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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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21.     The usual impetus for transactions that create a long-term debtor-creditor relationship between members of a consolidated group is due to the:
a.     subsidiary's ability to borrow larger amounts of capital at more favorable terms than would be available to the parent.
b.     parent's ability to borrow larger amounts of capital at more favorable terms than would be available to the subsidiary.
c.     parent's desire to decentralize asset management and credit control.
d.     parent's desire to eliminate long-term debt.


     22.     Company S is a 100%-owned subsidiary of Company P. Company S has outstanding 8%, 10-year bonds sold to yield 7%. On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate. How should this event be reflected in the current year's consolidated statements?
a.     The bonds remain in the balance sheet and are accounted for at a 7% effective rate.
b.     The bonds remain in the balance sheet and are accounted for at a 9% effective rate.
c.     Retirement of the bonds at an extraordinary gain as of the purchase date.
d.     Retirement of the bonds at an extraordinary loss as of the purchase date.



23.     Company S is a 100%-owned subsidiary of Company P. Company S has outstanding 6%, 10-year bonds sold to yield 7%. On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate. How should this event be reflected in the current year's consolidated statements?
a.     The bonds remain in the balance sheet and are accounted for at a 7% effective rate.
b.     The bonds remain in the balance sheet and are accounted for at a 9% effective rate.
c.     Retirement of the bonds at an extraordinary gain as of the purchase date.
d.     Retirement of the bonds at an extraordinary loss as of the purchase date.



     24.     Company S is a 100%-owned subsidiary of Company P. On January 1, 20X9, Company S has $200,000 of 8% face rate bonds outstanding, which were issued at face value. The bonds had 5 years to maturity on January 1, 20X9. Premiums or discounts are amortized on a straight-line basis. On that date, Company P purchased the bonds for $198,000. The amount on the consolidated balance sheet relative to the debt is:
a.     bonds payable $200,000.
b.     bonds payable $200,000, discount $2,000.
c.     bonds payable $200,000, discount $1,600.
d.     The bonds do not appear on the balance sheet.



25.     Company S is a 100%-owned subsidiary of Company P. Company P purchased all the outstanding bonds of Company S at a discount. The bonds had a remaining issuance premium at the time of Company P's purchase. The bonds have 5 years to maturity. At the end of 5 years, retained earnings:
a.     is greater as a result of the purchase.
b.     is less as a result of the purchase.
c.     is not affected by the purchase.
d.     cannot be determined from the information provided.





     26.     The cash purchase of a controlling interest in a firm on the statement of cash flows is considered
a.     an operating activity.
b.     a financing activity.
c.     an investing activity.
d.     as all of the preceding.



     27.     Amortization of excesses in periods subsequent to the purchase would affect which sections of a cash flow statement?
a.     operating activity
b.     financing activity
c.     investing activity
d.     all of the above



     28.     Dividends paid by a subsidiary have the following affect on the consolidated cash flow
a.     all dividends to the parent and to noncontrolling stockholders appear on the statement.
b.     only dividends to the parent appear on the statement.
c.     only dividends to NCI appear on the statement.
d.     neither dividends to the parent or to noncontrolling stockholders appear on the statement



     29.     Assume investments in the stock of firms not included in the consolidated group result in the nonconsolidated firm reporting income of $200,000 and the firm paid dividends of $50,000. If the consolidated firm paid $10,000 more than book value for its 40% interest and regards XXX XXXXXX as attributable to goodwill, the operating activities, prepared using the indirect method, would reflect a net increase as a result of this investment of __________.

a.     $80,000
b.     $70,000
c.     $59,000
d.     $20,000


     
30.     Company P purchased an 80% interest in Company S on January 1, 20X3, at a price in excess of book value, such that a patent arises in the consolidation process. As a result of amortizing the patent on the consolidated income statement, where would an adjustment be required in the following sections of the consolidated statement of cash flows?

Operating   Investing   Financing   No Adjustment
a.     Yes        No          No           No
b.     No          Yes        No           No
c.     No          No          Yes          No
d.     No          No          No           Yes





     31.     A new subsidiary is being formed. The parent company purchased 70% of the shares for $20 per share. The remaining shares were sold to a variety of outside interests for an average of $22 per share. The consolidated statements will show
a.     an extraordinary gain.
b.     an extraordinary loss.
c.     only cash and related equity.
d.     goodwill.



