Question 1 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from
the balance sheets of the two companies included the following amounts as of
the date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount of total
inventory will be reported in the consolidated balance sheet prepared
immediately after the business combination?
a) $130,000
b) $135,000
c) $90,000
d) $45,000
Question 2 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from the
balance sheets of the two companies included the following amounts as of the
date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount of goodwill
will be reported in the consolidated balance sheet prepared immediately after
the business combination?
a) $0
b) $40,000
c) $20,000
d) $15,000
Question 3 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from
the balance sheets of the two companies included the following amounts as of
the date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount of total
assets will be reported in the consolidated balance sheet prepared immediately
after the business combination?
a) $720,000
b) $840,000
c) $825,000
d) $865,000
Question 4 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from
the balance sheets of the two companies included the following amounts as of
the date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount of total
liabilities will be reported in the consolidated balance sheet prepared
immediately after the business combination?
a) $395,000
b) $280,000
c) $275,000
d) $195,000
Question 5 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from
the balance sheets of the two companies included the following amounts as of
the date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount will be
reported as noncontrolling interest in the consolidated balance sheet prepared
immediately after the business combination?
a) $0
b) $15,000
c) $40,000
d) $46,000
Question 6 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from
the balance sheets of the two companies included the following amounts as of
the date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount of
consolidated retained earnings will be reported immediately after the business
combination?
a) $205,000
b) $120,000
c) $325,000
d) $310,000
Question 7 3
/ 3 points
On January 1, 20X9, Gulliver Corporation acquired 80 percent
of Sea-Gull Company’s common stock for $160,000 cash. The fair value of the
noncontrolling interest at that date was determined to be $40,000. Data from
the balance sheets of the two companies included the following amounts as of
the date of acquisition:
At the date of the business combination, the book values of
Sea-Gull’s net assets and liabilities approximated fair value except for
inventory, which had a fair value of $45,000, and land, which had a fair value
of $60,000.
Based on the preceding information, what amount will be
reported as total stockholders’ equity in the consolidated balance sheet
prepared immediately after the business combination?
a) $405,000
b) $205,000
c) $565,000
d) $550,000
Question 8 0
/ 3 points
On January 1, 20X8, Colorado Corporation acquired 75 percent
of Denver Company’s voting common stock for $90,000 cash. At that date, the
fair value of the noncontrolling interest was $30,000. Denvers’s balance sheet
at the date of acquisition contained the following balances:
At the date of acquisition, the reported book values of
Denver’s assets and liabilities approximated fair value. Eliminating entries
are being made to prepare a consolidated balance sheet immediately following
the business combination.
Based on the preceding information, in the entry to
eliminate the investment balance,
a) retained
earnings will be credited for $20,000.
b) additional
paid-in-capital will be credited for $20,000.
c) retained
earnings will be credited for $10,000.
d) noncontrolling
interest will be debited for 30,000.
Question 9 3
/ 3 points
On January 1, 20X8, Colorado Corporation acquired 75 percent
of Denver Company’s voting common stock for $90,000 cash. At that date, the
fair value of the noncontrolling interest was $30,000. Denvers’s balance sheet
at the date of acquisition contained the following balances:
At the date of acquisition, the reported book values of
Denver’s assets and liabilities approximated fair value. Eliminating entries
are being made to prepare a consolidated balance sheet immediately following
the business combination.
Based on the preceding information, the amount of goodwill
reported is:
a) $0
b) $10,000
c) $15,000
d) $20,000
Question 10 0
/ 3 points
When there are intercompany sales of inventory during the
year and a three-part consolidation worksheet is prepared, elimination entries
related to the intercompany sales:
I. Always are needed.
II. Are not needed if the entire inventory is resold to
unrelated parties prior to the end of the year.
a) I
b) II
c) Both I
and II
d) Either I
or II
Question 11 3
/ 3 points
Earth Company owns 100 percent of the capital stock of both
Mars Corporation and Venus Corporation. Mars purchases merchandise inventory
from Venus at 125 percent of Venus’s cost. During 20X8, Venus sold inventory to
Mars that it had purchased for $25,000. Mars sold all of this merchandise to
unrelated customers for $56,892 during 20X8. In preparing combined financial statements
for 20X8, Earth’s bookkeeper disregarded the common ownership of Mars and
Venus.
