Question 1On April 1, 2003, Penny Corporation sells land to its 60%-owned subsidiary, Sahl Corporation, at a $15,000 gain. The land is still held by Sahl on December 31, 2003. What is the effect of the intercompany sale of land on consolidated net income?Answer A -Consolidated net income will be the same as it would have been had the sale not occurred. B – Consolidated net income will be $15,000 less than it would have been had the sale not occurred. C- Consolidated net income will be $9,000 less than it would have been had the sale not occurred. D -Consolidated net income will be $15,000 greater than it would have been had the sale not occurred. Question 2Lorikeet Corporation acquired a 80% interest in Nectar Corporation on January 1, 2000 at a cost equal to book value and fair value. In the same year Nectar sold land costing $30,000 to Lorikeet for $50,000 On July 1, 2005, Lorikeet sold the land to an unrelated party for $110,000. What was the gain on the consolidated income statement?AnswerA-$48,000 B -$60,000 C-$64,000 D-$80,000 Question 3The material sale of inventory items by a parent company to an affiliated company:Answer A-Enters the consolidated revenue computation only if the transfer was the result of arm’s length bargaining. B-Affects consolidated net income under a periodic inventory system but not under perpetual inventory system. C-Does not result in consolidated income until the merchandise is sold to outside parties. D-Does not require a working paper adjustment if the merchandise was transferred at cost. Question 4Which one of the following events would not qualify under FASB Statement 142 as an event that may potentially impair goodwill?Answer A-Arrearages in preferred stock dividends that exceed one year. B-A decision by the board of directors to sell a reporting group. C-Unanticipated competition. D-A loss of key personnel.Question 5Paquin Corporation acquired a 60% interest in Swift Corporation on January 1, 2003, at book value equal to fair value. During 2003, Paquin sold merchandise that cost $90,000 to Swift for $126,000. One-third of this merchandise remained in Swift’s inventory at December 31, 2003. Swift reported net income of $80,000 for 2003. Paquin’s income from Swift for 2003 is:Answer A-$24,000 B-$33,600 C-$36,000 D-$40,800 Question 6A parent company regularly sells merchandise to its 70%-owned subsidiary. Which of the following statements describes the computation of non-controlling interest income?Answer A-(The subsidiary’s net income x 30%) + unrealized profits in the beginning inventory – unrealized profits in the ending inventory. B-(The subsidiary’s net income + unrealized profits in the beginning inventory – unrealized profits in the ending inventory) x 30%. C-The subsidiary’s net income times 30%.D-(The subsidiary’s net income + unrealized profits in the ending inventory – unrealized profits in the beginning inventory) x 30%. Question 7Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory items to its parent at a $24,000 profit in 2005. Penguin resold one-third of this inventory to outside entities. Squid reported net income of $100,000 for 2005. Minority interest income that will appear in the consolidated income statement for 2005 is A-$ 9,200.B-$10,000.C-$ 8,400.D-$10,800. Question 8Jeremy Corporation, a 90%-owned subsidiary of Pagliaro Corporation, sold inventory items to its parent at $12,000 profit in 2003. Pagliaro resold one-third of this inventory to outside entities. Jeremy reported net income of $50,000 for 2003. Non-controlling interest income that will appear in the consolidated income statement for 2003 is:A-$4,200 B-$4,600 C-$5,000 D-$5,400 Question 9Push-down accounting:AnswerA-Requires a subsidiary to use the same accounting principles as its parent company. B-Is required when the parent company uses the cost method to account for its investment in the subsidiary. C-Is required by the SEC if a subsidiary is wholly owned. D-Simplifies the consolidation process. Question 10State Corporation is a 30%-owned equity investee of Pico Corporation. During 2003, State declared $50,000 in dividends to be paid in 2004. How does the dividend declaration affect Pico’s balance sheet at December 31, 2003?Answer A-It decreases current assets. B-It increases current assets. C-It increases the Investment in State account. D-It decreases the Investment in State account. Question 