Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

A) U.S.GAAP refers to such entities as a variable interest entity (VI
E) . 
B) If the invested equity is so small that the entity requires other financial support to sustain its activities, it meets the criteria for a variable interest entity. 
C) If the equity owners lack meaningful decision rights, it meets the criteria for a variable interest entity. 
D) choices a and b, only 
E) choices a, b, and c.

Question 3

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

Accepted Answer

A) at cost on the balance sheet and recognizes income only when it receives a dividend (revenue) or sells some of the securities at a gain or loss. 
B) at fair value on the income statement and recognizes income when it receives a dividend (revenue) . 
C) at cost on the balance sheet and recognizes income only when it receives a dividend (revenue). 
D) at fair value on the balance sheet and recognizes income only when it receives a dividend (revenue) or sells some of the securities at a gain or loss. 
E) at cost on the balance sheet and recognizes income only when it sells some of the securities at a gain or loss.

Question 4

Consolidated financial statements are typically prepared when one company has

Accepted Answer

A) accounted for its investment in another company by the equity method. 
B) significant influence over the operating and financial policies of another company. 
C) the controlling financial interest in another company. 
D) a substantial equity interest in the net assets of another company. 
E) All of these answer choices are correct.

Question 5

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:

Accepted Answer

A) Equity in Earnings of Affiliate ..........30,000 
Investment in Stock of Intercomm Corporation ...........30,000
Investment in Stock of Intercomm Corporation.........12,000
Cash.................... 12,000 
B) Investment in Stock of Intercomm Corporation ...............30,000 
Equity in Earnings of Affiliate ............... 30,000
Cash.................... 12,000
Investment in Stock of Intercomm Corporation............12,000 
C) Equity in Earnings of Affiliate ..............100,000 
Investment in Stock of Intercomm Corporation ....... . . 100,000
Cash.............. 12,000
Investment in Stock of Intercomm Corporation.........12,000 
D) Investment in Stock of Intercomm Corporation ...............100,000 
Equity in Earnings of Affiliate ................ 100,000
Cash................... 12,000
Investment in Stock of Intercomm Corporation.............12,000 
E) Investment in Stock of Intercomm Corporation ...........30,000 
Investment Revenue............... 30,000
Cash..................... 12,000
Investment in Stock of Intercomm Corporation...........12,000

Question 6

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.

Accepted Answer

A) variable interest 
B) special interest 
C) thinly capitalized 
D) securitized financial 
E) nonsecuritized financial

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) minority, passive investments. 
B) minority, active investments. 
C) majority, passive investments. 
D) majority, active investments. 
E) a controlled entity.

Question 9

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?

Accepted Answer

A) On the balance sheet, an investment accounted for with the equity method appears among noncurrent assets. 
B) On the balance sheet, the amount shown generally equals the acquisition cost of the shares, plus Purchaser Corporation's share of Investee Corporation's undistributed earnings (or losses) since the date Purchaser Corporation acquired the shares, plus or minus amortization of any excess cost at the date of acquisition attributable to assets with limited lives. 
C) On the income statement, Purchaser Corporation reports each period its share of Investee Corporation's income (or loss) as revenue (or expense), as well as any amortization of excess cost. 
D) Purchaser Corporation also recognizes its share of the investee's other comprehensive income. 
E) all of the above

Question 10

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:

Accepted Answer

A) Investment in Stock of Invicta Corporation ..............600,000 
Marketable Securities.....................600,000 
B) Cash ................... 600,000 
Marketable Securities .......................600,000 
C) Investment in Stock of Invicta Corporation ..............600,000 
Cash ................................. 600,000 
D) Marketable Securities ..................... 600,000 
Cash ......................600,000 
E) Common Stock ........................... 600,000 
Cash ..................600,000

Question 11

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

Accepted Answer

A) only when it receives dividends; a return (reduction) of investment. 
B) only when it receives dividends; income 
C) its share of the net income (loss) of the investee; a return (reduction) of investment. 
D) its share of the net income (loss) of the investee; income 
E) all of the net income (loss) of the investee; a return (reduction) of investment.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is/are true?

Accepted Answer

A) When one firm, P, owns more than 50% of the voting stock of another company, S, P can control the activities of S in terms of broad policy making. 
B) When one firm, P, owns more than 50% of the voting stock of another company, S, P can control the activities of S in terms of day-to-day operations. 
C) When one firm, P, owns more than 50% of the voting stock of another company, S, common usage refers to the majority investor as the parent and to the majority-owned company as the subsidiary. 
D) U.S.GAAP and IFRS require the parent to combine the financial statements of majority-owned companies with those of the parent in consolidated financial statements. 
E) all of the above

Question 14

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.

Accepted Answer

The answer of Given the following consolidated balance sheet and...

Question 15

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

Accepted Answer

The answer of State the purpose of consolidated financial statements.Define...

Question 16

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?

Accepted Answer

A) Cash 55,000 Dividend Income 55,000 
B) Cash 55,000 Investment Income 55,000 
C) Cash 55,000 Investment in Wabasso Company 55,000 
D) Cash 55,000 Additional Paid-in Capital 55,000 
E) Cash 55,000 Common Stock- Wabasso Company 55,000

Question 17

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

Accepted Answer

A) restatement of the cash balance of each company due to intercompany transactions. 
B) presentation of only the transactions between the consolidated entity and others outside the entity. 
C) replacement of the investment account and the subsidiary's shareholders' equity with only the parent's share of the individual assets and liabilities of the subsidiary. 
D) posting the eliminations to both parent and subsidiary's accounts. 
E) posting the eliminations to the subsidiary's accounts, only.

Question 18

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

Accepted Answer

The answer of Why would a firm choose to acquire...

Question 19

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.

Accepted Answer

The answer of The adjusted, preclosing trial balances of Pie...

Question 20

A minority, active investment is generally

Accepted Answer

A) an investment in another company's stock of less than 15%. 
B) an investment in another company's stock of between 15% and 60%. 
C) an investment in another company's stock of between 20% and 50%. 
D) dependent upon management's intent. 
E) dependent upon the expected holding period.

Exam 14: Intercorporate Investments in Common Stock

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

Consolidated financial statements are typically prepared when one company has

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

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?

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?

A minority, active investment is generally