Based on the information given above, what amount should be
eliminated from cost of goods sold in the combined income statement for 20X8?
a) $31,250
b) $25,000
c) $56,892
d) $6,250
Question 12 3
/ 3 points
Earth Company owns 100 percent of the capital stock of both
Mars Corporation and Venus Corporation. Mars purchases merchandise inventory
from Venus at 125 percent of Venus’s cost. During 20X8, Venus sold inventory to
Mars that it had purchased for $25,000. Mars sold all of this merchandise to
unrelated customers for $56,892 during 20X8. In preparing combined financial
statements for 20X8, Earth’s bookkeeper disregarded the common ownership of
Mars and Venus.
Based on the information given above, by what amount was
unadjusted revenue overstated in the combined income statement for 20X8?
a) $25,000
b) $56,892
c) $31,250
d) $6,250
Question 13 3
/ 3 points
Senior Inc. owns 85 percent of Junior Inc. During 20X8,
Senior sold goods with a 25 percent gross profit to Junior. Junior sold all of
these goods in 20X8. How should 20X8 consolidated income statement items be
adjusted?
a) No
adjustment is necessary.
b) Sales and
cost of goods sold should be reduced by 85 percent of the intercompany sales.
c) Net
income should be reduced by 85 percent of the gross profit on intercompany
sales.
d) Sales and
cost of goods sold should be reduced by the intercompany sales.
Question 14 3
/ 3 points
During the year a parent makes sales of inventory at a
profit to its 75 percent owned subsidiary. The subsidiary also makes sales of
inventory at a profit to its parent during the same year. Both the parent and
the subsidiary have on hand at the end of the year 20 percent of the inventory
acquired from one another. Consolidated revenues for the year should exclude:
a) 80
percent of the total revenues from intercompany sales.
b) total
revenues from intercompany sales.
c) only the
revenues from the subsidiary’s intercompany sales.
d) only the
revenues from the parent’s intercompany sales.
Question 15 3
/ 3 points
Global Corporation acquired 85 percent of Local Company’s
voting shares of stock in 20X7. During 20X8, Global purchased 50,000 picture
tubes for $15 each and sold 28,000 of them to Local for $20 each. Local sold
all of the units to unrelated entities prior to December 31, 20X8, for $30
each. Both companies use perpetual inventory systems.
Which worksheet eliminating entry is needed in preparing
consolidated financial statements for 20X8 to remove all effects of the
intercompany sale?
a) Option A
b) Option B
c) Option C
d) Option D
Question 16 3
/ 3 points
On January 1, 20X8, Parent Company acquired 90 percent
ownership of Subsidiary Corporation, at underlying book value. The fair value
of the noncontrolling interest at the date of acquisition was equal to 10
percent of the book value of Subsidiary Corporation. On Mar 17, 20X8,
Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the
entire inventory to an unaffiliated company for $120,000 on November 21, 20X8.
Parent had produced the inventory sold to Subsidiary for $62,000. The companies
had no other transactions during 20X8.
Based on the information given above, what amount of sales
will be reported in the 20X8 consolidated income statement?
a) $62,000
b) $120,000
c) $90,000
d) $58,000
Question 17 3
/ 3 points
On January 1, 20X8, Parent Company acquired 90 percent
ownership of Subsidiary Corporation, at underlying book value. The fair value
of the noncontrolling interest at the date of acquisition was equal to 10
percent of the book value of Subsidiary Corporation. On Mar 17, 20X8,
Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the
entire inventory to an unaffiliated company for $120,000 on November 21, 20X8.
Parent had produced the inventory sold to Subsidiary for $62,000. The companies
had no other transactions during 20X8.
