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Chapter 09
Consolidation Ownership Issues
On January 1, 2009, Company A acquired 80 percent of the common stock and 60 percent of
the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of
acquisition, the fair value of the common shares of Company B held by the noncontrolling
interest was $100,000. Company B's balance sheet contained the following balances:
For the year ended December 31, 2009, Company B reported net income of $100,000 and
paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of
10 percent.
9-1
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2. Based on the preceding information, what will be the equity method income reported by
Company A from its investment in Company B during 2009?
A. $32,000
B. $30,000
C. $72,000
D. $48,000
4. Based on the preceding information, the entry to eliminate subsidiary preferred stock to
prepare the consolidated financial statements for Company A as of December 31, 2009, will
include:
A. a debit to Preferred Stock for $60,000.
B. a credit to Investment in Company B Preferred Stock for $40,000.
C. a debit to Retained Earnings for $40,000.
D. a credit to Noncontrolling Interest for $40,000.
9-2
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Winner Corporation acquired 80 percent of the common shares and 70 percent of the
preferred shares of First Corporation at underlying book value on January 1, 2009. At that
date, the fair value of the noncontrolling interest in First's common stock was equal to 20
percent of the book value of its common stock. First's balance sheet at the time of acquisition
contained the following balances:
The preferred shares are cumulative and have a 10 percent annual dividend rate and are four
years in arrears on January 1, 2009. All of the $5 par value preferred shares are callable at $6
per share. During 2009, First reported net income of $100,000 and paid no dividends.
5. Based on the preceding information, what is First's contribution to consolidated net income
for 2009?
A. $80,000
B. $100,000
C. $90,000
D. $50,000
6. Based on the preceding information, what will be the amount of income to be assigned to
the noncontrolling interest in the 2009 consolidated income statement?
A. $21,000
B. $18,000
C. $23,000
D. $15,000
9-3
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8. Based on the preceding information, what is the portion of First's retained earnings
assignable to its preferred shareholders on January 1, 2009?
A. $40,000
B. $50,000
C. $60,000
D. $70,000
9. Based on the information provided, what is the book value of the common stock on January
1, 2009?
A. $410,000
B. $360,000
C. $390,000
D. $350,000
10. Based on the information provided, what amount will be reported as the noncontrolling
interest in the consolidated balance sheet on January 1, 2009?
A. $70,000
B. $130,000
C. $118,000
D. $142,000
9-4
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During 2009, A Company reported operating income of $175,000 and paid dividends of
$50,000. B Company reported operating income of $125,000 and paid dividends of $40,000.
C Company reported net income of $100,000 and paid dividends of $25,000.
11. Based on the information provided, what amount of consolidated net income will A
Company report for 2009?
A. $175,000
B. $285,000
C. $356,250
D. $400,000
12. Based on the information provided, the equity-method income recorded by A Company
is:
A. $125,000
B. $200,000
C. $170,000
D. $181,250
9-5
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13. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the consolidated income statement for 2009?
A. $55,000
B. $25,000
C. $30,000
D. $43,750
14. Based on the information provided, what amount of income will be assigned to the
controlling interest in the consolidated income statement for 2009?
A. $400,000
B. $345,000
C. $285,000
D. $175,000
15. Based on the information provided, what amount of consolidated net income will X
Corporation report for 2008?
A. $148,750
B. $175,000
C. $150,000
D. $158,750
9-6
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16. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the 2008 consolidated income statement?
A. $23,750
B. $25,000
C. $18,000
D. $33,750
17. Based on the information provided, what amount of income will be assigned to the
controlling interest in the 2008 consolidated income statement?
A. $130,750
B. $150,000
C. $141,250
D. $157,000
18. Based on the information provided, what amount will be reported as dividends declared in
X Corporation's 2008 consolidated retained earnings statement?
A. $30,000
B. $50,000
C. $60,000
D. $0
Janet Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at
book value. The fair value of the noncontrolling interest at the date of acquisition was equal to
25 percent of the book value of Slider Corporation. On December 31, 2008, Slider
Corporation acquired 25 percent of Janet Corporation's stock. Slider records dividends
received from Janet as nonoperating income. In 2009, Janet reported operating income of
$100,000 and paid dividends of $40,000. During the same year, Slider reported operating
income of $75,000 and paid $20,000 in dividends.
