Equity $\quad\$500$
The balance sheet of Montvale Company at January 1,2015 is below:
cash $\quad\$400$
Net Fixed Assets $\quad380$
Total Assets $\quad\$780$
$\begin{array}{ll}\text { Accounts Payable } & \$ 120 \\\text { Long-term Bonds Payable } & 280 \\\text { Stockholders' Equity } & \underline{380} \\\text { Total Liabilities and Stockholders' Equity } & \$ 780\end{array}$
On January 1,2015,Montvale Company acquired 100 percent of the outstanding common stock of Holmes Company for $260 cash.The book value and fair value of Holmes' assets and liabilities were equal.What is the balance in the Investment in Holmes Company account on the consolidated balance sheet immediately after the acquisition of Holmes Company's stock? (Assume elimination entries are completed.)

A) $0
B) $260
C) $380
D) $500

Question 50

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

Question 51

On January 1,2014,a parent company purchased 90 percent of the stock in a subsidiary.On January 1,2010,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:
$\begin{array} { l } \text { Parent Company Net Income for Past Year}& \text {\$ 100 million }\\ \text { Subsidiary Company Net Income for Past Year }& \text {\$ 50 million }\\\end{array}$

What is the consolidated net income for the year ended December 31,2014?

A) $100 million
B) $135 million
C) $145 million
D) $150 million

Question 52

When preparing consolidated financial statements,eliminating entries are made to avoid double-counting ________.

A) assets only
B) liabilities only
C) assets, liabilities and stockholders' equity
D) none of the above

Question 53

Presented below is the balance sheet of Hansen Company at January 1,2015:
$\begin{array}{ll}\text { Cash } & \$ 100 \\\text { Net Fixed Assets } & \underline{400} \\\text { Total Assets } & \$ 500\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 20 \\\text { Long-term Bonds Payable } & 220 \\\text { Stockholders' Equity } & \underline{260} \\\text { Total Liabilities and Stockholders' Equity } & \$ 500\end{array}$
The balance sheet of Monty Company at January 1,2015 is below:
$\begin{array}{ll}\text { Cash } & \$ 400 \\\text { Net Fixed Assets } &{380} \\\text { Total Assets } &{\$ 780}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 120 \\\text { Long-term Bonds Payable } & 280 \\\text { Stockholders' Equity } & \underline{380} \\\text { Total Liabilities and Stockholders' Equity } & \$ 780\end{array}$
On January 1,2015,Monty Company acquired 100 percent of the outstanding common stock of Hansen Company for $260 cash.The book value and fair value of Hansen's assets and liabilities were equal.
What is the amount of Total Liabilities on the consolidated balance sheet immediately after the acquisition of Hansen Company's stock? (Assume elimination entries are completed.)

A) $0
B) $380
C) $400
D) $640

Question 54

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:
$\begin{array} { l } \text { Parent Company Net Income for Past Year}& \text {\$ 100 million }\\ \text { Subsidiary Company Net Income for Past Year }& \text {\$ 50 million }\\\end{array}$

What is the consolidated net income for the year ended December 31,2014?

A) $0
B) $50 million
C) $100 million
D) $150 million

Question 55

The existence of a parent company and a subsidiary requires special accounting procedures.

Question 56

Presented below is the balance sheet of Houser Company at January 1,2015:
$\begin{array}{ll}\text { Cash } & \$ 100 \\\text { Net Fixed Assets } & 400 \\\text { Total Assets } & \$500\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 20 \\\text { Long-term Bonds Payable } & 220 \\\text { Stockholders' Equity } & \underline{260} \\\text { Total Liabilities and Stockholders' Equity } & \$ 500\end{array}$
The balance sheet of Maury Company at January 1,2015 is below:
$\begin{array}{ll}\text { Cash } & \$ 400 \\\text { Net Fixed Assets } &{380} \\\text { Total Assets } &{\$ 780}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 120 \\\text { Long-term Bonds Payable } & 280 \\\text { Stockholders' Equity } & \underline{380} \\\text { Total Liabilities and Stockholders' Equity } & \$ 780\end{array}$
On January 1,2015,Maury Company acquired 100 percent of the outstanding common stock of Houser Company for $260 cash.The book value and fair value of Houser's assets and liabilities were equal.What is the amount of Total Assets on the consolidated balance sheet immediately after the acquisition of Houser Company's stock? (Assume elimination entries are completed.)

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

Question 57

Elimination entries avoid double-counting assets,liabilities and stockholders' equity on the consolidated financial statements.

Question 58

Presented below is the balance sheet of Hellman Company at January 1,2015:
$\begin{array}{ll}\text { Cash } & \$ 100 \\\text { Net Fixed Assets } & {400} \\\text { Total Assets } &{\$ 500}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 20 \\\text { Long-term Bonds Payable } & 220 \\\text { Stockholders' Equity } & \underline{260} \\\text { Total Liabilities and Stockholders' Equity } & \$ 500\end{array}$
The balance sheet of Swenson Company at January 1,2015 is below:
$\begin{array}{ll}\text { Cash } & \$ 400 \\\text { Net Fixed Assets } & {380} \\\text { Total Assets } & {\$ 780}\end{array}$
$\begin{array}{ll}\text { Accounts Payable } & \$ 120 \\\text { Long-term Bonds Payable } & 280 \\\text { Stockholders' Equity } & 380 \\\text { Total Liabilities and Stockholders' Equity } & \$ 780\end{array}$
On January 1,2015,Swenson Company acquired 100 percent of the outstanding common stock of Hellman Company for $260 cash.The book value and fair value of Hellman's assets and liabilities were equal.The net income for the year ending December 31,2015 was $30 for Hellman Company.The net income for the year ending December 31,2015 was $40 for Swenson Company.There were no intercompany sales.What is the net income on the consolidated income statement for the year ended December 31,2015?

A) $0
B) $30
C) $40
D) $70

Question 59

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.

Question 60

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

Question 61

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

Question 62

A factor that contributes to recording goodwill when acquiring control of another company is ________.

A) outstanding management skills of parent company
B) unique product manufactured by parent company
C) established brand names by investee company
D) all of the above

Question 63

The section of the annual report that explains major changes in the income statement,changes in liquidity and capital resources and the impact of inflation is called the ________.

A) notes to the financial statements
B) appendix to the financial statements
C) internal control report
D) management's discussion and analysis

Question 64

On January 1,2012,a parent company acquired all of the stock of a subsidiary.The following data is available:
$\begin{array}{ll}&\text { Parent Company } & \text { Subsidiary } \\ \text {Total assets }&\$ 650 & \$ 400 \\ \text { Total liabilities }&\$ 200 & \$ 190 \\ \text { Total stockholders' equity}&\$ 450 & \$ 210\end{array}$
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?

A) $0
B) $10
C) $40
D) $200

Question 65

At the date of acquisition by a parent company,the fair value of a subsidiary's fixed assets was larger than their book value.When preparing consolidated financial statements,the fixed assets of the subsidiary are ________ and depreciation expense is ________.

A) decreased to fair value; decreased
B) increased to fair value; increased
C) not adjusted; not adjusted
D) increased to fair value; not adjusted

Question 66

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

A) stockholders' equity item
B) part of the Investment in subsidiary
C) separate intangible asset account
D) component of other comprehensive income

Question 67

Keller Company has the following income statement for the year ending December 31,2016:
$\begin{array}{ll}\text { Sales } & \$ 1,562 \\\text { Cost of goods sold } & {806} \\\text { Gross profit } &{756}\end{array}$
Operating expenses:
$\begin{array}{ll}\text { Wage expense } & 160 \\\text { Depreciation expense } & 16 \\\text { Rent expense } & 106 \\\text { Miscellaneous expense } & \underline{10} \\\text { Total operating expenses } & \underline{292} \\\text { Operating income } & 464 \\\text { Income tax expense } & \underline{162} \\\text { Net income } & \$ 302\end{array}$
If Keller Company prepares a common size income statement,what will they report for Rent expense?

A) 2.3%
B) 4.3%
C) 4.4%
D) 6.8%

Question 68

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

Question 69

On January 1,2012,Remkus Company acquired all of the stock of a subsidiary.The following data is available:
$\begin{array}{lll}& \text {Remkus Company} & \text { Subsidiary } \\\text { Total assets } & \$ 650 & \$ 400 \\\text { Total liabilities } & \$ 200 & \$ 190 \\\text { Total stockholders' equity }& \$ 450 & \$ 210\end{array}$
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.)