Based on the information given above, what amount of cost of
goods sold will be reported in the 20X8 consolidated income statement?
a) $62,000
b) $120,000
c) $90,000
d) $58,000
Question 18 0
/ 3 points
On January 1, 20X8, Parent Company acquired 90 percent
ownership of Subsidiary Corporation, at underlying book value. The fair value
of the noncontrolling interest at the date of acquisition was equal to 10
percent of the book value of Subsidiary Corporation. On Mar 17, 20X8,
Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the
entire inventory to an unaffiliated company for $120,000 on November 21, 20X8.
Parent had produced the inventory sold to Subsidiary for $62,000. The companies
had no other transactions during 20X8.
Based on the information given above, what amount of
consolidated net income will be assigned to the controlling shareholders for
20X8?
a) $58,000
b) $59,000
c) $55,000
d) $52,200
Question 19 0
/ 3 points
Blue Company owns 70 percent of Black Company’s outstanding
common stock. On December 31, 20X8, Black sold equipment to Blue at a price in
excess of Black’s carrying amount, but less than its original cost. On a
consolidated balance sheet at December 31, 20X8, the carrying amount of the
equipment should be reported at:
a) Blue’s
original cost.
b) Black’s
original cost.
c) Blue’s
original cost less Black’s recorded gain.
d) Blue’s
original cost less 70 percent of Black’s recorded gain.
Question 20 0
/ 3 points
A wholly owned subsidiary sold land to its parent during the
year at a gain. The parent continues to hold the land at the end of the year.
The amount to be reported as consolidated net income for the year should equal:
a) the
parent’s separate operating income, plus the subsidiary’s net income.
b) the
parent’s separate operating income, plus the subsidiary’s net income, minus the
intercompany gain.
c) the
parent’s separate operating income, plus the subsidiary’s net income, plus the
intercompany gain.
d) the
parent’s net income, plus the subsidiary’s net income, minus the intercompany
gain.
Question 21 3
/ 3 points
Any intercompany gain or loss on a downstream sale of land
should be recognized in consolidated net income:
I. in the year of the downstream sale.
II. over the period of time the subsidiary uses the land.
III. in the year the subsidiary sells the land to an
unrelated party.
a) I
b) II
c) III
d) I or II
Question 22 3
/ 3 points
ABC Corporation purchased land on January 1, 20X6, for
$50,000. On July 15, 20X8, it sold the land to its subsidiary, XYZ Corporation,
for $70,000. ABC owns 80 percent of XYZ’s voting shares.
Based on the preceding information, what will be the
worksheet eliminating entry to remove the effects of the intercompany sale of
land in preparing the consolidated financial statements for 20X8?
a) Option A
b) Option B
c) Option C
d) Option D
Question 23 0
/ 3 points
Parent Company owns 70% of Son Company’s outstanding stock.
During 20X1 Son Company sold land to Parent Company for a gain of $25,000.
Parent company held the land all of 20X1. The gain on the sale to Parent should
be:
a) recorded
on Son’s books as a gain of $25,000 and then eliminated during the
consolidation process.
b) deferred
by Son until Parent sells the land to an outside party.
c) recorded
on Son’s books as a gain of $17,500 and eliminated during the consolidation
process.
d) recorded
on Parent’s book as a gain of $17,500 and eliminated during the consolidation
process.
Question 24 3
/ 3 points
Cutler Company owns 80 percent of the common stock of Marina
Inc. Cutler acquires some of Marina’s bonds from an unrelated party for less
than the carrying value on Marina’s books and holds them as a long-term
investment. For consolidated reporting purposes, how is the acquisition of
Marina’s bonds treated?
a) As a
decrease in the Bonds Payable account on Marina’s books.
b) As an
increase in noncurrent assets.
c) Everything
related to the bonds is eliminated in the consolidation worksheet, and nothing
related to the bonds appears in the consolidated financial statements.
d) As a
retirement of bonds.