9-7
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19. Based on the information provided, what amount will be reported as consolidated net
income for 2009 under the treasury stock method?
A. $150,000
B. $100,000
C. $75,000
D. $175,000
20. Based on the information provided, what amount will be reported as income assigned to
the controlling interest for 2009 under the treasury stock method?
A. $18,750
B. $156,250
C. $175,000
D. $100,000
Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007,
for $225,000. At that date, the fair value of the noncontrolling interest was $75,000. Meta's
balance sheet contained the following amounts at the time of the combination:
During each of the next three years, Meta reported net income of $30,000 and paid dividends
of $10,000. On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for
$60,000 in cash. Vision used the basic equity method in accounting for its ownership of Meta
Company.
9-8
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21. Based on the preceding information, what was the balance in the investment account
reported by Vision on January 1, 2009, before its sale of shares?
A. $225,000
B. $285,000
C. $245,000
D. $255,000
22. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares:
A. Cash will be credited for $60,000.
B. Investment in Meta Stock will be credited for $51,000.
C. Investment in Meta Stock will be credited for $60,000.
D. Additional Paid-in Capital will be credited for $45,000.
23. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares, Additional Paid-in Capital will be credited for:
A. $0.
B. $15,000.
C. $9,000.
D. $45,000.
24. Based on the preceding information, in the elimination entries to complete a full
consolidation workpaper for 2009, Income to Noncontrolling Interest will be credited for:
A. $12,000.
B. $7,500.
C. $8,000.
D. $2,500.
25. Based on the preceding information, in the eliminating entries to complete a full
consolidation workpaper, Investment in Meta Stock at January 1, 2009, will be credited for:
A. $255,000.
B. $240,000.
C. $204,000.
D. $136,000.
9-9
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Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008,
for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On
January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for
$32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the basic equity
method in accounting for its investment in Trevor and amortizes all differentials over 5 years
against the related investment income. All differentials are assigned to patents in the
consolidated financial statements.
26. Based on the preceding information, Trevor Company's net income for 2009 and 2010
are:
A. $10,000 and $20,000 respectively.
B. $25,000 and $35,000 respectively.
C. $35,000 and $45,000 respectively.
D. $25,000 and $45,000 respectively.
9-10
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27. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2009?
A. $164,500
B. $157,500
C. $165,000
D. $168,000
28. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2010?
A. $211,500
B. $218,000
C. $173,000
D. $216,000
29. Based on the preceding information, in the eliminating entry to assign differential and
amortize patents for the year:
A. Differential will be credited for $10,000.
B. Amortization Expense will be credited for $2,000.
C. Amortization Expense will be debited for $1,000.
D. Patents will be debited for $10,000.
9-11
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Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 2005,
at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest
was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on
January 1, 2008, contained the following balances:
On January 1, 2008, Movie acquired 5,000 of its own $2 par value common shares from
Nonaffiliated Corporation for $6 per share.
30. Based on the preceding information, what is the increase in the book value of the equity
attributable to the parent as a result of the repurchase of shares by Movie Corporation?
A. $19,375
B. $6,125
C. $2,625
D. $9,000
9-12
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31. Based on the preceding information, what will be the journal entry to be recorded on
Cinema Company's books to recognize the change in the book value of the shares it holds?
A. Option A
B. Option B
C. Option C
D. Option D
32. Based on the preceding information, the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares will include:
A. a credit to Noncontrolling Interest for $19,375.
B. a credit to Additional Paid-In Capital for $75,000.
C. a debit to Treasury Shares for $30,000.
D. a credit to Investment in Movie stock for $6,125.
33. Based on the preceding information, in the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares, Investment in
Movie stock will be credited for:
A. $165,625.
B. $135,625.
C. $185,000.
D. $155,000.
9-13
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On January 1, 2009, Bricks declares a stock dividend of 9,000 shares on its $5 par value
common stock. The current market price per share of Bricks stock on January 1, 2009, is $20.
34. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Additional Paid-In Capital for:
A. $50,000.
B. $95,000.
C. $230,000.
D. $185,500.
35. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Retained Earnings for:
A. $200,000
B. $65,000
C. $155,000
D. $20,000
9-14
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36. Assume instead that Bricks declared a stock dividend of 3,000 shares on its $5 par value
common stock. The investment elimination entry required to prepare a consolidated balance
sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In
Capital for:
A. $65,000.
B. $95,000.
C. $50,000.
D. $110,000.
37. Assume that Bricks declared a stock dividend of 3,000 shares on its $5 par value common
stock. The investment elimination entry required to prepare a consolidated balance sheet
immediately after the stock dividend is issued will include a debit to Retained Earnings for:
A. $185,000.
B. $65,000.
C. $155,000.
D. $140,000.
9-15
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Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred
shares of Stanley Company, all acquired at underlying book value on January 1, 2008. At that
date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25
percent of the book value of its common stock. The balance sheets of Micron and Stanley
immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 2008, Stanley
reports net income of $40,000 and pays no dividends. Micron reports income from its separate
operations of $75,000 and pays dividends of $30,000 during 2008.
38. Based on the preceding information, what is the total noncontrolling interest reported in
the consolidated balance sheet as of January 1, 2008?
A. $80,000
B. $40,000
C. $50,000
D. $60,000
9-16
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39. Based on the preceding information, what is the income assigned to the noncontrolling
interest in the 2008 consolidated income statement?
A. $10,000
B. $7,000
C. $11,800
D. $4,800
40. Based on the preceding information, what amount of income is attributable to the
controlling interest in the consolidated income statement for 2008?
A. $75,000
B. $105,000
C. $96,000
D. $103,200
41. Based on the preceding information, what is the total stockholders' equity reported in the
consolidated balance sheet as of January 1, 2008?
A. $450,000
B. $530,000
C. $490,000
D. $370,000
42. Based on the preceding information, what amount is reported as preferred stock
outstanding reported in the consolidated balance sheet as of January 1, 2008?
A. $0
B. $40,000
C. $50,000
D. $44,000
Essay Questions
9-17
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The company is considering a 3-for-1 stock split, a stock dividend of 7,000 shares, or a stock
dividend of 2,000 shares on its $5 par value common stock. The current market price per
share of Agro stock on January 1, 2009, is $15.
Required:
Give the investment elimination entry required to prepare a consolidated balance sheet at the
close of business on January 1, 2009, for each of the alternative transactions under
consideration by Agro Corporation.
9-18
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9-19
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45. On January 1, 2008, Orion Company acquired 70 percent of Simplex Company's stock at
underlying book value. At that date, the fair value of the noncontrolling interest was equal to
30 percent of the book value of Simplex Company. On December 31, 2009, Simplex acquired
15 percent of Orion's stock. Balance sheets for the two companies on December 31, 2009, are
as follows:
Required:
Assuming that the treasury stock method is used in reporting Orion's shares held by Simplex,
prepare a consolidated balance sheet workpaper and consolidated balance sheet for December
31, 2009.
9-20
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9-21
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Index Company's net income was earned evenly throughout the year. Both companies
declared and paid their dividends on December 31, 2008. Portfolio uses the basic equity
method in accounting for its investment in Index.
Required:
1) Prepare the elimination entries needed to complete a full consolidation workpaper for 2008.
2) Prepare a consolidation workpaper for 2008.
9-22
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9-23
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On January 1, 2009, Company A acquired 80 percent of the common stock and 60 percent of
the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of
acquisition, the fair value of the common shares of Company B held by the noncontrolling
interest was $100,000. Company B's balance sheet contained the following balances:
For the year ended December 31, 2009, Company B reported net income of $100,000 and
paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of
10 percent.
2. Based on the preceding information, what will be the equity method income reported by
Company A from its investment in Company B during 2009?
A. $32,000
B. $30,000
C. $72,000
D. $48,000
AACSB: Analytic
AICPA: Measurement
AACSB: Analytic
AICPA: Measurement
9-24
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4. Based on the preceding information, the entry to eliminate subsidiary preferred stock to
prepare the consolidated financial statements for Company A as of December 31, 2009, will
include:
A. a debit to Preferred Stock for $60,000.
B. a credit to Investment in Company B Preferred Stock for $40,000.
C. a debit to Retained Earnings for $40,000.
D. a credit to Noncontrolling Interest for $40,000.
AACSB: Analytic
AICPA: Measurement
Winner Corporation acquired 80 percent of the common shares and 70 percent of the
preferred shares of First Corporation at underlying book value on January 1, 2009. At that
date, the fair value of the noncontrolling interest in First's common stock was equal to 20
percent of the book value of its common stock. First's balance sheet at the time of acquisition
contained the following balances:
The preferred shares are cumulative and have a 10 percent annual dividend rate and are four
years in arrears on January 1, 2009. All of the $5 par value preferred shares are callable at $6
per share. During 2009, First reported net income of $100,000 and paid no dividends.
