Exam 14: Intercorporate Investments in Common Stock

A major mining company owns a mining subsidiary in South America, where the government enforces stringent control over cash payments outside the country.The parent cannot control all the assets of the subsidiary, despite owning a majority of the voting shares, but should prepare consolidated statements with the subsidiary.

The usual criterion for preparing consolidated financial statements is voting control in the form of majority ownership of common stock.However, for some entities common stock ownership does not indicate control because the common stock of the entity lacks one or more of the economic characteristics associated with equity.Which of the following is/are true?

Paula Company measures its investments in available-for-sale marketable securities

Consolidated financial statements are typically prepared when one company has

Pager Corporation acquires 30% of the outstanding voting common shares of the Intercomm Corporation for $600,000.Pager Corporation acquires the investment in Intercomm Corporation by buying previously issued shares of Intercomm Corporation from other investors. Suppose that Intercomm Corporation reports earnings of $100,000 and pays dividends of $40,000, during the next accounting period.As a result, Pager Corporation's entries are:

The usual criterion for preparing consolidated financial statements is voting control in the form of majority ownership of common stock.However, for some entities common stock ownership does not indicate control because the common stock of the entity lacks one or more of the economic characteristics associated with equity.U.S.GAAP refers to such entities as a _____ entity.

In the acquisition method for a business combination, the excess of the fair value of the consideration over the fair value of the acquired firm's identifiable assets net of identifiable liabilities is goodwill.

U.S.GAAP view investments of less than 20 percent of the voting stock of another company as

Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000.Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors. Which of the following is/are true?

Marcoff Corporation acquires 30% of the outstanding voting common shares of the Invicta Corporation for $600,000.Marcoff Corporation acquires the investment in Invicta Corporation by buying previously issued shares of Invicta Corporation from other investors. The entry to record the acquisition is:

Under the equity method, the investor recognizes as revenue (expense) each period _____.The investor recognizes dividends received from the investee as a(n) _____.

U.S.GAAP and IFRS view ownership of more than 50% of an investee as implying an ability to control the investee, unless evidence indicates to the contrary.

Which of the following is/are true?

Given the following consolidated balance sheet and additional information, prepare a separate company balance sheet and income statement for P. - P owns 100% of S. - S sold $20,000 of inventory to P. - P sold all of the inventory it purchased from S. - $10,000 of S's accounts receivable are payable by P.

State the purpose of consolidated financial statements.Define which subsidiaries must be included in consolidated financial statements.

If Wabasso Company pays $55,000 in dividends to its corporate investor Lament Corporation (Lament owns 35% of The Wabasso Company), what entry should Lament Corporation record when it receives the dividends?

When preparing consolidated financial statements, the result of the elimination process generally is the

Why would a firm choose to acquire less than 50 percent of an organization yet not desire to exercise significant influence within the organization?

The adjusted, preclosing trial balances of Pie Company and Soup Company on December 31, Year 2, appear below. Parent Company owns 100 percent of the common stock of Soup Company.It acquired the shares on January 2, Year 1, for an amount equal to the book value of Soup Company's underlying net assets.On December 31, Year 2, Soup Company owes Pie Company $1,100 arising from short-term working capital loans. Required: Prepare in journal entry form the elimination entries required on December 31, Year 2, to prepare a consolidated financial statement for Pie Company and Soup Company.Note that neither a formal work sheet nor formal financial statements are required.

A minority, active investment is generally