     32.     When control of a subsidiary is achieved with the initial investment in subsidiary stock, when subsequent block of subsidiary's stock is purchased
a.     the parent must change from the cost method to the equity method.
b.     the parent must change from the equity method to the cost method.
c.     no change in accounting methods is required.
d.     none of the above.



     33.     Pine Company purchased a 55% interest in the Sent Company on January 1, 20X1 for $350,000. On that date, the stockholders' equity of Sent Company was $450,000. Any excess cost was attributable to goodwill. Pine purchased another 20% interest on January 1, 20X4 for $200,000. On January 1, 20X4, Sent Company's stockholders' equity was $700,000, the entire increase due to retained earnings. Any excess cost was again attributed to goodwill. The goodwill balance on the December 31, 20X4, balance sheet is __________.

a.     $102,500
b.     $ 60,000
c.     $      0
d.     $162,500



     34.     When investment blocks are carried at cost, the conversion entry is based upon
a.     the difference in retained earnings at the beginning of the current fiscal year and the retained earnings when the first block was acquired.
b.     the difference in retained earnings at the beginning of the current fiscal year and the retained earnings when the block giving a controlling interest was acquired.
c.     the difference in retained earnings at the beginning of the current fiscal year and the retained earnings of each block at its acquisition.
d.     the difference in retained earnings at the beginning of the current fiscal year and the retained earnings when the last block was acquired.











     35.     Company P purchased the outstanding common stock of Company S as follows:

    15%, January 1, 20X1
    20%, June 1, 20X1
    30%, August 1, 20X1
    35%, September 30, 20X1

The fiscal year of both firms ends on September 30. S's stock was acquired by P at book value. The controlling interest in consolidated net earnings for the fiscal year ended September 30, 20X1, would include which of the following earnings of the subsidiary?
a.     100%, January-September 20X1
b.     15%, January-May 20X1; 35%, June-July 20X1; and 65%, August-September 20X1
c.     15%, January-May 20X1; 20%, June-July 20X1; and 30%, August-September 20X1
d.     65%, January-September 20X1


     
     36.     A parent company owns an 100% interest in a subsidiary. Recently, the subsidiary paid a 10% stock dividend. The dividend should be recorded on the books of the parent
a.     at the par value or stated value of the shares received.
b.     at the market value of the shares on the date of declaration.
c.     at the market value of the shares on the date of distribution.
d.     merely as a memo entry indicating that the cost of the original investment now is allocated to a greater number of shares.



     37.     When the parent purchases some newly issued shares of a subsidiary, any adjustments resulting from the subsidiary stock sales should be made
a.     at the end of the current fiscal year when the worksheet is prepared.
b.     at the time of the sale when the equity method is used.
c.     at the time of the sale if the cost method is used.
d.     retroactively to the start of the current fiscal year.



     38.     Company P owns 80% of the outstanding common stock of the Company S and has 10,000 outstanding shares of common stock. If Company S issues 2,500 added shares of common stock, and Company P purchases some of the newly issued shares, which of the following statements is true?
a.     Other than recording the purchase, there is no adjustment to the controlling interest if the parent purchases all the shares issued.
b.     Other than recording the purchase, there is no adjustment to the controlling interest if the parent does not purchase any of the shares issued.
c.     Other than recording the purchase, there is no adjustment to the controlling interest if the parent purchases 80% of the shares issued.
d.     There is a new excess of cost over book value or excess of book value over cost if the parent purchases 80% of the newly issued shares.




     39.     When a parent purchases a portion of the newly issued stock of its subsidiary and the ownership interest remains the same,
a.     any difference between the change in equity and the price paid is the excess of cost or book value attributable to the new block.
b.     any difference between the change in equity and the price paid is viewed as a gain or loss on the sale of an interest.
c.     any difference between the change in equity and the price paid is viewed as a change in paid-in capital or retained earnings.
d.     there will be no adjustment.



40.     Able Company owns an 80% interest in Barns Company and a 20% interest in Carns Company. Barns owns a 40% interest in Carns Company.
a.     Able does not control Carns; thus, Carns' income is not included in the consolidated statements.
b.     Able controls Carns; the noncontrolling interest of Carns Company is 48%.
c.     Able controls Carns; the noncontrolling interest of Carns Company is 40%.
d.     Barns accounts for Carns under the sophisticated cost method; Barns is then consolidated with Able.
Submitted: 7 years ago.
Category: Tax

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