Question 1

Use the following information to answer the question(s)below.
Bird Corporation purchased an 80% interest in Brush Corporation on July 1,2010 at its book value,and on January 1,2011 its Investment in Brush account was $300,000,equal to its book value.Brush's net income for 2011 was $99,000 (earned uniformly);no dividends were declared.On March 1,2011,Bird reduced its interest in Brush by selling a 20% interest,one-fourth of its investment,for $84,000.
-If Bird uses the "actual-sale-date" sales assumption,its gain on the sale and income from Brush for 2011 will be
A) 
B) 
C) 
D)

Accepted Answer

B)
Selling price $84,000
Book value of interest sold:
Beginning balance $300,000
Income for 2 months
$99,000 x 1/6 × 80% = 13,200
Adjusted book value 313,200
Percentage of interest sold 1/4
Book value applied 78,300 78,300
Gain on sale $5,700
Income from Brush:
Jan 1 - Mar 1 $99,000 × 2/12 × 80% = $13,200
Mar 1 - Dec 31 $99,000 × 10/12 × 60% = 49,500
Income from Brush $62,700

Question 2

Use the following information to answer the question(s)below.
Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31,2010.A summary of the stockholders' equity for SOS at the end of 2010 and 2011 is as follows:
  On January 1,2012,SOS sold 10,000 new shares of its $10 par value common stock for $45 per share.
-If SOS sold the additional shares to the general public,Great's Investment in SOS account after the sale would be ________.(Use four decimal places. )
A)$945,000
B)$1,157,100
C)$1,225,000
D)$1,245,000

Accepted Answer

B)
SOS's stockholders' equity prior to the stock issuance $1,050,000
Plus: Capital received from new stock issued 450,000
New stockholders' equity $1,500,000
Great's ownership (54,000/(60,000 + 10,000))77.14%
Great's adjusted investment in SOS $1,157,100

Question 3

Use the following information to answer the question(s)below.
Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31,2010,and Goldberg's Investment in Savannah account had a balance of $3,900,000.Savannah's stockholders' equity on this date was as follows:
  On January 1,2011,Savannah issues 80,000 new shares of common stock to Goldberg for $16 each.
-What is Goldberg's percentage ownership in Savannah after Savannah issues its stock to Goldberg?
A)76.32%
B)80.43%
C)82.57%
D)83.43%

Accepted Answer

A)(210,000 + 80,000)/380,000

Question 4

Use the following information to answer the question(s)below.
On December 31,2010,Giant Corporation's Investment in Penguin Corporation account had a balance of $500,000.The balance consisted of 80% of Penguin's $625,000 stockholders' equity on that date.Giant owns 80% of Penguin.On January 2,2011,Penguin increased its outstanding common stock from 15,000 to 18,000 shares.
-Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2,2011.Giant's percentage ownership immediately after the sale of additional stock would be
A)66-2/3%.
B)75%.
C)80%.
D)83-1/3%.

Accepted Answer

A)(12,000 shares/18,000 shares)= 66.67%

Question 5

Use the following information to answer the question(s)below.
On December 31,2010,Giant Corporation's Investment in Penguin Corporation account had a balance of $500,000.The balance consisted of 80% of Penguin's $625,000 stockholders' equity on that date.Giant owns 80% of Penguin.On January 2,2011,Penguin increased its outstanding common stock from 15,000 to 18,000 shares.
-Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2011.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is
A)66-2/3%.
B)80%.
C)83-1/3%.
D)86-2/3%

Accepted Answer

C)(Parent had 80% of 15,000 shares,or 12,000 shares.They now hold 15,000 of 18,000 shares)= 83.33%

Question 6

On April 1,2011,Paramount Company acquires 100% of the outstanding stock of Yester Company on the open market.Paramount and Yester have December 31 fiscal year ends.Under GAAP,a consolidated income statement for the year ending December 31,2011,will include
A)100 percent of the revenues and expenses in 2011 of Yester Company after January 1,2011.
B)no revenues and expenses in 2011 of Yester Company.
C)80 percent of the revenues and expenses in 2011 of Yester Company.
D)100 percent of the revenues and expenses in 2011 of Yester Company after April 1,2011.

Accepted Answer

According to the acquisition date method, when a company acquires another company, the acquiring company consolidates the financial statements of both companies from the date of acquisition onwards. Therefore, in this case, the consolidated income statement for the year ending December 31, 2011, will include 100% of the revenues and expenses of Yester Company after April 1, 2011, which is the date of acquisition.

Question 7

The acquisition of treasury stock by a subsidiary from noncontrolling shareholders at a price above book value
A)decreases the parent's share of subsidiary book value and decreases the parent's ownership percentage.
B)decreases the parent's share of subsidiary book value and increases the parent's ownership percentage.
C)increases the parent's share of subsidiary book value and decreases the parent's ownership percentage.
D)increases the parent's share of subsidiary book value and increases the parent's ownership percentage.

