Grading Summary

These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. Date Taken: Time Spent: Points Received: # Of Questions: 16 4 6/3/2012 2 h , 59 min , 48 secs 33 / 90 (36.7%) # Correct: 11 N/A

Question Type: Multiple Choice Short

Grade Details

Page: 1 2
1. Question : (TCO 3) When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?

Student Answer: If majority control is still maintained, consolidated financial statements are still required (Find the answer in Chapter 4)

If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required (Find the answer in Chapter 4)

If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required

If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required (Find the answer in Chapter 4)

A gain or loss calculation must be prepared if control is lost (Find the answer in Chapter 4)

Points Received: Comments:

3 of 3

1887070003 0
2. Question :

MultipleChoice 1887070003

14 MultipleChoice

True 14

(TCO 3) Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2009 and an additional 10% on April 1, 2010. Total annual amortization of $6,000 relates to the first acquisition. George reports the following figures for 2010:

Without regard for this investment, Keefe earns $300,000 in net income during 2010. All net income is earned evenly throughout the year. What is the controlling interest in consolidated net income for 2010? Student Answer: $373,300 (Find the answer in Chapter 4)

$372,850

$371,500 (Find the answer in Chapter 4)

$376,000 (Find the answer in Chapter 4)

$372,805 (Find the answer in Chapter 4)

Points Received: Comments:

0 of 3

1887070004 0
3. Question :

MultipleChoice 1887070004

5 MultipleChoice

False 5

(TCO 3) When a parent uses the equity method throughout the year to account for investment in a subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet?

Student Answer: Parent company net income equals controlling interest in consolidated net income (Find the answer in Chapter 4)

Parent company retained earnings equals consolidated retained earnings (Find the answer in Chapter 4)

Parent company total assets equals consolidated total assets

Parent company dividends equals consolidated dividends (Find the answer in Chapter 4)

Goodwill may need to be recorded (Find the answer in Chapter 4)

Points Received: Comments:

3 of 3

1887070005 0
4. Question :

MultipleChoice 1887070005

4 MultipleChoice

True 4

(TCO 3) When a parent uses the equity method throughout the year to account for investment in a subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet?

Student Answer: Parent company net income equals controlling interest in consolidated net income (Find the answer in Chapter 4)

Parent company retained earnings equals consolidated retained earnings (Find the answer in Chapter 4)

Parent company total assets equals consolidated total assets

Parent company dividends equals consolidated dividends (Find the answer in Chapter 4)

Goodwill may need to be recorded (Find the answer in Chapter 4)

Points Received: Comments:

3 of 3

1887070006 0
5. Question :

MultipleChoice 1887070006

11 MultipleChoice

True 11

(TCO 1) Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2008, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2008, how much income should Yaro recognize related to this investment?

Student Answer: $24,000 (Find the answer in Chapter 1)

$75,000

$99,000 (Find the answer in Chapter 1)

$51,000 (Find the answer in Chapter 1)

$80,000 (Find the answer in Chapter 1)

Points Received: Comments:

0 of 3

1887070007 0
6. Question : Student Answer:

MultipleChoice 1887070007

26 MultipleChoice

False 26

(TCO 1) An upstream sale of inventory is a sale

Between subsidiaries owned by a common parent (Find the answer in Chapter 1)

With the transfer of goods scheduled by contract to occur on a specified future date (Find the answer in Chapter 1)

In which the goods are physically transported by boat from a subsidiary to its parent (Find the answer in Chapter 1)

Made by the investor to the investee (Find the answer in Chapter 1)

Made by the investee to the investor

Points Received: Comments:

0 of 3

1887070008 0
7. Question :

MultipleChoice 1887070008

25 MultipleChoice

False 25

(TCO 1) Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2008 and paid dividends of $60,000 on October 1, 2008. How much income should Gaw recognize on this investment in 2008?

Student Answer: $16,500 (Find the answer in Chapter 1)

$9,000

$25,500 (Find the answer in Chapter 1)

$7,500 (Find the answer in Chapter 1)

$50,000 (Find the answer in Chapter 1)

Points Received: Comments:

3 of 3

1887070009 0
8. Question : Student Answer:

MultipleChoice 1887070009

27 MultipleChoice

True 27

(TCO 1) Which of the following results in an increase in the investment account when applying the equity method?

Unrealized gain on inter-company inventory transfers for the prior year

Unrealized gain on inter-company inventory transfers for the current year (Find the answer in Chapter 1)

Dividends paid by the investor (Find the answer in Chapter 1)

Dividends paid by the investee (Find the answer in Chapter 1)

Sale of a portion of the investment during the current year (Find the answer in Chapter 1)

Points Received: Comments:

0 of 3

1887070010 0
9. Question :

MultipleChoice 1887070010

24 MultipleChoice

False 24

(TCO 2) Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in

Student Answer: A worksheet

Lisa's general journal (Find the answer in Chapter 2)

Victoria's general journal (Find the answer in Chapter 2)

Victoria's secret consolidation journal (Find the answer in Chapter 2)

The general journals of both companies (Find the answer in Chapter 2)

Points Received: Comments:

3 of 3

1887070011 0
10. Question :

MultipleChoice 1887070011

35 MultipleChoice

True 35

(TCO 2) One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?

