29 Jun Question 15. When a parent sells part of its subsidiary interest
Question
15. When a parent sells part of its subsidiary interest, a gain or loss is recognized if the parent
a. sells its entire investment.
b. loses control and significant influence.
c. loses control only.
d. sells any portion on its investment.
16.Company P purchased a 55% interest in Company S on January 1, 20X1, for $200,000. At the time of the purchase, Company S had the following stockholders’ equity:
Common stock ($10 par)……………………… $ 80,000 Retained earnings………………………….. 120,000 Total stockholders’ equity………………… $200,000
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Any excess is attributable to equipment with a 10-year life. On January 1, 20X6, the retained earnings of Company S was $175,000. During the first 6 months of 20X6, $25,000 was earned by Company S. The entire investment was sold for $300,000 on July 1, 20X6. The gain was
__________.
2. $(35,000)
3. $90,000
4. $105,500
5. $100,000
7-5
Chapter 7
17. Company P purchased a 55% interest in Company S on January 1, 20X1, for $200,000. At the time of the purchase, Company S had the following stockholders’ equity:
Common stock ($10 par)……………………… $ 80,000 Retained earnings………………………….. 120,000 Total stockholders’ equity………………… $200,000
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Any excess is attributable to equipment with a 10-year life. On January 1, 20X6, the retained earnings of Company S was $175,000. The entire investment was sold for $300,000 on January 1, 20X6. The gain was
__________.
a. $(20,250)
b. $90,000
c. $114,750
d. $100,000
18. A parent company owns a 90% interest in a subsidiary at the start of the year and during the year sells a 10% interest to reduce its ownership percentage to 80%. The most popular view of the transaction under current consolidations theory is that
a. it is a sale of an investment at a gain or a loss.
b. it is likened to a treasury stock transaction which may not result in a gain or a loss.
c. it is a transaction between the controlling and noncontrolling ownership interests and has no effect on consolidated income. The transaction would impact only paid-in capital.
d. the increase or decrease in equity as a result of the sale is an adjustment to donated capital.
19. In the year a parent sells its subsidiary investment, the results of subsidiary operations prior to the sale date are
a. typically consolidated to the point of sale.
b. typically shown on the balance sheet in the stockholders’ equity section as an adjustment to retained earnings.
c. not typically reflected on any of the parent’s statements.
d. not typically consolidated.
7-6
Chapter 7
20. Patten Company purchased an 80% interest in Salty Inc. on January 1, 20X1, for $500,000 when the stockholders’ equity of Salty was $500,000. Any excess of cost was attributed to a building with a 20-year life. On July 1, 20X4, Patten sold part of its investment and reduced its ownership interest to 60%. Salty earned $62,000, evenly, during 20X4. The share of income earned by the NCI during 20X4 is __________.
a. $10,000
b. $12,400
c. $18,600
d. $43,400
21. Page Company purchased an 80% interest in the common stock of the Seed Company for $600,000 on January 1, 20X4, when Seed Company had the following stockholders’ equity:
Common stock, $10
par.
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