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Chapter9ed08 - Chapter 8 Test Bank CONSOLIDATIONS CHANGES...

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Chapter 8 Test Bank CONSOLIDATIONS - CHANGES IN OWNERSHIP INTERESTS Multiple Choice Questions LO1 1. Which of the following is correct? The direct sale of additional shares to 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 Use the following information in answering questions 2 and 3. On December 31, 2006, Giant-Petrel Corporation’s Investment in Penguin Corporation account had a balance of $525,000. The balance consisted of 80% of Penguin’s $600,000 stockholders’ equity on that date and $45,000 of goodwill. On January 2, 2007, Penguin increased its outstanding common stock from 15,000 to 18,000 shares. LO1 2. Assume that Penguin sold the additional 3,000 shares directly to Giant-Petrel for $150,000 on January 2, 2007. Giant-Petrel’s percentage ownership in Penguin immediately after the purchase of the additional stock is: LO1 3. Assume instead that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2, 2007. Giant- Petrel’s percentage ownership immediately after the sale of stock would be: 188
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Use the following information in answering questions 4 and 5. Bristlebird Corporation purchased an 80% interest in Underbrush Corporation on July 1, 2005 at its book value, and on January 1, 2006 its Investment in Underbrush account was $300,000, equal to its book value. Underbrush’s net income for 2006 was $99,000; no dividends were declared. On March 1, 2006, Bristlebird reduced its interest in Underbrush by selling a 20% interest, one-fourth of its investment, for $84,000. LO1 4. If Bristlebird uses a “beginning-of-the-year” sale assumption, its gain on sale and income from Underbrush for 2006 will be: Gain on Sale Income from Underbrush LO1 5. If Bristlebird uses the “actual-sale-date” sales assumption, its gain on the sale and income from Underbrush for 2006 will be: Gain on Sale Income from Underbrush a. $3,800 $59,400 b. $3,800 $62,700 c. $6,000 $59,400 d. $6,000 $62,700 LO1 6. On January 1, 2006, Finch Corporation owned a 90% interest in Nest Corporation at which time the Investment in Nest account had a balance of $350,000, which was 90% of Nest’s $370,000 in stockholders’ equity and $17,000 of goodwill. During 2006, Nest had income of $35,000 and paid dividends of $3,000 on June 1 and another $3,000 on November 1. On May 1, 2006, Finch sold one-fifth of its interest in Nest for $92,000. If the “beginning-of-the-period” sales assumption is used, the balance in the Investment in Nest account on December 31, 2006 is:
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