Chapter 9 - Test Bank - test bank PDF

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ch_Student: ____________________________________________________________________________On January 1, 20X9, Company A acquired 80 percent of the common stock and 60 percent of the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the ...

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ch09 Student: ___________________________________________________________________________

On January 1, 20X9, Company A acquired 80 percent of the common stock and 60 percent of the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Company B held by the noncontrolling interest was $100,000. Company

B's balance sheet contained the following balances:฀ ฀ For the year ended December 31, 20X9, Company B reported net income of $100,000 and paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of 10 percent. 1. Based on the preceding information, what will be the equity method income reported by Company A from its investment in Company B during 20X9? ฀ ฀ A. $32,000 B. $30,000 C. $72,000 D. $48,000 2. Based on the preceding information, the eliminating entry to prepare the consolidated financial statements for Company A as of December 31, 20X9 will include a credit to Investment in Company B—Common Stock for: ฀ ฀ A. 506,000 B. 440,000 C. 400,000 D. 500,000 3. Based on the preceding information, the eliminating entry to prepare the consolidated financial statements for Company A as of December 31, 20X9 will include a credit to noncontrolling interest in net income of Company B for: ฀ ฀ A. 140,000 B. 154,000 C. 152,000 D. 150,000 Winner Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of First Corporation at underlying book value on January 1, 20X9. At that date, the fair value of the noncontrolling interest in First's common stock was equal to 20 percent of the book value of its common stock. First's balance sheet at the time of acquisition contained the following balances:฀

฀ The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1, 20X9. All of the $5 par value preferred shares are callable at $6 per share. During 20X9, First reported net income of $100,000 and paid no dividends.

4. Based on the preceding information, what is First's contribution to consolidated net income for 20X9? ฀ ฀ A. $80,000 B. $100,000 C. $90,000 D. $50,000 5. Based on the preceding information, what will be the amount of income to be assigned to the noncontrolling interest in the 20X9 consolidated income statement? ฀ ฀ A. $21,000 B. $18,000 C. $23,000 D. $15,000 6. Based on the preceding information, the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1, 20X9, is: ฀ A. $40,000 B. $42,000 C. $36,000 D. $48,000

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7. Based on the preceding information, what is the portion of First's retained earnings assignable to its preferred shareholders on January 1, 20X9? ฀ ฀ A. $40,000 B. $50,000 C. $60,000 D. $70,000 8. Based on the information provided, what is the book value of the common stock on January 1, 20X9? ฀ A. $410,000 B. $360,000 C. $390,000 D. $350,000 9. Based on the information provided, what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1, 20X9? ฀ ฀ A. $70,000 B. $130,000 C. $118,000 D. $142,000

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Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred shares of Stanley Company, all acquired at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25 percent of the book value of its common stock. The balance sheets of Micron and Stanley immediately after the acquisition contained

these balances:฀ ฀ Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 20X8, Stanley reports net income of $40,000 and pays no dividends. Micron reports income from its separate operations of $75,000 and pays dividends of $30,000 during 20X8. 10. Based on the preceding information, what is the total noncontrolling interest reported in the consolidated balance sheet as of January 1, 20X8? ฀ ฀ A. $80,000 B. $40,000 C. $50,000 D. $60,000 11. Based on the preceding information, what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement? ฀ ฀ A. $10,000 B. $7,000 C. $11,800 D. $4,800 12. Based on the preceding information, what amount of income is attributable to the controlling interest in the consolidated income statement for 20X8? ฀ ฀ A. $75,000 B. $105,000 C. $96,000 D. $103,200 13. Based on the preceding information, what is the total stockholders' equity reported in the consolidated balance sheet as of January 1, 20X8? ฀ ฀ A. $450,000 B. $530,000 C. $490,000 D. $370,000 14. Based on the preceding information, what amount is reported as preferred stock outstanding reported in the consolidated balance sheet as of January 1, 20X8? ฀ ฀ A. $0 B. $40,000 C. $50,000 D. $44,000

