Choose the best answer for each of the following questions.
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1 | | What would be the effect on the consolidated financial statements if an unconsolidated subsidiary is accounted for by the cost method of accounting, but consolidated financial statements are prepared for other subsidiaries? |
| | A) | All the unconsolidated subsidiary's ledger account balances would be included individually in the consolidated financial statements. |
| | B) | Consolidated net income would not include any amounts for the unconsolidated subsidiary. |
| | C) | Consolidated net income would be the same as if the subsidiary had been included in the consolidation. |
| | D) | Dividend revenue from the unconsolidated subsidiary would be included in consolidated net income. |
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2 | | Consolidated financial statements are appropriate for Pro Corporation, Soy Company, and San Company if: |
| | A) | Pro owns all the outstanding common stock of Soy and San; Soy is being liquidated in bankruptcy proceedings |
| | B) | Pro owns 55% of the outstanding common stock of Soy and 50% of the outstanding common stock of San. |
| | C) | Pro owns 40% of the outstanding common stock of Soy and 85% of the outstanding common stock of San; unrelated Gel Corporation owns 40% of the outstanding common stock of Soy. |
| | D) | Pro owns 35% of the outstanding common stock of Soy and 80% of the outstanding common stock of San; San owns 45% of the outstanding common stock of Soy. |
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3 | | Plite Corporation owns 92% of the outstanding common stock of Synge company; the other 8% is owned by Probert Corporation. In the consolidated financial statements of Plite Corporation and subsidiary, Probert is considered: |
| | A) | An investee |
| | B) | A minority interest |
| | C) | An affiliate |
| | D) | An investor |
| | E) | None of the foregoing |
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4 | | Consolidated financial statements are appropriate for Pard Corporation, Sax Company , and Sed Company if: |
| | A) | Pard owns 80% of the outstanding common stock of Sax and 40% of Sed; Sax owns 30% of Sed. |
| | B) | Pard owns 100% of the outstanding common stock of Sax and 90% of Sed; Pard acquired the common stock of Sed one month before the balance sheet date and sold it seven weeks later. |
| | C) | Pard owns 100% of the outstanding common stock of Sax and Sed; Sed is in bankruptcy reorganization proceedings. |
| | D) | Pard owns 80% of the outstanding common stock of Sax and 40% of Sed; unrelated Vail Company owns 55% of Sed. |
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5 | | Questions 5 and 6 are based on the following information.
Seguro Company's balance sheet on December 31, 2002, was as follows:
| Assets | | Cash | $ 80,000 | | Trade accounts receivable (net) | 160,000 | | Inventories | 400,000 | | Plant assets (net) | 720,000 | | Total assets | $1,360,000 | | Liabilities & Stockholders' Equity | | Current liabilities | $ 240,000 | | Long-term debt | 400,000 | | Common stock, $1 par | 80,000 | | Additional paid-in capital | 160,000 | | Retained earnings | 480,000 | | Total liabilities & stockholders' equity | $1,360,000 |
On December 31, 2002, Penjamo Corporation acquired all the outstanding common stock of Seguro for $1,200,000. On that date, the current fair value of Seguro's inventories was $360,000 and the current fair value of Seguro's plant assets was $800,000. The current fair values of all other identifiable assets and liabilities of Seguro were equal to their carrying amounts.
As a result of the acquisition of Seguro by Penjamo, the December 31, 2002, consolidated balance sheet of Penjamo and subsidiary displays goodwill in the amount of: |
| | A) | $400,000 |
| | B) | $440,000 |
| | C) | $480,000 |
| | D) | $520,000 |
| | E) | Some other amount |
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6 | | Assuming that the unconsolidated balance sheet of Penjamo Corporation on December 31, 2002, included retained earnings of $1,600,000, what amount of retained earnings is displayed in the December 31, 2002, consolidated balance sheet of Penjamo Corporation and subsidiary? |
| | A) | $1,600,000 |
| | B) | $2,080,000 |
| | C) | $2,240,000 |
| | D) | $2,520,000 |
| | E) | Some other amount |
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7 | | The author of Modern Advanced Accounting supports the method of measuring goodwill and minority interest that: |
| | A) | Measures all subsidiary net assets (including goodwill) at current fair value in the consolidated balance sheet |
| | B) | Allocates a portion of the implied total value of the subsidiary's goodwill to minority interest in net assets of subsidiary |
| | C) | Reports at current fair value in the consolidated balance sheet only the portion of subsidiary identifiable net assets acquired by the parent company |
| | D) | Does none of the foregoing |
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8 | | Which of the following statements is true? |
| | A) | Consolidated financial statements are useful to creditors of a subsidiary. |
| | B) | Comparison of consolidated financial statements of diversified enterprises may be misleading. |
| | C) | The net assets of a subsidiary that is in liquidation in bankruptcy should be included in a consolidated balance sheet. |
| | D) | Consolidated financial statements are not appropriate for inclusion in the annual reports of publicly owned corporations. |
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9 | | The lower portion of a consolidated income statement prepared under the economic unit concept of consolidated financial statements may resemble the income statement of: |
| | A) | A partnership |
| | B) | A single proprietorship |
| | C) | A corporation |
| | D) | A parent company |
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10 | | The parent company concept of consolidated financial statements considers the minority interest in net assets of a subsidiary to be: |
| | A) | A liability |
| | B) | A part of consolidated stockholders' equity |
| | C) | An item between liabilities and stockholders' equity |
| | D) | Some other classification |
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11 | | If an investor has more than 50% ownership, it always has controlling interest. |
| | A) | True |
| | B) | False |
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12 | | The costs that are associated with the investigation to acquire a subsidiary are expensed in the period incurred. |
| | A) | True |
| | B) | False |
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13 | | Goodwill is amortized over the useful life., traditionally 30 years. |
| | A) | True |
| | B) | False |
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14 | | The elimination entry is not entered in the general ledger. |
| | A) | True |
| | B) | False |
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15 | | The minority interest does not come into play with 100% owned subsidiary. |
| | A) | True |
| | B) | False |
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