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Chapter 8 and 10

Question 1

1. On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez
Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's
stockholders' equity was as follows:
10% preferred stock, cumulative, $10 par value $50,000
Common stock 350,000
Retained earnings 100,000
Total stockholders' equity $500,000
On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000
and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials
associated with Parminter's investments.
How much should the Parminter's Investment in SanchezCommon Stock, change during 2014?
a. $5,000

b. $20,000

c. $25,000

d. $30,000

5 points
Question 2

1. On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez
Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's
stockholders' equity was as follows:
10% preferred stock, cumulative, $10 par value $50,000
Common stock 350,000
Retained earnings 100,000
Total stockholders' equity $500,000
On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000
and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials
associated with Parminter's investments.
What should be the noncontrolling interest share, common in the consolidated financial statements
of Parminter for the year ending December 31, 2014?
a. $ 5,000

b. $20,000

c. $25,000

d. $30,000

5 points
Question 3
1. On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez
Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's
stockholders' equity was as follows:
10% preferred stock, cumulative, $10 par value $50,000
Common stock 350,000
Retained earnings 100,000
Total stockholders' equity $500,000
On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000
and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials
associated with Parminter's investments.
What should be the noncontrolling interest share, preferred in the consolidated financial statements
of Parminter for the year ending December 31, 2014?
a. $1,000

b. $2,000

c. $4,000

d. $5,000

5 points
Question 4

1. A subsidiary has dilutive securities outstanding that include convertible bonds payable. The bonds are
convertible into the parent's common stock. When calculating consolidated diluted earnings per share, the
convertible bonds will affect
a. the numerator of consolidated diluted EPS only.

b. the denominator of consolidated diluted EPS only.

c. the numerator and denominator of consolidated diluted EPS.

d. None of the above will be affected.

5 points
Question 5

1. On January 1, 2014, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation
for $7,000,000 when Salter's stockholders' equity was as follows:
10% cumulative, nonparticipating preferred stock, $100 par,
with a $105 liquidation preference, callable at $110 $ 1,000,000
Common stock, $10 par value 6,000,000
Additional paid-in capital 1,500,000
Retained earnings 2,500,000
Total stockholders' equity $11,000,000
There were no preferred dividends in arrears on January 1, 2014. There are no book value/fair value
differentials. What is the implied goodwill for Salter based on Pardy's purchase price for Salter on January
1, 2014?
a. $ 0
b. $ 35,000

c. $ 70,000

d. $100,000

5 points
Question 6

1. Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31,
2013. A summary of the stockholders' equity for SOS at the end of 2013 and 2014 is as follows:
12/31/13 12/31/14
Capital stock, $10 par $600,000 $600,000
Additional paid-in capital 30,000 30,000
Retained Earnings 270,000 420,000
Total stockholders' equity $900,000 $1,050,000
2. On January 1, 2015, SOS sold 10,000 new shares of its $10 par value common stock for $45 per share.
3. If SOS sold the additional shares to the general public, Great's Investment in SOS account after the sale
would be ________. (Use four decimal places.)
a. $945,000

b. $1,157,100

c. $1,225,000

d. $1,245,000

5 points
Question 7

1. Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31,
2013. A summary of the stockholders' equity for SOS at the end of 2013 and 2014 is as follows:
12/31/13 12/31/14
Capital stock, $10 par $600,000 $600,000
Additional paid-in capital 30,000 30,000
Retained Earnings 270,000 420,000
Total stockholders' equity $900,000 $1,050,000
2.

3. If SOS sold the additional shares directly to Great, Great's Investment in SOS account after the sale would
be
a. $1,350,000.

b. $1,395,000.

c. $1,425,000.
d. $1,500,000.

5 points
Question 8

1. Consider a sale of stock by a subsidiary to parties outside the consolidated entity. This transaction requires
an adjustment of the parent's investment and additional paid-in capital accounts except when
a. the shares are sold below book value per share.

b. the shares are sold above book value per share.

c. the shares are sold at book value per share.

d. All of the above are correct.

5 points
Question 9

1. If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock
ownership (ratably), then
a. there will be an adjustment to additional paid-in capital if the stock is sold above book value.

b. there will be no adjustment to additional paid-in capital regardless whether the stock is sold above or
below book value.
c. there will be an adjustment to additional paid-in capital if the stock is sold below book value.

d. there will be the elimination of a gain.

5 points
Question 10

1. A subsidiary split its stock 2 for 1. Which of the following statements is false?
a. A stock split does not affect the amount of net assets of the subsidiary.

b. A stock split does not affect parent and noncontrolling interest ownership percentages.

c. A stock split does not affect consolidation procedures.

d. A 2 for 1 stock split decreases the number of shares outstanding.

5 points

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