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Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment. The balance of Priors Investment in Sanderson account at December 31, 2011 is: Answer Selected Answer:
$159,0 00.
Correct Answer:
$159,0 00.
P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $1,272,000. S Companys December 31, 2010 balance sheet reported common stock of $800,000 and retained earnings of $540,000. During the calendar year 2011, S Company earned $840,000 evenly throughout the year and declared a dividend of $300,000 on
November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2012? Answer Selected Answer:
$208,0 00
Correct Answer:
$208,0 00
Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent companys Answer Selected Answer:
income from independent operations plus subsidiarys income resulting from transactions with outside parties.
Correct Answer:
income from independent operations plus subsidiarys income resulting from transactions with outside parties.
Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to Answer Selected
A parent company uses the partial equity method to account for an investment in common stock of its subsidiary. A portion of the dividends received this year were in excess of the parent companys share of the subsidiarys earnings subsequent to the date of the investment. The amount of dividend income that should be reported in the parent companys separate income statement should be Answer Selected Answer:
zer o.
Correct Answer:
zer o.
An investor adjusts the investment account for the amortization of any difference between cost and book value under the Answer Selected Answer:
In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the Answer Selected Answer:
cost method.
Correct Answer:
cost method.
Parkview Company acquired a 90% interest in Sutherland Company on December 31, 2010, for $320,000. During 2011 Sutherland had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Sutherland Company account at the end of 2011 of: Answer Selected Answer:
$320,0 00
Correct
Pendleton Company acquired a 70% interest in Sunflower Company on December 31, 2010, for $380,000. During 2011 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000. Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2011 of: Answer Selected Answer:
$380,0 00.
Correct Answer:
$380,0 00.
P Company purchased 90% of the outstanding common stock of S Company on January 1, 1997. S Companys stockholders equity at various dates was: 1/1/97 Common stock Retained earnings Total 1/1/11 12/31/11
The workpaper entry to establish reciprocity under the cost method in the
preparation of a consolidated statements workpaper on December 31, 2011 should include a credit to P Companys retained earnings of Answer Selected Answer:
$117,0 00.
Correct Answer:
$117,0 00.
In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is Answer Selected Answer:
eliminat ed.
Correct Answer:
eliminat ed.
Prior Industries acquired a 70 percent interest in Stevenson Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2010. Stevenson reported net income in 2010 of $90,000 and in 2011 of $120,000 earned evenly throughout the respective years. Prior received $24,000 dividends from Stevenson in 2010 and $36,000 in 2011. Prior uses the equity method to record its investment.
Prior should record investment income from Stevenson during 2011 of: Answer Selected Answer:
$120,0 00
Correct Answer:
$84,00 0
Prior Industries acquired an 80 percent interest in Sanderson Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2010. Sanderson reported net income in 2010 of $45,000 and in 2011 of $60,000 earned evenly throughout the respective years. Prior received $12,000 dividends from Sanderson in 2010 and $18,000 in 2011. Prior uses the equity method to record its investment. Prior should record investment income from Sanderson during 2011 of: Answer Selected Answer:
$48,00 0.
Correct Answer:
$48,00 0.
Masters, Inc. owns 40% of Fields Corporation. During the year, Fields had net earnings of $200,000 and paid dividends of $50,000. Masters used the cost method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively? Answer Selected Answer:
Correct Answer:
P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Companys December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2011? Answer Selected Answer:
$52,0 00
Correct Answer:
$52,0 00