Accepted Answer

When a subsidiary acquires its own stock from noncontrolling shareholders at a price above book value, it reduces the number of outstanding shares and increases earnings per share. However, it also decreases the subsidiary's equity and book value. Since the parent company's ownership percentage is based on book value, it also decreases the parent's ownership percentage. Therefore, the parent's share of subsidiary book value would decrease while its ownership percentage would increase.

Question 8

Use the following information to answer the question(s)below.
Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31,2010.A summary of the stockholders' equity for SOS at the end of 2010 and 2011 is as follows:
  On January 1,2012,SOS sold 10,000 new shares of its $10 par value common stock for $45 per share.
-If SOS sold the additional shares directly to Great,Great's Investment in SOS account after the sale would be
A)$1,350,000.
B)$1,395,000.
C)$1,425,000.
D)$1,500,000.

Accepted Answer

B)
Investment balance at 12/31/2011
($1,050,000 × 90%)$945,000
Additional investment (10,000 shares × $45)450,000
Investment account balance,12/31/2011 $1,395,000

Question 9

Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?
A)Utah Company records a gain on sale of stock.
B)Utah Company increases additional paid-in capital.
C)Utah Company decreases additional paid-in capital.
D)Utah Company assigns any excess cost over book value acquired to increase undervalued identifiable assets or goodwill as appropriate.

Accepted Answer

When a parent company buys additional shares from a subsidiary company at a price above book value per share, the excess cost over book value acquired is assigned to increase undervalued identifiable assets or goodwill as appropriate. This is because the parent company already holds a controlling interest in the subsidiary, so the purchase does not result in a gain or loss on sale of stock. It also does not impact the additional paid-in capital. Therefore, the best answer is D.

Question 10

Anthony Company declared and paid $20,000 of dividends during 2011.The schedule of dividends follows:  Anthony Company was acquired on June 1,2011 by Google Company.Google acquired 100 percent of Anthony Company.Both companies have a December 31 fiscal year end.What is the amount of preacquisition dividends in 2011?
A)0
B)$5,000
C)$10,000
D)$15,000

Accepted Answer

The answer of Anthony Company declared and paid $20,000 of...

Question 11

If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock ownership (ratably),then
A)there will be an adjustment to additional paid-in capital if the stock is sold above book value.
B)there will be no adjustment to additional paid-in capital regardless whether the stock is sold above or below book value.
C)there will be an adjustment to additional paid-in capital if the stock is sold below book value.
D)there will be the elimination of a gain.

Accepted Answer

The answer of If a parent company and outside investors...

Question 12

Consider a sale of stock by a subsidiary to parties outside the consolidated entity.This transaction requires an adjustment of the parent's investment and additional paid-in capital accounts except when
A)the shares are sold below book value per share.
B)the shares are sold above book value per share.
C)the shares are sold at book value per share.
D)All of the above are correct.

Accepted Answer

When the shares are sold at book value per share, there is no gain or loss on the sale and therefore no adjustment is needed in the parent's investment and additional paid-in capital accounts. However, if the shares are sold above or below book value per share, an adjustment is required to reflect the gain or loss on the sale.

Question 13

Use the following information to answer the question(s)below.
Bower Corporation purchased a 70% interest in Stage Corporation on June 1,2010 at a purchase price of $350,000.On June 1,2010,the book values of Stage's assets and liabilities were equal to fair values.On June 1,2010,Stage's stockholders' equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings.All cost-book differentials were attributed to goodwill.
During 2010,Stage earned $120,000 of net income,earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1.
-Preacquisition income for 2010 is
A)$50,000.
B)$35,000.
C)$44,000.
D)$36,000.

Accepted Answer

A)($120,000 × 5/12)

Question 14

Jersey Company acquired 90% of York Company on April 1,2011.Both Jersey Company and York Company have December 31 fiscal year ends.Under current GAAP,which of the following statements is false?
A)The consolidated income statement in 2011 should not include York's revenues and expenses prior to April 1,2011.
B)When preparing consolidating work papers in 2011,York's revenues prior to April 1,2011 are eliminated.
C)York's earnings prior to April 1,2011 should appear as a deduction on the consolidated income statement in 2011.
D)The consolidated income statement in 2011 should include York's revenues and expenses after April 1,2011.

Accepted Answer

York's earnings prior to April 1, 2011, should not appear as a deduction on the consolidated income statement. Only the revenues and expenses from the acquisition date forward are included in the consolidated financial statements.

