Swamphen Corp accounts for its 30% investment in Frog Co. using the equity method. On the date of the original investment, fair values were equal to the book values except for a patent, which cost Swamphen an additional $40,000. The patent had an estimated life of 10 years. Frog has a steady net income of $20,000 per year and its dividend payout ratio is 40%. Which one of the following statements is correct?

The net change in the investment account for each full year will be a debit of $400.

The net change in the investment account for each full year will be a debit of $3,600.

The net change in the investment account for each full year will be a credit of $400.

The net change in the investment account for each full year will be a credit of $3,600.

11.

Goodwill impairment is recorded

At the business reporting level when the book value is below the fair value and the carrying value is less than the implied fair value of the goodwill At the firm level when the book value is below the fair value and the carrying value is less than the implied fair value of the goodwill At the business reporting level when the book value is above the fair value and the carrying value is less than the implied fair value of the good will

At the firm level when the book value is above the fair value and the carrying value is less than the implied fair value of the goodwill

12. Pardolate Corporation paid $200,000 for a 60% interest in Arthropod Inc on January 1, 2005, when Arthropod had Capital Stock of $200,000 and Retained Earnings of $100,000. Fair values of identifiable net assets were the same as recorded book values. During 2005, Arthropod had income of $30,000; declared dividends of $10,000 and paid $5,000 of dividends. On December 31, 2005, Pardolate will have

Investment in Salem account of $240,000. Investment in Salem account of $218,000.

Goodwill of $20,000.

Dividends receivable of $3,000.

13. On June 1, 2005, Gull Company acquired 100% of the stock of Scrap Inc. On this date, Gull has Retained Earnings of $200,000 and Scrap has Retained Earnings of $100,000. On December 31, 2005, Gull has Retained Earnings of $240,000 and Scrap has Retained Earnings of $120,000. The amount of Retained Earnings that should appear in the December 31, 2005 consolidated balance sheet is: $240,000. $260,000. $300,000.

$360,000.

14.

Penguin Corporation owns 90% of the outstanding voting stock of Crevice Company and Burrow Corporation owns the remaining 10% of Crevice?s voting stock. On the consolidated financial statements of Penguin Corporation and Subsidiary, Burrow is:

An affiliate.

A minority interest. An equity investee

A related party

16.

Subsequent to a purchase acquisition, parent company and consolidated financial statement amounts would not be the same for:

Investments in unconsolidated subsidiaries

Investments in consolidated subsidiaries

Capital stock

Ending retained earnings

17. Push-down accounting:

Requires a subsidiary to use the same accounting principles as its parent company.

Is required by the SEC if a subsidiary is wholly owned.

Is required when the parent company uses the cost method to account for its investment in the subsidiary.

Results in a push-up residual account on the subsidiaries books.

18. Which one of the following will increase consolidated Retained Earnings? An increase in the value of goodwill subsequent to the parent's date of acquisition. The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value. The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value.

The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition.