1.
How do intraentity sales of inventory affect the preparation of a
consolidated statement of cash flows?
A) They must be deducted in calculating cash flows from
investing activities.
B) They must be added in calculating cash flows from investing
activities.
C) They must be deducted in calculating cash flows from
operating activities.
D) They must be added in calculating cash flows from operating
activities.
E) Because the consolidated balance sheet and income statement
are used in preparing the consolidated statement of cash flows, no
special elimination is required.
2.0/2.0
Points Earned:
Correct Answer(s): E
2.
Popper Co. acquired 80% of the common stock of Cocker Co. on
January 1, 2009, when Cocker had the following stockholders'
equity accounts.
Common stock - 40,000 shares outstanding
$140,000
Additional paid-in capital
105,000
Retained earnings
476,000
Total stockholders’ equity
$721,000
To acquire this interest in Cocker, Popper paid a total of $682,000
with any excess acquisition date fair value over book value being
allocated to goodwill, which has been measured for impairment
annually and has not been determined to be impaired as of January
1, 2012.
On January 1, 2012, Cocker reported a net book value of
$1,113,000 before the following transactions were conducted.
Popper uses the equity method to account for its investment in
Cocker, thereby reflecting the change in book value of Cocker. On
January 1, 2012, Cocker issued 10,000 additional shares of
common stock for $21 per share. Popper did not acquire any of this
newly issued stock. How would this transaction affect the
additional paid-in capital of the parent company?
A) Decrease it by $23,240
B) Decrease it by $43,680
C) Decrease it by $45,060
D) $0
E) Decrease it by $68,250
2.0/2.0
Points Earned:
Correct Answer(s): B
3.
The following information has been taken from the consolidation
worksheet of Graham Company and its 80% owned subsidiary,
Stage Company.
(1.) Graham reports a loss on sale of land of $5,000. The land cost
Graham $20,000.
(2.) Noncontrolling interest in Stage's net income was $30,000.
(3.) Graham paid dividends of $15,000.
(4.) Stage paid dividends of $10,000.
(5.) Excess acquisition-date fair value over book value was
expensed by $6,000.
(6.) Consolidated accounts receivable decreased by $8,000.
(7.) Consolidated accounts payable decreased by $7,000.
Using the indirect method, where does the decrease in accounts
payable appear in a consolidated statement of cash flows?
A) $5,600 increase to net income as an operating activity
B) $7,000 decrease to net income as an operating activity
C) $5,600 decrease to net income as an operating activity
D) $7,000 increase as a financing activity
E) $7,000 increase to net income as an operating activity.
2.0/2.0
Points Earned:
Correct Answer(s): B
4.
On January 1, 2009, Nichols Company acquired 80% of Smith
Company's common stock and 40% of its non-voting, cumulative
preferred stock. The consideration transferred by Nichols was
$1,200,000 for the common and $124,000 for the preferred. Any
excess acquisition-date fair value over book value is considered
goodwill. The capital structure of Smith immediately prior to the
acquisition is:
Common stock, $10 par value (50,000 shares outstanding)
$500,000
Preferred stock, 6% cumulative, $100 par value,
3,000 shares outstanding
300,000
Additional paid-in capital
200,000
Retained earnings
500,000
Total stockholders’ equity
$1,500,000
Compute the goodwill recognized in consolidation.
A) $124,000
B) $310,000
C) $(196,000)
D) $800,000
E) $0
Points Earned:
2.0/2.0
Correct Answer(s): B
5.
Ryan Company owns 80% of Chase Company. The original
balances presented for Ryan and Chase as of January 1, 2011, are
as follows:
Chase Company:
Shares outstanding
50,000
Book value
$400,000
Book value
$8
Ryan Company:
Shares owned of Chase
40,000
Book value of investment
$320,000
Assume Chase issues 30,000 additional shares common stock
solely to Ryan for $12 per share. What is Ryan's percent ownership
in Chase after the acquisition of the treasury shares (rounded)?
A) 95%
B) 80%
C) 64%
D) 69%
E) 76%
0.0/2.0
Points Earned:
Correct Answer(s): A
6.
