ACC 401 Week 7 Quiz

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ACC 401 Week 7 Quiz,
ACC 401 Week 7 Quiz – Strayer

Chapter 8

Changes in Ownership Interest

Multiple Choice

1. When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year’s income sold to noncontrolling stockholders includes a

a. debit to Subsidiary Income Sold.

b. debit to Equity in Subsidiary Income.

c. credit to Equity in Subsidiary Income.

d. credit to Subsidiary Income Sold.

2. A parent company may increase its ownership interest in a subsidiary by

a. buying additional subsidiary shares from third parties.

b. buying additional subsidiary shares from the subsidiary.

c. having the subsidiary purchase its shares from third parties.

d. all of these.

3. If a portion of an investment is sold, the value of the shares sold is determined by using the:

1. first-in, first-out method.

2. average cost method.

3. specific identification method.

a. 1

b. 2

c. 3

d. 1 and 3

4. If a parent company acquires additional shares of its subsidiary’s stock directly from the subsidiary for a price less than their book value:

1. total noncontrolling book value interest increases.

2. the controlling book value interest increases.

3. the controlling book value interest decreases.

a. 1

b. 2

c. 3

d. 1 and 3

5. If a subsidiary issues new shares of its stock to noncontrolling stockholders, the book value of the parent’s interest in the subsidiary may

a. increase.

b. decrease.

c. remain the same.

d. increase, decrease, or remain the same.

6. The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets

a. increasing.

b. decreasing.

c. remaining unchanged.

d. increasing, decreasing, or remaining unchanged.

7. The computation of noncontrolling interest in net assets is made by multiplying the noncontrolling interest percentage at the

a. beginning of the year times subsidiary stockholders’ equity amounts.

b. beginning of the year times consolidated stockholders’ equity amounts.

c. end of the year times subsidiary stockholders’ equity amounts.

d. end of the year times consolidated stockholders’ equity amounts.

8. Under the partial equity method, the workpaper entry that reverses the effect of subsidiary income for the year includes a:

1. credit to Equity in Subsidiary Income.

2. debit to Subsidiary Income Sold.

3. debit to Equity in Subsidiary Income.

a. 1

b. 2

c. 3

d. both 1 and 2

9. Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan Company on January 1, 2010. Polk’s shares were purchased at book value when the fair values of Sloan’s assets and liabilities were equal to their book values. The stockholders’ equity of Sloan Company on January 1, 2010, consisted of the following:

Common stock, $15 par value $ 450,000

Other contributed capital 337,500

Retained earnings 712,500

Total $1,500,000

Sloan Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2010. If Polk Company purchased all 7,500 shares, the book entry to record the purchase should increase the Investment in Sloan Company account by

a. $562,500.

b. $590,625.

c. $675,000.

d. $150,000.

e. Some other account.

10. Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan Company on January 1, 2010. Polk’s shares were purchased at book value when the fair values of Sloan’s assets and liabilities were equal to their book values. The stockholders’ equity of Sloan Company on January 1, 2010, consisted of the following:

Common stock, $15 par value $ 450,000

Other contributed capital 337,500

Retained earnings 712,500

Total $1,500,000

Sloan Company sold 7,500 additional shares of common stock for $90 per share on January 2, 2010. If all 7,500 shares were sold to noncontrolling stockholders, the workpaper adjustment needed each time a workpaper is prepared should increase (decrease) the Investment in Sloan Company by

a. ($140,625).

b. $140,625.

c. ($112,500).

d. $192,000.

e. None of these.

11. On January 1, 2006, Parent Company purchased 32,000 of the 40,000 outstanding common shares of Sims Company for $1,520,000. On January 1, 2010, Parent Company sold 4,000 of its shares of Sims Company on the open market for $90 per share. Sims Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:

1/1/06 1/1/10

Common stock, $10 par value $400,000 $ 400,000

Other contributed capital 400,000 400,000

Retained earnings 800,000 1,400,000

$1,600,000 $2,200,000

The difference between implied and book value is assigned to Sims Company’s land. The amount of the gain on sale of the 4,000 shares that should be recorded on the books of Parent Company is

a. $68,000.

b. $170,000.

c. $96,000.

d. $200,000.

e. None of these.

12. On January 1, 2006, Patterson Corporation purchased 24,000 of the 30,000 outstanding common shares of Stewart Company for $1,140,000. On January 1, 2010, Patterson Corporation sold 3,000 of its shares of Stewart Company on the open market for $90 per share. Stewart Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:

1/1/06 1/1/10

Common stock, $10 par value $ 300,000 $ 300,000

Other contributed capital 300,000 300,000

Retained earnings 600,000 1,050,000

$1,200,000 $1,650,000

The difference between implied and book value is assigned to Stewart Company’s land. As a result of the sale, Patterson Corporation’s Investment in Stewart account should be credited for

a. $165,000.

b. $206,250.

c. $120,000.

d. $142,500.

e. None of these.

