1.On April 1, 2006, Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, 2006, follow: Cash $ 60,000 Inventory 180,000 Property and equipment (net of accumulated depreciation of $220,000) 320,000 Goodwill 100,000 Liabilities (120,000 ) Net assets $ 540,000 On April 1, 2006, Wall’s inventory had a fair value of $150,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination? a. $150,000 b. $120,000 c. $ 50,000 d. $ 20,000 2.A business combination is accounted for as a purchase. Which of the following expenses related to the business combination should be included, in total, in the determination of net income of the combined corporation for the period in which the expenses are incurred? Fees of finders and consultants Registration fees for equity securities issued a . Yes Yes b . Yes No c . No Yes d . No No 3.On August 31, 2006, Wood Corp. issued 100,000 shares of its $20 par value common stock for the net assets of Pine, Inc., in a business combination accounted for by the purchase method. The market value of Wood’s common stock on August 31 was $36 per share. Wood paid a fee of $160,000 to the consultant who arranged this acquisition. Costs of registering and issuing the equity securities amounted to
1. 1. On April 1, 2006, Dart Co. paid $620,000 for all the
issued and outstanding common stock of Wall Corp. The recorded
assets and liabilities of Wall Corp. on April 1, 2006, follow: Cash
$ 60,000 Inventory 180,000 Property and equipment (net of
accumulated depreciation of $220,000) 320,000 Goodwill 100,000
Liabilities (120,000) Net assets $ 540,000 On April 1, 2006, Walls
inventory had a fair value of $150,000, and the property and
equipment (net) had a fair value of $380,000. What is the amount of
goodwill resulting from the business combination? a. $150,000 b.
$120,000 c. $ 50,000 d. $ 20,000 2. A business combination is
accounted for as a purchase. Which of the following expenses
related to the business combination should be included, in total,
in the determination of net income of the combined corporation for
the period in which the expenses are incurred? Fees of finders and
consultants Registration fees for equity securities issued a. Yes
Yes b. Yes No c. No Yes d. No No 3. On August 31, 2006, Wood Corp.
issued 100,000 shares of its $20 par value common stock for the net
assets of Pine, Inc., in a business combination accounted for by
the purchase method. The market value of Woods common stock on
August 31 was $36 per share. Wood paid a fee of $160,000 to the
consultant who arranged this acquisition. Costs of registering and
issuing the equity securities amounted to $80,000. No goodwill was
involved in the purchase. What amount should Wood capitalize as the
cost of acquiring Pines net assets? a. $3,600,000 b. $3,680,000 c.
$3,760,000 d. $3,840,000 Items 4 and 5 are based on the following:
On December 31, 2006, Saxe Corporation was merged into Poe
Corporation. In the business
2. combination, Poe issued 200,000 shares of its $10 par common
stock, with a market price of $18 a share, for all of Saxes common
stock. The stockholders equity section of each companys balance
sheet immediately before the combination was Poe Saxe Common stock
3,000,000 $1,500,000 Additional paid-in capital 1,300,000 150,000
Retained earnings 2,500,000 850,000 $6,800,000 $2,500,000 4. In the
December 31, 2006 consolidated balance sheet, additional paid-in
capital should be reported at a. $ 950,000 b. $1,300,000 c.
$1,450,000 d. $2,900,000 5. In the December 31, 2006 consolidated
balance sheet, common stock should be reported at a. $3,000,000 b.