A parent company owns a 70 percent interest in a subsidiary whose
stock has a book value of $27 per share. The last day of the year,
the subsidiary issues new shares for $27 per share, and the parent
buys its 70 percent interest in the new shares. Which of the
following statements is true?
A) Since the sale was made at the end of the year, the parent's
investment account is not affected.
B) Since the shares were sold for book value, the parent's
investment account must be decreased.
C) None of these are true
D) Since the shares were sold for book value, the parent's
investment account must be increased.
E) Since the shares were sold for book value and the parent
bought 70 percent of the shares, the parent's investment account is
not affected except for the price of the new shares.
0.0/2.0
Points Earned:
Correct Answer(s): E
7.
If a subsidiary reacquires its outstanding shares from outside
ownership for more than book value, which of the following
statements is true?
A) Treasury stock on the parent's books will decrease.
B) Additional paidin capital on the parent company's books will
decrease.
C) No adjustment is necessary.
D) Treasury stock on the parent's books will increase.
E) Investment in subsidiary will increase.
Points Earned:
2.0/2.0
Correct Answer(s): B
8.
Horse Corporation acquires all of Pony, Inc. for $300,000 cash. On
that date, Pony has net assets with fair value of $250,000 but a
book value and tax basis of $200,000. The tax rate is 40 percent.
Prior to this date, neither Horse nor Pony has reported any deferred
income tax assets or liabilities. What amount of goodwill should be
recognized on the date of the acquisition?
A) $150,000.
B) $100,000.
C) $50,000.
D) $0.
E) $70,000.
0.0/2.0
Points Earned:
Correct Answer(s): E
9.
Delta Corporation owns 90 percent of Sigma Company, and Sigma
owns 90 percent of Pi, Inc., all of which are domestic corporations.
Information for the three companies for the year ending December
31, 2011 follows:
Delta.
Sigma
Pi
Operating income
$600,000 $400,000 $200,000
Unrealized gains in
ending inventory
24,000
0
8,000
(included in operating income above)
What is the noncontrolling interest in Pi's income for 2011?
A) $20,000
B) $0
C) $10,000
D) $9,600
E) $19,200
Points Earned:
2.0/2.0
Correct Answer(s): E
10.
Which of the following statements is true regarding the
subsidiary's investment in its parent's common stock?
A) The consolidation worksheet entry to eliminate the subsidiary's
investment in parent's common stock is debited to treasury stock.
B) The consolidation worksheet entry to eliminate the subsidiary's
investment in parent's common stock is debited to additional paid
in capital.
C) All of the parent company's common stock is eliminated.
D) The consolidation worksheet entry to eliminate the subsidiary's
investment in parent's common stock is debited to retained
earnings.
E) The investment in parent company's common stock is not
eliminated in consolidation.
2.0/2.0
Points Earned:
Correct Answer(s): A
11.
White Company owns 60% of Cody Company. Separate tax
returns are required. For 2010, White's operating income
(excluding taxes and any income from Cody) was $300,000 while
Cody reported a pretax income of $125,000. During the period,
Cody paid a total of $25,000 in cash dividends; $15,000 (60%) to
White and $10,000 to the noncontrolling interest. White paid
dividends of $180,000. The income tax rate for both companies is
30%. Compute White's deferred income taxes for 2011.
A) $11,250.
B) $6,000.
C) $2,250.
D) $21,000.
E) $3,150.
2.0/2.0
Points Earned:
Correct Answer(s): C
12.
Prescott Corp. owned 90% of Bell Inc., while Bell owned 10% of
the outstanding common shares of Prescott. No goodwill or other
allocations were recognized in connection with either of these
acquisitions. Prescott reported operating income of $266,000 for
2009 whereas Bell earned $98,000 during the same period. No
investment income was included within either of these income
totals. On a consolidated income statement, what is the
noncontrolling interest in Bell's net income ?
A) $12,460.
B) $9,800.
C) $13,692.
D) $10,836.
E) $11,214.
Points Earned:
0.0/2.0
Correct Answer(s): B
13.