13. On January 1, 2006, Peterson Company purchased 16,000 of the 20,000 outstanding common shares of Swift Company for $760,000. On January 1, 2010, Peterson Company sold 2,000 of its shares of Swift Company on the open market for $90 per share. Swift Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:

1/1/06 1/1/10

Common stock, $10 par value $200,000 $ 200,000

Other contributed capital 200,000 200,000

Retained earnings 400,000 700,000

$800,000 $1,100,000

The difference between implied and book value is assigned to Swift Company’s land. Assuming no other equity transactions, the amount of the difference between implied and book value that would be added to land on a workpaper for the preparation of consolidated statements on December 31, 2010, would be

a. $120,000.

b. $115,000.

c. $105,000.

d. $84,000.

e. None of these.

14. On January 1 2010, Paulson Company purchased 75% of Shields Corporation for $500,000. Shields’ stockholders’ equity on that date was equal to $600,000 and Shields had 60,000 shares issued and outstanding on that date. Shields Corporation sold an additional 15,000 shares of previously unissued stock on December 31, 2010.

Assume that Paulson Company purchased the additional shares what would be their current percentage ownership on December 31, 2010?

a. 92%

b. 87%

c. 80%

d. 100%

15. On January 1 2010, Powder Mill Company purchased 75% of Selfine Company for $500,000. Selfine Company’s stockholders’ equity on that date was equal to $600,000 and Selfine Company had 60,000 shares issued and outstanding on that date. Selfine Company Corporation sold an additional 15,000 shares of previously unissued stock on December 31, 2010.

Assume Selfine Company sold the 15,000 shares to outside interests, Powder Mill Company’s percent ownership would be:

a. 33 1/3%

b. 60%

c. 75%

d. 80%

16. P Corporation purchased an 80% interest in S Corporation on January 1, 2010, at book value for $300,000. S’s net income for 2010 was $90,000 and no dividends were declared. On May 1, 2010, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000. What will be the Consolidated Gain on Sale and Subsidiary Income Sold for 2010?

Consolidated Gain on Sale Subsidiary Income Sold

a. $9,000 $6,000

b. $9,000 $15,000

c. $15,000 $6,000

d. $15,000 $15,000

17. P Corporation purchased an 80% interest in S Corporation on January 1, 2010, at book value for $300,000. S’s net income for 2010 was $90,000 and no dividends were declared. On May 1, 2010, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000. What would be the balance in the Investment of S Corporation account on December 31, 2010?

a. $300,000.

b. $225,000.

c. $279,000.

d. $261,000.

18. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased:

a. at a price equal to book value.

b. at a price below book value.

c. at a price above book value.

d. will not show an increase.

Use the following information for Questions 19-21.

On January 1, 2006, Perk Company purchased 16,000 of the 20,000 outstanding common shares of Self Company for $760,000. On January 1, 2010, Perk Company sold 2,000 of its shares of Self Company on the open market for $90 per share. Self Company’s stockholders’ equity on January 1, 2006, and January 1, 2010, was as follows:

1/1/06 1/1/10

Common stock, $10 par value $ 200,000 $ 200,000

Other contributed capital 200,000 200,000

Retained earnings 400,000 700,000

$800,000 $1,100,000

The difference between implied and book value is assigned to Self Company’s land.

19. The amount of the gain on sale of the 2,000 shares that should be recorded on the books of Perk Company is

a. $34,000.

b. $85,000.

c. $48,000.

d. $100,000.

e. None of these.

20. As a result of the sale, Perk Company’s Investment in Self account should be credited for

a. $110,000.

b. $137,500.

c. $80,000.

d. $95,000.

e. None of these.

21. Assuming no other equity transactions, the amount of the difference between implied and book value that would be added to land on a work paper for the preparation of consolidated statements on December 31, 2010 would be

$120,000.
$115,000.
$105,000.
$84,000.

22. On January 1, 2010, P Corporation purchased 75% of S Corporation for $500,000. S’s stockholders’ equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date. S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2010.

Assume that P Corporation purchased the additional shares what would be their current percentage ownership on December 31, 2010?

62 1/2%.
75%
79 1/6%
100%

23. On January 1, 2010, P Corporation purchased 75% of S Corporation for $500,000. S’s stockholders’ equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date. S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2010.

Assume S sold the 8,000 shares to outside interests, P’s percent ownership would be:

56 1/4%
62 1/2%
75%
79 1/6%

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