ACC 401 Week 7 Quiz – Strayer
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Quiz 6 Chapter 8
and 10
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.
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