Question 25 3
/ 3 points
Culver owns 80 percent of the common stock of Fowler
Company. Culver also purchases some of Fowler’s bonds directly from Fowler and
holds the bonds as a long-term investment. How is the acquisition of the bonds
treated for consolidated reporting purposes?
a) As a
retirement of bonds.
b) As an
increase in the Bonds Payable account on Fowler’s books.
c) Everything
related to the intercompany bonds is eliminated in the consolidation worksheet,
and nothing related to the bonds appears in the consolidated financial
statements.
d) As an
increase in noncurrent assets.
Question 26 3
/ 3 points
When one company purchases the debt of an affiliate from an
unrelated party, a gain or loss on the constructive retirement of debt is
recognized by which of the following?
a) Option A
b) Option B
c) Option C
d) Option D
Question 27 3
/ 3 points
Which sections of the cash flow statement are affected by
the difference in the direct and indirect approaches of presenting a cash flow
statement?
I. Operating activities section
II. Investing activities section
III. Financing activities section
a) I
b) II
c) III
d) I, II,
and III
Question 28 3
/ 3 points
Dividends paid to noncontrolling shareholders:
I. are reported as a cash outflow in the consolidated cash
flow statement.
II. represent funds that are no longer available to the
consolidated entity.
III. are reported in the consolidated retained earnings
statement.
a) Observation
I alone is true.
b) Observation
III alone is true.
c) Observations
I and II are true.
d) Observations
I, II, and II are true.
Question 29 0
/ 3 points
For a subsidiary to be eligible to be included in a
consolidated tax return, at least _____ of its stock must be held by the parent
company or another company included in the consolidated return.
a) 50
percent
b) 40
percent
c) 75
percent
d) 80
percent
Question 30 0
/ 3 points
Company A holds 70 percent of the voting shares of Company
B. During 20X8, Company B sold land with a book value of $125,000 to Company A
for $150,000. Company A continues to hold the land at the end of the year. The
companies file separate tax returns and are subject to a 40 percent tax rate.
Assume that Company A uses the fully adjusted equity method in accounting for
its investment in Company B.
Based on the information given, which eliminating entry
relating to the intercorporate sale of land is to be entered in the
consolidation worksheet prepared at the end of 20X8?
a) Option A
b) Option B
c) Option C
d) Option D
Question 31 8
/ 10 points
Colton Company acquired 80 percent ownership of Mota
Company’s voting shares on January 1, 2008, at underlying book value. The fair
value of the noncontrolling interest on that date was equal to 20 percent of
the book value of Mota Company. During 2008, Colton purchased inventory for
$30,000 and sold the full amount to Mota Company for $50,000. On December 31,
2008, Mota’s ending inventory included $10,000 of items purchased from Colton.
Also in 2008, Mota purchased inventory for $80,000 and sold the units to Colton
for $100,000. Colton included $30,000 of its purchase from Mota in ending inventory
on December 31, 2008. Summary income statement data for the two companies
revealed the following:
Required:
a. Compute the amount to be reported as sales in the 20X8
consolidated income statement.
b. Compute the amount to be reported as cost of goods sold
in the 20X8 consolidated income statement.
Question 32 5
/ 5 points
On April 7 2012, Pate Corp. sold land to Shannahan Co., its
wholly owned subsidiary. From a
consolidated point of view, WHEN will the gain on this transfer actually be
earned?
Question 33 5
/ 5 points
Throughout 2012, Cleveland Co. sold inventory to Leeward
Co., its wholly owned subsidiary. From a
consolidated point of view, WHEN will the gain on this transfer be earned?
Question 34 10
/ 10 points
How does a gain on an intercompany sale of equipment affect
the calculation of a non-controlling interest?
Downstream and/or upstream.
The correct answer is not displayed for Long Answer type
questions.
Question 35 20
/ 30 points
The sales of merchandise by Pater Corporation to its
80%-owned subsidiary, Sibling Company, during the fiscal year ended March 31,
2012, may be analyzed as follows:
Pater and Sibling file separate income tax returns; the
income tax rate is 40%; and the criteria for recognizing a deferred tax asset
without a valuation allowance are met.
Prepare working paper eliminations, including income taxes,
(in journal entry format) for Pater Corporation and subsidiary on March 31,
2012. Omit explanations.