Choose the best answer for each of the following questions.

1			For the fiscal year ended December 31, 2002, Pike Corporation's 85%-owned subsidiary, Shasta Company, declared dividends totaling $20,000 and had a net income of $50,000. Year 2002 depreciation and amortization of the date-of-business-combination differences between the current fair values and carrying amounts of Shasta's identifiable net assets totaled $15,000. The net amount of 2002 intercompany revenue recorded by Pike for its ownership interest in Shasta under the cost method of accounting is:
			A)	$20,000
			B)	$29,750
			C)	$42,500
			D)	Some other amount
2			Which of the following journal entry formats is appropriate under the equity method of accounting to record the parent company's share of a subsidiary's dividend declaration?   a. Intercompany Dividends Receivable XXX            Investment in Subsidiary Common Stock   XXX   b. Cash XXX            Intercompany Dividend Revenue   XXX   c. Intercompany Dividends Receivable XXX            Intercompany Dividend Revenue   XXX   d. Investment in Subsidiary Common Stock XXX            Intercompany Dividend Revenue   XXX
			A)	Entry A
			B)	Entry B
			C)	Entry C
			D)	Entry D
3			In the equity method of accounting for a subsidiary's operations, the parent company's share of the subsidiary's adjusted net income not distributed as dividends is credited in a closing entry to the following ledger account:
			A)	Intercompany Investment Income
			B)	Retained Earnings of Subsidiary
			C)	Retained Earnings
			D)	Investment in Subsidiary Common Stock
4			Which of the following is a characteristic of the cost method of accounting for a subsidiary's operations?
			A)	Parent company net income equals consolidated net income.
			B)	More working paper eliminations are required than for the equity method of accounting.
			C)	Consolidated amounts differ from the comparable amounts under the equity method of accounting.
			D)	None of the foregoing
5			Which of the following is an advantage of the equity method as compared with the cost method of accounting for a subsidiary's operations?
			A)	The equity method produces more realistic consolidated amounts than the cost method does.
			B)	A Retained Earnings of Subsidiary ledger account is not required for the equity method.
			C)	The equity method facilitates issuance of unconsolidated financial statements for the parent company, if required by the SEC or for another purpose.
			D)	None of the foregoing
6			How is the portion of consolidated earnings to be assigned to minority interest in net income of subsidiary computed?
			A)	The net income of the parent company is subtracted from the subsidiary's net income to compute the minority interest.
			B)	The subsidiary's entire net income is allocated to the minority interest.
			C)	The amount of the subsidiary's net income recognized for consolidation purposes is multiplied by the minority's percentage ownership.
			D)	The amount of consolidated net income determined in the working paper for consolidated financial statements is multiplied by the minority interest percentage on the balance sheet date.
7			In the equity method of accounting for an investment in a subsidiary, dividends from the subsidiary are accounted for by the parent company as:
			A)	Revenue, unless declared from retained earnings of the subsidiary earned prior to the business combination
			B)	Revenue, if the dividends were declared from retained earnings
			C)	A reduction in the carrying amount of the Investment in Subsidiary Common Stock ledger account
			D)	A deferred credit
8			Powell Corporation owns 80% of the outstanding common stock of Sylvester Company, for which it uses the equity method of accounting. Compare the consolidated net income of Powell and Sylvester (X) with Powell's net income (Y) if it consolidated Sylvester.
			A)	X > Y
			B)	X = Y
			C)	X < Y
			D)	The comparison cannot be determined.
9			A parent company that uses the equity method of accounting for its investment in a 70%-owned subsidiary that had a net income of $20,000 and declared $5,000 in dividends prepared only the following journal entries (explanations omitted):   Investment in Subsidiary Common Stock 14,000            Intercompany Investment Income   14,000           Intercompany Dividends Receivable 3,500            Intercompany Dividend Revenue   3,500           Cash 3,500            Intercompany Dividend Receivable   3,500 What effect do these journal entries have on the parent company's unconsolidated balance sheet?
			A)	The balance sheet is fairly stated.
			B)	The Investment in Subsidiary Common Stock ledger account is overstated and the Retained Earnings ledger account is understated.
			C)	The Investment in Subsidiary Common Stock ledger account is understated and the Retained Earnings ledger account is understated.
			D)	The Investment in Subsidiary Common Stock ledger account is overstated and the Retained Earnings ledger account is overstated.
10			Squire Company, the 90%-owned subsidiary of Paladin Corporation, had a net income of $60,000 and declared and paid dividends of $20,000 for the fiscal year ended March 31, 2002. Depreciation and amortization of differences between current fair values and carrying amounts of Squire's identifiable net assets for the year ended March 31, 2002, totaled $10,000. The amount of the working paper elimination of Paladin Corporation and subsidiary for minority interest in net income of subsidiary for the year ended March 31, 2002, is:
			A)	$2,000
			B)	$4,000
			C)	$5,000
			D)	$6,000
11			The most popular method for accounting for the operating results of a wholly owned is the equity method.
			A)	True
			B)	False
12			Adjustments for depreciation and amortization of differences between current fair values and carrying amounts of a subsidiary's identifiable net assets on the date of business combination are recorded on the subsidiary's books.
			A)	True
			B)	False
13			Proponents claim that equity method stresses the economic substance of the parent-subsidiary relationship.
			A)	True
			B)	False
14			Under the cost method the parent company accounts for the operations of a subsidiary only to the extent that dividends are declared by the subsidiary.
			A)	True
			B)	False
15			Accounting for the operating results of a partially owned subsidiary requires the computation of the minority interest in net income or net losses of the subsidiary.
			A)	True
			B)	False