Chase Company owns 80% of Lawrence Company and 40% of
Ross Company. Lawrence Company also owns 30% of Ross
Company. Separate operating incomes for 2011 of Chase,
Lawrence, and Ross are $450,000, $300,000, and $250,000,
respectively. Each company also retains a $20,000 unrealized gain
in their current income figures. Annual amortization expense of
$15,000 is assigned to Chase's investment in Lawrence and another
$15,000 is assigned to Lawrence's investment in Ross. Compute
the noncontrolling interest in Ross' net income for 2011.
A) $92,000.
B) $69,000.
C) $75,000.
D) $64,500.
E) $77,400.
2.0/2.0
Points Earned:
Correct Answer(s): D
14.
Reggie, Inc. owns 70 percent of Nancy Corporation. During the
current year, Nancy reported earnings before tax of $100,000 and
paid a dividend of $30,000. The income tax rate for both
companies is 30 percent. What deferred income tax liability arising
in the current year must be recognized in the consolidated balance
sheet?
A) $9,800.
B) $1,470.
C) $2,400.
D) $1,680.
E) $2,940.
2.0/2.0
Points Earned:
Correct Answer(s): D
15.
Elektronix, Inc. has three operating segments with the following
information:
DVDs
VCRs
MP3s
Sales to outsiders
$4,000,000
$500,000
$2,000,000
Intersegment transfers
none
none
100,000
Segment expenses
3,000,000
624,000
1,700,000
Segment assets
14,000,000
6,000,000
5,000,000
What is the minimum amount of revenue an operating segment
must have to be considered a reportable segment?
A) $670,000
B) $690,000
C) $680,000
D) $650,000
E) $660,000
Points Earned:
0.0/2.0
Correct Answer(s): E
16.
Which of the following statements is true regarding the reporting
of revenues in an interim report?
A) Projected losses on longterm contracts should be deferred to
the annual report.
B) The percentageofcompletion method of reporting longterm
construction projects is not an acceptable method for interim
reporting.
C) Revenues should be recognized on the cash basis of accounting
for interim reporting.
D) Revenues should be recognized on the income tax basis for
interim reporting.
E) Revenues should be recognized in interim periods in the same
way as they are on an annual basis.
2.0/2.0
Points Earned:
Correct Answer(s): E
17.
Which of the following would be an acceptable grouping for a U.S.
company to provide information by geographic area?
A) United States, Central America, Mexico, Germany.
B) United States, Asia, Germany.
C) United States, Europe, Taiwan.
D) United States, All Other Countries.
E) South America, Spain, All Other Countries.
Points Earned:
2.0/2.0
Correct Answer(s): D
18.
A company that generates reports by both geographic region and
product line must consider additional criteria in identifying
operating segments when there are multiple sets of reports. Which
of the following statement(s) is correct?
(I.) An operating segment has a segment manager who is directly
accountable to the chief operating decision maker for its financial
performance.
(II.) If more than one set of organizational units exists, each
organizational unit is considered an operating segment even if
there is only one set for which segment managers are held
responsible.
(III.) If segment managers exist for two or more overlapping sets
of organizational units, the nature of the business activities must be
considered.
A) I and III only
B) None of these
C) I and II only
D) II and III only
E) I, II, and III
Points Earned:
0.0/2.0
Correct Answer(s): A
19.
Which of the following is a criterion for determining whether an
operating segment is separately reportable?
A) An operating segment's assets are 10 percent or more of
consolidated liabilities.
B) An operating segment's assets are 10 percent or more of
corporate assets.
C) An operating segment's assets are 10 percent or more of
combined segment assets.
D) An operating segment's assets are 10 percent or more of
combined segment liabilities.
E) An operating segment's assets are 10 percent or more of
consolidated assets.
2.0/2.0
Points Earned:
Correct Answer(s): C
20.
Which of the following is not one of the criteria management
should consider in determining whether business activities and
environments of an operating segment are similar?
A) The type or class of customer.
B) The nature of the production process.
C) The distribution methods.
D) The nature of the regulatory environment, if applicable.
E) The geographical location of the operations.
2.0/2.0
Points Earned:
Correct Answer(s): E
21.
