Test bank advanced financial accounting ch 09 consolidation ownership issues

Chapter 09 - Consolidation Ownership Issues Chapter 09 Consolidation Ownership Issues Multiple Choice Questions Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock Elven, in turn, owns 15 percent of Windsor's outstanding common stock What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement? A None B 100 percent C 85 percent D 75 percent On January 1, 2009, Company A acquired 80 percent of the common stock and 60 percent of the preferred stock of Company B, for $400,000 and $60,000, respectively At the time of acquisition, the fair value of the common shares of Company B held by the noncontrolling interest was $100,000 Company B's balance sheet contained the following balances: For the year ended December 31, 2009, Company B reported net income of $100,000 and paid dividends of $40,000 The preferred stock is cumulative and pays an annual dividend of 10 percent 9-1 Chapter 09 - Consolidation Ownership Issues Based on the preceding information, what will be the equity method income reported by Company A from its investment in Company B during 2009? A $32,000 B $30,000 C $72,000 D $48,000 Based on the preceding information, the eliminating entry to assign income to noncontrolling interest to prepare the consolidated financial statements for Company A as of December 31, 2009, will include: A a debit to Income to Noncontrolling Interest for $24,000 B a credit to Dividends Declared — Preferred Stock for $10,000 C a credit to Dividends Declared — Common Stock for $8,000 D a credit to Noncontrolling Interest for $12,000 Based on the preceding information, the entry to eliminate subsidiary preferred stock to prepare the consolidated financial statements for Company A as of December 31, 2009, will include: A a debit to Preferred Stock for $60,000 B a credit to Investment in Company B Preferred Stock for $40,000 C a debit to Retained Earnings for $40,000 D a credit to Noncontrolling Interest for $40,000 9-2 Chapter 09 - Consolidation Ownership Issues Winner Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of First Corporation at underlying book value on January 1, 2009 At that date, the fair value of the noncontrolling interest in First's common stock was equal to 20 percent of the book value of its common stock First's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1, 2009 All of the $5 par value preferred shares are callable at $6 per share During 2009, First reported net income of $100,000 and paid no dividends Based on the preceding information, what is First's contribution to consolidated net income for 2009? A $80,000 B $100,000 C $90,000 D $50,000 Based on the preceding information, what will be the amount of income to be assigned to the noncontrolling interest in the 2009 consolidated income statement? A $21,000 B $18,000 C $23,000 D $15,000 9-3 Chapter 09 - Consolidation Ownership Issues Based on the preceding information, the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1, 2009, is: A $40,000 B $42,000 C $36,000 D $48,000 Based on the preceding information, what is the portion of First's retained earnings assignable to its preferred shareholders on January 1, 2009? A $40,000 B $50,000 C $60,000 D $70,000 Based on the information provided, what is the book value of the common stock on January 1, 2009? A $410,000 B $360,000 C $390,000 D $350,000 10 Based on the information provided, what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1, 2009? A $70,000 B $130,000 C $118,000 D $142,000 9-4 Chapter 09 - Consolidation Ownership Issues On January 1, 2009, A Company acquired 85 percent of B Company's voting common stock for $425,000 At that date, the fair value of the noncontrolling interest of B Company was $75,000 Immediately after A Company acquired its ownership, B Company acquired 75 percent of C Company's stock for $150,000 The fair value of the noncontrolling interest of C Company was $50,000 at that date At January 1, 2009, the stockholders' equity sections of the balance sheets of the companies were as follows: During 2009, A Company reported operating income of $175,000 and paid dividends of $50,000 B Company reported operating income of $125,000 and paid dividends of $40,000 C Company reported net income of $100,000 and paid dividends of $25,000 11 Based on the information provided, what amount of consolidated net income will A Company report for 2009? A $175,000 B $285,000 C $356,250 D $400,000 12 Based on the information provided, the equity-method income recorded by A Company is: A $125,000 B $200,000 C $170,000 D $181,250 9-5 Chapter 09 - Consolidation Ownership Issues 13 Based on the information provided, what amount of income will be assigned to the noncontrolling interest in the