9-25
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5. Based on the preceding information, what is First's contribution to consolidated net income
for 2009?
A. $80,000
B. $100,000
C. $90,000
D. $50,000
AACSB: Analytic
AICPA: Measurement
6. Based on the preceding information, what will be the amount of income to be assigned to
the noncontrolling interest in the 2009 consolidated income statement?
A. $21,000
B. $18,000
C. $23,000
D. $15,000
AACSB: Analytic
AICPA: Measurement
AACSB: Analytic
AICPA: Measurement
9-26
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8. Based on the preceding information, what is the portion of First's retained earnings
assignable to its preferred shareholders on January 1, 2009?
A. $40,000
B. $50,000
C. $60,000
D. $70,000
AACSB: Analytic
AICPA: Measurement
9. Based on the information provided, what is the book value of the common stock on January
1, 2009?
A. $410,000
B. $360,000
C. $390,000
D. $350,000
AACSB: Analytic
AICPA: Measurement
10. Based on the information provided, what amount will be reported as the noncontrolling
interest in the consolidated balance sheet on January 1, 2009?
A. $70,000
B. $130,000
C. $118,000
D. $142,000
AACSB: Analytic
AICPA: Measurement
9-27
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During 2009, A Company reported operating income of $175,000 and paid dividends of
$50,000. B Company reported operating income of $125,000 and paid dividends of $40,000.
C Company reported net income of $100,000 and paid dividends of $25,000.
11. Based on the information provided, what amount of consolidated net income will A
Company report for 2009?
A. $175,000
B. $285,000
C. $356,250
D. $400,000
AACSB: Analytic
AICPA: Measurement
9-28
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12. Based on the information provided, the equity-method income recorded by A Company
is:
A. $125,000
B. $200,000
C. $170,000
D. $181,250
AACSB: Analytic
AICPA: Measurement
13. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the consolidated income statement for 2009?
A. $55,000
B. $25,000
C. $30,000
D. $43,750
AACSB: Analytic
AICPA: Measurement
14. Based on the information provided, what amount of income will be assigned to the
controlling interest in the consolidated income statement for 2009?
A. $400,000
B. $345,000
C. $285,000
D. $175,000
AACSB: Analytic
AICPA: Measurement
9-29
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15. Based on the information provided, what amount of consolidated net income will X
Corporation report for 2008?
A. $148,750
B. $175,000
C. $150,000
D. $158,750
AACSB: Analytic
AICPA: Measurement
16. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the 2008 consolidated income statement?
A. $23,750
B. $25,000
C. $18,000
D. $33,750
AACSB: Analytic
AICPA: Measurement
9-30
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17. Based on the information provided, what amount of income will be assigned to the
controlling interest in the 2008 consolidated income statement?
A. $130,750
B. $150,000
C. $141,250
D. $157,000
AACSB: Analytic
AICPA: Measurement
18. Based on the information provided, what amount will be reported as dividends declared in
X Corporation's 2008 consolidated retained earnings statement?
A. $30,000
B. $50,000
C. $60,000
D. $0
AACSB: Analytic
AICPA: Measurement
Janet Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at
book value. The fair value of the noncontrolling interest at the date of acquisition was equal to
25 percent of the book value of Slider Corporation. On December 31, 2008, Slider
Corporation acquired 25 percent of Janet Corporation's stock. Slider records dividends
received from Janet as nonoperating income. In 2009, Janet reported operating income of
$100,000 and paid dividends of $40,000. During the same year, Slider reported operating
income of $75,000 and paid $20,000 in dividends.
19. Based on the information provided, what amount will be reported as consolidated net
income for 2009 under the treasury stock method?
A. $150,000
B. $100,000
C. $75,000
D. $175,000
AACSB: Analytic
AICPA: Measurement
9-31
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20. Based on the information provided, what amount will be reported as income assigned to
the controlling interest for 2009 under the treasury stock method?