A) $390
B) $450
C) $800
D) $840

Question 70

If the fair value of a subsidiary's assets exceeds their book value when the subsidiary is acquired,the assets of the subsidiary are written up at the time consolidated financial statements are prepared.

Question 71

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

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 72

On January 1,2012,Parrot Company acquired all of the stock of a subsidiary.The following data is available:
$\begin{array}{ll}&\text { Parrot Company } & \text { Subsidiary } \\ \text {Total assets }&\$ 650 & \$ 400 \\ \text { Total liabilities }&\$ 200 & \$ 190 \\ \text { Total stockholders' equity}&\$ 450 & \$ 210\end{array}$
The acquisition by the Parrot 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.Parrot Company paid $450 for the 100 percent interest in the subsidiary.What amount of goodwill is implied in the purchase?

A) $0
B) $10
C) $200
D) $240

Question 73

Maureen Company has the following income statement for the year ending December 31,2016:
$\begin{array}{ll}\text { Sales } & \$ 1,562 \\\text { Cost of goods sold } & {806} \\\text { Gross profit } &{756}\end{array}$
Operating expenses:
$\begin{array}{ll}\text { Wage expense } & 110 \\\text { Depreciation expense } & 76 \\\text { Rent expense } & 36 \\\text { Miscellaneous expense } & \underline{70} \\\text { Total operating expenses } & \underline{292} \\\text { Operating income } & 464 \\\text { Income tax expense } & \underline{162} \\\text { Net income } & \$ 302\end{array}$
If Maureen Company prepares a common size income statement,what will they report for Wage expense?

A) 7.0%
B) 10.2%
C) 34.4%
D) 66.1%

Question 74

On January 1,2012,Preview Company acquired all of the stock of a subsidiary.The following data is available:
$\begin{array}{lll}& \text { Preview Company} & \text { Subsidiary } \\\text { Total assets } & \$ 650 & \$ 400 \\\text { Total liabilities } & \$ 200 & \$ 190 \\\text { Total stockholders' equity }& \$ 450 & \$ 210\end{array}$
The acquisition by the Preview 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.Preview Company paid $250 for the 100 percent interest in the subsidiary.On January 1,2012,what are the total assets on the consolidated balance sheet? (Assume elimination entries are completed.)

A) $650
B) $800
C) $840
D) $1,050

Question 75

Each year,goodwill on the consolidated balance sheet is ________.

A) amortized
B) depreciated
C) evaluated by management to determine if it is impaired
D) ignored

Question 76

Goodwill is amortized on the consolidated financial statements.

Question 77

Naples Company acquired all of the shares of Tampa Company for $80 cash.At the time of the acquisition,the fair values of Tampa Company's assets were $200.At the time of acquisition,the fair values of Tampa Company's liabilities were $120.On the date of acquisition,what is the amount of goodwill on the consolidated balance sheet?

A) $0
B) $20
C) $80
D) $100

Question 78

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 ________.

A) net income; total stockholders' equity
B) net operating profit; total stockholders' equity
C) sales; total assets
D) expenses; total liabilities

Question 79

To compare companies that differ in size,analysts use ________.

A) MD&A
B) 10-K filings with the Securities and Exchange Commission
C) common size financial statements
D) consolidated financial statements

Question 80

Goller Company has the following income statement for the year ending December 31,2016:
$\begin{array}{ll}\text { Sales } & \$ 1,562 \\\text { Cost of goods sold } & {806} \\\text { Gross profit } &{756}\end{array}$
Operating expenses:
$\begin{array}{ll}\text { Wage expense } & 160 \\\text { Depreciation expense } & 26 \\\text { Rent expense } & 36 \\\text { Miscellaneous expense } & \underline{70} \\\text { Total operating expenses } & \underline{292} \\\text { Operating income } & 464 \\\text { Income tax expense } & \underline{100} \\\text { Net income } & \$ 364\end{array}$
If Goller Company prepares a common size income statement,what will they report for Income tax expense?

A) 6.4%
B) 11.0%
C) 12.4%
D) 39.9%