Question 15

Use the following information to answer the question(s)below.
Bower Corporation purchased a 70% interest in Stage Corporation on June 1,2010 at a purchase price of $350,000.On June 1,2010,the book values of Stage's assets and liabilities were equal to fair values.On June 1,2010,Stage's stockholders' equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings.All cost-book differentials were attributed to goodwill.
During 2010,Stage earned $120,000 of net income,earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1.
-Noncontrolling interest share for 2010 is
A)$21,000.
B)$32,400.
C)$36,000.
D)$50,000.

Accepted Answer

A)($120,000 × 7/12 × 30%)

Question 16

A 15% stock dividend by a subsidiary causes
A)the parent company investment account to decrease.
B)the parent company investment account to remain the same.
C)the parent company investment account to increase.
D)the noncontrolling interest equity to increase.

Accepted Answer

The answer of A 15% stock dividend by a subsidiary...

Question 17

Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary
A)decreases the parent's interest and decreases the noncontrolling shareholders' interest.
B)decreases the parent's interest and increases the noncontrolling shareholders' interest.
C)increases the parent's interest and increases the noncontrolling shareholders' interest.
D)increases the parent's interest and decreases the noncontrolling shareholders' interest.

Accepted Answer

The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary will increase the parent's interest because they now have more ownership in the subsidiary. However, since the sale is only to the parent company, the noncontrolling shareholders' interest will decrease because their ownership percentage has been diluted by the new shares issued to the parent company.

Question 18

A subsidiary split its stock 2 for 1.Which of the following statements is false?
A)A stock split does not affect the amount of net assets of the subsidiary.
B)A stock split does not affect parent and noncontrolling interest ownership percentages.
C)A stock split does not affect consolidation procedures.
D)A 2 for 1 stock split decreases the number of shares outstanding.

Accepted Answer

A 2 for 1 stock split actually increases the number of shares outstanding, not decreases. When a stock split occurs, the number of shares increases while the price per share decreases proportionally. This does not affect the net assets, ownership percentages, or consolidation procedures.

Question 19

Use the following information to answer the question(s)below.
Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31,2010,and Goldberg's Investment in Savannah account had a balance of $3,900,000.Savannah's stockholders' equity on this date was as follows:
  On January 1,2011,Savannah issues 80,000 new shares of common stock to Goldberg for $16 each.
-On January 1,2011,assume the fair values of Savannah's identifiable assets and liabilities equal book values.What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places. )
A)Increase goodwill $38,176.
B)Decrease goodwill $38,176.
C)Increase goodwill $384,000.
D)Decrease goodwill $384,000.

Accepted Answer

B)
Savannah's equity after the issuance of
the new shares ($5,400,000 + $1,280,000)$6,680,000
Goldberg's ownership percentage 76.32%
Goldberg's share of Savannah's equity now $5,098,176
Goldberg's previous share of Savannah's equity ($5,400,000 × 70%)3,780,000
Savannah's equity acquired in the purchase $1,318,176
Amount spent to acquire stock 1,280,000
Excess book value acquired over cost $ 38,176

Question 20

Use the following information to answer the question(s)below.
Bird Corporation purchased an 80% interest in Brush Corporation on July 1,2010 at its book value,and on January 1,2011 its Investment in Brush account was $300,000,equal to its book value.Brush's net income for 2011 was $99,000 (earned uniformly);no dividends were declared.On March 1,2011,Bird reduced its interest in Brush by selling a 20% interest,one-fourth of its investment,for $84,000.
-If Bird uses a "beginning-of-the-year" sale assumption,its gain on sale and income from Brush for 2011 will be
A) 
B) 
C) 
D)

Accepted Answer

C)
Selling price $84,000
Book value of interest sold
$300,000 × (20% / 80%)= 75,000
Gain on sale $9,000
Income from Brush
$99,000 × (80% - 20%)= $59,400

Quiz 8: Consolidations - Changes in Ownership Interests

On April 1,2011,Paramount Company acquires 100% of the outstanding stock of Yester Company on the open market.Paramount and Yester have December 31 fiscal year ends.Under GAAP,a consolidated income statement for the year ending December 31,2011,will include

The acquisition of treasury stock by a subsidiary from noncontrolling shareholders at a price above book value

Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?

If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock ownership (ratably) ,then

Consider a sale of stock by a subsidiary to parties outside the consolidated entity.This transaction requires an adjustment of the parent's investment and additional paid-in capital accounts except when

Jersey Company acquired 90% of York Company on April 1,2011.Both Jersey Company and York Company have December 31 fiscal year ends.Under current GAAP,which of the following statements is false?

A 15% stock dividend by a subsidiary causes

Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary

A subsidiary split its stock 2 for 1.Which of the following statements is false?