Test Bank and Instructor Resources for Advanced Accounting, 13th Edition by Joseph H. Anthony

Advanced Accounting is an indepth guide to accounting that reflects the most up-o-ate business developments. This comprehensive textbook addresses practical financial reporting problems while reflecting recent business developments and changes in accounting standards. The 13th Edition offers a better teaching and learning experience by providing real-world context. Students learn how to apply key accounting concepts through studying realworld examples, such as reports from popular companies, and up-odate coverage of businesses. Accounting students and accounting practitioners alike will find this text useful in preparing or analyzing consolidated financial statements, accounting for derivative securities, and governmental and not-for-profit accounting and reporting. 



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Sample of the Test Bank

Advanced Accounting, 13e (Beams et al.) 

Chapter 3   An Introduction to Consolidated Financial Statements

 

3.1   Multiple Choice Questions

 

1) Which method must be used if ASC 810-10-65 prohibits full consolidation of a 70% owned subsidiary?

A) The cost method

B) The Liquidation value

C) Market value

D) Equity method

Answer:  D

Objective:  LO3.2   Understand the requirements for including a subsidiary in consolidated financial statements.

Difficulty:  Easy

AACSB:  Analytical thinking

 

2) From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements?

A) In substance the companies are separate, but in form the companies are one entity.

B) In substance the companies are one entity, but in form they are separate.

C) In substance and form the companies are one entity.

D) In substance and form the companies are separate entities.

Answer:  B

Objective:  LO3.2   Understand the requirements for including a subsidiary in consolidated financial statements.

Difficulty:  Easy

AACSB:  Analytical thinking

 

3) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock. On the consolidated financial statements of Panini Corporation and Strathmore, Malone is

A) an affiliate.

B) a noncontrolling interest.

C) an equity investee.

D) a related party.

Answer:  B

Objective:  LO3.2   Understand the requirements for including a subsidiary in consolidated financial statements.

Difficulty:  Easy

AACSB:  Analytical thinking

 

4) A subsidiary can be excluded from consolidation if

A) control rests with the majority owner.

B) formation of joint ventures.

C) the acquisition of an asset or group of assets constitutes a business.

D) acquisition of a not-for-profit entity by a for-profit business.

Answer:  B

Objective:  LO3.2   Understand the requirements for including a subsidiary in consolidated financial statements.

Difficulty:  Easy

AACSB:  Analytical thinking


 

5) Pregler Inc. has 70% ownership of Sach Company, but should exclude Sach from its consolidated financial statements if

A) Sach is in a regulated industry.

B) Pregler uses the equity method for Sach.

C) Sach is in legal reorganization.

D) Sach is in a foreign country and records its books in a foreign currency.

Answer:  C

Objective:  LO3.2   Understand the requirements for including a subsidiary in consolidated financial statements.

Difficulty:  Moderate

AACSB:  Analytical thinking

 

6) Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for

A) investments in unconsolidated subsidiaries.

B) investments in consolidated subsidiaries.

C) capital stock.

D) ending retained earnings.

Answer:  B

Objective:  LO3.4   Record the fair value of the subsidiary at the date of acquisition.

Difficulty:  Easy

AACSB:  Analytical thinking

 

7) On June 1, 2014, Puell Company acquired 100% of the stock of Sorrell Inc. On this date, Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000. On December 31, 2014, Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000. The amount of Retained Earnings that appeared in the December 31, 2014 consolidated balance sheet was

A) $120,000.

B) $130,000.

C) $170,000.

D) $180,000.

Answer:  A

Explanation:  A) (the parent's retained earnings)

Objective:  LO3.4   Record the fair value of the subsidiary at the date of acquisition.

Difficulty:  Moderate

AACSB:  Application of knowledge


 

8) Perth Corporation acquired a 100% interest in Sansone Company for $1,600,000 when Sansone had no liabilities. The book values and fair values of Sansone's assets were:

 

                                                      Book Value           Fair Value

Current assets                                 $350,000              $400,000

Equipment                                         150,000                210,000

Land & buildings                             570,000                590,000

Total assets                                   $1,070,000           $1,200,000

 

Immediately following the acquisition, equipment will be included on the consolidated balance sheet at

A) $150,000.

