1. Pet Company pays $1,440,000 for an 80% interest in Sit Corporation on December 31, 2011, when Sit’s net assets at book value and fair value are $1,600,000. Under entity theory, the noncontrolling interest at acquisition is:

(a) $288,000

(b) $320,000

(c) $360,000

(d) $400,000

2. Sat Corporation sold inventory items to its parent company, Pan Corporation, during 2011, and at December 31, 2011, Pan’s inventory included items acquired from Sat at a gross profit of $100,000. If Sat is an 80%-owned subsidiary of Pan, the amount of unrealized inventory profits to be eliminated in preparing the consolidated income statements of Pan and Subsidiary for 2011 is $80,000 under:

(a) Parent-company theory

(b) Traditional theory

(c) Entity theory

(d) The equity method of accounting

3. A parent company that applies the entity theory of consolidation in preparing its consolidated financial statements computed income from its 90%-owned subsidiary under the equity method of accounting as follows:

Equity in subsidiary income ($400,000 * 90%) ... $360,000

Patent amortization ($140,000 , 10 years * 90%) .... (12,600)

Income from subsidiary ............ $347,400

Given the foregoing information, noncontrolling interest share is:

(a) $40,000

(b) $38,600

(c) $36,000

(d) $34,600

Use the following information in answering questions 4 and 5:

Pad Corporation acquired an 80% interest in Sun Corporation on January 1, 2011, when Sun’s total stockholders’ equity was $1,680,000. The book values and fair values of Sun’s assets and liabilities were equal on this date.

At December 31, 2011, the consolidated balance sheet of Pad and Subsidiary shows unamortized patents from consolidation of $108,000, with a note that the patents are being amortized over a 10-year period.

4. If the entity theory of consolidation was used, the purchase price of the 80% interest in Sun must have been:

(a) $1,440,000

(b) $1,464,000

(c) $1,494,000

(d) $1,800,000

5. If the traditional theory of consolidation was used, the purchase price of the 80% interest in Sun must have been:

(a) $1,440,000

(b) $1,464,000

(c) $1,494,000

(d) $1,800,000