Choose the best answer for each of the following questions.
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1 | | Among the journal entries of Pleasanton Corporation during 2003 was the following (explanation omitted):
| Investment in Subsidiary Common Stock | 15,613 | | | Nonoperating Gain | | 15,613 |
A probable reason for the journal entry is: |
| | A) | Pleasanton disposed of some of its subsidiary common stockholdings at a gain. |
| | B) | The subsidiary acquired part of its minority stockholders' common stock for an amount of cash larger than the carrying amount of the minority interest. |
| | C) | The subsidiary issued additional common stock to the public at a price per share higher than the carrying amount per share of Pleasanton's investment in the subsidiary. |
| | D) | None of the foregoing |
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2 | | On April 1, 2002, Paloma Corporation paid $341,575 cash for 700 shares of Sardinia Company's 1,000 outstanding shares of $2 par, 8% cumulative preferred stock and 850 of Sardinia's 1,000 outstanding shares of $10 par common stock. Out-of-pocket costs of the business combination may be disregarded. Current fair values of Sardinia's identifiable net assets were the same as their carrying amounts on April 1, 2002. On the date of the business combination, Sardinia had additional paid-in capital of $150,000 and retained earnings of $200,250. Sardinia's preferred stock was callable at $2.25 a share plus preferred dividends in arrears, and had a liquidation preference of $2.10 a share. Preferred dividends were not in arrears. The portion of the $341,575 cost of Paloma's investment in Sardinia that is allocated to Sardinia's preferred stock is: |
| | A) | $0 |
| | B) | $1,400 |
| | C) | $1,470 |
| | D) | Some other amount |
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3 | | Refer to the facts in question 2. The amount to be created to Minority Interest in Net Assets of SubsidiaryCommon in the April 1, 2002, working paper elimination (in journal entry format) for Paloma Corporation and subsidiary is: |
| | A) | $51,236 |
| | B) | $60,000 |
| | C) | $60,278 |
| | D) | Some other amount |
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4 | | Subsequent to the date of a business combination, the subsidiary acquired for its treasury some of the common stock owned by minority stockholders. In the working paper for consolidated financial statements for the parent company and its subsidiary, the cost of the common stock acquired is treated as: |
| | A) | An increase in consolidated investments |
| | B) | A reduction of consolidated stockholders' equity |
| | C) | An increase in consolidated treasury stock |
| | D) | None of the foregoing |
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5 | | The 92%-owned subsidiary of Poker Corporation declared a 10% stock dividend on its 10,000 shares of $5 par common stock. Current fair value of the dividend shares was $12 a share. The journal entry for Poker's receipt of the dividend shares from the subsidiary is:
| a. Investment in Subsidiary Company Common Stock (920 x $5) | 4,600 | | | Intercompany Investment Income | | 4,600 | | b. Retained Earnings of Subsidiary (920 x $12) | 11,040 | | | Retained Earnings | | 11,040 | | c. Investment in Subsidiary Company Common Stock (920 x $12) | 11,040 | | | Intercompany Investment Income | | 11,040 |
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| | A) | Entry A |
| | B) | Entry B |
| | C) | Entry C |
| | D) | None of the foregoing |
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6 | | Which of the following transactions or events does not result in a gain or loss to a parent company? |
| | A) | Parent company's disposal of a part of its investment in the subsidiary's common stock |
| | B) | Subsidiary's issuance of additional shares of common stock to the public, with minority stockholders waiving their preemptive right |
| | C) | Subsidiary's acquisition of shares of its common stock owned by minority stockholders, such shares to be treasury stock |
| | D) | Subsidiary's issuance of additional shares of common stock to the parent company, with resultant change in minority interest in net assets of subsidiary |
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7 | | In the journal entry to record the disposal of a 10% interest in its wholly-owned subsidiary to an outsider, a parent company credited the Realized Gain on Disposal of Investment in Subsidiary ledger account. In the consolidated income statement for the accounting period of the disposal, the gain account balance is |
| | A) | Excluded, because it was eliminated as an intercompany gain |
| | B) | Displayed as an extraordinary item |
| | C) | Included in income before extraordinary item |
| | D) | Included in minority interest in net income of subsidiary |
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8 | | Single Company owned 22% of the outstanding common stock of Stokker Company throughout 2003. On January 2, 2004, Plenary Corporation acquired 75% of the outstanding common stock of Single and 40% of the outstanding common stock of Stokker. In the working paper elimination for Plenary Corporation and subsidiaries on January 2, 2004, the amount of Single's Retained Earnings of Investee ledger account applicable to Stokker is: |
| | A) | Eliminated |
| | B) | Included in consolidated retained earnings |
| | C) | Combined with Plenary's Retained Earnings of Subsidiary ledger account established to record the business combination with Single and Stokker |
| | D) | Handled in some other manner |
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9 | | Purchase accounting is used for a parent company's acquisition of all or part of the minority interest in net assets of a subsidiary. |
| | A) | True |
| | B) | False |
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10 | | Accounting for a parent company's disposal of part of its investment in a subsidiary is similar to the accounting for disposal of any non-current asset. |
| | A) | True |
| | B) | False |
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11 | | If a subsidiary issues additional shares common stock to the public at a price equal to the per share carrying amount of the subsidiary's outstanding common stock, there generally is a non-operating gain or loss to the parent company. |
| | A) | True |
| | B) | False |
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12 | | A subsidiary might issue additional stock to the parent to increase its total investment, if the minority interest waived its preemptive right. |
| | A) | True |
| | B) | False |
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13 | | In less than 100% of the preferred stock is owned by the parent, it will not effect the calculation of the minority interest. |
| | A) | True |
| | B) | False |
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