Question 14. When a parent purchases a porti

29 Jun Question 14. When a parent purchases a porti

Question
14. When a parent purchases a portion of the newly issued stock of its subsidiary and the ownership interest remains the same,

a. any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block.

b. any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest.

c. any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings.

d. there will be no adjustment.

15. When a parent purchases a portion of the newly issued stock of its subsidiary in a private offering and the ownership interest decreases,

a. any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block.

b. any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest.

c. any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings.

d. there will be no adjustment.

16. When a parent purchases a portion of the newly issued stock of its subsidiary and the ownership interest increases,

a. any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block.

b. any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest.

c. any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings.

d. there will be no adjustment.

17. Apple Inc. purchased a 70% interest in the Banana Company for $450,000 on January 1, 20X3, when Banana Company had the following stockholders’ equity:

Common stock, $10 par…………….. $100,000 Other paid-in capital…………….. 250,000 Retained earnings………………… 150,000

At the time of the purchase, Banana Company was an 80% owner of the Carrot Company. The investment in Carrot Company is accounted for under the sophisticated equity method. On the date of the purchase, Carrot Company has a machine that has a market value in excess of book value of $20,000. There is no difference between book and market value for any Banana Company assets. The goodwill that would result from this purchase is __________.

a. $100,000

b. $86,000

c. $84,000

d. $88,800

8-6

Chapter 8

18. Apple Inc. owns a 90% interest in Banana Company. Banana Company, in turn, owns a 80% interest in Carrot Company. During 20X4, Carrot Company sold $50,000 of merchandise to Apple Inc. at cost plus 25%. Of this merchandise, $10,000 was still unsold by Apple Inc. at year end. The adjustment to the controlling interest in consolidated net income for 20X4 is __________.

a. $560

b. $1,440

c. $1,600

d. $1,800

19. Able Company owns an 80% interest in Barns Company and a 20% interest in Carns Company. Barns owns a 40% interest in Carns Company.

a. Able does not control Carns; thus, Carns’ income is not included in the consolidated statements.

b. Able controls Carns; the noncontrolling interest of Carns Company is 48%.

c. Able controls Carns; the noncontrolling interest of Carns Company is 40%.

d. Barns accounts for Carns under the sophisticated cost method; Barns is then consolidated with Able.

20. Able Company owns an 80% interest in Barns Company and a 20% interest in Carns Company. Barns owns a 40% interest in Carns Company. The reported income of Carns is $20,000 for 20X4. Which of the following shows how it will be distributed?

Barns

Carns

Controlling

Non-

Controlling

Non-

Interest

Interest

Controlling

a. $10,400

$1,600

$8,000

b. $ 2,000

$8,000

$8,000

c. $12,000

$

0