B) $200,000.

C) $210,000.

D) $280,000.

Answer:  C

Explanation:  C) The assets will be recorded at fair value. When investment cost ($1,600,000) exceeds the fair value of net assets ($1,200,000), the difference is goodwill.

Objective:  LO3.4   Record the fair value of the subsidiary at the date of acquisition.

Difficulty:  Moderate

AACSB:  Application of knowledge

 

9) A newly acquired subsidiary had pre-existing goodwill on its books. The parent company's consolidated balance sheet will

A) not show any value for the subsidiary's pre-existing goodwill.

B) treat the goodwill similarly to other intangible assets of the acquired company.

C) not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value.

D) always show the pre-existing goodwill of the subsidiary at its book value.

Answer:  A

Objective:  LO3.5   Learn the concept of noncontrolling interest when a parent company acquires less than 100 percent of a subsidiary's outstanding common stock.

Difficulty:  Moderate

AACSB:  Analytical thinking

 

10) The unamortized excess account is

A) a contra-equity account.

B) used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values.

C) used in allocating the amounts paid for each asset and liability that are above or below their book values, especially when numerous assets or liabilities are involved.

D) the excess purchase cost that is attributable to goodwill.

Answer:  C

Objective:  LO3.7   Amortize the excess of the fair value over the book value in periods subsequent to the acquisition.

Difficulty:  Easy

AACSB:  Analytical thinking


 

11) On January 1, 2014, Packaging International purchased 90% of Shipaway Corporation's outstanding shares for $135,000 when the fair value of Shipaway's net assets were equal to the book values. The balance sheets of Packaging and Shipaway Corporations at year-end 2013 are summarized as follows:

 

                                                          Packaging          Shipaway

Assets                                                $590,000             $180,000

 

Liabilities                                            $70,000               $30,000

Capital stock                                      360,000                 90,000

Retained earnings                             160,000                 60,000

 

If a consolidated balance sheet was prepared immediately after the business combination, the noncontrolling interest would be

A) $9,000.

B) $13,500.

C) $15,000.

D) $16,667.

Answer:  C

Explanation:  C) $135,000 / 90% = $150,000 × 10% = $15,000.

Objective:  LO3.5   Learn the concept of noncontrolling interest when a parent company acquires less than 100 percent of a subsidiary's outstanding common stock.

Difficulty:  Moderate

AACSB:  Application of knowledge

 

12) On July 1, 2014, when Salaby Company's total stockholders' equity was $360,000, Pogana Corporation purchased 14,000 shares of Salaby's common stock at $30 per share. Salaby had 20,000 shares of common stock outstanding both before and after the purchase by Pogana, and the book value of Salaby's net assets on July 1, 2014 was equal to the fair value. On a consolidated balance sheet prepared at July 1, 2014, goodwill would be

A) $60,000.

B) $85,714.

C) $100,000.

D) $240,000.

Answer:  D

Explanation:  D)

Salaby's cost  = 14,000 × $30                       $420,000 

Implied fair value of

Salaby($420,000/0.70)                                     600,000

Less: Book value                                           (360,000)

Consolidated Goodwill                               $240,000 

Objective:  LO3.6   Prepare consolidated balance sheets subsequent to the acquisition date, including preparation of eliminating entries.

Difficulty:  Moderate

AACSB:  Application of knowledge


 

13) Percy Inc. acquired 80% of the outstanding stock of Sillson Company in a business combination. The book values of Sillson's net assets are equal to the fair values except for the building, whose net book value and fair value are $500,000 and $800,000, respectively. At what amount is the building reported on the consolidated balance sheet?

A) $400,000

B) $500,000

C) $640,000

D) $800,000

Answer:  D

Objective:  LO3.6   Prepare consolidated balance sheets subsequent to the acquisition date, including preparation of eliminating entries.

Difficulty:  Moderate

AACSB:  Application of knowledge

 

14) In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?