Kaycee Corporation's revenues for the year ended December 31,
2010, were as follows:
Consolidated Revenue per the Income Statement: $1,200,000
Upstream Intersegment Sales: $180,000
Downstream Intersegment Sales: $60,000
For purposes of the Revenue Test, what amount will be used as the
benchmark for determining whether a segment is reportable?
A) $138,000
B) $0
C) $144,000
D) $24,000
E) $120,000
Points Earned:
0.0/2.0
Correct Answer(s): C
1.
Where do intraentity sales of inventory appear in a
consolidated statement of cash flows?
A) Cash flows from investing activities.
B) Cash flows from financing activities.
C) Cash flows from operating activities.
D) They do not appear in the consolidated statement
of cash flows.
E) Supplemental schedule of noncash investing and
financing activities.
2.0/2.0
Points Earned:
Correct Answer(s): D
2.
On January 1, 2009, Nichols Company acquired 80%
of Smith Company's common stock and 40% of its
non-voting, cumulative preferred stock. The
consideration transferred by Nichols was $1,200,000
for the common and $124,000 for the preferred. Any
excess acquisition-date fair value over book value is
considered goodwill. The capital structure of Smith
immediately prior to the acquisition is:
Common stock, $10 par value (50,000 shares
outstanding) $500,000
Preferred stock, 6% cumulative, $100 par value,
3,000 shares outstanding
300,000
Additional paid-in capital
200,000
Retained earnings
500,000
Total stockholders’ equity
$1,500,000
Determine the amount and account to be recorded
for Nichols' investment in Smith.
A) $1,200,000 for Investment in Smith's Common
Stock and $124,000 for Investment in Smith's
Preferred Stock.
B) $1,448,000 for Investment in Smith's Common
Stock.
C) $1,324,000 for Investment in Smith
D) $1,200,000 for Investment in Smith's Common
Stock and $120,000 for Investment in Smith's
Preferred Stock
E) $1,200,000 for Investment in Smith
2.0/2.0
Points Earned:
Correct Answer(s): A
3.
On January 1, 2011, Riney Co. owned 80% of the
common stock of Garvin Co. On that date, Garvin's
stockholders' equity accounts had the following
balances:
Common stock ($5 par value)
$250,000
Additional paid-in capital
110,000
Retained earnings
330,000
Total stockholders’ equity
$690,000
The balance in Riney's Investment in Garvin Co.
account was $552,000, and the noncontrolling
interest was $138,000. On January 1, 2011, Garvin
Co. sold 10,000 shares of previously unissued
common stock for $15 per share. Riney did not
acquire any of these shares. What is the balance in
Investment in Garvin Co. after the sale of the 10,000
shares of common stock?
A) $404,000
B) $560,000
C) $460,000
D) $672,000
E) $552,000
2.0/2.0
Points Earned:
Correct Answer(s): B
4.
Ryan Company owns 80% of Chase Company. The
original balances presented for Ryan and Chase as of
January 1, 2011, are as follows:
Chase Company:
Shares outstanding
50,000
Book value
$400,000
Book value
$8
Ryan Company:
Shares owned of Chase
40,000
Book value of investment
$320,000
Assume Chase issues 30,000 additional shares
common stock solely to Ryan for $12 per share. What
is the new percent ownership Ryan owns in Chase?
A) 75%
B) 90%
C) 82.5%
D) 87.5%
E) 80%
2.0/2.0
Points Earned:
Correct Answer(s): D
5.
Davidson, Inc. owns 70 percent of the outstanding
voting stock of Ernest Company. On January 2, 2009,
Davidson sold 8 percent bonds payable with a
$5,000,000 face value maturing January 2, 2029 at a
premium of $400,000. On January 1, 2011, Ernest
acquired 30 percent of these same bonds on the open
market at 97.6. Both companies use the straightline
method of amortization. What adjustment should be
made to Davidson's 2012 beginning Retained
Earnings as a result of this bond acquisition?
A) $152,000.
B) $114,000.
C) $144,000.
D) $122,000.
E) $136,000.
Points Earned:
2.0/2.0
Correct Answer(s): E
6.
