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ACC Ch 8 multiple choice questions

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Question;Multiple Choice Questions;1. 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.;2. 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 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.;3. At the end of the year, a parent;acquires a wholly owned subsidiary's bonds from unaffiliated parties at a cost;less than the subsidiary's carrying value. The consolidated net income for the;year of acquisition should include the parent's separate operating income plus;A. the subsidiary's net;income increased by the gain on constructive retirement of debt.;B. the subsidiary's net income decreased by the gain on constructive;retirement of debt.;C. the subsidiary's net income increased by the gain on constructive;retirement of debt, and decreased by the subsidiary's bond interest expense.;D. the subsidiary's net income decreased by the gain on constructive;retirement of debt, and decreased by the subsidiary's bond interest expense.;4. A loss;on the constructive retirement of a parent's bonds by a subsidiary is;effectively recognized in the accounting records of the parent and its;subsidiary;I. at the date of constructive retirement.;II. over the remaining term of the bonds.;A. I;B. II;C. Both I and II;D. Neither I nor II;5. 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;6. Which;of the following statements is (are) correct?;I. The amount assigned to the noncontrolling interest may be affected by a;constructive retirement of bonds.;II. A constructive retirement of bonds normally results in an extraordinary;gain or loss.;III. In constructive retirement, the bonds are considered outstanding, even;though they are treated as if they were retired in preparing consolidated;financial statements.;A. I;B. II;C. I and III;D. I, II, and III;7. On January 1, 20X6, Nichols Corporation issued 10-year bonds at par to;unrelated parties. The bonds pay interest of $15,000 every June 30 and December;31. On December 31, 20X9, Harn Corporation purchased all of Nichols' bonds in;the open market at a $6,000 discount. Harn is Nichols' 80 percent owned;subsidiary. Harn uses the straight line method of amortization. The;consolidated income statement for the year 20X9 should report with respect to;the bonds;I. interest expense of $30,000.;II. an extraordinary gain of $6,000.;A. I;B. II;C. Either I or II;D. Neither I nor II;Light;Corporation owns 80 percent of Sound Company's voting shares. On January 1;20X7, Sound sold bonds with a par value of $300,000 at 95. Light purchased;$200,000 par value of the bonds, the remainder was sold to nonaffiliates. The;bonds mature in ten years and pay an annual interest rate of 6 percent.;Interest is paid semiannually on January 1 and July 1.;8. Based;on the information given above, what amount of interest expense should be;reported in the 20X8 consolidated income statement?;A. $6,000;B. $6,500;C. $5,000;D. $10,000;9. Based on the;information given above, what amount of interest receivable will be recorded by;Light Corporation on December 31, 20X8, in its separate financial;statements?;A. $5,000;B. $6,500;C. $10,000;D. $6,000;10. Based;on the information given above, what amount of interest expense will be;eliminated in the preparation of the 20X8 consolidated financial;statements?;A. $13,000;B. $13,500;C. $10,000;D. $15,000;Master;Corporation owns 85 percent of Servant Corporation's voting shares. On January;1, 20X8, Master Corporation sold $200,000 par value 8 percent bonds to Servant;for $245,000. The bonds mature in 10 years and pay interest semiannually on;January 1 and July 1.;11. Based on the information given above, in the preparation of;the 20X8 consolidated financial statements, premium on bonds payable will;be;A. debited for $45,000 in the eliminating entries.;B. credited for $40,500 in the eliminating entries.;C. debited for $40,500 in;the eliminating entries.;D. credited for $45,000 in the eliminating entries.;12. Based on the information;given above, in the preparation of the 20X8 consolidated financial statements;interest income will be;A. debited for $11,500 in;the eliminating entries.;B. credited for $11,500 in the eliminating entries.;C. debited for $16,000 in the eliminating entries.;D. credited for $16,000 in the eliminating entries.;13. Based on the information;given above, what amount of investment in bonds will be eliminated in the;preparation of the 20X8 consolidated financial statements?;A. $240,500;B. $200,000;C. $245,000;D. $211,500;Moon;Corporation issued $300,000 par value 10-year bonds at 107 on January 1, 20X3;which Star Corporation purchased. On July 1, 20X7, Sun Corporation purchased;$120,000 of Moon bonds from Star. The bonds pay 12 percent interest annually on;December 31. The preparation of consolidated financial statements for Moon and;Sun at December 31, 20X9, required the following eliminating entry;14. Based;on the information given above, what percentage of the subsidiary's ownership;does the parent company hold?;A. 75 percent;B. 65 percent;C. 80 percent;D. 95 percent;15. Based;on the information given above, what amount did Sun pay when it purchased the;bonds on July 1, 20X7?;A. $118,020;B. $118,920;C. $118,620;D. $117,220;16. Based;on the information given above, what amount of gain or loss on bond retirement;is included in the 20X7 consolidated income statement?;A. $6,600;B. $4,800;C. $6,000;D. $5,400;17. Based;on the information given above, if 20X9 consolidated net income of $50,000;would have been reported without the eliminating entry provided, what amount;will actually be