Select the correct answer for each of the following questions. 1. On January 1, 20X5, Post Company

Question:

Select the correct answer for each of the following questions.

1. On January 1, 20X5, Post Company purchased an 80 percent investment in Stake Company. The acquisition cost was equal to Post's equity in Stake's net assets at that date. On January 1, 20X5, Post and Stake had retained earnings of $\$ 500,000$ and $\$ 100,000$, respectively. During 20X5, Post had net income of $\$ 200,000$, which included its equity in Stake's earnings, and declared dividends of $\$ 50,000$; Stake had net income of $\$ 40,000$ and declared dividends of $\$ 20,000$; and there were no other intercompany transactions between the parent and subsidiary. On December $31,20 \times 5$, the consolidated retained earnings should be:

a. $\$ 650,000$.

b. $\$ 666,000$.

c. $\$ 766,000$.

d. $\$ 770,000$.

2. Consolidated financial statements are being prepared for a parent and its four subsidiaries that have intercompany loans of $\$ 100,000$ and intercompany profits of $\$ 300,000$. How much of these intercompany loans and profits should be eliminated?

image text in transcribed

3. On April 1, 20X8, Plum Inc. paid $\$ 1,700,000$ for all the issued and outstanding common stock of Long Corp. On that date, the costs and fair values of Long's recorded assets and liabilities were as follows:

image text in transcribed

In Plum's March 31, 20X9, consolidated balance sheet, what is the amount of goodwill that should be reported as a result of this business combination?

a. $\$ 360,000$.

b. $\$ 396,000$.

c. $\$ 400,000$.

d. $\$ 440,000$.
Items 4 and 5 are based on the following information:
On January 1, 20X8, Ritt Corporation purchased 80 percent of Shaw Corporation's $\$ 10$ par common stock for $\$ 975,000$. On this date, the carrying amount of Shaw's net assets was $\$ 1,000,000$. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $\$ 100,000$ in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $\$ 190,000$ and paid cash dividends totaling $\$ 125,000$.
4. In the January 1, 20X8, consolidated balance sheet, goodwill should be reported at:

a. $\$ 0$.

b. $\$ 75,000$.

c. $\$ 95,000$.

d. $\$ 175.000$.
5. In the December $31,20 \mathrm{X} 8$, consolidated balance sheet, noncontrolling interest should be reported at:

a. $\$ 200,000$.

b. $\$ 213,000$.

c. $\$ 220,000$.

d. $\$ 233,000$.

Fantastic news! We've Found the answer you've been seeking!