Question 1

The acquisition of some or all of the stock held by minority stockholders of a subsidiary should be accounted for by the __________________________________ method.

Accepted Answer

purchase

Question 2

When a parent sells a portion of its common stock holdings in a subsidiary and when the shares owned were acquired in block acquisitions, the theoretically preferred method of relieving the investment account is the ____________________ __________________________ method.

Accepted Answer

average cost

Question 3

When a parent sells a portion of its common stock holdings in a subsidiary at a gain, the gain is to be credited to_____________________________________________.

Accepted Answer

income

Question 4

When a parent sells a portion of its common stock holdings in a subsidiary at a loss, the loss is to be charged to ___________________________________________.

Accepted Answer

The answer of When a parent sells a portion of...

Question 5

Under the _____________________________________________ concept, an increase or a decrease in a parent's interest in the subsidiary's net assets at book value as a result of the issuance of additional common shares by a subsidiary is credited or debited, respectively, to income.

Accepted Answer

The answer of Under the _____________________________________________ concept, an increase or...

Question 6

Under the ___________________________________________ concept, an increase or a decrease in a parent's interest in the subsidiary's net assets at book value as a result of the issuance of additional common shares by a subsidiary is credited or debited, respectively, to Additional Paid-in Capital.

Accepted Answer

The answer of Under the ___________________________________________ concept, an increase or...

Question 7

If a subsidiary issues additional common shares to the public at more than the current book value per share of the subsidiary's common stock, the parent's total dollar interest in the subsidiary's _________________________________________ is __________________________________________.

Accepted Answer

The answer of If a subsidiary issues additional common shares...

Question 8

The purchase method must be used to account for the acquisition of noncontroling interests.

Accepted Answer

Under the purchase method, the acquiring company records the investment at its fair value and recognizes any noncontrolling interest in the acquiree as a separate component of equity.

Question 9

If 90% of a company's outstanding common shares are obtained in a business combination properly accounted for as a purchase, the acquisition of the remaining shares may be accounted for as a pooling of interests.

Accepted Answer

In a business combination accounted for as a purchase (now referred to under US GAAP as an acquisition), subsequent acquisition of the remaining shares continues to be accounted for under the acquisition method. The pooling of interests method was eliminated for business combinations initiated after June 30, 2001, by the Financial Accounting Standards Board (FASB).

Question 10

When a subsidiary pays less than book value to acquire the minority interest, the parent's total dollar interest in the subsidiary's net assets at their book value is increased.

Accepted Answer

When a subsidiary pays less than book value to acquire the minority interest, it means the acquisition cost is lower than the proportionate share of the subsidiary's net assets. This results in an increase in the parent's total dollar interest in the subsidiary's net assets at their book value, as the parent effectively gains a larger share of the net assets without an increase in the reported book value of those assets.

Question 11

When a subsidiary pays more than book value to acquire the noncontrolling interest, an adjustment must be made to the carrying value of the parent's Investment in Subsidiary account.

Accepted Answer

The answer of When a subsidiary pays more than book...

Question 12

When a parent acquires the noncontrolling interest of a partially owned subsidiary, no change is made to the total carrying value of the investment; only a reclassification of amounts among the components of the major conceptual elements is made.

Accepted Answer

The answer of When a parent acquires the noncontrolling interest...

Question 13

When a parent sells a portion of its common stock holdings in a subsidiary, the accounting issue is whether the Investment account should be updated under the equity method to the date of the disposal.

Accepted Answer

The answer of When a parent sells a portion of...

Question 14

When a parent sells a portion of its common stock holdings in a subsidiary at a gain, the gain must be reported in income in the year of the disposal.

Accepted Answer

When a parent sells a portion of its common stock holdings in a subsidiary at a gain, the gain is recognized and reported in the income statement of the parent company in the year the sale occurs. This is because the transaction represents a realized gain from the parent's perspective.

Question 15

Under the parent company concept, the issuance of additional common stock by a subsidiary at more than book value results in a gain to the parent that must be reported in the consolidated income statement.

Accepted Answer

Under the parent company concept, the issuance of additional common stock by a subsidiary at more than book value results in a gain to the parent that must be reported in the consolidated income statement. This is because the parent company is considered to own a proportionate share of the subsidiary's net assets, and therefore, any increase in the subsidiary's net assets results in an increase in the parent company's net assets.

Question 16

When a subsidiary issues additional common stock at less than book value, the parent's equity in the subsidiary's net assets at book value increases.

Accepted Answer

When a subsidiary issues additional common stock at less than book value, it dilutes the parent company's ownership percentage in the subsidiary, leading to a decrease in the parent's equity in the subsidiary's net assets at book value.

Question 17

When a subsidiary issues additional common stock at more or less than book value, the parent's equity in the subsidiary's net assets at book value is unchanged under the economic unit concept.

Accepted Answer

The answer of When a subsidiary issues additional common stock...

Question 18

Intercompany dividends would not be reported in a consolidated statement of cash flows.

Accepted Answer

In consolidated financial statements, intercompany dividends are eliminated because they are considered internal transactions and do not impact the cash flow of the consolidated entity as a whole.

Question 19

In a consolidated statement of cash flows using the indirect format, the parent's amortization of cost in excess of book value is not reported.

Accepted Answer

The answer of In a consolidated statement of cash flows...

Question 20

In a consolidated statement of cash flows using the indirect format, an amount is reported for the noncontrolling interest when the subsidiary is partially owned.

Accepted Answer

In a consolidated statement of cash flows, the noncontrolling interest is considered when adjusting net income to reconcile to net cash provided by operating activities, reflecting the portion of income attributable to minority shareholders.

Quiz 11: Changes in a Parents Ownership Interest, Statement of Cash Flows, & Earnings Per Share