江西财经大学高级财务会计国际学院题库chapter-08.doc

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)
Chapter 8 Consolidations - Changes in Ownership Interests

Multiple Choice Questions

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Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)
Chapter 8 Consolidations - Changes in Ownership Interests

Multiple Choice Questions

1) 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.
Answer: D
Objective: LO3
Difficulty: Moderate

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.

2) 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%
Answer: C
Explanation: C) (Parent had 80% of 15,000 shares, or 12,000 shares. They now hold 15,000 of 18,000 shares) = 83.33%
Objective: LO3
Difficulty: Moderate

3) 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%.
Answer: A
Explanation: A) (12,000 shares/18,000 shares) = 66.67%
Objective: LO3
Difficulty: Moderate
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.

4) If Bird uses a "beginning-of-the-year" sale assumption, its gain on sale and income from Brush for 2011 will be
A)
Gain on Sale
Income from Brush
$5,700
$59,400

B)
Gain on Sale
Income from Brush
$5,700
$62,700

C)
Gain on Sale
Income from Brush
$9,000
$59,40

D)
Gain on Sale
Income from Brush
$9,000
$62,70

Answer: C
Explanation: 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
Objective: LO2
Difficulty: Moderate
5) If Bird uses the "actual-sale-date" sales assumption, its gain on the sale and income from Brush for 2011 will be
A)
Gain on Sale
Income from Brush
$5,700
$59,400

B)
Gain on Sale
Income from Brush
$5,700
$62,700

C)
Gain on Sale
Income from Brush
$21,360
$59,400

D)
Gain on Sale
Income from Brush
$21,360
$62,700

Answer: B
Explanation: 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
Objective: LO2
Difficulty: Moderate

6) 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.
Answer: C
Objective: LO1
Difficulty: Moderate
7) 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.
Answer: D
Objective: LO3
Difficulty: Moderate

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:

Capital stock, $10 par value $3,000,000
Retained Earnings 2,400,000
Total Stockholders' Equity $5,400,000

On January 1, 2011, Savannah issues 80,000 new shares of common stock to Goldberg for $16 each.

8) 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%
Answer: A
Explanation: A) (210,000 + 80,000)/380,000
Objective: LO3
Difficulty: Moderate
9) 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.
Answer: B
Explanation: 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
Objective: LO3
Difficulty: Difficult

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:

12/31/10 12/31/11
Capital stock, $10 par $600,000 $600,000
Additional paid-in capital 30,000 30,000
Retained Earnings 270,000 420,000
Total stockholders' equity $900,000 $1,050,000

On January 1, 2012, SOS sold 10,000 new shares of its $10 par value common stock for $45 per share.

10) 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
Answer: B
Explanation: 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
Objective: LO3
Difficulty: Moderate
11) 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.
Answer: B
Explanation: 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
Objective: LO3
Difficulty: Moderate

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.
Answer: C
Objective: LO3
Difficulty: Moderate

13) 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.
Answer: B
Objective: LO3
Difficulty: Easy

14) 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.
Answer: D
Objective: LO3
Difficulty: Moderate
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.

15) Noncontrolling interest share for 2010 is
A) $21,000.
B) $32,400.
C) $36,000.
D) $50,000.
Answer: A
Explanation: A) ($120,000 × 7/12 × 30%)
Objective: LO2
Difficulty: Moderate

16) Preacquisition income for 2010 is
A) $50,000.
B) $35,000.
C) $44,000.
D) $36,000.
Answer: A
Explanation: A) ($120,000 × 5/12)
Objective: LO2
Difficulty: Moderate

17) Anthony Company declared and paid $20,000 of dividends during 2011. The schedule of dividends follows:

Date Dividend Declared & Paid Amount Paid
March 31, 2011 $5,000
June 30, 2011 $5,000
September 30, 2011 $5,000
December 31, 2011 $5,000

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
Answer: B
Objective: LO1
Difficulty: Moderate
18) 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.
Answer: D
Objective: LO1
Difficulty: Moderate

19) 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.
Answer: B
Objective: LO3
Difficulty: Moderate

20) 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.
Answer: B
Objective: LO3
Difficulty: Moderate
Exercises

1) At December 31, 2010, the stockholders' equity of Gost Corporation and its 80%-owned subsidiary, Tree Corporation, are as follows:

Gost Tree
Common stock, $10 par value $20,000 $12,000
Retained earnings 8,000 6,000
Totals $28,000 $18,000

Gost's Investment in Tree is equal to 80 percent of Tree's book value. Tree Corporation issued 225 additional shares of common stock directly to Gost on January 1, 2011 at $18 per share.

Required:
1. Compute the balance in Gost's Investment in Tree account on January 1, 2011 after the new investment is recorded.

2. Determine the increase or decrease in goodwill from Gost's new investment in the 225 Tree shares. Use four decimal places for the ownership percentage. Assume the fair values of Tree's assets and liabilities are equal to book values.
Answer:
Requirement 1
Cost of investment ($18,000 × 80%) $14,400
Plus: Purchase of 225 Tree shares at $18 on January 1, 2011 4,050
Investment account balance $18,450

Requirement 2
Tree's stockholders' equity at January 1, 2011 $18,000
Plus: Additional capital from the shares