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Quiz II (Chapters 3 and 4)

Name:______________________________. ID:________________________________. Answer the following Questions: 1. Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination? A. Initial value or book value B. Initial value, lower-of-cost-or-market-value or equity C. Initial value, equity or partial equity D. Initial value, equity or book value E. Initial value, lower-of-cost-or-market-value or partial equity 2. Which one of the following varies between the equity, initial value and partial equity methods of accounting for an investment? A. The amount of consolidated net income B. Total assets on the consolidated balance sheet C. Total liabilities on the consolidated balance sheet D. The balance in the investment account on the parent's books E. The amount of consolidated cost of goods sold 3. How does the partial equity method differ from the equity method? A. In the total assets reported on the consolidated balance sheet B. In the treatment of dividends C. In the total liabilities reported on the consolidated balance sheet D. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary 4. Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2009, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2009 and $50,000 in 2010 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2009 and $47,000 in 2010 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2010, if the equity method has been applied? A. $286,000 B. $296,000 C. $276,000 D. $344,000 E. $300,000 Page 1 of 5

5. Velway Corp. acquired Joker Inc. on January 1, 2009. The parent paid more than the fair value of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet, respectively? A. $400,000 and $900,000 B. $400,000 and $970,000 C. $470,000 and $900,000 D. $470,000 and $970,000 E. $470,000 and $1,040,000 Use the following information to answer question 6 to 10. On January 1, 2009, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities and stockholders' equity accounts:

Kaltop earned net income for 2009 of $126,000 and paid dividends of $48,000 during the year. 6. The 2009 total amortization of allocations is calculated to be A. $4,000 B. $6,400 C. $(2,400) D. $(1,000) E. $3,800 7. In Cale's accounting records, what amount would appear on December 31, 2009 for equity in subsidiary earnings? A. $79,000 B. $129,800 C. $126,000 D. $127,000 E. $81,800

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8. What is the balance in Cale's investment in subsidiary account at the end of 2009? A. $1,099,000 B. $1,020,000 C. $1,096,200 D. $1,098,000 E. $1,144,400 9. At the end of 2009, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co. for A. $124,400 B. $126,000 C. $127,000 D. $76,400 E. $0 10. If Cale Corp. had net income of $444,000, exclusive of the investment, what is the amount of consolidated net income? A. $568,400 B. $570,000 C. $571,000 D. $566,400 E. $444,000 11. According to SFAS 160, Non-controlling Interests and Consolidated Financial Statements, a non-controlling interest is most likely to be shown as part of equity under the A. Partial equity concept B. Proportionate consolidation concept C. Economic unit concept D. Parent company concept E. Proprietary concept Use the following information to answer question 12 to 14. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. 12. What amount should have been reported for the land on a consolidated balance sheet, according to SFAS 141(R), assuming the economic unit concept was used? A. $70,000 B. $75,000 C. $85,000 D. $92,500 E. $100,000

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13. What amount of excess land allocation would be included for the calculation of noncontrolling interest, according to SFAS 141(R)? A. $0 B. $7,500 C. $17,500 D. $25,000 E. $70,000 14. What amount should have been reported for the land on a consolidated balance sheet, assuming the investment was obtained prior to SFAS 141(R) and the parent company concept was used? A. $70,000 B. $75,000 C. $85,000 D. $92,500 E. $100,000 15. Femur Co. owns 70% of the voting common stock of Harbor Corp. During 2009, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2009. Femur Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be A. $132,000 B. $150,000 C. $168,000 D. $160,000 E. $0 16. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2009. For 2009, Kailey reported revenues of $800,000 and expenses of $620,000. The annual amount of amortization related to this acquisition was $15,000. Denber Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160. In consolidation, the total amount of expenses related to Kailey and to Denber's acquisition of Kailey for 2009 is determined to be A. $206,667 B. $211,667 C. $221,667 D. $620,000 E. $635,000

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17. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in a business combination that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of purchase. What value would be attributed to this land in a consolidated balance sheet at the date of takeover, according to the economic unit concept per SFAS 141(R) and the parent company concept per SFAS 141?

A. Entry A B. Entry B C. Entry C D. Entry D E. Entry E 18. Kordel Inc. holds 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated? A. $375,000 B. $125,000 C. $300,000 D. $500,000 E. $0

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