Question 1

2 out of 2 points

On January 1, 2014, Panda Company purchased 25 % of Skill Companys common
stock; no goodwill resulted from the acquisition. Panda Company appropriately carries
the investment using the equity method of accounting and the balance in Pandas
investment account was $190,000 on December 31, 2014. Skill reported net income of
$120,000 for the year ended December 31, 2014 and paid dividends on its common
stock totaling $48,000 during 2014. How much did Panda pay for its 25% interest in
Skill?
Answer

Selected Answer:
$172,000
Correct Answer:
$172,000

Question 2
2 out of 2 points

Under the partial equity method, the entry to eliminate subsidiary income and dividends
includes a debit to
Answer

Selected Answer:
Equity in Subsidiary Income.
Correct Answer:
Equity in Subsidiary Income.

Question 3
2 out of 2 points

A parent company uses the partial equity method to account for an investment in
common stock of its subsidiary. A portion of the dividends received this year were in
excess of the parent companys share of the subsidiarys earnings subsequent to the date
of the investment. The amount of dividend income that should be reported in the parent
companys separate income statement should be
Answer

Selected Answer:
zero.
Correct Answer:
zero.

Question 4
2 out of 2 points

Pendleton Company acquired a 70% interest in Sunflower Company on December 31,
2013, for $380,000. During 2014 Sunflower had a net income of $30,000 and paid a
cash dividend of $10,000. Applying the cost method would give a debit balance in the
Investment in Stock of Sunflower Company account at the end of 2014 of:
Answer

Selected Answer:
$380,000.
Correct Answer:
$380,000.

Question 5
2 out of 2 points

Park Company acquired a 90% interest in Southwestern Company on December 31,
2013, for $320,000. During 2014 Southwestern had a net income of $22,000 and paid a
cash dividend of $7,000. Applying the cost method would give a debit balance in the
Investment in Stock of Southwestern Company account at the end of 2014 of:
Answer

Selected Answer:
$320,000
Correct Answer:
$320,000

Question 6
2 out of 2 points

Under the cost method, the investment account is reduced when
Answer

Selected Answer:
there is a liquidating dividend.
Correct Answer:
there is a liquidating dividend.

Question 7
2 out of 2 points

Under the cost method, the workpaper entry to establish reciprocity
Answer

Selected Answer:
credits Retained Earnings - P Company.

Correct Answer:
credits Retained Earnings - P Company.
Question 8
2 out of 2 points

Pall, Inc., owns 40% of the outstanding stock of Sibil Company. During 2014, Pall
received a $4,000 cash dividend from Sibil. What effect did this dividend have on Palls
2014 financial statements?
Answer

Selected Answer:
Decreased investment account.
Correct Answer:
Decreased investment account.

Question 9
2 out of 2 points

Pine, Inc. owns 40% of Supra Corporation. During the year, Supra had net earnings of
$200,000 and paid dividends of $50,000. Masters used the cost method of accounting.
What effect would this have on the investment account, net earnings, and retained
earnings, respectively?
Answer

Selected Answer:
understate, understate, understate
Correct Answer:
understate, understate, understate

Question 10
2 out of 2 points

In the preparation of a consolidated statement of cash flows using the indirect method of
presenting cash flows from operating activities, the amount of the noncontrolling interest
in consolidated income is
Answer

Selected Answer:
combined with the controlling interest in consolidated net income.
Correct Answer:
combined with the controlling interest in consolidated net income.

Question 11
2 out of 2 points

In the preparation of a consolidated statements workpaper, dividend income recognized
by a parent company for dividends distributed by its subsidiary is
Answer

Selected Answer:
eliminated.
Correct Answer:
eliminated.

Question 12
2 out of 2 points

P Company purchased 80% of the outstanding common stock of S Company on May 1,
2014, for a cash payment of $1,272,000. S Companys December 31, 2013 balance sheet
reported common stock of $800,000 and retained earnings of $540,000. During the
calendar year 2014, S Company earned $840,000 evenly throughout the year and
declared a dividend of $300,000 on November 1. What is the amount needed to establish
reciprocity under the cost method in the preparation of a consolidated workpaper on
December 31, 2015?
Answer

Selected Answer:
$208,000
Correct Answer:
$208,000

Question 13
2 out of 2 points

In years subsequent to the year of acquisition, an entry to establish reciprocity is made
under the
Answer

Selected Answer:
cost method.
Correct Answer:
cost method.

Question 14
2 out of 2 points

An investor adjusts the investment account for the amortization of any difference
between cost and book value under the
Answer

Selected Answer:
complete equity method.
Correct Answer:
complete equity method.

Question 15
2 out of 2 points

Consolidated net income for a parent company and its partially owned subsidiary is best
defined as the parent companys
Answer

Selected
Answer:

income from independent operations plus subsidiarys income resulting
from transactions with outside parties.
Correct
Answer:

income from independent operations plus subsidiarys income resulting
from transactions with outside parties.

Wednesday, July 30, 2014 6:06:32 PM EDT
OK