ACC 405 - Exam 2 Questions With
Correct Answers
Basic premise of the acquisition method regarding accounting for a non-
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controlling interest - CORRECT ANSWER✔✔-Subsidiary is an indivisible
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part of a business combination and should be included in its entirety
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regardless of the degree of ownership | | | | |
How does a transfer between a parent and a sub affect the consolidated
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statement of cash flows? - CORRECT ANSWER✔✔-Because of the intra-
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entity nature of the transfers, the amount is not reported in the
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consolidated cash flow statement | | |
The non-controlling interest represents an outside ownership in a
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subsidiary that is not attributable to the parent company. Where in the
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consolidated balance sheet is this outside ownership interest
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recognized? - CORRECT ANSWER✔✔-In the owner's equity section
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Primary reason for deferring financial statement recognition of gross
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profits on intra-entity sales for goods that remain within consolidated
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entity at year-end - CORRECT ANSWER✔✔-When intra-entity sales
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remain in ending inventory, control of the goods has not changed
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, How do convertible items affect a company's EPS computation? -
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CORRECT ANSWER✔✔-Effect of stock warrants must be computed in
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deriving the amount of sub. income to be included in making the diluted
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EPS calculation
| |
What is consolidated retained earnings under the equity method? -
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CORRECT ANSWER✔✔-Consolidate retained earnings = parent retained
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earnings
In computing the noncontrolling interest's share of consolidated net
| | | | | | | | |
income, how should the sub's net income be adjusted for intra-entity
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transfers - CORRECT ANSWER✔✔-The sub's reported net income is
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adjusted for the impact of upstream transfers prior to computing the
| | | | | | | | | | |
noncontrolling interest's allocation | |
Company A buys 60% of outstanding stock of Company B. Company B
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owns land that cost $212,000 but had a fair value of $549,000 at the
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acquisition date. What value should be attributed to this land in a
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consolidated balance sheet at the date of takeover? - CORRECT
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ANSWER✔✔-$549,000 - At the date control is obtained, the parent | | | | | | | | | |
consolidates subsidiary assets at fair value regardless of the parent's
| | | | | | | | | |
ownership percentage |
Company A holds 75% of the outstanding stock of Company B. Company
| | | | | | | | | | |
B owes Company A $400,000 for inventory acquired. In preparing
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consolidated financial statements, what amount of debt should be
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Correct Answers
Basic premise of the acquisition method regarding accounting for a non-
| | | | | | | | | |
controlling interest - CORRECT ANSWER✔✔-Subsidiary is an indivisible
| | | | | | | |
part of a business combination and should be included in its entirety
| | | | | | | | | | | |
regardless of the degree of ownership | | | | |
How does a transfer between a parent and a sub affect the consolidated
| | | | | | | | | | | |
statement of cash flows? - CORRECT ANSWER✔✔-Because of the intra-
| | | | | | | | | |
entity nature of the transfers, the amount is not reported in the
| | | | | | | | | | | |
consolidated cash flow statement | | |
The non-controlling interest represents an outside ownership in a
| | | | | | | | |
subsidiary that is not attributable to the parent company. Where in the
| | | | | | | | | | | |
consolidated balance sheet is this outside ownership interest
| | | | | | | |
recognized? - CORRECT ANSWER✔✔-In the owner's equity section
| | | | | | |
Primary reason for deferring financial statement recognition of gross
| | | | | | | | |
profits on intra-entity sales for goods that remain within consolidated
| | | | | | | | | |
entity at year-end - CORRECT ANSWER✔✔-When intra-entity sales
| | | | | | | |
remain in ending inventory, control of the goods has not changed
| | | | | | | | | |
, How do convertible items affect a company's EPS computation? -
| | | | | | | | | |
CORRECT ANSWER✔✔-Effect of stock warrants must be computed in
| | | | | | | | |
deriving the amount of sub. income to be included in making the diluted
| | | | | | | | | | | |
EPS calculation
| |
What is consolidated retained earnings under the equity method? -
| | | | | | | | | |
CORRECT ANSWER✔✔-Consolidate retained earnings = parent retained
| | | | | | |
earnings
In computing the noncontrolling interest's share of consolidated net
| | | | | | | | |
income, how should the sub's net income be adjusted for intra-entity
| | | | | | | | | | |
transfers - CORRECT ANSWER✔✔-The sub's reported net income is
| | | | | | | | |
adjusted for the impact of upstream transfers prior to computing the
| | | | | | | | | | |
noncontrolling interest's allocation | |
Company A buys 60% of outstanding stock of Company B. Company B
| | | | | | | | | | | |
owns land that cost $212,000 but had a fair value of $549,000 at the
| | | | | | | | | | | | | |
acquisition date. What value should be attributed to this land in a
| | | | | | | | | | | |
consolidated balance sheet at the date of takeover? - CORRECT
| | | | | | | | | |
ANSWER✔✔-$549,000 - At the date control is obtained, the parent | | | | | | | | | |
consolidates subsidiary assets at fair value regardless of the parent's
| | | | | | | | | |
ownership percentage |
Company A holds 75% of the outstanding stock of Company B. Company
| | | | | | | | | | |
B owes Company A $400,000 for inventory acquired. In preparing
| | | | | | | | | | |
consolidated financial statements, what amount of debt should be
| | | | | | | | |
