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Question;1.;A new subsidiary is being formed. The parent company;purchased 70% of the shares for $20 per share. The remaining shares were sold;to a variety of outside interests for an average of $22 per share. The;consolidated statements will show;a.;an extraordinary gain.;b.;an extraordinary loss.;c.;only cash and related equity.;d. goodwill.;2.;A new subsidiary is being formed. The parent company;purchased 70% of the shares for $20 per share. The remaining shares were sold;to a variety of outside interests for an average of $18 per share. The;consolidated statements will show;a.;an extraordinary gain.;b.;an extraordinary loss.;c.;only cash and related equity.;d. goodwill.;3.;When;a parent acquires a controlling interest in a subsidiary as a result of a;series of purchases of subsidiary stock, current practice in preparing;statements follows the;a.;economic entity concept.;b.;parent company concept.;c.;piecemeal acquisition concept.;d. proportionate consolidation;concept.;4.;When;control of a subsidiary is achieved with the initial investment in subsidiary;stock, when subsequent block of subsidiary's stock is purchased;a.;the parent must change from the cost method to the;equity method.;b.;the parent must change from the equity method to the;cost method.;c.;no change in accounting methods is required.;d. none of the above.;Chapter 7;5.;Pine Company purchased a 55% interest in the Sent;Company on January 1, 20X1 for $350,000. On that date, the stockholders' equity;of Sent Company was $450,000. Any excess cost was attributable to goodwill.;Pine purchased another 20% interest on January 1, 20X4 for $200,000. On January;1, 20X4, Sent Company's stockholders' equity was $700,000, the entire increase;due to retained earnings. Any excess cost was again attributed to goodwill. The;goodwill balance on the December 31, 20X4, balance sheet is __________.;a.;$102,500;b.;$60,000;c.;$0;d. $162,500;6.;Pine Company purchased a 55% interest in the Sent;Company on January 1, 20X1 for $350,000. On that date, the stockholders' equity;of Sent Company was $450,000. Any excess cost was attributable to the fair;value increase of equipment with a 10-year life. Pine purchased another 20%;interest on January 1, 20X5 for $200,000. On January 1, 20X5, Sent Company's;stockholders' equity was $700,000, the entire increase due to retained;earnings. Any excess cost was again attributed to the fair value increase of;equipment with a 6-year life. The additional expense on the December 31, 20X5;income statement is __________.;a.;$10,250;b.;$20,250;c.;$10,000;d. $16,250;7.;Prior to January 1, 20X4, Parts Inc. owned a 60%;controlling interest in Sorter Company. On July 1, 20X4, Parts Inc. purchased;an additional 20% interest in Sorter for $150,000. Sorter's stockholders;equity was $600,000 on January 1, 20X4. Any excess was attributed to goodwill.;On July 1, 20X4, there was intercompany inventory owned by Parts Inc. that had;been purchased from Sorter. Sorter's profit on the inventory was $5,000. Parts;Inc. sold the inventory during the latter half of 20X4. Sorter's net income for;20X4 was $60,000, earned evenly during the year. Goodwill arising from the second;acquisition is __________.;a.;$30,000;b.;$29,500;c.;$25,000;d. $23,500;7-2;Chapter 7;8.;Prior to January 1, 20X4, Parts Inc. owned a 60%;controlling interest in Sorter Company. On July 1, 20X4, Parts Inc. purchased;an additional 20% interest in Sorter for $150,000. Sorter's stockholders;equity was $600,000 on January 1, 20X4. Any excess was attributed to to the;fair value increase of a building with a 20-year life. On July 1, 20X4, there;was intercompany inventory owned by Parts Inc. that had been purchased from;Sorter. Sorter's profit on the inventory was $5,000. Parts Inc. sold the;inventory during the latter half of 20X4. Sorter's net income for 20X4 was;$60,000, earned evenly during the year. The noncontrolling interest share of;income for 20X4 is __________.;a.;$18,000;b.;$17,000;c.;$12,000;d. $11,000;9.;When a subsequent block of an existing subsidiary's;stock is purchased, the determination and distribution of excess schedule;a.;is not independent of the appraisals made during;previous acquisitions.;b. is;completely independent of the appraisals made during previous acquisitions.;c.;must take into account all previous appraisals.;d. none of the above.;10. When;investment blocks are carried at cost, the conversion entry is based upon;a.;the difference in retained earnings at the beginning;of the current fiscal year and the retained earnings when the first block was;acquired.;b.;the difference in retained earnings at the beginning;of the current fiscal year and the retained earnings when the block giving a;controlling interest was acquired.;c.;the difference in retained earnings at the beginning;of the current fiscal year and the retained earnings of each block at its;acquisition.;d.;the difference in retained earnings at the beginning;of the current fiscal year and the retained earnings when the last block was;acquired.;7-3;Chapter 7;a.;Palto Inc. purchased a 10% interest in the Sauer;Company for $50,000 on January 1, 20X1. On that date, Sauer's stockholders;equity was $400,000. Any excess would have been considered goodwill. On January;1, 20X4, Palto purchased another 60% interest for $500,000 when Sauer's;stockholders' equity was $700,000. Again, any excess was viewed as goodwill.;The Sauer Company earned $50,000 during 20X4. The balance in the Investment in;Sauer account just prior to the 60% purchase should have been __________.;$47,000;$50,000;$77,000;$80,000;12.;Palto Inc. purchased a 10% interest in the Sauer;Company for $50,000 on January 1, 20X1. On that date, Sauer's stockholders;equity was $400,000. Any excess would have been attributed to a patent with a;10-year life. On January 1, 20X3, Palto purchased another 60% interest for;$500,000 when Sauer's stockholders' equity was $700,000. Again, any excess was;attributed to the patent with an 8-year life. The Sauer Company earned $50,000;during 20X3. The patent on the December 31, 20X3, consolidated balance sheet will;be __________.;a.;$90,000;b.;$77,000;c.;$80,000;d. $10,000;13. Company P;purchased the outstanding common stock of Company S as follows;15%, January 1, 20X1;20%, June 1, 20X1;30%, August 1, 20X1;35%, September 30, 20X1;The fiscal year;of both firms ends on September 30. S's stock was acquired by P at book value.;The controlling interest in consolidated net earnings for the fiscal year ended;September 30, 20X1, would include which of the following earnings of the;subsidiary?;D;100%, January-September 20X1;E;15%, January-May 20X1, 35%, June-July 20X1, and 65%;August-September 20X1;F;15%, January-May 20X1, 20%, June-July 20X1, and 30%;August-September 20X1;G 65%, January-September 20X1;7-4;Chapter 7;14. Company P;purchased the outstanding common stock of Company S as follows;15%, January 1, 20X1;20%, June 1, 20X1;30%, August 1, 20X1;35%, September 30, 20X1;The fiscal;year of both firms ends on December 31. S's stock was acquired by P at book;value. The controlling interest in consolidated net earnings for the fiscal;year ended December 31, 20X1, would include which of the following earnings of;the subsidiary?;a.;100%, January-December 20X1;b.;15%, January-May 20X1, 20%, June-July 20X1, and 30%;August-September 20X1;c.;15%, January-May 20X1, 35%, June-July 20X1, 65%;August-October 20X1, and 100%, September - December;d. 15%;January-May 20X1, 35%, June-July 20X1, 65%, August-September 20X1, and 100%;November - December;15. When a parent;sells part of its subsidiary interest, a gain or loss is recognized if the;parent;a.;sells its entire investment.;b.;loses control and significant influence.;c.;loses control only.;d. sells any portion on its;investment.

 

Paper#44376 | Written in 18-Jul-2015

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