_____1) From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements?

A) In substance the companies are separate, but in form the companies are one entity.

B) In substance and form the companies are one entity.

C) In substance and form the companies are separate entities.

D) In economic substance the companies are one entity, but in legal form they are separate.

_____2) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock. On the consolidated financial statements of Panini Corporation and Strathmore, Malone is

A) a noncontrolling interest.

B) a related party.

C) an affiliate.

D) an equity investee.

_____3) A subsidiary can be excluded from consolidation if

A) the subsidiary is operating under severe foreign-exchange restrictions.

B) control does not rest with the majority owner.

C) the subsidiary is in bankruptcy.

D) All of the above are correct.

_____4) Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for

A) capital stock.

B) investments in unconsolidated subsidiaries.

C) ending retained earnings.

D) investments in consolidated subsidiaries.

_____5) On June 1, 2014, Puell Company acquired 100% of the stock of Sorrell Inc. On this date, Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000. On December 31, 2014, Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000. The amount of Retained Earnings that appeared in the December 31, 2014 consolidated balance sheet was

A) $130,000.

B) $120,000.

C) $170,000.

D) $180,000.

_____6) A newly acquired subsidiary had pre-existing goodwill on its books. The parent company's consolidated balance sheet will

A) not show any value for the subsidiary's pre-existing goodwill.

B) not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value.

C) treat the goodwill similarly to other intangible assets of the acquired company.

D) always show the pre-existing goodwill of the subsidiary at its book value.

_____7) On January 1, 2014, Packaging International purchased 90% of Shipaway Corporation's outstanding shares for $135,000 when the fair value of Shipaway's net assets were equal to the book values. The balance sheets of Packaging and Shipaway Corporations at year-end 2013 are summarized as follows:

Packaging Shipaway

Assets $590,000 $180,000

Liabilities $70,000 $30,000

Capital stock 360,000 90,000

Retained earnings 160,000 60,000

If a consolidated balance sheet was prepared immediately after the business combination, the noncontrolling interest would be

A) $16,667.

B) $15,000.

C) $13,500.

D) $9,000.

_____8) On July 1, 2014, when Salaby Company's total stockholders' equity was $360,000, Pogana Corporation purchased 14,000 shares of Salaby's common stock at $30 per share. Salaby had 20,000 shares of common stock outstanding both before and after the purchase by Pogana, and the book value of Salaby's net assets on July 1, 2014 was equal to the fair value. On a consolidated balance sheet prepared at July 1, 2014, goodwill would be

A) $85,714.

B) $100,000.

C) $240,000.

D) $60,000.

_____9) In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?

A) Only sales revenue and cost of goods sold

B) All revenues, expenses, gains, losses, receivables, and payables

C) Receivables and payables but not revenues, expenses, gains, and losses

D) All revenues, expenses, gains, and losses but not receivables and payables

_____10) On consolidated working papers, a subsidiary's net income is

A) deducted from ending consolidated retained earnings.

B) deducted from beginning consolidated retained earnings.

C) only an entry in the parent company's general ledger.

D) allocated between the noncontrolling interest share and the parent's share.

_____11) On January 1, 20X1, Prim, Inc. acquired all the outstanding common shares of Scarp, Inc. for cash equal to the book value of the stock. The carrying amount of Scarp'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 would be recognized.

B) Depreciation expense would be increased, and goodwill would be recognized.

C) Depreciation expense would be decreased, and no goodwill would be recognized.

D) Depreciation expense would be increased, and no goodwill would be recognized.

_____12) Which of the following financial statements, if any, prepared by a parent immediately after a business combination is likely to be different from financial statements it prepares immediately before the business combination?

Balance Sheet Income Statement

A) Yes Yes

B) Yes No

C) No Yes

D) No No

On January 1, 2011, Punch Corporation purchased 80% of the common stock of Soopy Co. Separate balance sheet data for the companies at the acquisition date(after the acquisition) are given below:

Punch Soopy

Cash $34,000 $206,000

Accounts Receivable 144,000 26,000

Inventory 132,000 38,000

Land 68,000 32,000

Plant assets 700,000 300,000

Accum. Depreciation (240,000) (60,000)

Investment in Soopy 392,000

Total assets $ 1,230,000 $ 542,000

Accounts payable $206,000 $142,000

Capital stock 800,000 300,000

Retained earnings 224,000 100,000

Total liabilities & equities $ 1,230,000 $ 542,000

At the date of the acquisition, the book values of Soopy's net assets were equal to the fair value except for Soopy's inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts.

13) What amount of Inventory will be reported?

A) $170,000 B) $186,500 C) $169,000 D) $192,000

14) What amount of Goodwill will be reported?

A) $72,000 B) $68,000 C) $54,400 D) $90,000

15) What amount of total liabilities will be reported?

A) $348,000 B) $206,000 C) $319,600 D) $278,400

16) What is the reported amount for the noncontrolling interest?

A) $80,000 B) $84,400 C) $122,500 D) $98,000

17) What is the amount of consolidated Retained Earnings?

A) $324,000 B) $304,000 C) $259,200 D) $224,000