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Chapter9ed03 - Chapter 3 Test Bank AN INTRODUCTION TO...

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Chapter 3 Test Bank AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS Multiple Choice Questions LO1 1. What method must be used if FASB 94 prohibits full consolidation of a 70% owned subsidiary a. Cost method b. Liquidation value c. Market value d. *Equity method LO1 2. From the standpoint of accounting theory, which one of the following statements is the best one to support the preparation of consolidated financial statements? LO2 3. Penguin Corporation owns 90% of the outstanding voting stock of Crevice Company and Burrow Corporation owns the remaining 10% of Crevice’s voting stock. On the consolidated financial statements of Penguin Corporation and Subsidiary, Burrow is: LO2 4. A major motivation of FASB for Statement No. 94 was a. Temporary control was not disclosed b. An elimination off-balance sheet financing c. Situations where subsidiary control did not lie with the parent company. d. Risk of subsidiary legal reorganization or bankruptcy was not disclosed. 45
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LO2 5. Muttonbird Inc. has 90% ownership of Beach Co., but should exclude Beach under FASB 94 if: LO2 6. Subsequent to a purchase acquisition, parent company and consolidated financial statement amounts would not be the same for: a. Investments in unconsolidated subsidiaries b. Investments in consolidated subsidiaries c. Capital stock d. Ending retained earnings LO3 7. On June 1, 2005, Gull Company acquired 100% of the stock of Scrap Inc. On this date, Gull has Retained Earnings of $200,000 and Scrap has Retained Earnings of $100,000. On December 31, 2005, Gull has Retained Earnings of $240,000 and Scrap has Retained Earnings of $120,000. The amount of Retained Earnings that should appear in the December 31, 2005 consolidated balance sheet is: LO3 8.Scrubwren Corporation acquired a 100% interest in Heath Company for $1,780,000 when Heath had no liabilities. The book values and fair values of Heath's assets were: Book Value Fair Value Current assets $ 400,000 $ 700,000 Equipment 200,000 400,000 Land & buildings 600,000 800,000 Total assets $1,200,000 $1,900,000 Immediately following the acquisition, equipment will be included on the consolidated balance sheet at: 46
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