Chapter 2—Consolidated Statements: Date of Acquisition
1. An investor receives dividends from its investee and records those dividends as dividend income because:
|
a. |
The investor has a controlling interest in its investee. |
|
b. |
The investor has a passive interest in its investee. |
|
c. |
The investor has an influential interest in its investee. |
|
d. |
The investor has an active interest in its investee. |
2. An investor prepares a single set of financial statements which encompasses the financial results for both it and its investee because:
|
a. |
The investor has a controlling interest in its investee. |
|
b. |
The investor has a passive interest in its investee. |
|
c. |
The investor has an influential interest in its investee. |
|
d. |
The investor has an active interest in its its investee. |
3. An investor records its share of its investee’s income as a separate source of income because:
|
a. |
The investor has a controlling interest in its investee. |
|
b. |
The investor has a passive interest in its investee. |
|
c. |
The investor has an influential interest in its investee. |
|
d. |
The investor has an active interest in its investee. |
4.
|
Account |
Investor |
Investee |
|
Sales |
$500,000 |
$300,000 |
|
Cost of Goods Sold |
230,000 |
170,000 |
|
Gross Profit |
$270,000 |
$130,000 |
|
Selling & Admin. Expenses |
120,000 |
100,000 |
|
Net Income |
$150,000 |
$ 30,000 |
|
Dividends paid |
50,000 |
10,000 |
Assuming Investor owns 70% of Investee. What is the amount that will be recorded as Net Income for the Controlling Interest?
|
a. |
$164,000 |
|
b. |
$171,000 |
|
c. |
$178,000 |
|
d. |
$180,000 |
5. Consolidated financial statements are designed to provide:
|
a. |
informative information to all shareholders. |
|
b. |
the results of operations, cash flow, and the balance sheet in an understandable and informative manner for creditors. |
|
c. |
the results of operations, cash flow, and the balance sheet as if the parent and subsidiary were a single entity. |
|
d. |
subsidiary information for the subsidiary shareholders. |
6. Which of the following statements about consolidation is not true?
|
a. |
Consolidation is not required when control is temporary. |
|
b. |
Consolidation may be appropriate in some circumstances when an investor owns less than 51% of the voting common stock. |
|
c. |
Consolidation is not required when a subsidiary’s operations are not homogeneous with those of its parent. |
|
d. |
Unprofitable subsidiaries may not be obvious when combined with other entities in consolidation. |
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Rating:
/5
Solution: Chapter 2—Consolidated Statements: Date of Acquisition