Chapter9ed11 - Chapter 11 Test Bank CONSOLIDATION THEORIES...

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Chapter 11 Test Bank CONSOLIDATION THEORIES, PUSH-DOWN ACCOUNTING, AND CORPORATE JOINT VENTURES Multiple Choice Questions Use the following information in answering Questions 1 and 2. Pasfield Corporation acquired a 90% interest in Santini Corporation for $90,000 cash on January 1, 2005. The following information is available for Santini at that time. Book Value Fair Value Difference Current assets $ 40,000 $ 50,000 $ 10,000 Plant assets 60,000 75,000 15,000 Liabilities ( 50,000 ) ( 50,000 ) 0 Net assets $ 50,000 $ 75,000 LO1 1. Under the entity theory, a consolidated balance sheet prepared immediately after the business combination will show goodwill of: a. $15,000. b. $22,500. c. $25,000. d. $32,500. LO1 2. Under the entity theory, a consolidated balance sheet prepared immediately after the business combination will show minority interest of: 7
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LO1 3. Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg’s stockholders’ equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings. The fair values of Sandberg’s net assets were equal to their recorded book values. At the time of acquisition, Pratt will record: Use the following information for Questions 4, 5, and 6. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1, 2005, when Sarabet’s stockholders’ equity consisted of $250,000 Common Stock and $50,000 Retained Earnings. The book values and fair values of Shelby’s assets and liabilities were equal when Pascoe acquired its interest. The separate incomes of Pascoe and Sarabet for 2005 were $600,000 and $100,000, respectively. Dividends declared and paid during 2005 were $250,000 for Pascoe and $50,000 for Sarabet. Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. LO1 4. Goodwill will be reported in the December 31, 2005 consolidated balance sheet at: LO1 5. Minority interest income will be reported in the 2005 consolidated income statement at: a. $ 5,000. b. $ 6,000. c. $ 8,000. d. $10,000. 8
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LO1 6. Pascoe’s income from Sarabet under the equity method for 2005 will be: Use the following information for Questions 7, 8, 9, and 10. Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2005, at a cost of $400,000. The stockholders’ equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders’ land was $10,000, and fair value was $22,000. The book value of Sanders’ inventory was $30,000, and fair value was $25,000. LO1
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