THIS IS A TIMED TEST. NEED ANSWERS WITHIN 2 HOURS.

Question 1.

1.(TCO A) Which of the following results in a decrease in the investment account when applying the equity method?(Points : 5)

Net income of the investor

Net income of the investee

Unrealized gain on intercompany inventory transfers for the current year

Dividends paid by the investor

Purchase of additional common stock by the investor during the current year

Question 2.

2.(TCO B) Lewis Co. paid cash for all of the voting common stock of Davis Corp. Davis will continue to exist as a separate corporation. Entries for the consolidation of these two corporations would be recorded in(Points : 5)

a worksheet.

Pastini's secret consolidation journal.

Pastini's general journal.

Lewis's general journal.

the general journals of both companies.

Question 3.

3.(TCO C) Under the partial equity method, the parent recognizes income when(Points : 5)

dividends are received from the investee.

dividends are declared by the investee.

it is earned by the subsidiary.

the related contract is signed by the subsidiary.

the related expense has been incurred.

Question 4.

4.(TCO C) Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?(Points : 5)

Initial value or book value

Initial value, equity, or partial equity

Initial value, equity, or book value

Initial value, lower-of-cost-or-market value, or equity

Initial value, lower-of-cost-or-market value, or partial equity

Question 5.

5.(TCO D) When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is incorrect?(Points : 5)

If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required.

If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required.

If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required.

If majority control is still maintained, consolidated financial statements are still required.

A gain or loss calculation must be prepared if control is lost.

Question 6.

6.(TCO D) Tarp Company acquired 90% of Loud Company on January 1, 20X3, for $234,000 cash. Loud's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Loud's net assets revealed the following.

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.

Book Value

Fair Value

Buildings (10-year life)

$10,000

$8,000

Equipment (4-year life)

$14,000

$18,000

Land

$5,000

$12,000

In consolidation at January 1, 20X3, what adjustment is necessary for Loud's equipment account?(Points : 5)

$4,000 increase

$4,000 decrease

$3,600 increase

$3,600 decrease

No change

Question 7.

7.(TCO E) An intercompany sale took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year following the sale?(Points : 5)

A worksheet entry is made with a debit to retained earnings for an upstream transfer.

A worksheet entry is made with a debit to retained earnings for a downstream transfer.

A worksheet entry is made with a debit to investment in the subsidiary for a downstream transfer.

A worksheet entry is made with a credit to retained earnings for an upstream transfer.

No worksheet entry is necessary.

Question 8.

8.(TCO F) A net asset balance sheet exposure exists, and the foreign currency depreciates. Which of the following statements is true?(Points : 5)

There is no translation adjustment.

There is a negative translation adjustment.

There is a positive translation adjustment.

There is a transaction loss.

There is a transaction gain.

Question 9.

9.(TCO G) Cline, Watters, and Nettles formed a partnership on January 1, 20X1, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to

(1) an interest of 10% of the beginning capital balance each year;

(2) an annual compensation of $10,000 to Watters; and

(3) sharing the remainder of the income or loss in a ratio of 20% for Cline and 40% each for Watters and Nettles.

Net income was $150,000 in 20X1 and $180,000 in 20X2. Each partner withdrew $1,000 for personal use every month during 20X1 and 20X2.

What was Cline's share of income for 20X1?(Points : 5)

$63,000

$58,000

$53,000

$51,000

$29,000

Question 10.

10.(TCO G) Carol and Harry had been partners for several years, and they decided to admit Melanie into the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission of Melanie to the partnership?(Points : 5)

The proportionate method

The equity method

The cost method

The bonus method

The goodwill method