11Which of the following will be debited to the Investment account when the equity method is used?AnswerA-Depreciation of excess purchase cost attributable to investee equipment. B-Investee net losses. C-Investee declaration of dividends. D-Investee net profits. Question 12Penny Corporation paid $200,000 for a 25% interest in Cindy Corporation’s common stock on January 1, 2002, but was not able to exercise significant influence over Cindy. During 2003, Penny reported income of $120,000, excluding its income from Cindy, and paid dividends of $50,000. Cindy reported net income of $40,000 during 2003 and paid dividends of $20,000. Penny should report net income for 2003 in the amount of:Answer A-$115,000 B-$120,000 C-$125,000 D-$130,000 Question 13Penny Corporation owns 90% of the outstanding voting stock of Sundial Company and Maxima Corporation owns the remaining 10% of Sundial’s voting stock. On the consolidated financial statements of Penny Corporation and Subsidiary, Maxima is:Answer A-An affiliate B-An associate C-An equity investee D-A non-controlling interest Question 14The income from an equity investee is reported on one line of the investor company’s income statement except when:Answer A-The cost method is used. B-The investee has extraordinary or other “below the line” items. C-The investor company is amortizing cost-book value differentials. D-The investor company changes from the cost to the equity method. Question 15In 2004, Parrot Company sold land to its subsidiary, Tree Corporation, for $12,000. It had a book value of $10,000. In the next year, Tree sold the land for $18,000 to an unaffiliated firm. The 2004 unrealized gainAnswer A-was deferred until 2006. B-was eliminated from consolidated net income by a working paper entry that credited land $2,000. C-made consolidated net income $2,000 less than it would have been had the sale not occurred. D-made consolidated net income $2,000 greater than it would have been had the sale not occurred. Question 16Ground Parrot Company completely owns Heathlands Inc. On January 2, 2005 Ground Parrot sold Heathlands machinery at its book value of $30,000. Ground Parrot had the machinery two years before selling it and used a five-year straight-line depreciation method, with zero salvage value. Heathlands will use a three-year straight-line method. In the 2005 consolidated income statement, the depreciation expenseAnswer A-Required no adjustment. B-Decreased by $4,000. C-Increased by $4,000 D-Increased by $30,000 Question 17On consolidated working papers, a subsidiary’s income hasAnswer A-to be reduced from beginning retained earnings.B-to be completely eliminated.C-only an entry in the parent company’s general ledger.D-to have an allocation between the noncontrolling interest share and the parent’s share (which is eliminated).Question 18Lindy Corporation owns a 40% interest in Belair Company, acquired several years ago at a cost equal to book value and fair value. Belair sells merchandise to Lindy for the first time in 2003. In computing income from the investee for 2003 under the equity method, Lindy uses the following equation:Answer A-40% of Belair’s income less 100% of the unrealized profit in Lindy’s ending inventory. B-40% of Belair’s income plus 100% of the unrealized profit in Lindy’s ending inventory.C-40% of Belair’s income less 40% of the unrealized profit in Lindy’s ending inventory. D-40% of Belair’s income plus 40% of the unrealized profit in Lindy’s ending inventory. Question 19In 2004, Parrot Company sold land to its subsidiary, Tree Corporation, for $12,000. It had a book value of $10,000. In the next year, Tree sold the land for $18,000 to an unaffiliated firm. Which of the following is correct?Answer A-No consolidation working paper entry was necessary in 2004. B-A consolidation working paper entry was required only if the subsidiary was less than 100% owned in 2004. C-A consolidation working paper entry is required each year until the land is sold outside the related parties. D-A consolidated working paper entry was required only if the land was held for resale in 2004. Question 20A business combination occurs when a company acquires a equity interest in another entity and has:Answer A-Control over the entity, irrespective of the percentage owned. B-100% ownership in the entity. C-More than 50% ownership in the entity. D-At least 20% ownership in the entity.