1. Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:

	Errant Inc.	Grub Inc.	Grub Inc.
	(carrying value)	(carrying value)	(fair value)
Cash	$120,000	$76,000	$76,000
Accounts Receivable	$80,000	$40,000	$40,000
Inventory	$60,000	$34,000	$50,000
Equipment (net)	$400,000	$80,000	$70,000
Trademark		$70,000	$84,000
Total Assets	$660,000	$300,000
Current Liabilities	$180,000	$80,000	$80,000
Bonds Payable	$320,000	$60,000	$64,000
Common Shares	$90,000	$100,000
Retained Earnings	$70,000	$60,000
Total Liabilities and Equity	$660,000	$300,000

The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years. Assume that Errant Inc. uses the equity method unless stated otherwise. What would be the journal entry to record the dividends received by Errant during the year?

Multiple Choice

a)

	Debit	Credit
Cash	$9,000
Acquisition Differential		$9,000

b)

	Debit	Credit
Cash	$9,000
Goodwill		$9,000

c)

	Debit	Credit
Cash	$9,000
Investment in Grub		$9,000

2. Any excess of fair value over book value attributable to land on the date of acquisition is to be:

Multiple Choice

a) taken into income when the Land is sold.

b) charged to Retained Earnings on the date of acquisition.

c) allocated to other identifiable assets.

3. Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:

	Errant Inc.	Grub Inc.	Grub Inc.
	(carrying value)	(carrying value)	(fair value)
Cash	$120,000	$76,000	$76,000
Accounts Receivable	$80,000	$40,000	$40,000
Inventory	$60,000	$34,000	$50,000
Equipment (net)	$400,000	$80,000	$70,000
Trademark		$70,000	$84,000
Total Assets	$660,000	$300,000
Current Liabilities	$180,000	$80,000	$80,000
Bonds Payable	$320,000	$60,000	$64,000
Common Shares	$90,000	$100,000
Retained Earnings	$70,000	$60,000
Total Liabilities and Equity	$660,000	$300,000

The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years. Assume that Errant Inc. uses the equity method unless stated otherwise. What would be Errant's journal entry to record the amortization of the acquisition differential (excluding any goodwill impairment) on December 31, 2019?

Multiple Choice

a)

	Debit	Credit
Equity method income	$16,000
Investment in Grub		$16,000

b)

	Debit	Credit
Investment in Grub	$18,800
Equity method income		$18,800

c)

	Debit	Credit
Equity method income	$18,800
Investment in Grub		$18,800

4. Consolidated retained earnings include:

Multiple Choice

a) consolidated net income less any dividends declared by the parent only.

b) consolidated net income less any dividends declared by either the parent or the subsidiary.

c) the parent's share of consolidated net income less any dividends declared by the parent.

5. Consolidated Net Income would be:

Multiple Choice

a) the same under both the Cost and Equity Methods.

b) lower if the parent chooses to use Equity Method rather than the Cost Method.

c) higher if the parent chooses to use Equity Method rather than the Cost Method.

6. Consolidated shareholders' equity:

Multiple Choice

a) is equal to that of the parent company under the Equity Method.

b) is higher under the Equity Method when the subsidiary does not declare dividends.

c) does not include any non-controlling Interest.