consolidated income statement for 2009? A $55,000 B $25,000 C $30,000 D $43,750 14 Based on the information provided, what amount of income will be assigned to the controlling interest in the consolidated income statement for 2009? A $400,000 B $345,000 C $285,000 D $175,000 X Corporation owns 80 percent of Y Corporation's common stock and 40 percent of Z Corporation's common stock Additionally, Y Corporation owns 35 percent of Z Corporation's common stock The acquisitions were made at book values The following information is available for 2008: 15 Based on the information provided, what amount of consolidated net income will X Corporation report for 2008? A $148,750 B $175,000 C $150,000 D $158,750 9-6 Chapter 09 - Consolidation Ownership Issues 16 Based on the information provided, what amount of income will be assigned to the noncontrolling interest in the 2008 consolidated income statement? A $23,750 B $25,000 C $18,000 D $33,750 17 Based on the information provided, what amount of income will be assigned to the controlling interest in the 2008 consolidated income statement? A $130,750 B $150,000 C $141,250 D $157,000 18 Based on the information provided, what amount will be reported as dividends declared in X Corporation's 2008 consolidated retained earnings statement? A $30,000 B $50,000 C $60,000 D $0 Janet Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at book value The fair value of the noncontrolling interest at the date of acquisition was equal to 25 percent of the book value of Slider Corporation On December 31, 2008, Slider Corporation acquired 25 percent of Janet Corporation's stock Slider records dividends received from Janet as nonoperating income In 2009, Janet reported operating income of $100,000 and paid dividends of $40,000 During the same year, Slider reported operating income of $75,000 and paid $20,000 in dividends 9-7 Chapter 09 - Consolidation Ownership Issues 19 Based on the information provided, what amount will be reported as consolidated net income for 2009 under the treasury stock method? A $150,000 B $100,000 C $75,000 D $175,000 20 Based on the information provided, what amount will be reported as income assigned to the controlling interest for 2009 under the treasury stock method? A $18,750 B $156,250 C $175,000 D $100,000 Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007, for $225,000 At that date, the fair value of the noncontrolling interest was $75,000 Meta's balance sheet contained the following amounts at the time of the combination: During each of the next three years, Meta reported net income of $30,000 and paid dividends of $10,000 On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash Vision used the basic equity method in accounting for its ownership of Meta Company 9-8 Chapter 09 - Consolidation Ownership Issues 21 Based on the preceding information, what was the balance in the investment account reported by Vision on January 1, 2009, before its sale of shares? A $225,000 B $285,000 C $245,000 D $255,000 22 Based on the preceding information, in the journal entry recorded by Vision for sale of shares: A Cash will be credited for $60,000 B Investment in Meta Stock will be credited for $51,000 C Investment in Meta Stock will be credited for $60,000 D Additional Paid-in Capital will be credited for $45,000 23 Based on the preceding information, in the journal entry recorded by Vision for sale of shares, Additional Paid-in Capital will be credited for: A $0 B $15,000 C $9,000 D $45,000 24 Based on the preceding information, in the elimination entries to complete a full consolidation workpaper for 2009, Income to Noncontrolling Interest will be credited for: A $12,000 B $7,500 C $8,000 D $2,500 25 Based on the preceding information, in the eliminating entries to complete a full consolidation workpaper, Investment in Meta Stock at January 1, 2009, will be credited for: A $255,000 B $240,000 C $204,000 D $136,000 9-9 Chapter 09 - Consolidation Ownership Issues Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008, for $140,000 At that date, the fair value of the noncontrolling interest was $60,000 On January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for $32,500 Summarized balance sheets for Trevor on the dates indicated are as follows: Trevor paid dividends of $10,000 in each of the three years Perfect uses the basic equity method in accounting for its investment in Trevor and amortizes all differentials over years against the related investment income All differentials are assigned to patents in the consolidated financial statements 26 Based on the preceding information, Trevor Company's net income for 2009 and 2010 are: A $10,000 and $20,000 respectively B $25,000 and $35,000 respectively C $35,000 and $45,000 respectively D $25,000 and $45,000 respectively 9-10 Chapter 09 - Consolidation Ownership Issues 39 Based on the preceding information, what is the income assigned to the noncontrolling interest in the 2008 consolidated income statement? A $10,000 B $7,000 C $11,800 D $4,800 AACSB: Analytic AICPA: Measurement 40 Based on the preceding information, what amount of income is attributable to the controlling interest in the consolidated income statement for 2008? A $75,000 B $105,000 C $96,000 D $103,200 AACSB: Analytic AICPA: Measurement 41 Based on the preceding information, what is the total stockholders' equity reported in the consolidated balance sheet as of January 1, 2008? A $450,000 B $530,000 C $490,000 D $370,000 AACSB: Analytic AICPA: Measurement 9-43 Chapter 09 - Consolidation Ownership Issues 42 Based on the preceding information, what amount is reported as preferred stock outstanding reported in the consolidated balance sheet as of January 1, 2008? A $0 B $40,000 C $50,000 D $44,000 AACSB: Analytic AICPA: Measurement Essay Questions 9-44 Chapter 09 - Consolidation Ownership Issues 43 Windsor Corporation acquired 90 percent of Agro Corporation's common shares on January 1, 2006, at underlying book value At that date, the fair value of the noncontrolling interest was equal to 10 percent of the book value of Agro Agro Corporation prepared the following balance sheet as of January 1, 2009: The company is considering a 3-for-1 stock split, a stock dividend of 7,000 shares, or a stock dividend of 2,000 shares on its $5 par value common stock The current market price per share of Agro stock on January 1, 2009, is $15 Required: Give the investment elimination entry required to prepare a consolidated balance sheet at the close of business on January 1, 2009, for each of the alternative transactions under consideration by Agro Corporation 9-45 Chapter 09 - Consolidation Ownership Issues AACSB: Analytic AICPA: Measurement 9-46 Chapter 09 - Consolidation Ownership Issues 44 On January 1, 2007, Infinity Corporation acquired 90 percent of Trader Corporation's common stock for $315,000 At the date of acquisition, the fair value of the noncontrolling interest was $35,000, and Trader reported common stock outstanding of $150,000 and retained earnings of $180,000 The differential is assigned to a patent with a remaining life of eight years Each year since acquisition, Trader has reported income from operations of $50,000 and paid dividends of $30,000 Trader acquired 75 percent ownership of Minnow Company on January 1, 2009, for $187,500 At that date, the fair value of the noncontrolling interest was $62,500, and Minnow reported common stock outstanding of $100,000 and retained earnings of $130,000 In 2009, Minnow reported net income of $20,000 and paid dividends of $8,000 The differential is assigned to buildings and equipment with an economic life of 10 years at the date of acquisition Required: 1) Prepare the journal entries recorded by Trader for its investment in Minnow during 2009 2) Prepare the journal entries recorded by Infinity for its investment in Trader during 2009 3) Prepare the eliminating entries related to Trader's investment in Minnow and Infinity's investment in Trader needed to prepare consolidated financial statements for Infinity and its subsidiaries at December 31, 2009 9-47 Chapter 09 - Consolidation Ownership Issues 1) Journal entries recorded by Trader Corporation on its investment in Minnow Company: 2) Journal entries recorded by Infinity Corporation on its investment in Trader Corporation: 3) Eliminating entries: 9-48 Chapter 09 - Consolidation Ownership Issues 9-49 Chapter 09 - Consolidation Ownership Issues AACSB: Analytic AICPA: Measurement 9-50 Chapter 09 - Consolidation Ownership Issues 45 On January 1, 2008, Orion Company acquired 70 percent of Simplex Company's stock at underlying book value At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Simplex Company On December 31, 2009, Simplex acquired 15 percent of Orion's stock Balance sheets for the two companies on December 31, 2009, are as follows: Required: Assuming that the treasury stock method is used in reporting Orion's shares held by Simplex, prepare a consolidated balance sheet workpaper and consolidated balance sheet for December 31, 2009 9-51 Chapter 09 - Consolidation Ownership Issues 9-52 Chapter 09 - Consolidation Ownership Issues AACSB: Analytic AICPA: Measurement 9-53 Chapter 09 - Consolidation Ownership Issues 46 Portfolio Corporation acquired 70 percent ownership of Index Company on January 1, 2006, at underlying book value At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Index On January 1, 2008, Portfolio sold 1,000 shares of Index Company for $20,000 to Adventure Corporation and recorded a $5,000 gain Trial balances for the companies on December 31, 2008, contain the following data: Index Company's net income was earned evenly throughout the year Both companies declared and paid their dividends on December 31, 2008 Portfolio uses the basic equity method in accounting for its investment in Index Required: 1) Prepare the elimination entries needed to complete a full consolidation workpaper for 2008 2) Prepare a consolidation workpaper for 2008 9-54 Chapter 09 - Consolidation Ownership Issues 9-55 Chapter 09 - Consolidation Ownership Issues 9-56 Chapter 09 - Consolidation Ownership Issues AACSB: Analytic AICPA: Measurement 9-57 [...]