29 Jun Question 1. Account
Question
1.
Account
Investor
Investee
Sales
$500,000
$300,000
Cost of Goods Sold
230,000
170,000
Gross Profit
$270,000
$130,000
Selling & Admin.
120,000
100,000
Expenses
Net Income
$150,000
$ 30,000
========
========
Dividends paid
50,000
10,000
Assuming Investor owns 70% of Investee. What is the amount that will be recorded as Net Income for the Controlling Interest?
a. $164,000
b. $171,000
c. $178,000
d. $180,000
2. Consolidated financial statements are designed to provide:
a. informative information to all shareholders.
b. the results of operations, cash flow, and the balance sheet in an understandable and informative manor for creditors.
c. the results of operations, cash flow, and the balance sheet as if there was a single entity.
d. subsidiary information for the subsidiary shareholders.
3. The FASB Exposure Draft assumes consolidation financial statements are appropriate even without a majority of controlling share if which of the following exists:
a. the subsidiary has the right to appoint member’s of the parent company’s board of directors.
b. the parent company has the right to appoint a majority of the members of the subsidiary’s board of directors through a large minority voting interest.
c. the subsidiary owns a large minority voting interest in the parent company.
d. The parent company has an ability to assume the role of general partner in a limited partnership with the approval of the subsidiary’s board of directors.
Chapter 2
4. The SEC and FASB has recommended that a parent corporation should consolidate the financial statements of the subsidiary into its financial statements when it exercises control over the subsidiary, even without majority ownership. In which of the following situations would control NOT be evident?
a. Access to subsidiary assets is available to all shareholders.
b. Dividend policy is set by the parent.
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