$3,500,000 c. $4,000,000 d. $5,000,000 6. On January 1, 2007, Neal
Co. issued 100,000 shares of its $10 par value common stock in
exchange for all of Frey Inc.s outstanding stock. The fair value of
Neals common stock on December 31, 2006, was $19 per share. The
carrying amounts and fair values of Freys assets and liabilities on
December 31, 2006, were as follows: Carrying amount Fair value Cash
$ 240,000 $ 240,000 Receivables 270,000 270,000 Inventory 435,000
405,000 Property, plant, and equipment 1,305,000 1,440,000
Liabilities (525,000) (525,000) Net assets $1,725,000 $1,830,000
What is the amount of goodwill resulting from the business
combination? a. $175,000
3. b. $105,000 c. $ 70,000 d. $0 7. Consolidated financial
statements are typically prepared when one company has a
controlling financial interest in another unless a. The subsidiary
is a finance company. b. The fiscal year-ends of the two companies
are more than three months apart. c. Such control is likely to be
temporary. d. The two companies are in unrelated industries, such
as manufacturing and real estate. 8. With respect to business
combinations, SFAS 141 provides that a. The pooling of interests
method must be used for all combinations. b. The pooling of
interests method may be used only when specific requirements are
met. c. The purchase method must be used for all combinations. d.
The purchase method may be used only when specific requirements are
met. 9. A business combination is accounted for appropriately as a
purchase. Which of the following should be deducted in determining
the combined corporations net income for the current period? Direct
costs of acquisition General expenses related to acquisition a. Yes
No b. Yes Yes c. No Yes d. No No 10. PDX Corp. acquired 100% of the
outstanding common stock of Sea Corp. in a purchase transaction.
The cost of the acquisition exceeded the fair value of the
identifiable assets and assumed liabilities. The general guidelines
for assigning amounts to the inventories acquired provide for a.
Raw materials to be valued at original cost. b. Work in process to
be valued at the estimated selling prices of finished goods, less
both costs to complete and costs of disposal. c. Finished goods to
be valued at replacement cost. d. Finished goods to be valued at
estimated selling prices, less both costs of disposal and a
reasonable profit allowance. 11. In accounting for a business
combination, which of the following intangibles should not be
4. recognized as an asset apart from goodwill? a. Trademarks.
b. Lease agreements. c. Employee quality. d. Patents. 12. With
respect to the allocation of the cost of a business acquisition,
SFAS 141 requires a. Cost to be allocated to the assets based on
their carrying values. b. Cost to be allocated based on fair
values. c. Cost to be allocated based on original costs. d. None of
the above. Items 13 through 17 are based on the following: On
January 1, 2006, Polk Corp. and Strass Corp. had condensed balance
sheets as follows: Polk Strass Current assets $ 70,000 $20,000
Noncurrent assets 90,000 40,000 Total assets $160,000 $60,000
Current liabilities $ 30,000 $10,000 Long-term debt 50,000 --
Stockholders equity 80,000 50,000 Total liabilities and
stockholders equity $160,000 $60,000 On January 2, 2006, Polk
borrowed $60,000 and used the proceeds to purchase 90% of the
outstanding common shares of Strass. This debt is payable in ten
equal annual principal payments, plus interest, beginning December
30, 2006. The excess cost of the investment over Strass book value
of acquired net assets should be allocated 60% to inventory and 40%
to goodwill. On Polks January 2, 2006 consolidated balance sheet,
13. Current assets should be a. $99,000 b. $96,000 c. $90,000 d.
$79,000
5. 14. Noncurrent assets should be a. $130,000 b. $134,000 c.
$136,000 d. $140,000 15. Current liabilities should be a. $50,000
b. $46,000 c. $40,000 d. $30,000 16. Noncurrent liabilities
including minority interests should be a. $115,000 b. $109,000 c.
$104,000 d. $ 55,000 17. Stockholders equity should be a. $ 80,000
b. $ 85,000 c. $ 90,000 d. $130,000 18. On November 30, 2006,
Parlor, Inc. purchased for cash at $15 per share all 250,000 shares
of the outstanding common stock of Shaw Co. At November 30, 2006,
Shaws balance sheet showed a carrying amount of net assets of
$3,000,000. At that date, the fair value of Shaws property, plant
and equipment exceeded its carrying amount by $400,000. In its
November 30, 2006 consolidated balance sheet, what amount should
Parlor report as goodwill? a. $750,000 b. $400,000 c. $350,000 d.
$0
6. 19. A subsidiary, acquired for cash in a business
combination, owned inventories with a market value greater than the
book value as of the date of combination. A consolidated balance
sheet prepared immediately after the acquisition would include this
difference as part of a. Deferred credits. b. Goodwill. c.
Inventories. d. Retained earnings. 20. Company J acquired all of
the outstanding common stock of Company K in exchange for cash. The
acquisition price exceeds the fair value of net assets acquired.
How should Company J determine the amounts to be reported for the
plant and equipment and long-term debt acquired from Company K?
Plant and equipment Long-term debt a. Ks carrying amount Ks
carrying amount b. Ks carrying amount Fair value c. Fair value Ks
carrying amount d. Fair value Fair value 21. In a business
combination accounted for as a purchase, the appraised values of
the identifiable assets acquired exceeded the acquisition price.
How should the excess appraised value be reported? a. As negative
goodwill. b. As additional paid-in capital. c. As a reduction of
the values assigned to certain assets and an extraordinary gain for
any unallocated portion. d. As positive goodwill. 22. Wright Corp.
has several subsidiaries that are included in its consolidated
financial statements. In its December 31, 2006 trial balance,
Wright had the following intercompany balances before eliminations:
Debit Credit Current receivable due from Main Co. $ 32,000
Noncurrent receivable from Main 114,000 Cash advance to Corn Corp.
6,000 Cash advance from King Co. $ 15,000 Intercompany payable to
King 101,000 In its December 31, 2006 consolidated balance sheet,
what amount should Wright report as intercompany receivables?
7. a. $152,000 b. $146,000 c. $ 36,000 d. $0 23. Shep Co. has a
receivable from its parent, Pep Co. Should this receivable be
separately reported in Sheps balance sheet and in Peps consolidated
balance sheet? Sheps balance sheet Peps consolidated balance sheet
a. Yes No b. Yes Yes c. No No d. No Yes Items 24 through 27 are
based on the following: Selected information from the separate and
consolidated balance sheets and income statements of Pard, Inc. and
its subsidiary, Spin Co., as of December 31, 2006, and for the year
then ended is as follows: Pard Spin Consolidated Balance sheet
accounts Accounts receivable $ 26,000 $ 19,000 $ 39,000 Inventory
30,000 25,000 52,000 Investment in Spin 67,000 -- -- Goodwill -- --
30,000 Minority interest -- -- 10,000 Stockholders equity 154,000
50,000 154,000 Income statement accounts Revenues $200,000 $140,000
$308,000 Cost of goods sold 150,000 110,000 231,000 Gross profit
50,000 30,000 77,000 Equity in earnings of Spin 11,000 -- -- Net
income 36,000 20,000 40,000 Additional information During 2006,
Pard sold goods to Spin at the same markup on cost that Pard uses
for all sales. At December 31, 2006, Spin had not paid for all of
these goods and still held 37.5% of them in inventory.
8. Pard acquired its interest in Spin on January 2, 2005. 24.
What was the amount of intercompany sales from Pard to Spin during
2006? a. $ 3,000 b. $ 6,000 c. $29,000 d. $32,000 25. At December
31, 2006, what was the amount of Spins payable to Pard for
intercompany sales? a. $ 3,000 b. $ 6,000 c. $29,000 d. $32,000 26.
