Solutions for Advanced Financial
Accounting Exam #2 (1st edition by
Nathalie Johnstone)
If A Company acquires 80 percent of the stock of B Company on January 1, 20X2, immediately
after the acquisition, which of the following is correct?
a.) Consolidated retained earnings will be equal to the combined retained earnings of the two
companies.
b.) Goodwill will always be reported in the consolidated balance sheet.
c.) A Company's additional paid-in capital may be reduced to permit the carryforward of B
Company retained earnings.
d.) Consolidated retained earnings and A Company retained earnings will be the same. -
ANSd.) Consolidated retained earnings and A Company retained earnings will be the same.
Which of the following is correct?
a.) The noncontrolling shareholders' claim on the subsidiary's net assets is based on the book
value of the subsidiary's net assets.
b.) Only the parent's portion of the difference between book value and fair value of the
subsidiary's assets is assigned to those assets.
c.) Goodwill represents the difference between the book value of the subsidiary's net assets and
the amount paid by the parent to buy ownership.
d.) Total assets reported by the parent generally will be less than total assets reported on the
consolidated balance sheet. - ANSd.) Total assets reported by the parent generally will be less
than total assets reported on the consolidated balance sheet.
Which of the following statements is correct?
a.) Foreign subsidiaries do not need to be consolidated if they are reported as a separate
operating group under segment reporting.
, b.) Consolidated retained earnings do not include the noncontrolling interest's claim on the
subsidiary's retained earnings.
c.) The noncontrolling shareholders' claim should be adjusted for changes in the fair value of the
subsidiary assets but should not include goodwill.
d.) Consolidation is expected any time the investor holds significant influence over the investee.
- ANSd.) Consolidation is expected any time the investor holds significant influence over the
investee.
A 70 percent owned subsidiary company declares and pays a cash dividend. What effect does
the dividend have on the retained earnings and noncontrolling interest balances in the parent
company's consolidated balance sheet?
a.) Decreases in both retained earnings and noncontrolling interest.
b.) No effect on retained earnings and a decrease in noncontrolling interest.
c.) No effect on either retained earnings or noncontrolling interest.
d.) A decrease in retained earnings and no effect on noncontrolling interest. - ANSb.) No effect
on retained earnings and a decrease in noncontrolling interest.
AICPA Adapted] At December 31, 20X9, Grey Inc. owned 90 percent of Winn Corporation, a
consolidated subsidiary, and 20 percent of Carr Corporation, an investee in which Grey cannot
exercise significant influence. On the same date, Grey had receivables of $300,000 from Winn
and $200,000 from Carr. In its December 31, 20X9, consolidated balance sheet, Grey should
report accounts receivable from its affiliates of
a.) $500,000.
b.) $340,000.
c.) $230,000.
d.) $200,000. - ANSd.) $200,000.
How is the portion of consolidated earnings to be assigned to the noncontrolling interest in
consolidated financial statements determined?
a.) The subsidiary's net income is extended to the noncontrolling interest.
b.) The amount of consolidated earnings on the consolidated worksheets is multiplied by the
noncontrolling interest percentage on the balance sheet date.
Accounting Exam #2 (1st edition by
Nathalie Johnstone)
If A Company acquires 80 percent of the stock of B Company on January 1, 20X2, immediately
after the acquisition, which of the following is correct?
a.) Consolidated retained earnings will be equal to the combined retained earnings of the two
companies.
b.) Goodwill will always be reported in the consolidated balance sheet.
c.) A Company's additional paid-in capital may be reduced to permit the carryforward of B
Company retained earnings.
d.) Consolidated retained earnings and A Company retained earnings will be the same. -
ANSd.) Consolidated retained earnings and A Company retained earnings will be the same.
Which of the following is correct?
a.) The noncontrolling shareholders' claim on the subsidiary's net assets is based on the book
value of the subsidiary's net assets.
b.) Only the parent's portion of the difference between book value and fair value of the
subsidiary's assets is assigned to those assets.
c.) Goodwill represents the difference between the book value of the subsidiary's net assets and
the amount paid by the parent to buy ownership.
d.) Total assets reported by the parent generally will be less than total assets reported on the
consolidated balance sheet. - ANSd.) Total assets reported by the parent generally will be less
than total assets reported on the consolidated balance sheet.
Which of the following statements is correct?
a.) Foreign subsidiaries do not need to be consolidated if they are reported as a separate
operating group under segment reporting.
, b.) Consolidated retained earnings do not include the noncontrolling interest's claim on the
subsidiary's retained earnings.
c.) The noncontrolling shareholders' claim should be adjusted for changes in the fair value of the
subsidiary assets but should not include goodwill.
d.) Consolidation is expected any time the investor holds significant influence over the investee.
- ANSd.) Consolidation is expected any time the investor holds significant influence over the
investee.
A 70 percent owned subsidiary company declares and pays a cash dividend. What effect does
the dividend have on the retained earnings and noncontrolling interest balances in the parent
company's consolidated balance sheet?
a.) Decreases in both retained earnings and noncontrolling interest.
b.) No effect on retained earnings and a decrease in noncontrolling interest.
c.) No effect on either retained earnings or noncontrolling interest.
d.) A decrease in retained earnings and no effect on noncontrolling interest. - ANSb.) No effect
on retained earnings and a decrease in noncontrolling interest.
AICPA Adapted] At December 31, 20X9, Grey Inc. owned 90 percent of Winn Corporation, a
consolidated subsidiary, and 20 percent of Carr Corporation, an investee in which Grey cannot
exercise significant influence. On the same date, Grey had receivables of $300,000 from Winn
and $200,000 from Carr. In its December 31, 20X9, consolidated balance sheet, Grey should
report accounts receivable from its affiliates of
a.) $500,000.
b.) $340,000.
c.) $230,000.
d.) $200,000. - ANSd.) $200,000.
How is the portion of consolidated earnings to be assigned to the noncontrolling interest in
consolidated financial statements determined?
a.) The subsidiary's net income is extended to the noncontrolling interest.
b.) The amount of consolidated earnings on the consolidated worksheets is multiplied by the
noncontrolling interest percentage on the balance sheet date.