reported?;A. $47,900;B. $48,200;C. $49,400;D. $48,800;ABC, a;holder of a $400,000 XYZ Inc. bond, collected the interest due on June 30;20X8, and then sold the bond to DEF Inc. for $365,000. On that date, XYZ, a 90;percent owner of DEF, had a $450,000 carrying amount for this bond.;18. Based;on the information given above, what amount of gain or loss on bond retirement;was recorded?;A. No gain or loss;B. $85,000 gain;C. $85,000 loss;D. $35,000 loss;19. Based;on the information given above, what was the effect of DEF's purchase of XYZ's;bond on the noncontrolling interest amount reported in XYZ's June 30, 20X8;consolidated balance sheet?;A. No effect;B. $35,000 increase;C. $8,500 decrease;D. $8,500 increase.;Granite;Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4;at 105. The bonds mature in 10 years and pay interest semiannually on January 1;and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the;original purchaser on December 31, 20X8, for $125,000. Mortar owns 75 percent;of Granite's voting common stock.;20. Based;on the information given above, what amount of premium on bonds payable will be;eliminated in the preparation of the 20X8 consolidated financial;statements?;A. $3,500;B. $2,800;C. $5,000;D. $2,500;21. Based on the;information given above, what amount of gain or loss on bond retirement will be;reported in the 20X8 consolidated financial statements?;A. $17,000 loss;B. $12,800 loss;C. $18,500 gain;D. $22,200 gain;22. Based;on the information given above, what amount of premium on bonds payable will be;eliminated in the preparation of the 20X9 consolidated financial;statements?;A. $3,500;B. $2,800;C. $5,000;D. $2,500;23. Based;on the information given above, what amount of interest income will be;eliminated in the preparation of the 20X9 consolidated financial;statements?;A. $17,000;B. $13,300;C. $18,500;D. $22,200;24. Based on the;information given above, what amount of interest expense will be eliminated in;the preparation of the 20X9 consolidated financial statements?;A. $17,000;B. $13,300;C. $18,500;D. $22,200;AACSB: Analytic;Bloom's: Apply;Difficulty: 3 Hard;Learning Objective: 08-03 Prepare journal entries and elimination entries;related to debt purchased from a nonaffiliate at an amount less than book;value.;25. Based;on the information given above, what amount of constructive gain will be;allocated to noncontrolling interest in 20X8 consolidated financial;statements?;A. $4,925;B. $5,550;C. $5,625;D. $4,625;AACSB: Analytic;Bloom's: Understand;Difficulty: 2 Medium;Learning Objective: 08-03 Prepare journal entries and elimination entries;related to debt purchased from a nonaffiliate at an amount less than book;value.;Granite;Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4;at 105. The bonds mature in 10 years and pay interest semiannually on January 1;and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the;original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of;Granite's voting common stock.;26. Based;on the information given above, what amount of premium on bonds payable will be;eliminated in the preparation of the 20X8 year-end consolidated financial;statements?;A. $3,500;B. $2,800;C. $5,000;D. $2,500;27. Based;on the information given above, what amount of gain or loss on bond retirement;will be reported in the 20X8 consolidated financial statements?;A. $17,000;B. $12,800;C. $18,500;D. $22,200;28. Based;on the information given above, what amount of premium on bonds payable will be;eliminated in the preparation of the 20X9 year-end consolidated financial;statements?;A. $3,500;B. $2,800;C. $5,000;D. $2,500;29. Based;on the information given above, what amount of interest income will be;eliminated in the preparation of the 20X9 consolidated financial statements?;A. $17,000;B. $13,300;C. $18,500;D. $22,200;Hunter;Corporation holds 80 percent of the voting shares of Moss Company. On January;1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds of;Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on;January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date;of issue. Moss reported net income of $65,000 for 20X8, and Hunter reported;income (excluding income from ownership of Moss's stock) of $90,000.;30. Based;on the information given above, what amount of interest expense does Hunter;record annually?;A. $10,750;B. $9,500;C. $2,500;D. $12,000;31. Based;on the information given above, what amount of interest income does Moss record;for 20X8?;A. $12,000;B. $2,500;C. $7,500;D. $9,500;32. Based;on the information given above, what gain or loss on the retirement of bonds;should be reported in the 20X8 consolidated income statement?;A. $6,250 gain;B. $7,500 gain;C. $7,500 loss;D. $6,250 loss;33. Based;on the information given above, what amount of consolidated net income should;be reported for 20X8?;A. $163,750;B. $161,250;C. $146,250;D. $148,750;Senior;Corporation acquired 80 percent of Junior Company's voting shares on January 1;20X8, at underlying book value. On that date, it also purchased $500,000 par;value 8 percent Junior bonds, which had been issued on January 1, 20X5, with a;12-year maturity. During preparation of the consolidated financial statements;for December 31, 20X8, the following eliminating entry was made in the;worksheet;34. Based;on the information given above, what price did Senior pay to purchase the;Junior bonds?;A. $530,000;B. $516,875;C. $533,750;D. $550,625;35. Based;on the information given above, what was the carrying amount of the bonds on;Junior's books on the date of purchase?;A. $533,750;B. $516,875;C. $545,000;D. $550,625

 

Paper#39211 | Written in 18-Jul-2015

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