In Pards consolidated balance sheet, what was the carrying amount
of the inventory that Spin purchased from Pard? a. $ 3,000 b. $
6,000 c. $ 9,000 d. $12,000 27. What is the percent of minority
interest ownership in Spin? a. 10% b. 20% c. 25% d. 45% 28. On
January 1, 2006, Owen Corp. purchased all of Sharp Corp.s common
stock for $1,200,000. On that date, the fair values of Sharps
assets and liabilities equaled their carrying amounts of $1,320,000
and $320,000, respectively. During 2006, Sharp paid cash dividends
of $20,000. Selected information from the separate balance sheets
and income statements of Owen and Sharp as of December 31, 2006,
and for the year then ended follows: Owen Sharp Balance sheet
accounts
9. Investment in subsidiary $1,320,000 -- Retained earnings
1,240,000 560,000 Total stockholders equity 2,620,000 1,120,000
Income statement accounts Operating income 420,000 200,000 Equity
in earnings of Sharp 140,000 -- Net income 400,000 140,000 In Owens
December 31, 2006 consolidated balance sheet, what amount should be
reported as total retained earnings? a. $1,240,000 b. $1,360,000 c.
$1,380,000 d. $1,800,000 29. When a parent-subsidiary relationship
exists, consolidated financial statements are prepared in
recognition of the accounting concept of a. Reliability. b.
Materiality. c. Legal entity. d. Economic entity. 30. A subsidiary
was acquired for cash in a business combination on January 1, 2006.
The purchase price exceeded the fair value of identifiable net
assets. The acquired company owned equipment with a market value in
excess of the carrying amount as of the date of combination. A
consolidated balance sheet prepared on December 31, 2006, would a.
Report the unamortized portion of the excess of the market value
over the carrying amount of the equipment as part of goodwill. b.
Report the unamortized portion of the excess of the market value
over the carrying amount of the equipment as part of plant and
equipment. c. Report the excess of the market value over the
carrying amount of the equipment as part of plant and equipment. d.
Not report the excess of the market value over the carrying amount
of the equipment because it would be expensed as incurred. 31.
Pride, Inc. owns 80% of Simba, Inc.s outstanding common stock.
Simba, in turn, owns 10% of Prides outstanding common stock. What
percentage of the common stock cash dividends declared by the
individual companies should be reported as dividends declared in
the
10. consolidated financial statements? Dividends declared by
Pride Dividends declared by Simba a. 90% 0% b. 90% 20% c. 100% 0%
d. 100% 20% 32. It is generally presumed that an entity is a
variable interest entity subject to consolidation if its equity is
a. Less than 50% of total assets. b. Less than 25% of total assets.
c. Less than 10% of total assets. d. Less than 10% of total
liabilities. 33. Morton Inc., Gilman Co., and Willis Corporation
established a special-purpose entity (SPE) to perform leasing
activities for the three corporations. If at the time of formation
the SPE is determined to be a variable interest entity subject to
consolidation, which of the corporations should consolidate the
SPE? a. The corporation with the largest interest in the entity. b.
The corporation that will absorb a majority of the expected losses
if they occur. c. The corporation that has the most voting equity
interest. d. Each corporation should consolidate one-third of the
SPE. 34. The determination of whether an interest holder must
consolidate a variable interest entity is made a. Each reporting
period. b. When the interest holder initially gets involved with
the variable interest entity. c. Every time the cash flows of the
variable interest entity change. d. Interests in variable interest
entities are never consolidated. 35. Matt Co. included a foreign
subsidiary in its 2006 consolidated financial statements. The
subsidiary was acquired in 2003 and was excluded from previous
consolidations. The change was caused by the elimination of foreign
exchange controls. Including the subsidiary in the 2006
consolidated financial statements results in an accounting change
that should be reported a. By footnote disclosure only. b.
Currently and prospectively. c. Currently with footnote disclosure
of pro forma effects of retroactive application.
