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An investor adjusts the investment account for the amortization of any difference between cost and book value under the a. cost method b. complete equity method c. partial equity method d. complete and partial equity method 2. Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to a. dividend income b. dividends declared S company c. equity in subsidiary income d. retained earnings S company 3. On the consolidated statement of cash flows, the parents acquisition of additional shares of the subsidiarys stock directly from the subsidiary is reported as a. an investment activity b. a financing activity c. an operating activity d. none of these 4. Under the cost method, the work paper entry to establish reciprocity. a. debits retained earnings S company b. credit retained earnings S company c. debit retained earnings P company d. credit retained earnings P company 5. Under the cost method, the investment account is reduced when a. there is a liquidating dividend b. the subsidiary declares a dividend c. the subsidiary incurs a net loss d. none of these 6. The parent company record its share of a subsidiarys income by a. crediting investment in S company under the partial equity method b. crediting equity in subsidiary income under both the cost and partial equity methods c. debiting equity in subsidiary income under the cost method d. none of these

7. In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the a. complete equity method b. cost method c. partial equity method d. complete and partial equity method 8. A parent company received dividends in excess of the parent companys share of the subsidiarys earnings subsequent to the date of the investment. How will the parent companys investment account be affected by those dividends under each of the following accounting methods? Cost method Partial equity method a. no effect no effect b. decrease no effect c. no effect decrease d. decrease decrease 9. Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent companys a. recorded net income b. recorded net income plus the subsidiarys recorded net income c. recorded net income plus the subsidiarys recorded net income d. Income from independent operations plus subsidiarys income resulting from transactions with outside parties. 10. In the preparation of a consolidated statements work paper, dividend income recognized by a parent company for dividends distributed by its subsidiary is a. Included with parent company income from other sources to constitute consolidated net income b. assigned as a component of the non-controlling interest c. allocated proportionately to consolidated net income and the non-controlling interest d. eliminated 11. In the preparation of the consolidated statement of cash flow using the indirect method of presenting cash flows from operating activities, the amount of the non-controlling interest in consolidated income is a. Combined with the controlling interest in consolidated net income. b. Deducted from the controlling interest in consolidated net income. c. Reported as a significant noncash investing and financing activity in the notes. d. Reported as a component of cash flows from financing activities.

12. 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 companys share of the subsidiarys earnings subsequent to the date of the investment. The amount the dividend income that should be reported in the parent companys separate income statement should be a. zero b. the total amount of dividends received this year c. the portion of the dividends received this year that were in excess of the parents share of subsidiarys earnings subsequent to the date of investment d. the portion of the dividends received this year that were NOT in excess of the parents share of subsidiarys earnings subsequent to the date of investment 13. Which one of the following describes a difference in how the equity method is applied under GAAP than under IFRS? a. The equity method is generally applied to limited partnership under IFRS for investments of more than 3 to 5%, whereas GAAP adopts a significant influence principle. b. IFRS requires uniform accounting policies, whereas GAAP does not. c. Significant influence is presumed if the investor has 20% or more of the voting rights in a corporate investee under GAAP, whereas IFRS adopts a facts and circumstances approach that looks beyond the voting rights percentage. d. GAAP requires consideration of potential voting rights on currently exercisable of convertible instruments, whereas IFRS does not. 14. When the implied value exceeds the aggregate values of identifiable net assets, the residual difference is accounted for as a. excess of implied over fair value b. a deferred credit c. difference between implied and fair value d. goodwill 15. Under which set of circumstances would it not be appropriate to assume the value the noncontrolling shares is the same as the controlling shares? a. the acquisition is for less than 100% of the subsidiary b. the fair value of the non-controlling shares can be inferred from the value implied by the acquisition price c. Active market prices for shares not obtained by the acquirer imply a different value d. The amount of the control premium cannot be determined

16. When the value implied by the purchase price of a subsidiary is in excess of the fair value of an identifiable net assets, the work paper entry to allocate the difference between implied and book value includes a 1. debit to difference between implied and book value 2. credit to excess of implied over fair value 3. credit to difference between implied and book value a. 1 c. 3 b. 2 d. both 1 and 2 17. If the fair value of the subsidiarys identifiable net assets exceeds both the book value and the fair value implied by the purchase price, the work paper entry to eliminate the investment account a. Debit excess of fair value over implied value b. Debit difference between implied and fair value c. Debit difference between implied and book value d. Credit difference between implied and book value 18. The entry to amortize the amount of difference between implied and book value allocated to an unspecified intangible is recorded 1. on the subsidiarys books 2. on the parents books 3. on the consolidated statements work paper a. 1 c. 3 b. 2 d. both 2 and 3 19. The excess of fair value over implied value must be allocated to reduce proportionally the fair values initially assigned to a. Current assets b. Noncurrent assets c. Both current and noncurrent assets d. None of the above 20. SEC requires the use of push down accounting when the ownership change is greater than a. 50% c. 90% b. 80% d. 95% 21. Under push down accounting, the work paper entry to eliminate the investment account includes a a. Debit to goodwill b. Debit to revaluation capital c. Credit to revaluation capital d. Debit to revaluation assets

22. In a business combination accounted for as an acquisition, how should the excess of fair value of identifiable net assets acquired over implied value be treated? a. Amortized as a credit to income over a period not to exceed forty years b. Amortized as a charge to expense over a period not to exceed forty years c. Amortized directly to retained earnings over a period not to exceed forty years d. Recognized as an ordinary gain in the year of acquisition 23. Goodwill represents the excess of the implied value of an acquired company over the a. Aggregate fair values of identifiable assets less liabilities assumed b. Aggregate fair values of tangible assets less liabilities assumed c. Aggregate fair values of intangible assets less liabilities assumed d. Book value of an acquired company 24. In preparing consolidated working papers, beginning retained earnings of the parent company will be adjusted in years subsequent to acquisition with an elimination entry whenever: a. A non-controlling interest exists b. It does not reflect the equity method c. The cost method has been used only d. The complete equity method is used 25. Dividends declared by the subsidiary are eliminated against dividend income recorded by the parent under the a. Partial equity method b. Equity method c. Cost method d. Equity and partial equity method 26. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary accounts will be included individually in the consolidated statements b. The consolidated retained earnings will not reflect the retained earnings of the unconsolidated subsidiary c. The consolidated retained earnings will be the same as if the subsidiary has been included in the consolidation d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income

27. Which of the following statements applying to the use of the equity method versus the cost method is true? a. The equity method is required when one firm owns 20% of more of the common stocks of another firm b. If no dividends were paid by the subsidiary, the investment accounts would have the same balance under both methods c. The method used has no significance to consolidated statements d. An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet 28. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent companys declared dividends and the total subsidiarys declared dividends b. Retained earnings equals the sum of the controlling interests separate retained earnings and the non-controlling interests separate retained earnings. c. Common stock equals the sum of the parent companys outstanding shares and the subsidiarys outstanding shares d. Net income equals the sum of the income distributed to the controlling interest and the income distributed to the non-controlling interest.