Ryan Company owns 80% of Chase Company. The
original balances presented for Ryan and Chase as of
January 1, 2011, are as follows:
Chase Company:
Shares outstanding
50,000
Book value
$400,000
Book value
$8
Ryan Company:
Shares owned of Chase
40,000
Book value of investment
$320,000
Assume Chase issues 30,000 additional shares
common stock solely to Ryan for $12 per share. After
acquiring the additional shares, what adjustment is
needed for Ryan's investment in Chase account?
A) $70,000 increase
B) $15,000 increase
C) $70,000 decrease
D) No adjustment is necessary
E) $15,000 decrease
2.0/2.0
Points Earned:
Correct Answer(s): E
7.
If a subsidiary issues a stock dividend, which of the
following statements is true?
A) Investment in subsidiary on the parent's books
will decrease.
B) Additional paidin capital on the parent's books
will decrease.
C) Investment in subsidiary on the parent's books
will increase.
D) No adjustment is necessary.
E) Additional paidin capital on the parent's books
will increase.
2.0/2.0
Points Earned:
Correct Answer(s): D
8.
Which of the following is true concerning the
treasury stock approach in accounting for a
subsidiary's investment in parent company stock?
A) The cost of parent shares is treated as if the
shares are no longer issued.
B) The original cost of the subsidiary's investment
reduces longterm liabilities.
C) The subsidiary must apply the equity method in
accounting for the investment if the treasury stock
approach is used.
D) The treasury stock approach increases total
stockholders' equity.
E) The cost of parent shares is treated as if the shares
are no longer outstanding.
2.0/2.0
Points Earned:
Correct Answer(s): E
9.
Hardford Corp. held 80% of Inglestone Inc. which, in
turn, owned 80% of Jade Co. Operating income
figures (without investment income) as well as
unrealized upstream gains included in the income for
the current year follow:
Hardford Co.Ingleston Inc Jade Co.
Operating income
$560,000
$420,000
$280,000
Unrealized gains
70,000
42,000
84,000
The accrual-based income of Jade Co. is calculated
to be
A) $144,000
B) $189,000
C) $201,000
D) $193,000
E) $196,000
Points Earned:
2.0/2.0
Correct Answer(s): E
10.
Paris, Inc. owns 80 percent of the voting stock of
Stance, Inc. The excess total fair value over book
value was $75,000. Stance holds 10 percent of the
voting stock of Paris. The payment for that
investment was in excess of book value and fair value
by $15,000. Any excess fair value is assigned to
trademarks to be amortized over a 10year period.
During the current year, Paris reported operating
income of $200,000 and dividend income from
Stance of $20,000. At the same time, Stance reported
operating income of $40,000 and dividend income
from Paris of $5,000. What will be reported as the
noncontrolling interest in Stance's net income?
A) $8,000.
B) $9,000.
C) $7,500.
D) $1,000.
E) $6,500.
2.0/2.0
Points Earned:
Correct Answer(s): C
11.
Beagle Co. owned 80% of Maroon Corp. Maroon
owned 90% of Eckston Inc. Operating income totals
for 2011 are shown below; these figures contained no
investment income. Amortization expense was not
required by any of these acquisitions. Included in
Eckston's operating income was a $56,000 unrealized
gain on intra-entity transfers to Maroon.
Beagle Co. Maroon Corp
Eckston
Inc.
Operating income$420,000
$280,000
$280,000
The accrual-based income of Maroon Corp. is
calculated to be
A) $472,700
B) $358,800
C) $481,600
D) $502,300
E) $488,900
2.0/2.0
Points Earned:
Correct Answer(s): C
12.
Reggie, Inc. owns 70 percent of Nancy Corporation.
During the current year, Nancy reported earnings
before tax of $100,000 and paid a dividend of
$30,000. The income tax rate for both companies is
30 percent. What deferred income tax liability arising
in the current year must be recognized in the
consolidated balance sheet?
A) $2,400.
B) $2,940.
C) $9,800.
D) $1,680.
E) $1,470.
2.0/2.0
Points Earned:
Correct Answer(s): D
13.
Prescott Corp. owned 90% of Bell Inc., while Bell
owned 10% of the outstanding common shares of
Prescott. No goodwill or other allocations were
recognized in connection with either of these
acquisitions. Prescott reported operating income of
$266,000 for 2011 whereas Bell earned $98,000
during the same period. No investment income was
included within either of these income totals. How
would the 10% investment in Prescott owned by Bell
be presented in the consolidated balance sheet?