... 31, 2008 Portfolio uses the basic equity method in accounting for its investment in Index Required: 1) Prepare the elimination entries needed to complete a full consolidation workpaper for 2008 2) Prepare a consolidation workpaper for 2008 9-22 Chapter 09 - Consolidation Ownership Issues Chapter 09 Consolidation Ownership Issues Answer Key Multiple Choice Questions 1 Windsor Corporation owns 75 percent... 31, 2 009, Simplex acquired 15 percent of Orion's stock Balance sheets for the two companies on December 31, 2 009, are as follows: Required: Assuming that the treasury stock method is used in reporting Orion's shares held by Simplex, prepare a consolidated balance sheet workpaper and consolidated balance sheet for December 31, 2 009 9-20 Chapter 09 - Consolidation Ownership Issues 9-21 Chapter 09 - Consolidation. .. investment in Minnow during 2 009 2) Prepare the journal entries recorded by Infinity for its investment in Trader during 2 009 3) Prepare the eliminating entries related to Trader's investment in Minnow and Infinity's investment in Trader needed to prepare consolidated financial statements for Infinity and its subsidiaries at December 31, 2 009 9-19 Chapter 09 - Consolidation Ownership Issues 45 On January 1,... amounts at the time of the combination: During each of the next three years, Meta reported net income of $30,000 and paid dividends of $10,000 On January 1, 2 009, Vision sold 1,500 shares of Meta's $10 par value shares for $60,000 in cash Vision used the basic equity method in accounting for its ownership of Meta Company 9-32 Chapter 09 - Consolidation Ownership Issues 21 Based on the preceding information,... balance sheet on January 1, 2 009? A $70,000 B $130,000 C $118,000 D $142,000 AACSB: Analytic AICPA: Measurement 9-27 Chapter 09 - Consolidation Ownership Issues On January 1, 2 009, A Company acquired 85 percent of B Company's voting common stock for $425,000 At that date, the fair value of the noncontrolling interest of B Company was $75,000 Immediately after A Company acquired its ownership, B Company acquired... The current market price per share of Agro stock on January 1, 2 009, is $15 Required: Give the investment elimination entry required to prepare a consolidated balance sheet at the close of business on January 1, 2 009, for each of the alternative transactions under consideration by Agro Corporation 9-18 Chapter 09 - Consolidation Ownership Issues 44 On January 1, 2007, Infinity Corporation acquired 90... Measurement 9-33 Chapter 09 - Consolidation Ownership Issues 24 Based on the preceding information, in the elimination entries to complete a full consolidation workpaper for 2 009, Income to Noncontrolling Interest will be credited for: A $12,000 B $7,500 C $8,000 D $2,500 AACSB: Analytic AICPA: Measurement 25 Based on the preceding information, in the eliminating entries to complete a full consolidation. .. book value of the equity attributable to the parent as a result of the repurchase of shares by Movie Corporation? A $19,375 B $6,125 C $2,625 D $9,000 9-12 Chapter 09 - Consolidation Ownership Issues 31 Based on the preceding information, what will be the journal entry to be recorded on Cinema Company's books to recognize the change in the book value of the shares it holds? A Option A B Option B C Option... consolidated income statement for 2 009? A $55,000 B $25,000 C $30,000 D $43,750 AACSB: Analytic AICPA: Measurement 14 Based on the information provided, what amount of income will be assigned to the controlling interest in the consolidated income statement for 2 009? A $400,000 B $345,000 C $285,000 D $175,000 AACSB: Analytic AICPA: Measurement 9-29 Chapter 09 - Consolidation Ownership Issues X Corporation owns... consolidated financial statements for Company A as of December 31, 2 009, will include: A a debit to Income to Noncontrolling Interest for $24,000 B a credit to Dividends Declared — Preferred Stock for $10,000 C a credit to Dividends Declared — Common Stock for $8,000 D a credit to Noncontrolling Interest for $12,000 AACSB: Analytic AICPA: Measurement 9-24 Chapter 09 - Consolidation Ownership Issues 4 Based