Select the correct answer for each of the following questions.

1. A 70 percent owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and minority interest balances in the parent company's consolidated balance sheet?

a. No effect on either retained earnings or minority interest.

b. No effect on retained earnings and a decrease in minority interest.

c. Decreases in both retained earnings and minority interest.

d. A decrease in retained earnings and no effect on minority interest.
2. On January 1, 20X1, Prim Inc. acquired all of the outstanding common shares of Scrap Inc. for cash equal to the book value of the stock. The carrying amounts of Scrap's assets and liabilities approximated their fair values, except that the carrying amount of its building was more than fair value. In preparing Prim's 20X1 consolidated income statement, which of the following adjustments would be made?

a. Depreciation expense would be decreased and goodwill amortization would be recognized.

b. Depreciation expense would be increased and goodwill amortization would be recognized.

c. Depreciation expense would be decreased and no goodwill amortization would be recognized.

d. Depreciation expense would be increased and no goodwill amortization would be recognized.
3. The first examination of Rudd Corporation's financial statements was made for the year ended December 31, 20X8. The auditor found that Rudd had purchased another company on January 1, \(20 \mathrm{X} 8\), and had recorded goodwill of \(\$ 100.000\) in connection with this purchase. Although a friend of the auditor believes the goodwill will last no more than five years, the management of Rudd Corporation has found no impairment of goodwill during 20X8. In its 20X8 financial statements, Rudd should report:

4. How is the portion of consolidated earnings to be assigned to the noncontrolling interest in consolidated financial statements determined?

a. The net income of the parent is subtracted from the subsidiary's net income to determine the noncontrolling interest.

b. The subsidiary's net income is extended to the noncontrolling interest.

c. The amount of the subsidiary's earnings recognized for consolidation purposes is multiplied by the noncontrolling interest's percentage of ownership.

d. The amount of consolidated earnings on the consolidated workpapers is multiplied by the noncontrolling interest percentage on the balance sheet date.

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a. b. C. Amortization Expense $0 $100,000 $20,000 d. $0 Goodwill $100,000 $0 $80.000 $0