A) All revenues, expenses, gains, losses, receivables, and payables

B) All revenues, expenses, gains, and losses but not receivables and payables

C) Receivables and payables but not revenues, expenses, gains, and losses

D) Only sales revenue and cost of goods sold

Answer:  A

Objective:  LO3.8   Apply the concepts underlying preparation of a consolidated income statement.

Difficulty:  Easy

AACSB:  Analytical thinking

 

15) Pardo Corporation paid $140,000 for a 70% interest in Spedeal Inc. on January 1, 2014, when Spedeal had Capital Stock of $50,000 and Retained Earnings of $100,000. Fair values of identifiable net assets were the same as recorded book values. During 2014, Spedeal had income of $40,000, declared dividends of $15,000, and paid $10,000 of dividends. On December 31, 2014, the consolidated financial statements will show

A) investment in Spedeal account of $170,000.

B) investment in Spedeal account of $165,000.

C) consolidated goodwill of $50,000.

D) consolidated dividends receivable of $5,000.

Answer:  C

Explanation:  C)

Implied fair value of Spedeal($140,000/0.70)         $200,000

Less: Book value                                                          (150,000)

Consolidated Goodwill                                                $50,000 

Objective:  LO3.5   Learn the concept of noncontrolling interest when a parent company acquires less than 100 percent of a subsidiary's outstanding common stock.

Difficulty:  Moderate

AACSB:  Analytical thinking


 

16) Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1, 2014. During 2014, Sedacor reported net income of $130,000 and paid dividends of $40,000. At what amount should Pental's Investment in Sedacor account be reported on December 31, 2014?

A) $400,000

B) $481,000

C) $490,000

D) $530,000

Answer:  B

Objective:  LO3.5   Learn the concept of noncontrolling interest when a parent company acquires less than 100 percent of a subsidiary's outstanding common stock.

Difficulty:  Moderate

AACSB:  Application of knowledge

 

17) Pomograte Corporation bought 75% of Sycamore Company's common stock, with a book value of $900,000, on January 2, 2014 for $750,000. The law firm of Dewey, Cheatam and Howe was paid $55,000 to facilitate the purchase. At what amount should Pomograte's Investment in Sycamore account be reported on January 2, 2014?

A) $675,000

B) $695,000

C) $750,000

D) $845,000

Answer:  C

Objective:  LO3.5   Learn the concept of noncontrolling interest when a parent company acquires less than 100 percent of a subsidiary's outstanding common stock.

Difficulty:  Moderate

AACSB:  Application of knowledge


 

18) Pinata Corporation acquired an 80% interest in Smackem Inc. for $130,000 on January 1, 2014, when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000. Assume the fair value and book value of Smackem's net assets were equal on January 1, 2014. Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31, 2014, are shown below.

 

                                                               Pinata             Consolidated   

Sales revenue                                 $145,850              $234,750

Income from Smackem                    12,600

Cost of sales                                      (60,000)              (100,000)

Other expenses                                 (20,000)                (50,000)

Noncontrolling

interest share                                                                   (3,150)

Net income                                       $ 78,450               $ 81,600 

 

Smackem's separate income statement must have reported net income of

A) $13,750.

B) $14,750.

C) $15,750.

D) $15,250.

Answer:  C

Explanation:  C) Noncontrolling interest share $3,150 / 20% = $15,750

Objective:  LO3.8   Apply the concepts underlying preparation of a consolidated income statement.

Difficulty:  Moderate

AACSB:  Application of knowledge

 

19) In the consolidated income statement of Wattlebird Corporation and its 85% owned Forest subsidiary, the noncontrolling interest share was reported at $45,000. Assume the book value and fair value of Forest's net assets were equal at the acquisition date. What amount of net income did Forest have for the year?

A) $52,941

B) $38,250

C) $235,000

D) $300,000

Answer:  D

Explanation:  D) $45,000 / 15% = $300,000

Objective:  LO3.8   Apply the concepts underlying preparat

Test Bank and Instructor Resources for Advanced Accounting, 13th Edition by Joseph H. Anthony

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