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1. Under the economic entity concept, which of the following statements is true?
1. Under the economic entity concept, which of the following statements is true? (Points : 2) The accounting emphasis in preparing consolidated financial statements is placed on the business combination being formed.The accounting emphasis in preparing consolidated financial statements is placed on the parent's investment.The objective of consolidated financial statements is to serve as a report to the stockholders of the parent company.The economic unit concept is a hybrid of the proportionate consolidation concept and the parent company concept.2. A noncontrolling interest is most likely to be shown as part of equity under the (Points : 2) partial equity concept.Proportionate consolidation concept.economic entity concept.parent company concept.3. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in a purchase that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of purchase. For each of the three concepts described in the chapter, what value would be attributed to this land in a consolidated balance sheet at the date of takeover? Economic Proportionate Parent Unit Consolidation Company Concept Concept Concept A $600,000 $360,000 $600,000 B $250,000 $150,000 $600,000 C $360,000 $250,000 $600,000 D $600,000 $360,000 $460,000 (Points : 2) Entry AEntry BEntry CEntry D4. Under the proportionate consolidation concept, which of the following statements is true? (Points : 2) The accounting emphasis in preparing consolidated financial statements is placed on the business combination being formed.Holding control of a subsidiary provides the parent with an indivisible interest in that company.The objective of consolidated financial statements is to serve as a report to the stockholders of the parent company.The proportional consolidation concept is a hybrid of the proportionate consolidation concept and the parent company concept.5. Which of the following statements concerning consolidated financial statements is true? (Points : 2) Goodwill is the same under the economic unit concept, proportionate consolidation concept, and parent company concept.Goodwill is the same under the economic unit concept and the proportionate consolidation concept.Goodwill is the same under the proportionate consolidation concept and the parent company concept.Goodwill is different under the economic unit concept, proportionate consolidation concept, and parent company concept.6. Bell Company purchases 80% of Demers Company for $500,000 on January 1, 2006. Demers reported common stock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess cost over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.Demers earns income and pays dividends as follows: 2006 2007 2008 Net income $100,000 $120,000 $130,000 60,000 Assume the equity method is applied.Compute Bell's income from Demers for the year ended December 31, 2008. (Points : 2) $50,400$56,000$98,400$124,4007. In a step acquisition, which of the following statements is false? (Points : 2) Each investment is viewed as an individual purchase with its own cost allocations and related amortizations.Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year.Income from subsidiary is computed for the entire year for a new purchase acquired during the year.Noncontrolling interest is computed by multiplying the book value of the subsidiary at year-end by the new percent ownership.8. Keefe, Incorporated, acquires 70% of George Company on September 1, 2005, and an additional 10% on April 1, 2006. Annual amortization of $5,000 relates to the first acquisition and $3,000 to the second. George reports the following figures for 2006: Revenues $500,000 Expenses 400,000 Retained earnings 1/1/06 300,000 50,000 Common Stock 200,000 Without regard for this investment, Keefe earns $300,000 in net income during 2006.What is consolidated net income for 2006? (Points : 3) $365,000$370,250$372,000$374,0009. All of the following statements regarding the sale of subsidiary shares are true except which of the following. (Points : 2) The use of specific identification based on serial number is acceptable.The use of the FIFO assumption is acceptable.The use of the averaging assumption is acceptable.The use of specific LIFO assumption is acceptable.10. Kordel Inc. holds 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated? (Points : 3) $375,000$125,000$300,000$500,00011. X-Beams Inc. owned 70% of the voting common stock of Kent Corp. During 2006, Kent made several sales of inventory to X-Beams. The total selling price was $180,000 and the cost was $100,000. At the end of the year, 20% of the goods were still in X-Beams' inventory. Kent's reported net income was $300,000. What was the noncontrolling interest in Kent's net income? (Points : 3) $90,000$88,560$85,200$77,70012. Yukon Co. purchased 75% percent of the voting common stock of Ontario Corp. on January 1, 2006. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had $60,000 of the goods in its inventory at the end of the year. The amount of unrealized intercompany profit which should be eliminated in the consolidation process at the end of 2006 is (Points : 3) $15,000$20,000$32,500$30,00013. On January 1, 2006, Race Corp. purchased 80% of the voting common stock of Gallow Inc. During the year, Race sold to Gallow for $450,000 goods which cost $330,000. Gallow still owned 15% of the goods at year-end. Gallow's reported net income was $204,000, and Race's net income was $806,000. Race decided to use the equity method to account for this investment. What was the noncontrolling interest's share of consolidated net income? (Points : 3) $37,200$22,800$30,900$40,80014. Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2006, Thelma sold a parcel of land to Norek. The land had a book value of $32,000 and was sold to Norek for $45,000. Thelma's reported net income for 2006 was $119,000. What is the noncontrolling interest's share of Thelma's net income? (Points : 3) $35,700$31,800$39,600$26,10015. Prince Corp. owned 80% of Kile Corp.'s common stock. During October 2006, Kile sold merchandise to Prince for $140,000. At December 31, 2006, 50% of this merchandise remained in Prince's inventory. For 2006, gross profit percentages were 30% of sales for Prince and 40% of sales for Kile. The amount of unrealized intercompany profit in ending inventory at December 31, 2006 that should be eliminated in the consolidation process is (Points : 3) $28,000$56,000$22,400$42,00016. On November 8, 2006, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized? (Points : 2) Proportionately over a designated period of years.When Wood Co. sells the land to a third party.No gain can be recognized.When Wood Co. begins using the land productively.17. Which of the following statements is true regarding an intercompany sale of land? (Points : 2) A loss is always recognized but a gain is eliminated on a consolidated income statement.A loss and a gain are always eliminated on a consolidated income statement.A loss and a gain are always recognized on a consolidated income statement.A gain is always recognized but a loss is eliminated on a consolidated income statement.18. Shannon Co. owned all of the voting common stock of Chain Corp. The corporations' balance sheets dated December 31, 2005, include the following balances for land: for Shannon--$416,000, and for Chain--$256,000. On the original date of acquisition, the book value of Chain's land was equal to its fair market value. On April 4, 2006, Shannon sold to Chain a parcel of land with a book value of $65,000. The selling price was $83,000. There were no other transactions which affected the companies' land accounts during 2006. What is the consolidated balance for land on the 2006 balance sheet? (Points : 3) $672,000$690,000$755,000$737,00019. Justings Co. owned 80% of Evana Corp. During 2006, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should (Points : 3) recognize a gain of $17,600.defer recognition of the gain until Evanna sells the land to a third party.recognize a gain of $8,000.recognize a gain of $22,000.20. On January 1, 2006, Demers Company, an 80% owned subsidiary of Collins, Inc., transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Demers records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Demers reported net income of $28,000 and $32,000 for 2006 and 2007, respectively. Compute the gain recognized by Demers Company relating to the equipment for 2006 (Points : 3) $36,000$34,000$12,000$10,000