11. d. By restating the financial statements of all prior
periods presented. 36. On June 30, 2006, Purl Corp. issued 150,000
shares of its $20 par common stock for which it received all of
Scott Corp.s common stock. The fair value of the common stock
issued is equal to the book value of Scott Corp.s net assets. Both
corporations continued to operate as separate businesses,
maintaining accounting records with years ending December 31. Net
income from separate company operations and dividends paid were
Purl Scott Net income Six months ended 6/30/06 $750,000 $225,000
Six months ended 12/31/06 825,000 375,000 Dividends paid March 25,
2006 950,000 -- November 15, 2006 -- 300,000 On December 31, 2006,
Scott held in its inventory merchandise acquired from Purl on
December 1, 2006, for $150,000, which included a $45,000 markup. In
the 2006 consolidated income statement, net income should be
reported at a. $1,650,000 b. $1,905,000 c. $1,950,000 d. $2,130,000
37. On June 30, 2006, Pane Corp. exchanged 150,000 shares of its
$20 par value common stock for all of Sky Corp.s common stock. At
that date, the fair value of Panes common stock issued was equal to
the book value of Skys net assets. Both corporations continued to
operate as separate businesses, maintaining accounting records with
years ending December 31. Information from separate company
operations follows: Pane Sky Retained earnings12/31/05 $3,200,000
$925,000 Net incomesix months ended 6/30/06 800,000 275,000
Dividends paid3/25/06 750,000 -- What amount of retained earnings
would Pane report in its June 30, 2006 consolidated balance sheet?
a. $5,200,000 b. $4,450,000 c. $3,525,000 d. $3,250,000
12. Items 38 and 39 are based on the following: Scroll, Inc., a
wholly owned subsidiary of Pirn, Inc., began operations on January
1, 2006. The following information is from the condensed 2006
income statements of Pirn and Scroll: Pirn Scroll Sales to Scroll
$100,000 $ -- Sales to others 400,000 300,000 500,000 300,000 Cost
of goods sold: Acquired from Pirn -- 80,000 Acquired from others
350,000 190,000 Gross profit 150,000 30,000 Depreciation 40,000
10,000 Other expenses 60,000 15,000 Income from operations 50,000
5,000 Gain on sale of equipment to Scroll 12,000 -- Income before
income taxes $ 62,000 $ 5,000 Additional information Sales by Pirn
to Scroll are made on the same terms as those made to third
parties. Equipment purchased by Scroll from Pirn for $36,000 on
January 1, 2006, is depreciated using the straight-line method over
four years. 38. In Pirns December 31, 2006, consolidating
worksheet, how much intercompany profit should be eliminated from
Scrolls inventory? a. $30,000 b. $20,000 c. $10,000 d. $ 6,000 39.
What amount should be reported as depreciation expense in Pirns
2006 consolidated income statement? a. $50,000 b. $47,000 c.
$44,000
13. d. $41,000 40. Clark Co. had the following transactions
with affiliated parties during 2006: Sales of $60,000 to Dean,
Inc., with $20,000 gross profit. Dean had $15,000 of this inventory
on hand at year-end. Clark owns a 15% interest in Dean and does not
exert significant influence. Purchases of raw materials totaling
$240,000 from Kent Corp., a wholly owned subsidiary. Kents gross
profit on the sale was $48,000. Clark had $60,000 of this inventory
remaining on December 31, 2006. Before eliminating entries, Clark
had consolidated current assets of $320,000. What amount should
Clark report in its December 31, 2006 consolidated balance sheet
for current assets? a. $320,000 b. $317,000 c. $308,000 d. $303,000
41. Parker Corp. owns 80% of Smith Inc.s common stock. During 2006,
Parker sold Smith $250,000 of inventory on the same terms as sales
made to third parties. Smith sold all of the inventory purchased
from Parker in 2006. The following information pertains to Smith
and Parkers sales for 2006: Parker Smith Sales $1,000,000 $700,000
Cost of sales 400,000 350,000 $ 600,000 $350,000 What amount should
Parker report as cost of sales in its 2006 consolidated income
statement? a. $750,000 b. $680,000 c. $500,000 d. $430,000 42.
Selected information from the separate and consolidated balance
sheets and income statements of Pare, Inc. and its subsidiary, Shel
Co., as of December 31, 2006, and for the year then ended is as
follows: Pare Shel Consolidated Balance sheet accounts Accounts
receivable $ 52,000 $ 38,000 $ 78,000 Inventory 60,000 50,000
104,000
14. Income statement accounts Revenues $400,000 $280,000
$616,000 Cost of goods sold 300,000 220,000 462,000 Gross profit
$100,000 $ 60,000 $154,000 Additional information: During 2006,
Pare sold goods to Shel at the same markup on cost that Pare uses
for all sales. In Pares consolidating worksheet, what amount of
unrealized intercompany profit was eliminated? a. $ 6,000 b.
$12,000 c. $58,000 d. $64,000 43. During 2006, Pard Corp. sold
goods to its 80%-owned subsidiary, Seed Corp. At December 31, 2006,
one-half of these goods were included in Seeds ending inventory.
Reported 2006 selling expenses were $1,100,000 and $400,000 for
Pard and Seed, respectively. Pards selling expenses included
$50,000 in freight-out costs for goods sold to Seed. What amount of
selling expenses should be reported in Pards 2006 consolidated
income statement? a. $1,500,000 b. $1,480,000 c. $1,475,000 d.
$1,450,000 44. On January 1, 2006, Poe Corp. sold a machine for
$900,000 to Saxe Corp., its wholly owned subsidiary. Poe paid
$1,100,000 for this machine, which had accumulated depreciation of
$250,000. Poe estimated a $100,000 salvage value and depreciated
the machine on the straight-line method over twenty years, a policy
which Saxe continued. In Poes December 31, 2006 consolidated
balance sheet, this machine should be included in cost and
accumulated depreciation as Cost Accumulated depreciation a.
$1,100,000 $300,000 b. $1,100,000 $290,000 c. $ 900,000 $ 40,000 d.
$ 850,000 $ 42,500 45. Wagner, a holder of a $1,000,000 Palmer,
Inc. bond, collected the interest due on March 31, 2006, and then
sold the bond to Seal, Inc. for $975,000. On that date, Palmer, a
75% owner of Seal, had a $1,075,000 carrying amount for this bond.
What was the effect of Seals purchase of Palmers bond on the
retained earnings and minority interest amounts reported in
Palmers
15. March 31, 2006 consolidated balance sheet? Retained
earnings Minority interest a. $100,000 increase $0 b. $ 75,000
increase $ 25,000 increase c. $0 $ 25,000 increase d. $0 $100,000
increase 46. Sun, Inc. is a wholly owned subsidiary of Patton, Inc.
On June 1, 2006, Patton declared and paid a $1 per share cash
dividend to stockholders of record on May 15, 2006. On May 1, 2006,
Sun bought 10,000 shares of Pattons common stock for $700,000 on
the open market, when the book value per share was $30. What amount
of gain should Patton report from this transaction in its
consolidated income statement for the year ended December 31, 2006?
a. $0 b. $390,000 c. $400,000 d. $410,000 47. Perez, Inc. owns 80%
of Senior, Inc. During 2006, Perez sold goods with a 40% gross
profit to Senior. Senior sold all of these goods in 2006. For 2006
consolidated financial statements, how should the summation of
Perez and Senior income statement items be adjusted? a. Sales and
cost of goods sold should be reduced by the intercompany sales. b.
Sales and cost of goods sold should be reduced by 80% of the
intercompany sales. c. Net income should be reduced by 80% of the
gross profit on intercompany sales. d. No adjustment is necessary.
48. Water Co. owns 80% of the outstanding common stock of Fire Co.
On December 31, 2006, Fire sold equipment to Water at a price in
excess of Fires carrying amount, but less than its original cost.