A) The 10% investment would be eliminated and no
amount would be shown in the consolidated balance
sheet.
B) Prescott would treat the shares owned by Bell as
if they had been repurchased on the open market, and
a treasury stock account would be set up on Prescott's
books recording the shares at their market value on
the date of combination.
C) The 10% investment would be included as part of
Additional PaidIn Capital because it is less than 20%
and therefore indicates no significant influence is
present.
D) The 10% investment would be eliminated and the
same dollar amount would appear as treasury stock in
the consolidated balance sheet.
E) The 10% investment would be reclassified in
Bell's balance sheet as Treasury Stock before the
consolidation process begins.
2.0/2.0
Points Earned:
Correct Answer(s): D
14.
Evanston Co. owned 60% of Montgomery Corp.
Montgomery owned 75% of Noir Inc., and Noir
owned 15% of Montgomery. This pattern of
ownership would be called
A) an affiliated group.
B) indirect control.
C) direct control.
D) a connecting affiliation.
E) mutual ownership.
2.0/2.0
Points Earned:
Correct Answer(s): E
15.
All of the following are required to be reported in
interim financial statements for a material operating
segment except:
A) Segment profit or loss.
B) Reconciliation of segment profit or loss to total
income before taxes.
C) Segment assets.
D) Intersegment revenues.
E) Segment revenues from external customers.
0.0/2.0
Points Earned:
Correct Answer(s): C
16.
Which of the following items of information are
required to be included in interim reports for each
operating segment?
(I.) Revenues from external customers
(II.) Segment profit or loss
(III.) Reconciliation of segment profit or loss to the
enterprise's total income before taxes
(IV.) Intersegment revenues
A) I, II and III
B) I and III only
C) I, II, III, and IV
D) I and II only
E) II and III only
2.0/2.0
Points Earned:
Correct Answer(s): C
17.
Which of the following is not one of the criteria
management should consider in determining whether
business activities and environments of an operating
segment are similar?
A) The nature of the regulatory environment, if
applicable.
B) The geographical location of the operations.
C) The distribution methods.
D) The nature of the production process.
E) The type or class of customer.
2.0/2.0
Points Earned:
Correct Answer(s): B
18.
The Fratilo Co. had three operating segments with the
following information:
Pens
Pencils Erasers
Sales to outsiders $11,200 $5,600
$8,400
Intersegment revenues
840
1,400 1,960
In addition, revenues generated at corporate
headquarters are $1,400. Combined segment revenues
are calculated to be
A) $25,200
B) $28,000
C) $27,300
D) $26,600
E) $29,400
Points Earned:
2.0/2.0
Correct Answer(s): E
19.
How should revenues be recognized in interim
periods?
A) There are no revenues recognized in interim
periods.
B) On an annualized basis.
C) In the same way as they are recognized on an
annual basis.
D) On a seasonal basis.
E) On the cash basis.
2.0/2.0
Points Earned:
Correct Answer(s): C
20.
When defining a reportable segment, which of the
following conditions would be sufficient to allow a
company to combine two operating segments for
purposes of testing?
A) Both segments are owned by the same parent
company.
B) The segments may sell different products, but
they have a similar production process.
C) Both segments have several customers in
common.
D) The products sold by each segment are produced
in the same plant.
E) Both segments are required to adhere to U.S.
Department of Labor regulations regarding
immigration laws.
2.0/2.0
Points Earned:
Correct Answer(s): B
21.
Cement Company, Inc. began the first quarter with
1,000 units of inventory costing $25 per unit. During
the first quarter, 3,000 units were purchased at a cost
of $40 per unit, and sales of 3,400 units at $65 per
units were made. During the second quarter, the
company expects to replace the units of beginning
inventory sold at a cost of $45 per unit. Cement
Company uses the LIFO method to account for
inventory. The amount of gross profit for the first
quarter is:
A) $250,000
B) $87,000
C) $221,000
D) $90,000
E) $83,000
2.0/2.0
Points Earned:
Correct Answer(s): E