Advanced Financial Accounting
If A Company acquires 80 percent of the stock of B Company on January 1, 20X2,
immediately after the acquisition, which of the following is correct?
a.) Consolidated retained earnings will be equal to the combined retained earnings
of the two companies.
b.) Goodwill will always be reported in the consolidated balance sheet.
c.) A Company's additional paid-in capital may be reduced to permit the
carryforward of B Company retained earnings.
d.) Consolidated retained earnings and A Company retained earnings will be the
same. - (correct Answer) - d.) Consolidated retained earnings and A Company
retained earnings will be the same.
Which of the following is correct?
a.) The noncontrolling shareholders' claim on the subsidiary's net assets is based
on the book value of the subsidiary's net assets.
b.) Only the parent's portion of the difference between book value and fair value
of the subsidiary's assets is assigned to those assets.
c.) Goodwill represents the difference between the book value of the subsidiary's
net assets and the amount paid by the parent to buy ownership.
d.) Total assets reported by the parent generally will be less than total assets
reported on the consolidated balance sheet. - (correct Answer) - d.) Total assets
reported by the parent generally will be less than total assets reported on the
consolidated balance sheet.
Which of the following statements is correct?
a.) Foreign subsidiaries do not need to be consolidated if they are reported as a
separate operating group under segment reporting.
b.) Consolidated retained earnings do not include the noncontrolling interest's
claim on the subsidiary's retained earnings.
c.) The noncontrolling shareholders' claim should be adjusted for changes in the
fair value of the subsidiary assets but should not include goodwill.
d.) Consolidation is expected any time the investor holds significant influence
over the investee. - (correct Answer) - d.) Consolidation is expected any time the
investor holds significant influence over the investee.
A 70 percent owned subsidiary company declares and pays a cash dividend. What
effect does the dividend have on the retained earnings and noncontrolling interest
balances in the parent company's consolidated balance sheet?
a.) Decreases in both retained earnings and noncontrolling interest.
b.) No effect on retained earnings and a decrease in noncontrolling interest.
c.) No effect on either retained earnings or noncontrolling interest.
d.) A decrease in retained earnings and no effect on noncontrolling interest. -
(correct Answer) - b.) No effect on retained earnings and a decrease in
noncontrolling interest.
AICPA Adapted] At December 31, 20X9, Grey Inc. owned 90 percent of Winn
Corporation, a consolidated subsidiary, and 20 percent of Carr Corporation, an
, investee in which Grey cannot exercise significant influence. On the same date,
Grey had receivables of $300,000 from Winn and $200,000 from Carr. In its December
31, 20X9, consolidated balance sheet, Grey should report accounts receivable from
its affiliates of
a.) $500,000.
b.) $340,000.
c.) $230,000.
d.) $200,000. - (correct Answer) - d.) $200,000.
How is the portion of consolidated earnings to be assigned to the noncontrolling
interest in consolidated financial statements determined?
a.) The subsidiary's net income is extended to the noncontrolling interest.
b.) The amount of consolidated earnings on the consolidated worksheets is
multiplied by the noncontrolling interest percentage on the balance sheet date.
c.) The amount of the subsidiary's earnings recognized for consolidation purposes
is multiplied by the noncontrolling interest's percentage of ownership.
d.) The parent's net income is subtracted from the subsidiary's net income to
determine the noncontrolling interest. - (correct Answer) - c.) The amount of the
subsidiary's earnings recognized for consolidation purposes is multiplied by the
noncontrolling interest's percentage of ownership.
On January 1, 20X5, Post Company acquired an 80 percent investment in Stake
Company. The acquisition cost was equal to Post's equity in Stake's net assets at
that date. On January 1, 20X5, Post and Stake had retained earnings of $500,000 and
$100,000, respectively. During 20X5, Post had net income of $200,000, which
included its equity in Stake's earnings, and declared dividends of $50,000; Stake
had net income of $40,000 and declared dividends of $20,000. There were no other
intercompany transactions between the parent and subsidiary. On December 31, 20X5,
what should the consolidated retained earnings be?
a.) $666,000
b.) $766,000
c.) $770,000
d.) $650,000 - (correct Answer) - d.) $650,000
On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10
par common stock for $956,000. On this date, the fair value of the noncontrolling
interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000.
The fair values of Shaw's identifiable assets and liabilities were the same as
their carrying amounts except for plant assets (net) with a remaining life of 20
years, which were $100,000 in excess of the carrying amount. For the year ended
December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling
$125,000. In the January 1, 20X8, consolidated balance sheet, the amount of
goodwill reported should be
a.) $0.
b.) $156,000.
c.) $95,000.