On a consolidated balance sheet at December 31, 2006, the carrying
amount of the equipment should be reported at a. Waters original
cost. b. Fires original cost. c. Waters original cost less Fires
recorded gain. d. Waters original cost less 80% of Fires recorded
gain. 49. Port, Inc. owns 100% of Salem, Inc. On January 1, 2006,
Port sold Salem delivery equipment at a gain. Port had owned the
equipment for two years and used a five-year straight-line
depreciation rate with no residual value. Salem is using a
three-year straight-line depreciation rate with no residual value
for the equipment. In the consolidated income statement, Salems
recorded depreciation expense on the equipment for 2006 will be
decreased by
16. a. 20% of the gain on sale. b. 33 1/3% of the gain on sale.
c. 50% of the gain on sale. d. 100% of the gain on sale. 50. P Co.
purchased term bonds at a premium on the open market. These bonds
represented 20% of the outstanding class of bonds issued at a
discount by S Co., Ps wholly owned subsidiary. P intends to hold
the bonds until maturity. In a consolidated balance sheet, the
difference between the bond carrying amounts in the two companies
would a. Decrease retained earnings. b. Increase retained earnings.
c. Be reported as a deferred debit to be amortized over the
remaining life of the bonds. d. Be reported as a deferred credit to
be amortized over the remaining life of the bonds. 51. Eltro
Company acquired a 70% interest in the Samson Company in 2005. For
the years ended December 31, 2006 and 2007, Samson reported net
income of $80,000 and $90,000, respectively. During 2006, Samson
sold merchandise to Eltro for $10,000 at a profit of $2,000. The
merchandise was later resold by Eltro to outsiders for $15,000
during 2007. For consolidation purposes what is the minority
interests share of Samsons net income for 2006 and 2007
respectively? a. $23,400 and $27,600. b. $24,000 and $27,000. c.
$24,600 and $26,400. d. $26,000 and $25,000. Items 52 and 53 are
based on the following: On January 1, 2006, Ritt Corp. purchased
80% of Shaw Corp.s $10 par common stock for $975,000. On this date,
the carrying amount of Shaws net assets was $1,000,000. The fair
values of Shaws identifiable assets and liabilities were the same
as their carrying amounts except for plant assets (net) that were
$100,000 in excess of the carrying amount. For the year ended
December 31, 2006, Shaw had net income of $190,000 and paid cash
dividends totaling $125,000. 52. In the January 1, 2006
consolidated balance sheet, goodwill should be reported at a. $0 b.
$ 75,000 c. $ 95,000 d. $175,000
17. 53. In the December 31, 2006 consolidated balance sheet,
minority interest should be reported at a. $200,000 b. $213,000 c.
$220,000 d. $233,000 Items 54 through 56 are based on the
following: On January 2, 2007, Pare Co. purchased 75% of Kidd Co.s
outstanding common stock. Selected balance sheet data at December
31, 2007, is as follows: Pare Kidd Total assets $420,000 $180,000
Liabilities $120,000 $ 60,000 Common stock 100,000 50,000 Retained
earnings 200,000 70,000 $420,000 $180,000 During 2007 Pare and Kidd
paid cash dividends of $25,000 and $5,000, respectively, to their
shareholders. There were no other intercompany transactions. 54. In
its December 31, 2007 consolidated statement of retained earnings,
what amount should Pare report as dividends paid? a. $ 5,000 b.
$25,000 c. $26,250 d. $30,000 55. In Pares December 31, 2007
consolidated balance sheet, what amount should be reported as
minority interest in net assets? a. $0 b. $ 30,000 c. $ 45,000 d.
$105,000 56. In its December 31, 2007 consolidated balance sheet,
what amount should Pare report as common stock?
18. a. $ 50,000 b. $100,000 c. $137,500 d. $150,000 57. On
September 1, 2005, Phillips, Inc. issued common stock in exchange
for 20% of Sago, Inc.s outstanding common stock. On July 1, 2006,
Phillips issued common stock for an additional 75% of Sagos
outstanding common stock. Sago continues in existence as Phillips
subsidiary. How much of Sagos 2006 net income should be reported as
accruing to Phillips? a. 20% of Sagos net income to June 30 and all
of Sagos net income from July 1 to December 31. b. 20% of Sagos net
income to June 30 and 95% of Sagos net income from July 1 to
December 31. c. 95% of Sagos net income. d. All of Sagos net
income. 58. Mr. & Mrs. Dart own a majority of the outstanding
capital stock of Wall Corp., Black Co., and West, Inc. During 2006,
Wall advanced cash to Black and West in the amount of $50,000 and
$80,000, respectively. West advanced $70,000 in cash to Black. At
December 31, 2006, none of the advances was repaid. In the combined
December 31, 2006 balance sheet of these companies, what amount
would be reported as receivables from affiliates? a. $200,000 b.
