Practice Exam II

Practice Exam II - PRACTICE EXAM II ADVANCED ACCOUNTING...

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PRACTICE EXAM II ADVANCED ACCOUNTING SPRING 2008 MULTIPLE CHOICE 1. Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several years ago at a cost equal to book value and fair value. Nectar sells merchandise to Honeyeater for the first time in 2005. In computing income from the investee for 2005 under the equity method, Honeyeater uses the following equation: a. 40% of Nectar’s income less 100% of the unrealized profit in Honeyeater's ending inventory. b. 40% of Nectar’s income plus 100% of the unrealized profit in Honeyeater's ending inventory. c. 40% of Nectar’s income plus 40% of the unrealized profit in Honeyeater’s ending inventory. d. 40% of Nectar’s income less 40% of the unrealized profit in Honeyeater’s ending inventory. 2. In situations where there are routine inventory sales between parent companies and subsidiaries, the consolidation statements which of the following line items are indifferent by the nature of the sales being upstream and downstream a. Consolidated retained earnings b. Consolidated gross profit c. Noncontrolling interest expense d. Consolidated net income 3. During 2005, Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory items to Penguin for $84,000. The manufactured cost of the goods to Squid was $60,000. During 2005 Penguin resold one-third of this inventory to outside entities. Squid reported net income of $100,000 for 2005. Minority interest income that will appear in the consolidated income statement for 2005 is: a. $ 8,400. b. $ 9,200. c. $10,000. d. $10,800.
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4. Failure to eliminate intercompany sales would result in an overstatement of consolidated a. net income. b. gross profit. c. cost of sales. d. all of these. 5. Patek Company acquired an 80% interest in Sutton Company in 2007. In 2008 and 2009, Sutton reported net income of $300,000 and $360,000, respectively. During 2008, Sutton sold $60,000 of merchandise to Patek for a $15,000 profit. Patek sold the merchandise to outsiders during 2009 for $105,000. For consolidation purposes, what is the noncontrolling interest’s share of Sutton's 2008 and 2009 net income? a. $57,000 and $75,000. b. $60,000 and $72,000. c.
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Practice Exam II - PRACTICE EXAM II ADVANCED ACCOUNTING...

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