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Question;1.;Account;Investor;Investee;Sales;$500,000;$300,000;Cost of Goods Sold;230,000;170,000;Gross;Profit;$270,000;$130,000;Selling;Admin.;120,000;100,000;Expenses;Net;Income;$150,000;$ 30,000;========;========;Dividends paid;50,000;10,000;Assuming;Investor owns 70% of Investee. What is the amount that will be recorded as Net;Income for the Controlling Interest?;a.;$164,000;b.;$171,000;c.;$178,000;d. $180,000;2.;Consolidated;financial statements are designed to provide;a.;informative information to all shareholders.;b. the results;of operations, cash flow, and the balance sheet in an understandable and;informative manor for creditors.;c. the results;of operations, cash flow, and the balance sheet as if there was a single;entity.;d. subsidiary information for;the subsidiary shareholders.;3.;The;FASB Exposure Draft assumes consolidation financial statements are appropriate;even without a majority of controlling share if which of the following exists;a. the;subsidiary has the right to appoint member's of the parent company's board of;directors.;b. the parent;company has the right to appoint a majority of the members of the subsidiary's;board of directors through a large minority voting interest.;c.;the subsidiary owns a large minority voting interest;in the parent company.;d.;The parent company has an ability to assume the role;of general partner in a limited partnership with the approval of the;subsidiary's board of directors.;Chapter 2;4.;The SEC and FASB has recommended that a parent;corporation should consolidate the financial statements of the subsidiary into;its financial statements when it exercises control over the subsidiary, even;without majority ownership. In which of the following situations would control;NOT be evident?;a.;Access to subsidiary assets is available to all;shareholders.;b.;Dividend policy is set by the parent.;c. The;subsidiary does not determine compensation for its main employees.;d. Substantially;all cash flows of the subsidiary flow to the controlling shareholders.;5.;The;goal of the consolidation process is for;a.;asset acquisitions and stock acquisitions to result;in the same balance sheet.;b. goodwill to;appear on the balance sheet of the consolidated entity.;c. the assets;of the noncontrolling interest to be predominately displayed on the balance;sheet.;d. the;investment in the subsidiary to be properly valued on the consolidated balance;sheet.;6.;A subsidiary was acquired for cash in a business;combination on December 31, 20X1. The purchase price exceeded the fair value of;identifiable net assets. The acquired company owned equipment with a fair value;in excess of the book value as of the date of the combination. A consolidated;balance sheet prepared on December 31, 20X1, would;a. report the;excess of the fair value over the book value of the equipment as part of;goodwill.;b. report the;excess of the fair value over the book value of the equipment as part of the;plant and equipment account.;c. reduce;retained earnings for the excess of the fair value of the equipment over its;book value.;d.;make no adjustment for the excess of the fair value;of the equipment over book value. Instead, it is an adjustment to expense over;the life of the equipment.;5;2-2;Chapter 2;7.;Parr Company purchased 100% of the voting common;stock of Super Company for $2,000,000. There are no liabilities. The following;book and fair values are available:......................;Current assets;Book Value;Fair;Value;$300,000;$600,000;Land and;building...................;600,000;900,000;Machinery...........................;500,000;600,000;Goodwill............................;100,000;?;The machinery will appear on the consolidated;balance sheet at ________.;a.;$560,000;b.;$860,000;c.;$600,000;d. $900,000;8.;Pagach Company purchased 100% of the voting common;stock of Rage Company for $1,800,000. The following book and fair values are;available:......................;Current assets;Book Value;Fair Value;$;150,000;$300,000;Land and;building...................;280,000;280,000;Machinery...........................;400,000;700,000;Bonds;payable.......................;(300,000);(250,000);Goodwill............................;150,000;?;The bonds payable will appear on the;consolidated balance sheet;a. at $300,000 (with no premium;or discount shown).;b.;at $300,000 less a discount of $50,000.;c.;at $0, assets are recorded net of liabilities.;d. under a net amount of;$250,000 since it is a bargain purchase.;9.;The investment in a subsidiary recorded as a;purchase by the parent should be recorded on the parent's books at;a.;underlying book value of the subsidiary's net;assets.;b.;the fair value of the subsidiary's net identifiable;assets.;c.;the fair value of the consideration given.;d. the fair;value of the consideration given plus an estimated value for goodwill.;10. Which of;the following costs of a business combination are included in the value charged;to paid-in-capital in excess of par?;a.;direct and indirect acquisition costs;b.;direct acquisition costs;c. direct;acquisition costs and stock issue costs if stock is issued as consideration;d. stock issue costs if stock;is issued as consideration;2-3;Chapter 2;11.;When it purchased Sutton, Inc. on January 1, 20X1;Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On;that date the fair value of those shares totaled $4,200,000. Related to the;acquisition, Pavin had payments to the attorneys and accountants of $200,000;and stock issuance fees of $100,000. Immediately prior to the purchase, the;equity sections of the two firms appeared as follows:........................;Common stock;Pavin;Sutton;$ 4,000,000;$;700,000;Paid-in capital in excess of;par....;7,500,000;900,000;Retained earnings...................;5,500,000;500,000...............................Total;$17,000,000;$2,100,000;===========;==========;Immediately;after the purchase, the consolidated balance sheet should report paid-in;capital in excess of par of;a.;$8,900,000;b.;$9,100,000;c.;$9,200,000;d. $9,300,000;12.;Judd Company issued nonvoting preferred stock with a;fair value of $1,500,000 in exchange for all the outstanding common stock of;the Bath Corporation. On the date of the exchange, Bath had tangible net assets;with a book value of $900,000 and a fair value of $1,400,000. In addition, Judd;issued preferred stock valued at $100,000 to an individual as a finder's fee;for arranging the transaction. As a result of these transactions, Judd should;report an increase in net assets of;a.;$900,000;b.;$1,400,000;c.;$1,500,000;d. $1,600,000;13.;In an 80% purchase accounted for as a tax-free;exchange, the excess of cost over book value is $200,000. The equipment's book;value for tax purposes is $100,000 and its fair value is $150,000. All other;identifiable assets and liabilities have fair values equal to their book;values. The tax rate is 30%. What is the total deferred tax liability that;should be recognized on the consolidated balance sheet on the date of purchase?;a.;$12,000;b.;$60,000;c.;$72,857;d. $85,714;2-4;Chapter 2;14.;On June 30, 20X1, Naeder Corporation purchased for;cash at $10 per share all 100,000 shares of the outstanding common stock of the;Tedd Company. The total fair value of all identifiable net assets of Tedd was;$1,400,000. The only noncurrent asset is property with a fair value of;$350,000. The consolidated balance sheet of Naeder and its wholly owned subsidiary;on June 30, 20X1, should reflect;a.;an extraordinary gain of $50,000.;b.;goodwill of $50,000.;c.;an extraordinary gain of $350,000.;d. goodwill of $350,000.

 

Paper#44350 | Written in 18-Jul-2015

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