$130,000 c. $ 60,000 d. $0 59. Selected data for two subsidiaries
of Dunn Corp. taken from December 31, 2006 preclosing trial
balances are as follows: Banks Co. debit Lamm Co. credit Shipments
to Banks $ -- $150,000 Shipments from Lamm 200,000 -- Intercompany
inventory profit on total shipments -- 50,000 Additional data
relating to the December 31, 2006 inventory are as follows:
Inventory acquired from outside parties $175,000 $250,000 Inventory
acquired from Lamm 60,000 --
19. At December 31, 2006, the inventory reported on the
combined balance sheet of the two subsidiaries should be a.
$425,000 b. $435,000 c. $470,000 d. $485,000 60. Ahm Corp. owns 90%
of Bee Corp.s common stock and 80% of Cee Corp.s common stock. The
remaining common shares of Bee and Cee are owned by their
respective employees. Bee sells exclusively to Cee, Cee buys
exclusively from Bee, and Cee sells exclusively to unrelated
companies. Selected 2006 information for Bee and Cee follows: Bee
Corp. Cee Corp. Sales $130,000 $91,000 Cost of sales 100,000 65,000
Beginning inventory None None Ending inventory None 65,000 What
amount should be reported as gross profit in Bee and Cees combined
income statement for the year ended December 31, 2006? a. $26,000
b. $41,000 c. $47,800 d. $56,000 61. The following information
pertains to shipments of merchandise from Home Office to Branch
during 2006: Home Offices cost of merchandise $160,000 Intracompany
billing 200,000 Sales by Branch 250,000 Unsold merchandise at
Branch on December 31, 2006 20,000 In the combined income statement
of Home Office and Branch for the year ended December 31, 2006,
what amount of the above transactions should be included in sales?
a. $250,000 b. $230,000 c. $200,000
20. d. $180,000 62. Mr. and Mrs. Gasson own 100% of the common
stock of Able Corp. and 90% of the common stock of Baker Corp. Able
previously paid $4,000 for the remaining 10% interest in Baker. The
condensed December 31, 2006 balance sheets of Able and Baker are as
follows: Able Baker Assets $600,000 $60,000 Liabilities $200,000
$30,000 Common stock 100,000 20,000 Retained earnings 300,000
10,000 $600,000 $60,000 In a combined balance sheet of the two
corporations at December 31, 2006, what amount should be reported
as total stockholders equity? a. $430,000 b. $426,000 c. $403,000
d. $400,000 63. Mr. Cord owns four corporations. Combined financial
statements are being prepared for these corporations, which have
intercompany loans of $200,000 and intercompany profits of
$500,000. What amount of these intercompany loans and profits
should be included in the combined financial statements?
Intercompany Loans Profits a. $200,000 $0 b. $200,000 $500,000 c.
$0 $0 d. $0 $500,000 64. Combined statements may be used to present
the results of operations of Companies under common management
Commonly controlled companies a. No Yes b. Yes No c. No No d. Yes
Yes 65. Which of the following items should be treated in the same
manner in both combined financial statements and consolidated
statements? Income taxes Minority interest
21. a. No No b. No Yes c. Yes Yes d. Yes No 66. Which of the
following items should be treated in the same manner in both
combined financial statements and consolidated statements?
Different fiscal periods Foreign operations a. No No b. No Yes c.
Yes Yes d. Yes No