Chapter 4 - 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? a. a debit for a subsidiary loss and a credit for dividends received b. a credit for subsidiary income and a debit for dividends received c. a debit for subsidiary dividends received and a credit for a subsidiary loss d. a credit for a subsidiary loss and a credit for dividends received 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? a. The parent corporation must still prepare consolidated financial statements for the economic entity. b. The parent corporation must stop using the equity method of accounting for the subsidiary and start using the cost method. c. The parent company may continue to use the equity method but the subsidiary cannot be consolidated. d. The parent company would suspend the operation of the Investment account until notified by the bankruptcy court that the subsidiary has emerged from bankruptcy. 76
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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 $ 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. 4. What amount of Inventory will be reported? a. $170,000 b. $169,000 c. $186,500 d. $192,000 5. What amount of Goodwill will be reported? a. $10,500
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This note was uploaded on 10/31/2010 for the course ADEM CONT 3010 taught by Professor Roth during the Spring '10 term at UPR Bayamon.

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Chapter 4 - Chapter 4 Test Bank CONSOLIDATION TECHNIQUES...

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