TEST BANK FOR CONSOLIDATION OWNERSHIP ISSUES

TEST BANK FOR CONSOLIDATION OWNERSHIP ISSUES Consolidation Ownership Issues Multiple Choice Questions 1. Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock. Elven, in turn, owns 15 percent of Windsor's outstanding common stock. What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement? A. None B. 100 percent C. 85 percent D. 75 percent On January 1, 2009, Company A acquired 80 percent of the common stock and 60 percent of the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of acquisition, the fair value of the common shares of Company B held by the noncontrolling interest was $100,000. Company B's balance sheet contained the following balances: For the year ended December 31, 2009, Company B reported net income of $100,000 and paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of 10 percent. 9-2 2. Based on the preceding information, what will be the equity method income reported by Company A from its investment in Company B during 2009? A. $32,000 B. $30,000 C. $72,000 D. $48,000 3. Based on the preceding information, the eliminating entry to assign income to noncontrolling interest to prepare the consolidated financial statements for Company A as of December 31, 2009, will include: A. a debit to Income to Noncontrolling Interest for $24,000. B. a credit to Dividends Declared — Preferred Stock for $10,000. C. a credit to Dividends Declared — Common Stock for $8,000. D. a credit to Noncontrolling Interest for $12,000. 4. Based on the preceding information, the entry to eliminate subsidiary preferred stock to prepare the consolidated financial statements for Company A as of December 31, 2009, will include: A. a debit to Preferred Stock for $60,000. B. a credit to Investment in Company B Preferred Stock for $40,000. C. a debit to Retained Earnings for $40,000. D. a credit to Noncontrolling Interest for $40,000. 9-3 Winner Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of First Corporation at underlying book value on January 1, 2009. At that date, the fair value of the noncontrolling interest in First's common stock was equal to 20 percent of the book value of its common stock. First's balance sheet at the time of acquisition contained the following balances: The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1, 2009. All of the $5 par value preferred shares are callable at $6 per share. During 2009, First reported net income of $100,000 and paid no dividends. 5. Based on the preceding information, what is First's contribution to consolidated net income for 2009? A. $80,000 B. $100,000 C. $90,000 D. $50,000 6. Based on the preceding information, what will be the amount of income to be assigned to the noncontrolling interest in the 2009 consolidated income statement? A. $21,000 B. $18,000 C. $23,000 D. $15,000 9-4 7. Based on the preceding information, the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1, 2009, is: A. $40,000 B. $42,000 C. $36,000 D. $48,000 8. Based on the preceding information, what is the portion of First's retained earnings assignable to its preferred shareholders on January 1, 2009? A. $40,000 B. $50,000 C. $60,000 D. $70,000 9. Based on the information provided, what is the book value of the common stock on January 1, 2009? A. $410,000 B. $360,000 C. $390,000 D. $350,000 10. Based on the information provided, what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1, 2009? A. $70,000 B. $130,000 C. $118,000 D. $142,00