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CH 3 Multiple Choice Questions

CH 3 Multiple Choice Questions - Multiple Choice Questions...

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Multiple Choice Questions Items 1 through 4 are based on the following information. On January 1, 2010, Parkway Corporation acquired all of the outstanding common stock of Shaw Company for $3,650,000 cash. On that date, Shaw’s net assets had a book value of $2,800,000. Equipment with a 10- year life was undervalued by $260,000 in Shaw’s financial records. Goodwill resulting from this combination equals $590,000. Shaw reported net income of $620,000 in 2010, $700,000 in 2011, and $630,000 in 2012. Dividends of $300,000 were declared and paid in each of the three years. Select account balances as of December 31, 2012 for the two companies are: 1. For each of the three methods discussed in the chapter, what should be the Investment in Shaw Company account balance in the records of Parkway Corporation at December 31, 2012? Partial Initial Equity Equity Value Method Method Method A. $4,622,000 $3,650,000 $4,700,000 B. $4,318,000 $4,370,000 $3,650,000 C. $4,622,000 $4,700,000 $3,650,000 D. $4,700,000 $4,700,000 $3,650,000 E. $4,648,000 $4,700,000 $2,750,000 2. What is consolidated net income for 2012 if the parent company uses the partial equity method? 3. What is consolidated retained earnings at January 1, 2012 if the parent company is using the equity method?
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4. What would Parkway’s retained earnings be at January 1, 2012 if the parent company had used the partial equity method? 5. When testing goodwill for impairment, the appropriate level of testing is at the A. Consolidated entity level B. Parent company level C. Operating unit level D. Subsidiary company level E. Reporting unit level 6. Powell Company buys all of the outstanding common shares of South Bay Company on January 1, 2011 for $1,500,000 cash. This price resulted in goodwill of $300,000. If the subsidiary earns sufficiently high profits over the next two years, Powell will be required to pay South Bay’s previous owners an additional $450,000 cash on January 1, 2013. How should Powell report the contingent consideration on January 1, 2011?
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