investorparent company applies the equity method of accounting for the

Investorparent company applies the equity method of

This preview shows page 154 - 168 out of 195 pages.

investor–parent company applies the equity method of accounting for the investment  in the investee-subsidiary when the parent acquires: A) Th firs inv est me nt  in  the  inv est ee' co m mo sto ck
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B) At  lea st  20 of  the  inv est ee' co m mo sto ck C) Mo re  tha 50 of  the  inv est ee' co m mo sto ck
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D) At  lea se  50 of  the  inv est ee' co m mo sto ck 5 CORRECT The realized intercompany profit in the beginning inventories of Piedmont  Corporation, parent company of Sturdwick Company, was $60,000, and the  unrealized intercompany profit in Piedmont's ending inventories was $80,000.  Piedmont and Sturdwick file separate income tax returns, and both affiliates are  subject to income taxes at a rate of 40%. If the criteria for recording deferred tax  assets without a valuation allowance are met, the working paper elimination of  Piedmont Corporation and subsidiary should:
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A) De bit  Inc om Ta xe Ex pe ns e St urd wic for  $2 4,0 00
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B) De bit  De fer red  Inc om Ta As set St urd wic for  $2 4,0 00
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C) Cr edi De fer red  Inc om Ta Lia bili ty Pie dm ont  for  $3 2,0 00 D) Do  no ne  of  the  for eg oin g Feedback: $60,000 x 0.40 = $24,000 6 CORRECT In a consolidated statement of cash flows, a parent company's gain or loss on 
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disposal of part of an investment in a subsidiary is displayed as: A) ca sh  flo fro fin an cin act iviti es
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B) An  adj ust me nt  to  co ns oli dat ed  net  inc om of  the  par ent  co mp an an su bsi dia ry
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C) de cre as in  mi nor ity  int ere st  in  net  as set of  su bsi dia ry
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D) An  inc rea se  in  mi nor ity  int ere st  in  net  as set of  su bsi dia ry 7 CORRECT In the journal entry for a business combination, the combinor recognizes a deferred  income tax liability if:
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A) por tio of  the  cur ren fair  val ue  of  the  co mb ine e's  net  as set is  not  de du cti ble  for  inc om tax es.
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B) Th co mb ine ha te mp ora ry  diff ere nc es  bet we en  fin an cia inc om an tax abl inc om pri or  to  the  bu sin es co mb ina tio n.
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C) Th affi liat ed  gro up  ex pe cts  to  file  co ns oli dat ed  inc om tax  ret urn s.
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D) Th bu sin es co mb ina tio wa not  "ta x- fre cor por ate  reo rga niz ati on. " 8 CORRECT Estimated future tax effects of differences between the tax bases and amounts  otherwise appropriate to assign to assets and liabilities are one of the variables in  estimates of current fair values for a combinee in a business combination.
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