Janet Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 25 percent of the book value of Slider Corporation. On December 31, 20X8, Slider Corporation acquired 25 percent of Janet Corporation's stock. Slider records dividends received from Janet as nonoperating income. In 20X9, Janet reported operating income of $100,000 and paid dividends of $40,000. During the same year, Slider reported operating income of $75,000 and paid $20,000 in dividends. 15. Based on the information provided, what amount will be reported as consolidated net income for 20X9 under the treasury stock method? ฀ ฀ A. $150,000 B. $100,000 C. $75,000 D. $175,000 16. Based on the information provided, what amount will be reported as income assigned to the controlling interest for 20X9 under the treasury stock method? ฀ ฀ A. $18,750 B. $156,250 C. $175,000 D. $100,000 Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 20X7, for $225,000. At that date, the fair value of the noncontrolling interest was $75,000. Meta's balance sheet contained the following amounts at the time of the combination:฀

฀ During each of the next three years, Meta reported net income of $30,000 and paid dividends of $10,000. On January 1, 20X9, Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash. Vision used the fully adjusted equity method in accounting for its ownership of Meta Company. 17.

Based on the preceding information, what was the balance in the investment account reported by Vision on January

before its sale of shares? ฀ A. $225,000 B. $285,000 C. $245,000 D. $255,000

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1, 20X9,

18. Based on the preceding information, in the journal entry recorded by Vision for sale of shares: ฀ A. Cash will be credited for $60,000. B. Investment in Meta Stock will be credited for $51,000. C. Investment in Meta Stock will be credited for $60,000. D. Additional Paid-in Capital will be credited for $45,000.

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19. Based on the preceding information, in the journal entry recorded by Vision for sale of shares, Additional Paid-in Capital will be credited for: ฀ ฀ A. $0. B. $15,000. C. $9,000. D. $45,000.

20. Based on the preceding information, in the elimination entries to complete a full consolidation worksheet for 20X9, noncontrolling interest in the net income of Meta Co. will be credited for: ฀ ฀ A. $12,000. B. $7,500. C. $8,000. D. $2,500. 21. Based on the preceding information, in the eliminating entries to complete a full consolidation worksheet, Investment in Meta Stock at January 1, 20X9, will be credited for: ฀ ฀ A. $255,000. B. $240,000. C. $204,000. D. $136,000. Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008, for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for $32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:฀

฀ Trevor paid dividends of $10,000 in each of the three years. Perfect uses the fully adjusted equity method in accounting for its investment in Trevor and amortizes all differentials over 5 years against the related investment income. All differentials are assigned to patents in the consolidated financial statements. 22. Based on the preceding information, Trevor Company's net income for 2009 and 2010 are: ฀ A. $10,000 and $20,000 respectively. B. $25,000 and $35,000 respectively. C. $35,000 and $45,000 respectively. D. $25,000 and $45,000 respectively.

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23. Based on the preceding information, what was the balance in Perfect's Investment in Trevor Company Stock account on December 31, 2009? ฀ ฀ A. $164,500 B. $157,500 C. $165,000 D. $168,000 24. Based on the preceding information, what was the balance in Perfect's Investment in Trevor Company Stock account on December 31, 2010? ฀ ฀ A. $211,500 B. $218,000 C. $173,000 D. $216,000

Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 20X5, at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on January 1, 20X8, contained

the following balances:฀ ฀ On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares from Nonaffiliated Corporation for $6 per share. 25. Based on the preceding information, what is the increase in the book value of the equity attributable to the parent as a result of the repurchase of shares by Movie Corporation? ฀ ฀ A. $19,375 B. $6,125 C. $2,625 D. $9,000

26. Based on the preceding information, what will be the journal entry to be recorded on Cinema Company's books to recognize the change in the book value of the shares it holds?

฀ A. Option A B. Option B C. Option C D. Option D

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27. Based on the preceding information, the eliminating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares will include: ฀ ฀ A. a credit to NCI in NA of Movie Corp. for $19,375. B. a credit to Additional Paid-In Capital for $75,000. C. a debit to Treasury Shares for $30,000. D. a credit to Investment in Movie stock for $6,125. 28. Based on the preceding information, in the eliminating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares, Investment in Movie stock will be credited for: ฀ ฀ A. $165,625. B. $135,625. C. $185,000. D. $155,000.

