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Chapter9ed04 - Chapter 4 Test Bank CONSOLIDATION TECHNIQUES...

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Chapter 4 Test Bank CONSOLIDATION TECHNIQUES AND PROCEDURES Multiple Choice Questions LO1 1. Which of the following will be debited to the Investment account when the equity method is used? a. b. investee net losses investee net profits c. d. investee declaration of dividends depreciation of excess purchase cost attributable to investee equipment LO1 2. A parent company uses the equity method to account for its wholly owned subsidiary. The company correctly uses this method and has fully reflected all items of subsidiary gain, loss, income, deductions, and dividends. If the parent company is preparing the consolidation working papers, which one of the following will be a correct working paper procedure for the Investment account? LO1 3. A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary but does not control the subsidiary because it is in bankruptcy. Which of the following statements is correct? 76
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LO1**& Use the following information to answer questions 4 through 9. On January 1, 2005, Finch Corporation purchased 75% of the common stock of Grass Co. Separate balance sheet data for the companies at the combination date are given below: Finch Grass Cash $ 24,000 $ 206,000 Accounts Receivable 144,000 26,000 Inventory 132,000 38,000 Land 68,000 32,000 Plant assets 700,000 300,000 Accum. Depreciation ( 240,000 ) ( 60,000 ) Investment in Lapp 392,000 Total assets $ 1,230,000 $ 542,000 Accounts payable $ 206,000 $ 142,000 Capital stock 800,000 300,000 Retained earnings 224,000 100,000 Total liabilities & equities $ 1,230,000 $ 542,000 At the date of combination, the book values of Grass’s net assets were equal to the fair value except for Grass’s inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts.
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