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Question;1.;A;parent company owns a 100% interest in a subsidiary. Recently, the subsidiary;paid a 10% stock dividend. The dividend should be recorded on the books of the;parent;a.;at the par value or stated value of the shares;received.;b.;at the market value of the shares on the date of;declaration.;c.;at the market value of the shares on the date of;distribution.;d.;merely as a memo entry indicating that the cost of;the original investment now is allocated to a greater number of shares.;2.;Company P purchased a 80% interest in the Company S;on January 1, 20X1, for $600,000. Any excess of cost is attributed to the;Company's building with a 20-year life. The equity balances of Company S are as;follows;Common stock, $10 par..;January 1;20X1;December;31, 20X4;$100,000;$140,000;Other;paid-in capital..;200,000;280,000;Retained earnings......;250,000;450,000;The only;change in paid-in capital is a result of a 40% stock dividend paid in 20X3. The;cost to simple equity conversion to bring the investment account to its;December 31, 20X4, balance is __________.;a.;$30,000;b.;$136,000;c.;$160,000;d. $256,000;3.;When the parent purchases some newly issued shares;of a subsidiary, any adjustments resulting from the subsidiary stock sales;should be made;a. at the end;of the current fiscal year when the worksheet is prepared.;b.;at the time of the sale when the equity method is;used.;c.;at the time of the sale if the cost method is used.;d. retroactively to the start;of the current fiscal year.;4.;A subsidiary stock sale of new shares to a;noncontrolling interest may be viewed so that any increase in parent's interest;is viewed as generating additional paid-in capital and any decrease is viewed;as a reduction first in paid-in capital in excess of par if it exists;otherwise, parent retained earnings is reduced. This is a(n);a.;parent company concept.;b.;proportionate consolidation concept.;c.;economic unit concept.;d. equity method.;Chapter 8;5.;Paris LTD. owned a 75% interest in Scott Company;prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its;interest when Scott Company had total equity of $550,000. On January 1, 20X3;Scott Company had the following stockholders' equity;Common;stock, $10;par...............;$100,000;Other;paid-in capital...............;200,000;Retained;earnings...................;350,000;On January 2, 20X3, Scott Company sold 2,500 additional shares;of stock for $80 each in a private offering to noncontrolling shareholders. As;a result of this sale, which of the following changes would appear in the 20X3;consolidated statements?;a.;$50,000 gain;b.;$22,500 gain;c.;$50,000 increase in controlling paid-in capital;d. $22,500 increase in;controlling paid-in capital;ANS: D DIF: M OBJ: 2;6.;Paris LTD. owned a 75% interest in Scott Company;prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its;interest when Scott Company had total equity of $550,000. On January 1, 20X3;Scott Company had the following stockholders' equity;Common stock, $10;par...............;$100,000;Other;paid-in capital...............;200,000;Retained;earnings...................;350,000;On January 2, 20X3, Scott Company sold 2,500 additional shares;of stock for $35 each in a private offering to noncontrolling shareholders. As;a result of this sale, which of the following changes would appear in the 20X3;consolidated statements?;30.$45,000 loss;31.$21,875 loss;32.$45,000;decrease in controlling paid-in capital;33.$21,875 decrease in controlling paid-in capital;8-2;Chapter 8;7.;Paris LTD. owned a 75% interest in Scott Company;prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its;interest when Scott Company had total equity of $550,000. On January 1, 20X3;Scott Company had the following stockholders' equity;Common;stock, $10;par...............;$100,000;Other;paid-in capital...............;200,000;Retained;earnings...................;350,000;On January 2, 20X3, Scott Company sold 2,500 additional shares;of stock for $80 each in a public offering to noncontrolling shareholders. As a;result of this sale, which of the following changes would appear in the 20X3;consolidated statements?;a.;$50,000 gain;b.;$22,500 gain;c.;$50,000 increase in controlling paid-in capital;d. $22,500 increase in;controlling paid-in capital;8.;Paris LTD. owned a 75% interest in Scott Company;prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its;interest when Scott Company had total equity of $550,000. On January 1, 20X3;Scott Company had the following stockholders' equity;Common stock, $10;par...............;$100,000;Other;paid-in capital...............;200,000;Retained;earnings...................;350,000;On January 2, 20X3, Scott Company sold 2,500 additional shares;of stock for $35 each in a public offering to noncontrolling shareholders. As a;result of this sale, which of the following changes would appear in the 20X3;consolidated statements?;a.;$45,000 loss;b.;$21,875 loss;c.;$45,000 decrease in controlling paid-in capital;d. $21,875 decrease in;controlling paid-in capital;2;8-3;Chapter 8;9.;Paris LTD. owned a 75% interest in Scott Company;prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its;interest