Question 1

On January 1,2013,Hilary Corporation acquired 100 percent of the common stock of Gooden Corporation for $3,250,000.At the date of acquisition,Gooden Corporation reported total assets of $4,200,000,liabilities of $1,200,000,common stock of $2,200,000,and retained earnings of $800,000 on its balance sheet.An appraisal on the acquisition date showed that the fair value of Gooden's net identifiable assets was equal to their book value.Prepare the eliminating entry in journal form that would appear on the work sheet for consolidating the balance sheets of the two companies as of the acquisition date.(Omit explanations.)

Accepted Answer

The answer of On January 1,2013,Hilary Corporation acquired 100 percent...

Question 2

In preparing consolidated financial statements,all of the following commonly require elimination entries except a(n)

Accepted Answer

A)  intercompany payable. 
B)  receivable from a nonaffiliated company. 
C)  intercompany sale. 
D)  intercompany investment.

Question 3

A Goodwill from Consolidation account may rise when a parent acquires a subsidiary company's common stock at a price that is less than the stock's book value.

Accepted Answer

A) True 
 B)False

Question 4

Although the preparation of a consolidated balance sheet requires elimination entries,a consolidated income statement may always be prepared without any elimination entries.

Accepted Answer

A) True 
 B)False

Question 5

If a long-term investment suffers a permanent decline in value,a loss only has to be recorded if the investment is sold.

Accepted Answer

A) True 
 B)False

Question 6

If a parent company has four subsidiaries,there are five separate legal entities represented in this group.

Accepted Answer

A) True 
 B)False

Question 7

In the journal provided,prepare the entries for the transactions described below.(Omit explanations.)

Accepted Answer

The answer of In the journal provided,prepare the entries for...

Question 8

Flubber Corporation owns 40 percent of the voting stock of Rhim Corporation and accounts for the investment using the equity method; Rhim Corporation reports a net loss of $30,000.Flubber Corporation's entry to record the share of loss is:

Accepted Answer

A)  Loss,Rhim Corporation Investment 12,000
Investment in Rhim Corporation 12,000 
B)  Loss,Rhim Corporation Investment 12,000
Loss,Rhim Corporation Investment 12,000 
C)  Investment in Rhim Corporation 30,000
Cash 30,000 
D)  Investment in Rhim Corporation 12,000
Cash 12,000

Question 9

Isber Corporation purchases 80 percent of the voting stock of Bossart Corporation for $175,000.At the date of acquisition,the fair market value of Bossart's identifiable net assets was equal to their book value.Bossart has common stock of $80,000 and retained earnings of $120,000.The elimination entry necessary to prepare a consolidated balance sheet for this date is:

Accepted Answer

A)  Common Stock(Bossart)80,000
Retained Earnings(Bossart)120,000
Investment in Bossart Corporation(Isber)200,000 
B)  Common Stock(Bossart)80,000
Retained Earnings(Bossart)120,000
Goodwill 15,000
Investment in Bossart Corporation(Isber)175,000
Minority Interest 40,000 
C)  Common Stock(Bossart)80,000
Retained Earnings(Bossart)120,000
Investment in Bossart Corporation(Isber)160,000
Minority Interest 40,000 
D)  Common Stock(Bossart)80,000
Retained Earnings(Bossart)120,000
Investment in Bossart Corporation(Isber)160,000
Gain on consolidation 40,000

Question 10

Another term for short-term investments is marketable securities.

Accepted Answer

A) True 
 B)False

Question 11

A short-term investment in a U.S.Treasury bill costs $48,400 and will mature in six months at $50,000.Management intends to hold the investment until it matures.The entry to record receipt of cash at maturity is: (No prior entries were made to recognize revenue.)

Accepted Answer

A)  Cash 50,000
Short - Term Investments 48,400
Interest Income 1,600 
B)  Cash 50,000
Short - Term Investments 50,000 
C)  Cash 48,400
Short - Term Investments 48,400 
D)  Cash 50,000
Short - Term Investments 48,400
Gain on Sale of Investments 1,600

Question 12

Match each definition with the correct term below.
-Available-for-sale securities

Accepted Answer

A) Debt or equity securities bought and held principally for the purpose of being sold in the near term. 
B) The method of accounting for the ownership of more than 20 percent of another company's voting stock. 
C) Debt or equity securities that do not meet the criteria for either trading or held-to-maturity securities. 
D) A single set of financial statements for both the parent company and the subsidiary company. 
E) Companies that have expanded by establishing or buying foreign subsidiaries.
F)The method of recording available-for-sale securities that initially records securities at cost and thereafter periodically adjusts for changes in market value by using an allowance account.
G)The currency in which the consolidated financial statements are presented.
H)Debt securities that management intends to hold until their maturity date.
I)The investing company in a parent-subsidiary relationship.
J)Making use of inside information for personal gain.

Question 13

The equity method generally should be used to account for an investment in stock when the level of ownership is

Accepted Answer

A)  between 20 and 50 percent. 
B)  10 percent or more. 
C)  less than 20 percent. 
D)  between 10 and 40 percent.

