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1Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallAdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)Chapter4ConsolidatedTechniquesandProceduresMultipleChoiceQuestions1)WhichofthefollowingwillbedebitedtotheInvestmentaccountwhentheequitymethodisused?A)InvesteenetlossesB)InvesteenetprofitsC)InvesteedeclarationofdividendsD)DepreciationofexcesspurchasecostattributabletoinvesteeequipmentAnswer:BObjective:LO1Difficulty:Easy2)Aparentcompanyusestheequitymethodtoaccountforitswholly-ownedsubsidiary.WhichofthefollowingwillbeacorrectprocedurefortheInvestmentaccount?A)AdebitforasubsidiarylossandacreditfordividendsreceivedB)AcreditforsubsidiaryincomeandadebitfordividendsreceivedC)AdebitforsubsidiarydividendsreceivedandacreditforasubsidiarylossD)AcreditforasubsidiarylossandacreditfordividendsreceivedAnswer:DObjective:LO1Difficulty:Easy3)Aparentcorporationowns55%oftheoutstandingvotingcommonstockofonedomesticsubsidiary.Theparenthascontroloverthesubsidiary.Whichofthefollowingstatementsiscorrect?A)Theparentcorporationmustprepareconsolidatedfinancialstatementsfortheeconomicentity.B)Theparentcorporationmustusethefairvaluemethod.C)Theparentcompanymayusetheequitymethodbutthesubsidiarycannotbeconsolidated.D)Theparentcompanycanusetheequitymethodorthefairvalue/costmethod.Answer:AObjective:LO1Difficulty:Easy2Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallUsethefollowinginformationtoanswerquestion(s)below.OnJanuary1,2011,PunchCorporationpurchased80%ofthecommonstockofSoopyCo.Separatebalancesheetdataforthecompaniesattheacquisitiondate(aftertheacquisition)aregivenbelow:PunchSoopyCash$34,000$206,000AccountsReceivable144,00026,000Inventory132,00038,000Land68,00032,000Plantassets700,000300,000Accum.Depreciation(240,000)(60,000)InvestmentinSoopy392,000Totalassets$1,230,000$542,000Accountspayable$206,000$142,000Capitalstock800,000300,000Retainedearnings224,000100,000Totalliabilities&equities$1,230,000$542,000Atthedateoftheacquisition,thebookvaluesofSoopy'snetassetswereequaltothefairvalueexceptforSoopy'sinventory,whichhadafairvalueof$60,000.Determinebelowwhattheconsolidatedbalancewouldbeforeachoftherequestedaccounts.4)WhatamountofInventorywillbereported?A)$170,000B)$169,000C)$186,500D)$192,000Answer:DExplanation:D)Combinedinventoryof$132,000plus$38,000plustheexcessofthefairvalueoverthebookvalueof$22,000Objective:LO1Difficulty:Moderate5)WhatamountofGoodwillwillbereported?A)$54,400B)$68,000C)$72,000D)$90,000Answer:BExplanation:B)InvestmentinSoopy($392,000)/ownershippercentage(80%)=impliedfairvalueofSoopy($490,000)-Soopy'sunderlyingbookvalue($400,000)-theexcesscostoverbookvalueallocatedtoinventory($22,000)=$68,000allocatedtogoodwill.Objective:LO1Difficulty:Moderate3Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall6)Whatamountoftotalliabilitieswillbereported?A)$206,000B)$278,400C)$319,600D)$348,000Answer:DObjective:LO1Difficulty:Moderate7)Whatisthereportedamountforthenoncontrollinginterest?A)$80,000B)$84,400C)$98,000D)$122,500Answer:CExplanation:C)ImpliedvalueofSoopy=$392,000/80%=$490,000×20%=$98,000Objective:LO1Difficulty:Moderate8)WhatistheamountofconsolidatedRetainedEarnings?A)$224,000B)$259,200C)$304,000D)$324,000Answer:AExplanation:A)Theparent'sRetainedEarningsistheamountofconsolidatedRetainedEarningsObjective:LO1Difficulty:Moderate9)Whatistheamountoftotalassets?A)$1,380,000B)$1,402,000C)$1,470,000D)$1,875,000Answer:CExplanation:C)Cash$240,000AccountsReceivable170,000Inventory$132,000+$38,000+$22,000=192,000Land100,000Plantassets-net700,000Goodwill68,000Totalassets$1,470,000Objective:LO1Difficulty:Moderate4Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall10)BirdCorporationhasseveralsubsidiariesthatareincludedinitsconsolidatedfinancialstatementsandseveralotherinvestmentsincorporationsthatarenotconsolidated.Initsyear-endtrialbalance,thefollowingintercompanybalancesappear.OstrichCorporationistheunconsolidatedcompany;therestareconsolidated.DuefromPheasantCorporation$25,000DuefromTurkeyCorporation5,000CashadvancetoSkylarkCompany8,000CashadvancetoStarling15,000CurrentreceivablefromOstrich10,000WhatamountshouldBirdreportasintercompanyreceivablesonitsconsolidatedbalancesheet?A)$0B)$10,000C)$30,000D)$63,000Answer:BExplanation:B)Intercompanyreceivablesandpayablesfromunconsolidatedsubsidiarieswouldnotbeeliminated.Objective:LO2Difficulty:Moderate11)Whenperformingaconsolidation,ifthebalancesheetdoesnotbalance,A)thatindicatesthattheInvestmentinSubsidiaryaccountontheparent'sbooksshouldnotbeadjustedto-0-,becausethereisexcessvaluerepresentedintheinvestment.B)itisusuallybecauseofthenoncontrollinginterest,astheseamountsdonotappearonthecompanies'generalledgers.C)thedebitandcredittotalsoftheadjusting/eliminatingcolumnsoftheconsolidationworkingpapershouldbecheckedtoconfirmthattheybalance,andifso,thenthereisnoneedtochecktheindividuallineitems.D)theamountthatitisoffwillalwaysequalthenoncontrollinginterestinthecurrentyearnetincomeofthesubsidiary.Answer:BObjective:LO3Difficulty:Moderate12)Atthebeginningof2011,ParlingFoodSe