when Scott Company had total equity of $550,000. Scott Company had the;following stockholders' equity on the dates shown;1/1/X1;1/1/X3;12/31/X4;Common;stock, $10......par;$100,000;$100,000;$125,000;Other;paid-in capital......;200,000;200,000;375,000;Retained;earnings..........;250,000;350,000;400,000;On January;2, 20X3, Scott Company sold 2,500 additional shares of stock for $80 each in a;private offering to noncontrolling shareholders. Assume that the investment in;Scott Company is carried under the cost method. The cost-to-equity adjustment;to the investment account to bring it to its simple equity adjusted cost on December;31, 20X4, would be an increase of __________.;a.;$96,000;b.;$112,500;c.;$127,500;d. $224,000;10.;Paris LTD. owned a 75% interest in Scott Company;prior to January 1, 20X3. On January 1, 20X1, Paris LTD. paid $600,000 for its;interest when Scott Company had total equity of $550,000. Scott Company had the;following stockholders' equity on the dates shown;1/1/X1;1/1/X3;12/31/X4;Common;stock, $10......par;$100,000;$100,000;$125,000;Other;paid-in capital......;200,000;200,000;250,000;Retained;earnings..........;250,000;350,000;400,000;On January;2, 20X3, Scott Company sold 2,500 additional shares of stock for $30 each in a;private offering to noncontrolling shareholders. Assume that the investment in;Scott Company is carried under the cost method. The cost-to-equity adjustment;to the investment account to bring it to its simple equity adjusted cost on;December 31, 20X4, would be an increase of __________.;a.;$52,500;b.;$112,500;c.;$120,000;d. $135,000;8-4;Chapter 8;11.;Company P owns 80% of the outstanding common stock;of the Company S and has 10,000 outstanding shares of common stock. If Company;S issues 2,500 added shares of common stock, and Company P purchases some of;the newly issued shares, which of the following statements is true?;a.;Other than recording the purchase, there is no;adjustment to the controlling interest if the parent purchases all the shares;issued.;b. Other than;recording the purchase, there is no adjustment to the controlling interest if;the parent does not purchase any of the shares issued.;c.;Other than recording the purchase, there is no;adjustment to the controlling interest if the parent purchases 80% of the;shares issued.;d.;There is a new excess of cost over book value or excess;of book value over cost if the parent purchases 80% of the newly issued shares.;12. Prior to;January 1, 20X3, Company P owned a 90% interest Company S. On January 1, 20X3;Company S had the following stockholders' equity;Common;stock, $10;par...............;$100,000;Other;paid-in capital...............;200,000;Retained;earnings...................;300,000;On January 2, 20X9, Company;S sold 2,000 added shares in a private offering for $80 per share. Company P;purchased all the shares. As a result of this sale;a.;the investment account increases $160,000 and;controlling interest in paid-in capital decreases.;b.;the investment account increases $160,000, and there;is additional excess of cost over book value.;c.;the investment account increases $160,000, and a;gain is recorded.;d. the investment account;increases $160,000, and a loss is recorded.;13. Prior to;January 1, 20X3, Company P owned a 90% interest Company S. On January 1, 20X3;Company S had the following stockholders' equity;Common;stock, $10;par...............;$100,000;Other;paid-in capital...............;200,000;Retained;earnings...................;250,000;On January 2, 20X3, Company;S sold 2,000 added shares in a private offering for $70 per share. Company P;purchased 600 of the shares. As a result of this sale, there is a(n);a.;gain on the consolidated income statement of;$15,000.;b.;increase in the controlling interest, paid-in excess;of $15,000.;c. increase in;the investment account and a new excess of cost over book value.;d. increase in the controlling;interest, paid-in capital of $57,000.;8-5;Chapter 8;14.;When a parent purchases a portion of the newly;issued stock of its subsidiary and the ownership interest remains the same;a. any;difference between the change in equity and the price paid is the excess of;cost or book value attributable to the new block.;b. any;difference between the change in equity and the price paid is viewed as a gain;or loss on the sale of an interest.;c. any;difference between the change in equity and the price paid is viewed as a;change in paid-in capital or retained earnings.;d. there will be no adjustment.;15.;When a parent purchases a portion of the newly;issued stock of its subsidiary in a private offering and the ownership interest;decreases;a. any;difference between the change in equity and the price paid is the excess of;cost or book value attributable to the new block.;b. any;difference between the change in equity and the price paid is viewed as a gain;or loss on the sale of an interest.;c. any;difference between the change in equity and the price paid is viewed as a;change in paid-in capital or retained earnings.;d. there will be no adjustment.

 

Paper#44381 | Written in 18-Jul-2015

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