Name: Date:

1. Consolidated FS are based on the assumption that they represent the financial position and
operating results of...

A. only the parent company, with limited supplementary data disclosed regarding subsidiaries
B. a single economic entity
C. a single legal entity
D. only the subsidiary companies, with limited supplementary data disclosed regarding the parent

2. The consolidation of FS achieves the objective of representing a parent and its subsidiaries as a
single economic entity. This stresses which of the following accounting concepts:

A. Materiality
B. Revenue Recognition
C. Transaction Independence
D. Substance Over Form

3. If the parent company uses the complete equity method when accounting for its wholly-pwned
subsidiary on its own books.

A. The subsidiary's separately reported income equals total consolidated income to the parent.
B. The parent's separately reported income plus the subsidiary's separately reported income equals
total consolidated income.
C. The parent's separately reported income equals the subsidiary's ending RE balance.
D. The parent's separately reported income equals consolidated income.

For items 4-5 & 6-7

Patty Co. Owns 70% of voting rights of Sterling Inc.

4-5. Assumes that Pratt purchases 8000 unit of inventory on November 10, 2017 at a cost of $6 per
unit. Pratt sells this inventory to Sterling on December 30,2018 for $8 per unit. Assume that none
of this inventory is sold Sterling to an unrelated prior to December 30, 2016.
At the end of intercompany sale of inventory, what amount would be credited to inventory at
Pratt Co. Books?
A. $64,000
B. No entry at book of Pratt Co.
C. $48,000
D. $ 16,000

6-7. Assuming that during 2017 Sterling sold to unrelated party, all 800 of inventory that had been
acquired from Pratt Co. on December 30, 2016. The selling price was $96,000. In the separate
books of Pratt Co. and Sterling Inc. what amount should be credited ti Cost of goods sold in Pratt
Co. books?
A. No entry necessary in Pratt Co. books
B. $64,000
C. $96,000
D. $ 162,000

Use the following information for the next three questions

On January 2, 1994, Pare Ci. acquired 75% of Kidd Co's outstanding common stock. On the
acquisition date, the book value of Kidd's assets and liabilities equaled their fair values. Non
controlling interest was measured using the proportionate share method. Selected balance sheet
data at December 31, 2015 is as follows:

Pare Kidd
Total assets 500,000 200,000

Liabilities 130,000 65,000

Common stock 140,000 56,000
Retained earnings 230,000 79,000
Total Liabilities and equity 500,000 200,000

During 2015, Pare and Kidd paid cash dividend of 30,000 and 5,000 respectively, to their
shareholders. There were no other intercompany transactions.

8-9 In December 31, 2015 consolidated balance sheet, what amount shoud be reported as non-
controlling interest in net assets?
A. 0
B. 30,000
C. 35,000
D. 105,000

10-11 In December 31, 2015, consolidated statement of retained earnings, what amount should be
reported as dividends paid?
A. 5,000
B. 25,000
C. 26,250
D. 30,000

12-13 In December 31, 2015 consolidated balance sheet, what amount shoud be reported as
common stock?
A. 140,000
B. 100,000
C. 50,000
D. 150,000

14. A newly acquired subsidiary had pre-existing goodwill on it's book. The parent company's
consolidating balance sheet will
A. Not show any value for the subsidiary's pre-existing goodwill
B. Treat the goodwill to similarly to any intangible asset.
C. Not show any value for the preexisting goodwill unless all other assets of the subsidiary are
stated at fair values.
D. Always show pre-existing goodwill of the subsidiary.

15. Intercompany sale of inventory where the NCI is affected?

A. Downstream
B. Horizontal
C. Upstream
D. None of the above

16. All of the following are the common intercompany transactions that should be eliminated
when preparing a consolidated financial statements except
A. Intercompany sale lf inventory
B. Intercompany sale of dividends
C. Intercompany sale of intangible asset
D. Intercompany sale of bond transactions

17. If the asset is subsequently sold to an unrelated party, the unamortized balance of deferred gain
or loss is recognized in
A. Other comprehensive income
B. Profit or loss
C. Balance sheet
D. Not recognizable

18. When the investment in subsidiary is measured using the equity method, the dividends
received from the subsidiary is recognized as
A. Reduction in the carrying amount of the investment
B. Reduction in the fair value of the investment
C. Addition in the carrying amount of the investment
D. Addition in the fair value of the investment

19. In intercompany bind transaction, bonds payable

A. Should be eliminated
B. Should recognized at fair value
C. Should recognized at carrying amount
D. Considered extinguished

20. Intercompany profit elimination entries in consolidation workpapers are prepared in order to
A. Nullify the effect of intercompany transactions in the consolidation statements
B. Defer intercomapany profits until realized
C. Allocate unrealized profits between controlling and non-controlling interest
D. Reduce consolidated income

Answer Key:

1. B. a single economic entity

2. D. Substance Over Form
3. D. The parent's separately reported income equals consolidated income.
4-5. C. $48,000 (8,000x6)
6-7. A. No entry necessary in Pratt Co. books
8-9. C
Kidd's net assets at FV, Dec 31, 2015 (180k-60k) 140,000
Multiply by: NCI % 25%
Total 35,000
Add: Goodwill to NCI acc. impairment losses -
Non-controlling interest in NA- Dec 31, 2015 35,000

10-11. D - same as parents dividends, since dividends paid by subsidiary are 100% eliminated.

12-13. A - same as parent

14. A. Not show any value for the subsidiary's pre-existing goodwill
15. C. Upstream
16. C. Intercompany sale of intangible asset
17. B. Profit or loss
18. A. Reduction in the carrying amount of the investment
19. D. Considered extinguished
20. B. Defer intercomapany profits until realized