Chap006 - Multiple Choice Questions 1 On January 1 2003 Riley Corp acquired some of the outstanding bonds of one of its subsidiaries The bonds had

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Unformatted text preview: Multiple Choice Questions 1. On January 1, 2003, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2003? A) The difference is added to the carrying value of the debt. B) The difference is deducted from the carrying value of the debt. C) The difference is treated as a loss from the extinguishment of the debt. D) The difference is treated as a gain from the extinguishment of the debt. E) The difference does not influence the consolidated financial statements. Answer: D Difficulty: Easy 2. Safire Corp. recently acquired $500,000 of the bonds of Regency Co., one of its subsidiaries, paying more than the carrying value of the bonds. To whom would the loss probably be attributed using the face value method? A) To Regency because the bonds were issued by Regency. B) The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt. C) The loss should be amortized over the life of the bonds and need not be attributed to either party. D) The loss should be deferred until it can be determined to whom the attribution can be made. E) To Safire because Safire is the controlling party in the business combination Answer: B Difficulty: Easy 3. Which one of the following characteristics of preferred stock would make the stock resemble a liability? A) The preferred stock is callable. B) The preferred stock is convertible. C) The preferred stock has warrants attached. D) The preferred stock is noncumulative. E) The preferred stock is nonparticipating. Answer: A Difficulty: Medium 4. Which one of the following characteristics of preferred stock would make the stock resemble an equity? A) The preferred stock is callable. B) The preferred stock is convertible. C) The preferred stock is redeemable. D) The preferred stock is noncumulative. E) The preferred stock is nonparticipating. Answer: B Difficulty: Medium 5. Where do dividends paid to the noncontrolling interest of a subsidiary appear on a consolidated statement of cash flows ? A) Cash flows from operating activities B) Cash flows from investing activities C) Cash flows from financing activities D) Supplemental schedule of noncash investing and financing activities E) They do not appear on the consolidated statement of cash flows . Answer: C Difficulty: Easy 6. Where do dividends paid by a subsidiary to the parent company appear on a consolidated statement of cash flows ? A) Cash flows from operating activities B) Cash flows from investing activities C) Cash flows from financing activities D) Supplemental schedule of noncash investing and financing activities E) They do not appear on the consolidated statement of cash flows ....
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This note was uploaded on 02/15/2012 for the course ACCOUNTING 101 taught by Professor Mrhot during the Spring '11 term at Clarion.

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Chap006 - Multiple Choice Questions 1 On January 1 2003 Riley Corp acquired some of the outstanding bonds of one of its subsidiaries The bonds had

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