Student Answer: It is the only method allowed by the SEC (Find the answer in Chapter 3)

It is relatively easy to apply (Find the answer in Chapter 3)

It is the only internal reporting method allowed by generally accepted accounting principles (Find the answer in Chapter 3)

Operating results on the parent's financial records reflect consolidated totals

When the equity method is used, no worksheet entries are required in the consolidation process (Find the answer in Chapter 3)

Points Received: Comments:

3 of 3

1887070012 0
11. Question :

MultipleChoice 1887070012

32 MultipleChoice

True 32

(TCO 2) In a transaction accounted for using the purchase method where cost is less than fair value, which statement is true?

Student Answer: Negative goodwill is recorded (Find the answer in Chapter 2)

A deferred credit is recorded (Find the answer in Chapter 2)

Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit (Find the answer in Chapter 2)

Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain

Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain (Find the answer in Chapter 2)

Points Received: Comments:

3 of 3

1887070013 0
12. Question :

MultipleChoice 1887070013

41 MultipleChoice

True 41

(TCO 2) Which one of the following is a characteristic of a business combination that should be accounted for as a purchase?

Student Answer: The combination must involve the exchange of equity securities only (Find the answer in Chapter 2)

The transaction clearly establishes an acquisition price for the company being acquired

The two companies may be about the same size and it is difficult to determine the acquired company and the acquiring company (Find the answer in Chapter 2)

The transaction may be considered to be the uniting of the ownership interests of the companies involved (Find the answer in Chapter 2)

The acquired subsidiary must be smaller in size than the acquiring parent (Find the answer in Chapter 2)

Points Received: Comments:

3 of 3

1887070014 0
13. Question :

MultipleChoice 1887070014

40 MultipleChoice

True 40

(TCO 2) Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue Town Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2009, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock. This combination was accounted for as an acquisition. Immediately after the combination, what was the consolidated net assets?

Student Answer: $2,520,000 (Find the answer in Chapter 2)

$1,190,000 (Find the answer in Chapter 2)

$1,680,000 (Find the answer in Chapter 2)

$2,870,000

$2,030,000 (Find the answer in Chapter 2)

Points Received: Comments:

3 of 3

1887070015 0
14. Question :

MultipleChoice 1887070015

43 MultipleChoice

True 43

(TCO 3) One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?

Student Answer: It is the only method allowed by the SEC (Find the answer in Chapter 3)

It is relatively easy to apply

It is the only internal reporting method allowed by generally accepted accounting principles (Find the answer in Chapter 3)

Operating results on the parent's financial records reflect consolidated totals (Find the answer in Chapter 3)

When the initial method is used, no worksheet entries are required in the consolidation process (Find the answer in Chapter 3)

Points Received: Comments:

3 of 3

1887070016

MultipleChoice

49

True

0
15. Question :

1887070016

MultipleChoice

49

(TCO 3) Melvin Company applies the equity method to account for its investment in Lang Company. Lang reports income in excess of an extraordinary loss in 2009. Melvin acknowledges that it must separately disclose the extraordinary loss in consolidated financial statements. What entry would be made by Melvin Company to record Lang's results?

Student Answer: A above

B above (Find the answer in Chapter 3)

C above (Find the answer in Chapter 3)

D above (Find the answer in Chapter 3)

E above (Find the answer in Chapter 3)

Points Received: Comments:

3 of 3

1887070017 0
16. Question :

MultipleChoice 1887070017

55 MultipleChoice

True 55

(TCO 3) Which one of the following accounts would not appear on the consolidated financial statements at the end of the first fiscal period of the combination?

Student Answer: Goodwill (Find the answer in Chapter 3)

Equipment (Find the answer in Chapter 3)

Investment in Subsidiary

Common Stock (Find the answer in Chapter 3)

Additional Paid-In Capital (Find the answer in Chapter 3)

Points Received: Comments:

0 of 3

1887070018 0
Page: 1 2

MultipleChoice 1887070018

51 MultipleChoice

False 51

* Times are displayed in (GMT-07:00) Mountain Time (US & Canada) Grade Details

Page: 1 2
1. Question : (TCO 1) Jarmon Company owns twenty-three percent of the voting common stock of Kaleski Corp. Jarmon does not

have the ability to exercise significant influence over the operations of Kaleski. What method should Jarmon use to account for its investment in Kaleski? Explain why. Student Answer: If Jarmon Company do not have the ability to exercise significant influence over the operations of Kaleski they should use the Fair value method. The fair value method should be used because they do not exercise any significant influence over the operations and do not have any control over decisions made. In many instances, an investor possesses only a small percentage of an investee company's outstanding stock, perhaps only a few shares. Because of the limited level of ownership, the investor cannot expect to significantly affect the investee's operations or decision making. These shares are bought in anticipation of cash dividends or in appreciation of stock market values. Such investments are recorded at cost and periodically adjusted to fair value (Hoyle, Joe Ben. Fundamentals of Advanced Accounting with Dynamic Accounting PowerWeband CPA Success SG Coupon, 3rd Edition. McGraw-Hill Learning Solutions, 2009. p. 2). <vbk:0077589270#outline(1.2.1)> Initial investments in equity securities are recorded at cost and subsequently adjusted to fair value if fair value is readily determinable; otherwise, the investment remains at cost. Equity securities held for sale in the short term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.Equity securities not classified as trading securities are classified as available-for-sale securities and reported at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity as part of other comprehensive income.Dividends received are recognized as income for both trading and available-for-sale securities.These procedures are required for equity security investments when neither significant influence nor control is present. (Hoyle, Joe Ben. Fundamentals of Advanced Accounting with Dynamic Accounting PowerWeband CPA Success SG Coupon, 3rd Edition. McGraw-Hill Learning Solutions, 2009. p. 2). <vbk:0077589270#outline(1.2.1)> The fair-value method should be used. Generally, ownership of more than twenty percent of the voting common stock would be presumed to carry significant influence and would require use of the equity method. The equity method is not appropriate in this case because of the lack of the ability to exercise significant influence.

Instructor Explanation:

Points Received: Comments:

(not graded)

1887070019 0
2 . Ques tion :

Short 1887070019

1 Short

False 1

(TCO 2) The financial statements for Jode Inc. and Lakely Corp., just prior to their combination, for the year ending December 31, 2009, follow. Lakely's buildings were undervalued on its financial records by $60,000.

On December 31, 2009, Jode issued 54,000 new shares of its $10 par value stock to the owners of Lakely in exchange for all of the outstanding shares of that company. Jode's shares had a fair value on that date of $35 per share. Jode paid $34,000 to an investment bank for assisting in the arrangements. Jode also paid $24,000 in stock issuance costs. This combination is accounted for as an acquisition. Determine consolidated Paid-in Capital at December 31, 2009. Show all of your work. Showing only the answer will result in zero points. Studen t Answer : Investment in lakely corp 54,000*35.00= 1,890,000 common stock 54,000*10.00 = 540,000 expenses 34,000+24000= 58,000 Jodes paid in capital 2009 = 90,000 additional pd in capital from tramsaction 1,350,000 less stock assurance 24,000 consolidated paid in capital = 1,416,000

Instruct or Explan ation:

Points Received: Comments:

(not graded)

1887070020 0
3. Question :

Short 1887070020

13 Short

False 13

(TCO 3) On January 1, 2009, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's net assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000. Required: At what amount would the building appear on a consolidated balance sheet prepared immediately after the combination, assuming Elva used the acquisition method? Show all of your work. Showing only the answer will result in zero points.

Student Answer: Instructo r Explanat ion:

Fair value $150,000-$120,000=$30,000 $30,000 *.80% = 24,000. The amount of $24,000 would appear on the consolidated balance sheet prepared immediately following the combination.

Points Received: Comments:

(not graded)

1887070021 0
4. Question :

Short 1887070021

23 Short

False 23

(TCO 3) How does a parent corporation account for the sale of a portion of an investment in a subsidiary? Be specific

Student Answer:

If majority control is still maintained the financial statements must be prepared. A gain or loss must be prepared if control is lost. If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required. If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required. If control is maintained after the sale, then the difference between the sales proceeds and the book value is an adjustment to the parent's owners' equity (APIC). If control is not maintained, then such difference is a gain or loss on sale of investment. In either situation, the book value of the investment should be on the equity method basis in order to calculate the proper entry for the sale. Therefore, if the investment has been kept under the initial value or the partial equity method, the investor adjusts the book value of its investment in order to bring an initial value method or partial equity method investment basis to an equity method basis.

Instructor Explanation:

Points Received: Comments:

(not graded)

1887070022 0
Page: 1 2

Short 1887070022

18 Short

False 18

* Times are displayed in (GMT-07:00) Mountain Time (US & Canada)

2. Jodes paid in capital Additional paid in capital prior to the date of acquisition

$ 90,000

(54,000 shares issued x$25 per share in excess of par value) $ 1,350,000 Less stock issuance costs Consolidated paid in capital 3. book value of building Allocation of difference Fentons building for consolidation ($24000) $1,416,000 $120,000 $30,000 $150,000