Question 14

In the United States,insider trading is considered

Accepted Answer

A)  unethical,but not illegal. 
B)  neither unethical nor illegal. 
C)  both unethical and illegal. 
D)  illegal,but not unethical.

Question 15

Trading securities are valued on the balance sheet at

Accepted Answer

A)  lower of cost or market. 
B)  cost. 
C)  market value. 
D)  cost,adjusted for the effects of interest.

Question 16

When the market value of available-for-sale securities exceeds cost,an unrealized loss appears in stockholders' equity as an addition.

Accepted Answer

A) True 
 B)False

Question 17

Minority interest is reported as a(n)

Accepted Answer

A)  current liability on the consolidated balance sheet. 
B)  asset on the consolidated balance sheet. 
C)  revenue item on the consolidated income statement. 
D)  separate item between liabilities and stockholders' equity on the consolidated balance sheet.

Question 18

The cost-adjusted-to-market method of accounting for investments allows for a departure from cost when the market value of the investment falls below or rises above cost.

Accepted Answer

A) True 
 B)False

Question 19

Use this information to answer the following question.These facts concern the long-term stock investments of Webster Corporation: \(\begin{array}{ll}
\text { June 1, } 2012 & \text { Pand cash for the followng long-term investments: } 5,000 \text { shares Wayne } \
& \text { Corporation common stock (representing } 5 \text { percent of outstanding stock) at } \
& \$ 40 \text { per share; } 3,000 \text { shares Upshur Corporation common stock (representing } \
&\text { percent of outstanding stock) at } \$ 24 \text { per share. } \
\text { Dec. } 31,2012 & \text { Quoted market prices at year end: Wayne common stock, } \$ 35 \text {; Upshur }\
& \begin{array}{l}

\text { common stock, } \$ 27 .
\end{array} \
\text { April 1, } 2013 & \begin{array}{l}
\text { A change in policy required the sale of 1,000 shares of Wayne Corporation } \
\text { common stock at } \$ 38 .
\end{array} \
\text { July 1, 2013 } & \begin{array}{l}
\text { Received a cash dividend from Upshur Corporation equal to } \$ .30 \text { per share. }
\end{array} \
\text { Dec. 31, 2013 } & \begin{array}{l}
\text { Quoted market prices at year end: Wayne common stock, } \$ 39 \text {; Ushur } \
\text { common stock } \$ 22 .
\end{array}
\end{array}\)
 The entry to record the receipt of the cash dividend from Upshur Corporation is:

Accepted Answer

A)  Investment in Upshur Corporation 900
Cash 900 
B)  Cash 900
Dividend Income 900 
C)  Dividend Income 900
Cash 900 
D)  Cash 900
Investment in Upshur Corporation 900

Question 20

Clay Corporation owns a 40 percent interest in the stock of Gilmer Corporation.During 2013,Gilmer pays $25,000 in dividends to Clay and reports $107,000 in net income.Clay Corporation's investment in Gilmer will increase Clay's income before income taxes by

Accepted Answer

A)  $17,800. 
B)  $42,800. 
C)  $52,800. 
D)  $32,800.

Exam 15: Investments

In preparing consolidated financial statements,all of the following commonly require elimination entries except a(n)

A Goodwill from Consolidation account may rise when a parent acquires a subsidiary company's common stock at a price that is less than the stock's book value.

Although the preparation of a consolidated balance sheet requires elimination entries,a consolidated income statement may always be prepared without any elimination entries.

If a long-term investment suffers a permanent decline in value,a loss only has to be recorded if the investment is sold.

If a parent company has four subsidiaries,there are five separate legal entities represented in this group.

In the journal provided,prepare the entries for the transactions described below.(Omit explanations.)

Flubber Corporation owns 40 percent of the voting stock of Rhim Corporation and accounts for the investment using the equity method; Rhim Corporation reports a net loss of $30,000.Flubber Corporation's entry to record the share of loss is:

Another term for short-term investments is marketable securities.

A short-term investment in a U.S.Treasury bill costs $48,400 and will mature in six months at $50,000.Management intends to hold the investment until it matures.The entry to record receipt of cash at maturity is: (No prior entries were made to recognize revenue.)

Match each definition with the correct term below. -Available-for-sale securities

The equity method generally should be used to account for an investment in stock when the level of ownership is

In the United States,insider trading is considered

Trading securities are valued on the balance sheet at

When the market value of available-for-sale securities exceeds cost,an unrealized loss appears in stockholders' equity as an addition.

Minority interest is reported as a(n)

The cost-adjusted-to-market method of accounting for investments allows for a departure from cost when the market value of the investment falls below or rises above cost.

Clay Corporation owns a 40 percent interest in the stock of Gilmer Corporation.During 2013,Gilmer pays $25,000 in dividends to Clay and reports $107,000 in net income.Clay Corporation's investment in Gilmer will increase Clay's income before income taxes by