Advanced Accounting 12th Edition Paul M Fischer William J Taylor Rita H Cheng – Test Bank

,DOWNLOADgTHEgTestgBankgforgAdvancedgAccountingg12thgEditiongFischer
Chapterg02—
ConsolidatedgStatements:gDategofgAcquisitiongMultiplegChoice

1. Anginvestorgreceivesgdividendsgfromgitsginvesteegandgrecordsgthosegdividendsgasgdividendgincomegbecause:
a. Theginvestorghasgagcontrollingginterestgingitsginvestee.
b. Theginvestorghasgagpassiveginterestgingitsginvestee.
c. Theginvestorghasganginfluentialginterestgingitsginvestee.
d. Theginvestorghasgangactiveginterestgingitsginvestee.
ANSWER: b
RATIONALE:
Anginvestorghavinggagpassiveginterestgingitsginvesteeg(generallygresultinggfromglessgthang2
0%gownership)grecordsgdividendsgasgdividendgincome.
DIFFICULTY: E
LEARNINGgOBJECTIVES:g ADAC.FISC.2-1

2. Anginvestorgpreparesgagsinglegsetgofgfinancialgstatementsgwhichgencompassesgthegfinancialgresultsgforgbothgitgand
gitsginvesteegbecause:

a. Theginvestorghasgagcontrollingginterestgingitsginvestee.
b. Theginvestorghasgagpassiveginterestgingitsginvestee.
c. Theginvestorghasganginfluentialginterestgingitsginvestee.
d. Theginvestorghasgangactiveginterestgingitsginvestee.
ANSWER: a
RATIONALE:
Anginvestorghavinggagcontrollingginterestgingitsginvesteeg(generallygresultinggfromgmoregth
ang50%gownership)gwillgpreparegconsolidatedgfinancialgstatementsgwhichgencompassgtheg
financialgresultsgofgbothgitgandgitsginvestee.
DIFFICULTY: E
LEARNINGgOBJECTIVES:g ADAC.FISC.2-1

3. Anginvestorgrecordsgitsgsharegofgitsginvestee’sgincomegasgagseparategsourcegofgincomegbecause:
a. Theginvestorghasgagcontrollingginterestgingitsginvestee.
b. Theginvestorghasgagpassiveginterestgingitsginvestee.
c. Theginvestorghasganginfluentialginterestgingitsginvestee.
d. Theginvestorghasgangactiveginterestgingitsginvestee.
ANSWER: c
RATIONALE: Anginvestorghavingganginfluentialginterestgingitsginvesteeg(generallygresultinggfromg20%g-
g50%gownership)grecordsgitsgsharegofgitsginvestee’sgnetgincomegasgagseparategsourcegofginco
me.gThisgamountgalsogincreasesgtheginvestor’sginvestmentgingtheginvestee.
DIFFICULTY: E
LEARNINGgOBJECTIVES:g ADAC.FISC.2-

1g4.
Account Investor Investee
Sales $500,000 $300,000
CostgofgGoodsgSold 230,000 170,000
GrossgProfit $270,000 $130,000
Sellingg&gAdmin.gExpenses 120,000 100,000
NetgIncome $150,000 $g30,000
Dividends gpaid gTesting,gPoweredgbygCogne
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,DOWNLOADgTHEgTestgBankgforgAdvancedgAccountingg12thgEditiongFischer
Chapterg02—ConsolidatedgStatements:gDategofgAcquisition
AssuminggInvestorgownsg70%gofgInvestee.gWhatgisgthegamountgthatgwillgbegrecordedgasgNetgIncomegforgthegControllin
ggInterest?
a. $164,000
b. $171,000
c. $178,000
d. $180,000
ANSWER: b
RATIONALE: Investorgnetgincome $150,000
Investor’sgportiongofgInvesteegincome ($30,000gxg70%) 21,000
$171,000
DIFFICULTY: D
LEARNINGgOBJECTIVES:g ADAC.FISC.2-1

5. Consolidatedgfinancialgstatementsgaregdesignedgtogprovide:
a. informativeginformationgtogallgshareholders.
b. thegresultsgofgoperations,gcashgflow,gandgthegbalancegsheetgingangunderstandablegandginformativegmannerg
forgcreditors.
c. thegresultsgofgoperations,gcashgflow,gandgthegbalancegsheetgasgifgthegparentgandgsubsidiarygweregagsinglegentity.
d. subsidiaryginformationgforgthegsubsidiarygshareholders.
ANSWER: c
RATIONALE:
Consolidatedgfinancialgstatementsgaregdesignedgtogprovidegthegresultsgofgoperations,gcashgfl
owgandgthegbalancegsheetgasgifgthegparentgandgsubsidiarygweregagsinglegentity.gGenerally,gth
esegaregmoreginformativegforgshareholdersgofgthegcontrollinggcompany.
DIFFICULTY: E
LEARNINGgOBJECTIVES:g ADAC.FISC.2-2

6. Whichgofgthegfollowinggstatementsgaboutgconsolidationgisgnotgtrue?
a. Consolidationgisgnotgrequiredgwhengcontrolgisgtemporary.
b. Consolidationgmaygbegappropriategingsomegcircumstancesgwhenganginvestorgownsglessgthang51%gofgthegvoti
nggcommongstock.
c. Consolidationgisgnotgrequiredgwhengagsubsidiary’sgoperationsgaregnotghomogeneousgwithgthosegofgitsgparent.
d. Unprofitablegsubsidiariesgmaygnotgbegobviousgwhengcombinedgwithgothergentitiesgingconsolidation.
ANSWER: c
RATIONALE:
Generally,gstatementsgaregtogbegconsolidatedgwhengagparentgfirmgownsgoverg50%gofgthegvot
inggstockgofganothergcompany.gThegonlygexceptionsgaregwhengcontrolgisgtemporarygorgdoesg
notgrestgwithgthegmajoritygowner.gTheregmaygbeginstancesgwhengagparentgfirmgeffectivelygha
sgcontrolgwithglessgthang51%gofgthegvotinggstockgbecausegnogothergownershipginterestgexerci
sesgsignificantginfluencegongmanagement.gBecausegmanygentitiesgmaygbegcombinedgingagco
nsolidation,gunprofitablegsubsidiariesgmaygnotgbegobviousgwhengcombinedgwithgprofitablege
ntities.
DIFFICULTY: M
LEARNINGgOBJECTIVES:g ADAC.FISC.2-2

7. Consolidatedgfinancialgstatementsgaregappropriategevengwithoutgagmajoritygownershipgifgwhichgofgthegfollowinggexists:
a. thegsubsidiaryghasgthegrightgtogappointgmembersgofgthegparentgcompany'sgboardgofgdirectors.
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, b. thegparentgcompanyghasgthegrightgtogappointgagmajoritygofgthegmembersgofgthegsubsidiary’sgboardgofgdirect
orsgbecausegothergownershipginterestsgaregwidelygdispersed.




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