If A Company acquires 80 percent of the stock of B Company on January 1, 20X2,
immediately after the acquisition, which of the following is correct?
a.) Consolidated retained earnings will be equal to the combined retained earnings
of the two companies.
b.) Goodwill will always be reported in the consolidated balance sheet.
c.) A Company's additional paid-in capital may be reduced to permit the
carryforward of B Company retained earnings.
d.) Consolidated retained earnings and A Company retained earnings will be the
same. - (correct Answer) - d.) Consolidated retained earnings and A Company
retained earnings will be the same.
Which of the following is correct?
a.) The noncontrolling shareholders' claim on the subsidiary's net assets is based
on the book value of the subsidiary's net assets.
b.) Only the parent's portion of the difference between book value and fair value
of the subsidiary's assets is assigned to those assets.
c.) Goodwill represents the difference between the book value of the subsidiary's
net assets and the amount paid by the parent to buy ownership.
d.) Total assets reported by the parent generally will be less than total assets
reported on the consolidated balance sheet. - (correct Answer) - d.) Total assets
reported by the parent generally will be less than total assets reported on the
consolidated balance sheet.
Which of the following statements is correct?
a.) Foreign subsidiaries do not need to be consolidated if they are reported as a
separate operating group under segment reporting.
b.) Consolidated retained earnings do not include the noncontrolling interest's
claim on the subsidiary's retained earnings.
c.) The noncontrolling shareholders' claim should be adjusted for changes in the
fair value of the subsidiary assets but should not include goodwill.
d.) Consolidation is expected any time the investor holds significant influence
over the investee. - (correct Answer) - d.) Consolidation is expected any time the
investor holds significant influence over the investee.
A 70 percent owned subsidiary company declares and pays a cash dividend. What
effect does the dividend have on the retained earnings and noncontrolling interest
balances in the parent company's consolidated balance sheet?
a.) Decreases in both retained earnings and noncontrolling interest.
b.) No effect on retained earnings and a decrease in noncontrolling interest.
c.) No effect on either retained earnings or noncontrolling interest.
d.) A decrease in retained earnings and no effect on noncontrolling interest. -
(correct Answer) - b.) No effect on retained earnings and a decrease in
noncontrolling interest.
AICPA Adapted] At December 31, 20X9, Grey Inc. owned 90 percent of Winn
Corporation, a consolidated subsidiary, and 20 percent of Carr Corporation, an
, investee in which Grey cannot exercise significant influence. On the same date,
Grey had receivables of $300,000 from Winn and $200,000 from Carr. In its December
31, 20X9, consolidated balance sheet, Grey should report accounts receivable from
its affiliates of
a.) $500,000.
b.) $340,000.
c.) $230,000.
d.) $200,000. - (correct Answer) - d.) $200,000.
How is the portion of consolidated earnings to be assigned to the noncontrolling
interest in consolidated financial statements determined?
a.) The subsidiary's net income is extended to the noncontrolling interest.
b.) The amount of consolidated earnings on the consolidated worksheets is
multiplied by the noncontrolling interest percentage on the balance sheet date.
c.) The amount of the subsidiary's earnings recognized for consolidation purposes
is multiplied by the noncontrolling interest's percentage of ownership.
d.) The parent's net income is subtracted from the subsidiary's net income to
determine the noncontrolling interest. - (correct Answer) - c.) The amount of the
subsidiary's earnings recognized for consolidation purposes is multiplied by the
noncontrolling interest's percentage of ownership.
On January 1, 20X5, Post Company acquired an 80 percent investment in Stake
Company. The acquisition cost was equal to Post's equity in Stake's net assets at
that date. On January 1, 20X5, Post and Stake had retained earnings of $500,000 and
$100,000, respectively. During 20X5, Post had net income of $200,000, which
included its equity in Stake's earnings, and declared dividends of $50,000; Stake
had net income of $40,000 and declared dividends of $20,000. There were no other
intercompany transactions between the parent and subsidiary. On December 31, 20X5,
what should the consolidated retained earnings be?
a.) $666,000
b.) $766,000
c.) $770,000
d.) $650,000 - (correct Answer) - d.) $650,000
On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10
par common stock for $956,000. On this date, the fair value of the noncontrolling
interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000.
The fair values of Shaw's identifiable assets and liabilities were the same as
their carrying amounts except for plant assets (net) with a remaining life of 20
years, which were $100,000 in excess of the carrying amount. For the year ended
December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling
$125,000. In the January 1, 20X8, consolidated balance sheet, the amount of
goodwill reported should be
a.) $0.
b.) $156,000.
c.) $95,000.
