chap007 - Multiple Choice Questions Use the following to...

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Multiple Choice Questions Use the following to answer questions 1-3: Buckette Co. owned 60% of Shuvelle Corp. and 40% of Payle Corp., and Shuvelle owned 35% of Payle. 1. When Buckette prepared consolidated financial statements , it should include A) Shuvelle but not Payle. B) Payle but not Shuvelle. C) either Shuvelle or Payle. D) Shuvelle and Payle. E) neither Shuvelle nor Payle. Answer: D Difficulty: Easy 2. What is this pattern of ownership called? A) pyramid ownership B) a connecting affiliation C) mutual ownership D) an indirect affiliation E) an affiliated group Answer: B Difficulty: Easy 3. What percentage of Payle's income is attributed to Buckette's ownership interest? A) 100% B) 75% C) 61% D) 40% E) 74% Answer: C Difficulty: Medium
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4. D Corp. had investments, direct and indirect, in several subsidiaries: E Co. — a domestic firm in which D Corp. owned a 90% interest F Co. — a domestic firm in which D Corp. owned 60% and E Co. owned 30% G Co. — a domestic firm wholly owned by E Co. H Co. — a foreign subsidiary in which D Corp. owned a 90% interest I Co. — a domestic firm in which D Corp. owned 50% and G Co. owned 25% Which of these subsidiaries may be included in a consolidated income tax return ? A) E, F, G, H, and I B) E, G, H, and I C) E and F D) E, F, G, and H E) E, F, and G Answer: E Difficulty: Medium 5. Evanston Co. owned 60% of Montgomery Corp. Montgomery owned 75% of Noir Inc., and Noir owned 15% of Montgomery. This pattern of ownership would be called A) mutual ownership. B) direct control. C) indirect control. D) an affiliated group. E) a connecting affiliation. Answer: A Difficulty: Easy 6. In a tax-free purchase combination, A) the income tax basis for acquired assets and liabilities is adjusted to current fair market value. B) any goodwill created by the purchase may be amortized in calculating taxable income C) the subsidiary's assets and liabilities are assigned an income tax basis of zero dollars, so that they will have no future income tax consequences. D) any goodwill created by the purchase must be deducted in total in calculating taxable income E) the subsidiary's costs for assets are retained for income tax calculations. Answer: E Difficulty: Easy
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Use the following to answer questions 7-11: West Corp. owned 70% of the voting common stock of East Co. East owned 60% of Compass Co. West and East both used the cost method to account for their investments. The following information was available from the financial statements and records of the three companies: West East Compass Corp. Co. Co. Operating income (loss) $ 860,000 $ 600,000 $ 120,000 Amount of dividends paid 200,000 150,000 60,000 Unrealized intercompany gains 96,000 70,000 15,000 Amortization expense related to purchase of subsidiary 30,000 20,000 Operating income included unrealized intercompany gains (which are related to inventory transfers) but did not include dividend income from investment in subsidiary. 7.
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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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chap007 - Multiple Choice Questions Use the following to...

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