A. $18,750
B. $156,250
C. $175,000
D. $100,000
AACSB: Analytic
AICPA: Measurement
Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007,
for $225,000. At that date, the fair value of the noncontrolling interest was $75,000. Meta's
balance sheet contained the following amounts at the time of the combination:
During each of the next three years, Meta reported net income of $30,000 and paid dividends
of $10,000. On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for
$60,000 in cash. Vision used the basic equity method in accounting for its ownership of Meta
Company.
9-32
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21. Based on the preceding information, what was the balance in the investment account
reported by Vision on January 1, 2009, before its sale of shares?
A. $225,000
B. $285,000
C. $245,000
D. $255,000
AACSB: Analytic
AICPA: Measurement
22. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares:
A. Cash will be credited for $60,000.
B. Investment in Meta Stock will be credited for $51,000.
C. Investment in Meta Stock will be credited for $60,000.
D. Additional Paid-in Capital will be credited for $45,000.
AACSB: Analytic
AICPA: Measurement
23. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares, Additional Paid-in Capital will be credited for:
A. $0.
B. $15,000.
C. $9,000.
D. $45,000.
AACSB: Analytic
AICPA: Measurement
9-33
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24. Based on the preceding information, in the elimination entries to complete a full
consolidation workpaper for 2009, Income to Noncontrolling Interest will be credited for:
A. $12,000.
B. $7,500.
C. $8,000.
D. $2,500.
AACSB: Analytic
AICPA: Measurement
25. Based on the preceding information, in the eliminating entries to complete a full
consolidation workpaper, Investment in Meta Stock at January 1, 2009, will be credited for:
A. $255,000.
B. $240,000.
C. $204,000.
D. $136,000.
AACSB: Analytic
AICPA: Measurement
9-34
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Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008,
for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On
January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for
$32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the basic equity
method in accounting for its investment in Trevor and amortizes all differentials over 5 years
against the related investment income. All differentials are assigned to patents in the
consolidated financial statements.
26. Based on the preceding information, Trevor Company's net income for 2009 and 2010
are:
A. $10,000 and $20,000 respectively.
B. $25,000 and $35,000 respectively.
C. $35,000 and $45,000 respectively.
D. $25,000 and $45,000 respectively.
AACSB: Analytic
AICPA: Measurement
9-35
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27. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2009?
A. $164,500
B. $157,500
C. $165,000
D. $168,000
AACSB: Analytic
AICPA: Measurement
28. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2010?
A. $211,500
B. $218,000
C. $173,000
D. $216,000
AACSB: Analytic
AICPA: Measurement
29. Based on the preceding information, in the eliminating entry to assign differential and
amortize patents for the year:
A. Differential will be credited for $10,000.
B. Amortization Expense will be credited for $2,000.
C. Amortization Expense will be debited for $1,000.
D. Patents will be debited for $10,000.
AACSB: Analytic
AICPA: Measurement
9-36
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Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 2005,
at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest
was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on
January 1, 2008, contained the following balances:
On January 1, 2008, Movie acquired 5,000 of its own $2 par value common shares from
Nonaffiliated Corporation for $6 per share.
30. Based on the preceding information, what is the increase in the book value of the equity
attributable to the parent as a result of the repurchase of shares by Movie Corporation?
A. $19,375
B. $6,125
C. $2,625
D. $9,000
AACSB: Analytic
AICPA: Measurement
9-37
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31. Based on the preceding information, what will be the journal entry to be recorded on
Cinema Company's books to recognize the change in the book value of the shares it holds?
A. Option A
B. Option B
C. Option C
D. Option D
AACSB: Analytic
AICPA: Measurement
32. Based on the preceding information, the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares will include:
A. a credit to Noncontrolling Interest for $19,375.
B. a credit to Additional Paid-In Capital for $75,000.
C. a debit to Treasury Shares for $30,000.
D. a credit to Investment in Movie stock for $6,125.
AACSB: Analytic
AICPA: Measurement
9-38
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33. Based on the preceding information, in the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares, Investment in
Movie stock will be credited for:
A. $165,625.
B. $135,625.
C. $185,000.
D. $155,000.
AACSB: Analytic
AICPA: Measurement
On January 1, 2009, Bricks declares a stock dividend of 9,000 shares on its $5 par value
common stock. The current market price per share of Bricks stock on January 1, 2009, is $20.