On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock. There was no differential related to this transaction. The noncontrolling interest had a fair value equal to 20 percent of book value. The book value of Siena on December 31, 20X7 was as follows:฀ ฀ On January 1, 20X8, Pisa purchased an additional 12,500 shares directly from Siena for $25 per share. 29. By what amount did the Investment in Siena account change? ฀ A. Increase of $296,500 B. Decrease of $296,500 C. Increase of $64,000 D. Decrease of $64,000

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30. The elimination entry to prepare the consolidated financial statements on December 31, 20X7 would include a: ฀ ฀ A. credit to common stock for $625,000 B. debit to retained earnings for $37,500 C. credit to Investment in Siena Co. for $976,500 D. credit to NCI in the net assets of Siena Co. for $232,500 31. The ending balance in Additional Paid-In Capital would be: ฀ A. $0 B. $187,500 C. $312,500 D. $125,000

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On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock. There was no differential related to this transaction. The noncontrolling interest had a fair value equal to 20 percent of book value. The book value of Siena on December 31, 20X7 was

as follows:฀ ฀ On January 1, 20X8, Siena sold an additional 12,500 shares to a nonaffiliate for $25 per share. 32. What is Pisa's new ownership interest? ฀ A. 84 percent B. 55 percent C. 70 percent D. 64 percent

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33. What is the ending balance in noncontrolling interest in the net assets of Siena? ฀ A. $186,000 B. $418,500 C. $523,125 D. $232,500

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34. The elimination entry to prepare the consolidated financial statements on December 31, 20X7 would include a: ฀ ฀ A. debit to common stock for $812,500 B. credit to additional paid-in capital for $187,500 C. credit to Investment in Siena Co. for $744,000 D. credit to retained earnings for $350,000

35. Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock. Elven, in turn, owns 15 percent of Windsor's outstanding common stock. What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement? ฀ ฀ A. None B. 100 percent C. 85 percent D. 75 percent On January 1, 20X9, A Company acquired 85 percent of B Company's voting common stock for $425,000. At that date, the fair value of the noncontrolling interest of B Company was $75,000. Immediately after A Company acquired its ownership, B Company acquired 75 percent of C Company's stock for $150,000. The fair value of the noncontrolling interest of C Company was $50,000 at that date. At January 1, 20X9, the stockholders' equity sections of the balance sheets of the companies were as

follows:฀ ฀ During 20X9, A Company reported operating income of $175,000 and paid dividends of $50,000. B Company reported operating income of $125,000 and paid dividends of $40,000. C Company reported net income of $100,000 and paid dividends of $25,000. 36. Based on the information provided, what amount of consolidated net income will A Company report for 20X9? ฀ ฀ A. $175,000 B. $285,000 C. $356,250 D. $400,000 37. Based on the information provided, the equity-method income recorded by A Company is: ฀ A. $125,000 B. $200,000 C. $170,000 D. $181,250

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38. Based on the information provided, what amount of income will be assigned to the noncontrolling interest in the consolidated income statement for 20X9? ฀ ฀ A. $55,000 B. $25,000 C. $30,000 D. $43,750 39. Based on the information provided, what amount of income will be assigned to the controlling interest in the consolidated income statement for 20X9? ฀ ฀ A. $400,000 B. $345,000 C. $285,000 D. $175,000 X Corporation owns 80 percent of Y Corporation's common stock and 40 percent of Z Corporation's common stock. Additionally, Y Corporation owns 35 percent of Z Corporation's common stock. The acquisitions were made at book values. The following information is available for 20X8:฀

