HOMEWORK: Chapter 9

Choose the BEST answer for the following questions.

1. Constructive retirement is when

a.P retires shares of its own stock

b.P retires bonds payable

c.P buys S's bonds payable

d.P buys S's common stock

2. The price of a bond is generally determined by

a.the relation between the coupon rate and the current market rate of similar investments

b.the stated interest rate of the bond

c.how many bonds are issued

d.who buys the bonds

3. How is the consolidated statements treatment of constructive gain or loss on intercompany bond investments different from the treatment of unrealized profit on intercompany sales of inventory?

a.Constructive gain or loss is deferred until realized by transactions with outsiders.

b.Unrealized profit s recognized immediately, before it has been recorded.

c.Constructive gain or loss is recognized immediately, before it has been recorded.

d.There is no difference in the treatment.

4. Which of the following is NOT an acceptable technique for allocating constructive gain or loss?

a. All to issuing company

b. All to purchasing company

c. Part to issuing company and part to purchasing company

d. All to S

5. How is constructive gain or loss divided?

a.Issuing company gets the difference between book value and purchase price

b.Issuing company gets the difference between par value and purchase price

c.Purchasing company gets the difference between book value and par value

d.Purchasing company gets the difference between par value and purchase price

6.How is constructive loss recognized by the issuing company?

a.As a deduction to discount on bonds payable

b.As an increase to discount on bonds payable

c.As a decrease to investment in bonds

d.As an increase to investment in bonds

7. How does the treatment of constructive gain or loss differ in the complete equity method from the cost method?

a.There is no difference

b.Use the investment account instead of P's beginning retained earnings

c.Use the equity in S income instead of interest income

d.Use the investment account instead of S's beginning retained earnings

8. What is a note receivable discounted?

a.P sells a note it has received from S to a third party

b.P sells a note it has received from a third party to S

c.S sells a note it has received from a third party to P

d.All of these are examples of a note receivable discounted

9. What is the essence of accounting for discounted receivables on the consolidated statements?

a.They should all be eliminated

b.The consolidated balance sheet should never include a note receivable discounted

c.The consolidated balance sheet should include only notes receivable transactions with outsiders

d.There cannot be an intercompany note receivable transaction

10. How does P handle a stock dividend from S?

a.With a memorandum entry only

b.With a debit to investment in S

c.With a credit to investment in S

d.With a credit to retained earnings

11. What is a liquidating dividend?

a.S pays dividends from income since acquisition

b.P pays dividends from consolidated income

c.S pays dividends from preacquisition income

d.P pays dividends from preacquisition income

12. How does S's preferred stock affect the consolidation?

a.Any preferred stock not held by P must be included in noncontrolling interest

b.P's % of ownership does not include preferred if the preferred doesn't have voting rights

c.Preferred stock will share in S's total equity

d.All of these.

13. If P invests in S's preferred stock, how is the difference between Implied Value and Book Value handled?

a.Allocated among S's noncurrent assets

b.Allocated among P's noncurrent assets

c.Deducted from P's other contributed capital, with an adjustment to NCI

d.Deducted from S's other contributed capital, with an adjustment to NCI

14. How is reciprocity established for preferred stock?

a.Preferred's share of S's ending RE - preferred's share of RE at acq. P's % ownership

b.Preferred's share of S's ending RE - preferred's share of RE at acq. noncontrolling %

c.Preferred's share of S's ending RE - total RE at acq. P's % ownership

d. Preferred's share of S's ending RE - total RE at acq S's % ownership

15. What is the controlling interest in consolidated net income?

a.P's independent income + P's share of S' total income

b.P's independent income + other adjustments + P's share of S's income assigned to preferred + P's share of S's income assigned to common

c.P's independent income + other adjustments + P's share of S's income assigned to preferred + P's share of S's total income

d.P's independent income + other adjustments + S's total income