ACC 401 Week 4 Quiz – Strayer
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Quiz 3 Chapter 4
Chapter 4
Consolidated
Financial Statements after Acquisition
1. An investor adjusts the investment
account for the amortization of any difference between cost and book value
under the
a. cost method.
b. complete equity method.
c. partial equity method.
d. complete and partial equity methods.
2. Under the partial equity method, the
entry to eliminate subsidiary income and dividends includes a debit to
a. Dividend Income.
b. Dividends Declared - S Company.
c. Equity in Subsidiary Income.
d. Retained Earnings - S Company.
3. On the consolidated statement of cash
flows, the parent’s acquisition of additional shares of the subsidiary’s stock
directly from the subsidiary is reported as
a. an investing activity.
b. a financing activity.
c. an operating activity.
d. none of these.
4. Under the cost method, the workpaper
entry to establish reciprocity
a. debits Retained Earnings - S Company.
b. credits Retained Earnings - S Company.
c. debits Retained Earnings - P Company.
d. credits Retained Earnings - P Company.
5. Under the cost method, the investment
account is reduced when
a. there is a liquidating dividend.
b. the subsidiary declares a cash dividend.
c. the subsidiary incurs a net loss.
d. none of these.
6. The parent company records its share of
a subsidiary’s income by
a. crediting Investment in S Company under the
partial equity method.
b. crediting Equity in Subsidiary Income under
both the cost and partial equity methods.
c. debiting Equity in Subsidiary Income under
the cost method.
d. none of these.
7. In years subsequent to the year of
acquisition, an entry to establish reciprocity is made under the
a. complete equity method.
b. cost method.
c. partial equity method.
d. complete and partial equity methods.
8. A parent company received dividends in
excess of the parent company’s share of the subsidiary’s earnings subsequent to
the date of the investment. How will the parent company’s investment account be
affected by those dividends under each of the following accounting methods?
Cost Method Partial Equity Method
a. No effect No
effect
b. Decrease No
effect
c. No effect Decrease
d. Decrease Decrease
9. P Company purchased 80% of the
outstanding common stock of S Company on May 1, 2011, for a cash payment of
$1,272,000. S Company’s December 31, 2010 balance sheet reported common stock
of $800,000 and retained earnings of $540,000. During the calendar year 2011, S
Company earned $840,000 evenly throughout the year and declared a dividend of
$300,000 on November 1. What is the amount needed to establish reciprocity
under the cost method in the preparation of a consolidated workpaper on
December 31, 2012?
a. $208,000
b. $260,000
c. $248,000
d. $432,000
10. P Company purchased 90% of the
outstanding common stock of S Company on January 1, 1997. S Company’s
stockholders’ equity at various dates was:
1/1/97 1/1/11 12/31/11
Common
stock $400,000 $400,000 $400,000
Retained
earnings 120,000 380,000 460,000
Total $520,000 $780,000 $860,000
The workpaper entry to establish
reciprocity under the cost method in the preparation of a consolidated
statements workpaper on December 31, 2011 should include a credit to P
Company’s retained earnings of
a. $80,000.
b. $234,000.
c. $260,000.
d. $306,000.
11. Consolidated net income for a parent
company and its partially owned subsidiary is best defined as the parent
company’s
a. recorded net income.
b. recorded net income plus the subsidiary’s
recorded net income.
c. recorded net income plus the its share of the
subsidiary’s recorded net income.
d. income from independent operations plus
subsidiary’s income resulting from transactions with outside parties.
12. In the preparation of a consolidated
statements workpaper, dividend income recognized by a parent company for
dividends distributed by its subsidiary is
a. included with parent company income from
other sources to constitute consolidated net income.
b. assigned as a component of the noncontrolling
interest.
c. allocated proportionately to consolidated net
income and the noncontrolling interest.
d. eliminated.
13. In the preparation of a consolidated
statement of cash flows using the indirect method of presenting cash flows from
operating activities, the amount of the noncontrolling interest in consolidated
income is
a. combined with the controlling interest in
consolidated net income.
b. deducted from the controlling interest in
consolidated net income.
c. reported as a significant noncash investing
and financing activity in the notes.
d. reported as a component of cash flows from
financing activities.
14. On October 1, 2011, Parr Company acquired
for cash all of the voting common stock of Stein Company. The purchase price of
Stein’s stock equaled the book value and fair value of Stein’s net assets. The
separate net income for each company, excluding Parr’s share of income from
Stein was as follows:
Parr Stein
Twelve
months ended 12/31/11 $4,500,000 $2,700,000
Three
months ended 12/31/11 495,000 450,000
During September, Stein paid $150,000 in
dividends to its stockholders. For the year ended December 31, 2011, Parr
issued parent company only financial statements. These statements are not
considered those of the primary reporting entity. Under the partial equity
method, what is the amount of net income reported in Parr’s income statement?
a. $7,200,000.
b. $4,650,000.
c. $4,950,000.
d. $1,800,000.
15. A parent company uses the partial equity
method to account for an investment in common stock of its subsidiary. A
portion of the dividends received this year were in excess of the parent
company’s share of the subsidiary’s earnings subsequent to the date of the
investment. The amount of dividend income that should be reported in the parent
company’s separate income statement should be
a. zero.
b. the total amount of dividends received this
year.
c. the portion of the dividends received this
year that were in excess of the parent’s share of subsidiary’s earnings
subsequent to the date of investment.
d.
the
portion of the dividends received this year that were NOT in excess of the
parent’s share of subsidiary’s earnings subsequent to the date of investment.
16. Masters, Inc. owns 40% of Fields
Corporation. During the year, Fields had net earnings of $200,000 and paid
dividends of $50,000. Masters used the cost method of accounting. What effect
would this have on the investment account, net earnings, and retained earnings,
respectively?
a. understate,
overstate, overstate.
b. overstate,
understate, understate
c. overstate,
overstate, overstate
d. understate,
understate, understate
Use the following information in
answering questions 17 and 18.
17. Prior Industries acquired a 70 percent interest in Stevenson
Company by purchasing 14,000 of its 20,000 outstanding shares of common stock
at book value of $210,000 on January 1, 2010. Stevenson reported net income in
2010 of $90,000 and in 2011 of $120,000 earned evenly throughout the respective
years. Prior received $24,000 dividends from Stevenson in 2010 and
$36,000 in 2011. Prior uses the equity method to record its investment.
Prior
should record investment income from Stevenson during 2011 of:
a.
$36,000
b.
$120,000
c.
$84,000
d.
$48,000
18. The balance of Prior’s Investment in Stevenson account at
December 31, 2011 is:
a.
$210,000
b.
$285,000
c.
$297,000
d.
$315,000
19. Parkview Company acquired a 90% interest in Sutherland Company
on December 31, 2010, for $320,000. During 2011 Sutherland had a net income of
$22,000 and paid a cash dividend of $7,000. Applying the cost method would give
a debit balance in the Investment in Stock of Sutherland Company account at the
end of 2011 of:
a. $335,000
b. $333,500
c. $313,700
d. $320,000
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