9-39
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34. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Additional Paid-In Capital for:
A. $50,000.
B. $95,000.
C. $230,000.
D. $185,500.
AACSB: Analytic
AICPA: Measurement
35. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Retained Earnings for:
A. $200,000
B. $65,000
C. $155,000
D. $20,000
AACSB: Analytic
AICPA: Measurement
36. Assume instead that Bricks declared a stock dividend of 3,000 shares on its $5 par value
common stock. The investment elimination entry required to prepare a consolidated balance
sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In
Capital for:
A. $65,000.
B. $95,000.
C. $50,000.
D. $110,000.
AACSB: Analytic
AICPA: Measurement
9-40
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37. Assume that Bricks declared a stock dividend of 3,000 shares on its $5 par value common
stock. The investment elimination entry required to prepare a consolidated balance sheet
immediately after the stock dividend is issued will include a debit to Retained Earnings for:
A. $185,000.
B. $65,000.
C. $155,000.
D. $140,000.
AACSB: Analytic
AICPA: Measurement
9-41
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Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred
shares of Stanley Company, all acquired at underlying book value on January 1, 2008. At that
date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25
percent of the book value of its common stock. The balance sheets of Micron and Stanley
immediately after the acquisition contained these balances:
Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 2008, Stanley
reports net income of $40,000 and pays no dividends. Micron reports income from its separate
operations of $75,000 and pays dividends of $30,000 during 2008.
38. Based on the preceding information, what is the total noncontrolling interest reported in
the consolidated balance sheet as of January 1, 2008?
A. $80,000
B. $40,000
C. $50,000
D. $60,000
AACSB: Analytic
AICPA: Measurement
9-42
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39. Based on the preceding information, what is the income assigned to the noncontrolling
interest in the 2008 consolidated income statement?
A. $10,000
B. $7,000
C. $11,800
D. $4,800
AACSB: Analytic
AICPA: Measurement
40. Based on the preceding information, what amount of income is attributable to the
controlling interest in the consolidated income statement for 2008?
A. $75,000
B. $105,000
C. $96,000
D. $103,200
AACSB: Analytic
AICPA: Measurement
41. Based on the preceding information, what is the total stockholders' equity reported in the
consolidated balance sheet as of January 1, 2008?
A. $450,000
B. $530,000
C. $490,000
D. $370,000
AACSB: Analytic
AICPA: Measurement
9-43
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42. Based on the preceding information, what amount is reported as preferred stock
outstanding reported in the consolidated balance sheet as of January 1, 2008?
A. $0
B. $40,000
C. $50,000
D. $44,000
AACSB: Analytic
AICPA: Measurement
Essay Questions
9-44
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The company is considering a 3-for-1 stock split, a stock dividend of 7,000 shares, or a stock
dividend of 2,000 shares on its $5 par value common stock. The current market price per
share of Agro stock on January 1, 2009, is $15.
Required:
Give the investment elimination entry required to prepare a consolidated balance sheet at the
close of business on January 1, 2009, for each of the alternative transactions under
consideration by Agro Corporation.
9-45
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AACSB: Analytic
AICPA: Measurement
9-46
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9-47
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3) Eliminating entries:
9-48
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9-49
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AACSB: Analytic
AICPA: Measurement
9-50
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45. On January 1, 2008, Orion Company acquired 70 percent of Simplex Company's stock at
underlying book value. At that date, the fair value of the noncontrolling interest was equal to
30 percent of the book value of Simplex Company. On December 31, 2009, Simplex acquired
15 percent of Orion's stock. Balance sheets for the two companies on December 31, 2009, are
as follows:
Required:
Assuming that the treasury stock method is used in reporting Orion's shares held by Simplex,
prepare a consolidated balance sheet workpaper and consolidated balance sheet for December
31, 2009.
9-51
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9-52
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AACSB: Analytic
AICPA: Measurement
9-53
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Index Company's net income was earned evenly throughout the year. Both companies
declared and paid their dividends on December 31, 2008. Portfolio uses the basic equity
method in accounting for its investment in Index.
Required:
1) Prepare the elimination entries needed to complete a full consolidation workpaper for 2008.
2) Prepare a consolidation workpaper for 2008.
9-54
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9-56
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AACSB: Analytic
AICPA: Measurement
9-57