40. Based on the information provided, what amount of consolidated net income will X Corporation report for 20X8? ฀ ฀ A. $148,750 B. $175,000 C. $150,000 D. $158,750 41. Based on the information provided, what amount of income will be assigned to the noncontrolling interest in the 20X8 consolidated income statement? ฀ ฀ A. $23,750 B. $25,000 C. $18,000 D. $33,750 42. Based on the information provided, what amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement? ฀ ฀ A. $130,750 B. $150,000 C. $141,250 D. $157,000 43. Based on the information provided, what amount will be reported as dividends declared in X Corporation's 20X8 consolidated retained earnings statement? ฀ ฀ A. $30,000 B. $50,000 C. $60,000 D. $0 Lemon Corporation acquired 80 percent of Bricks Corporation's common shares on January 1, 20X7, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 20 percent of the book value of Bricks Corporation. Bricks prepared the following balance sheet as of December 31,

20X8:฀ ฀ On January 1, 20X9, Bricks declares a stock dividend of 9,000 shares on its $5 par value common stock. The current market price per share of Bricks stock on January 1, 20X9, is $20. 44. Based on the preceding information, the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for: ฀ ฀ A. $50,000. B. $95,000. C. $230,000. D. $185,000. 45. Based on the preceding information, the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Retained Earnings for: ฀ ฀ A. $200,000 B. $65,000 C. $155,000 D. $20,000

46. Assume instead that Bricks declared a stock dividend of 3,000 shares on its $5 par value common stock. The investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for: ฀ ฀ A. $65,000. B. $95,000. C. $50,000. D. $110,000. 47. Assume that Bricks declared a stock dividend of 3,000 shares on its $5 par value common stock. The investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Retained Earnings for: ฀ ฀ A. $185,000. B. $65,000. C. $155,000. D. $200,000 Connector Corporation invested in an unincorporated joint venture and elected to use pro rata consolidation in preparing its financial statements. Connector reported income of $120,000 from its separate operations and net income of $150,000 for the year ended December 31, 20X8. The joint venture reported assets of $150,000 and liabilities of $60,000 on January 1, 20X8, and assets of $240,000 and liabilities of $75,000 on December 31, 20X8. It made no distributions to owners during the year. Connector reports total assets (excluding its investment in the unincorporated joint venture) of $550,000 at December 31, 20X8. 48. Based on the preceding information, what is Connector's percentage ownership in the joint venture? ฀ A. 20 percent B. 50 percent C. 40 percent D. 25 percent

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49. Based on the preceding information, what amount of total assets will Connector report in its balance sheet on December 31, 2008? ฀ ฀ A. $646,000 B. $625,000 C. $610,000 D. $628,000 50. Based on the preceding information, Connector's total assets at the end of the year will be highest if it were able to use: ฀ ฀ A. pro rata consolidation. B. equity-method reporting. C. cost-method reporting. D. full consolidation.

51. Portfolio Corporation acquired 70 percent ownership of Index Company on January 1, 20X6, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Index. On January 1, 20X8, Portfolio sold 1,000 shares of Index Company for $20,000 to Adventure Corporation and recorded a $5,000 gain. Trial balances for the companies on December 31, 20X8, contain the following data:฀

฀ Index Company's net income was earned evenly throughout the year. Both companies declared and paid their dividends on December 31, 20X8. Portfolio uses the fully adjusted equity method in accounting for its investment in Index.฀ Required: 1) Prepare the elimination entries needed to complete a full consolidation worksheet for 20X8.฀ 2) Prepare a consolidation worksheet for 20X8. ฀ ฀ ฀ ฀

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52. On January 1, 20X7, Infinity Corporation acquired 90 percent of Trader Corporation's common stock for $315,000. At the date of acquisition, the fair value of the noncontrolling interest was $35,000, and Trader reported common stock outstanding of $150,000 and retained earnings of $180,000. The differential is assigned to a patent with a remaining life of eight years. Each year since acquisition, Trader has reported income from operations of $50,000 and paid dividends of $30,000.฀ Trader acquired 75 percent ownership of Minnow Company on January 1, 20X9, for $187,500. At that date, the fair value of the noncontrolling interest was $62,500, and Minnow reported common stock outstanding of $100,000 and retained earnings of $130,000. In 20X9, Minnow...