[Topic 3] Chapter 3 QUIZ

Question 1

When a consolidated financial statement will be prepared in a stock acquisition, the investment is eliminated and the net assets of subsidiary are consolidated with those of the parent.

Answer 1

FALSE.

Stock acquisition has nothing to do with the net assets of the subsidiary.

Question 2

In consolidated financial statements, net income should be equal to the sum of the income distributed to the controlling interest and the income distributed to the non-controlling interest

Answer 2

TRUE

Question 3

In a joint venture, the investment is accounted for using the cost method, FV option, or equity method when a separate financial statement will be prepared

Answer 3

TRUE

Question 4

The method used has no significance to consolidated financial statements.

Answer 4

TRUE

Question 5

Goodwill is generally smaller for small companies and increases in amount as the companies acquired increase in size.

Answer 5

TRUE

Question 6

Push-down accounting provides better information for internal evaluation.

Answer 6

TRUE

Question 7

In the preparation of a consolidated statements work paper, dividend income recognized by a parent company for dividends distributed by its subsidiary is included with parent company income from other sources to constitute consolidated net income.

Answer 7

FALSE

Question 8

The non-controlling shareholder’s claim of the subsidiary’s net assets is based on the book value of the subsidiary’s net assets.

Answer 8

FALSE.

Fair market value of subsidiary’s net assets

Question 9

If an associate prepares the consolidated financial statements, the investment is accounted for using the cost method.

Answer 9

FALSE

Question 10

The method used has no significance to consolidated financial statements.

Answer 10

TRUE

Question 11

The dividends paid by the subsidiary are completely eliminated from the consolidated financial statements because only dividends paid to the parent company stockholders represent a distribution of consolidated net assets.

Answer 11

TRUE

Question 12

Essentially a combination of the revenue, expense, gain and loss accounts of all consolidated affiliates after elimination of amounts representing the effect of transactions among the affiliates.

Answer 12

CONSOLIDATED INCOME STATEMENTS

Question 13

The criteria for investment to be classified as joint control

Answer 13

CONTRACTUAL ARRANGEMENT (20-50%)

Question 14

The criteria for investment to be classified as an associate.

Answer 14

SIGNIFICANT INFLUENCE (20-50%)

Question 15

The criteria for investment to be classified as a subsidiary.

Answer 15

CONTROL (51% OR MORE)

Question 16

Refers to those presented by a parent, an investor in an associate or a venture in a jointly controlled entity in which the investments are accounted for on the basis of the direct equity interest.

Answer 16

SEPARATE FINANCIAL STATEMENTS

Question 17

When the ____ is used, the investment in subsidiary account is retained at its original cost of acquisition balance.

Answer 17

COST METHOD

Question 18

In a partial-goodwill approach, impairment loss is borne by the ____.

Answer 18

PARENT COMPANY

Question 19

To convert from the cost method to the equity method to establish reciprocity at the beginning of the year, the proforma entry includes a credit to ______.

Answer 19

INVESTMENT IN SUBSIDIARY

Question 20

The method normally is used to account for the ownership of a subsidiary on the parent’s financial records.

Answer 20

EITHER COST OR EQUITY METHOD

Question 21

What is the required accounting treatment of a subsidiary in group accounts?

Answer 21

FULL CONSOLIDATION

Question 22

Which of the following is not correct with regard to a parent’s ownership of 100 percent of a subsidiary’s stock subsequent to a book value acquisition?

Answer 22

Consolidated dividends equal the parent’s dividends

Question 23

Johnson, Inc. acquired 90% of Nemec Enterprises on November 1, 2020. At that date, Nemec had inventory with a market value of P60,000 greater than book value and long-term debt with a market value of P15,000 less than a book value. Inventory has remaining life of six months and the long-term debt matures in five years. What is the amount of purchase differential amortization is recognized in worksheet elimination?

Answer 23

Cost of goods sold P20,000 debit; interest expense P500 debit

Question 24

The consolidation worksheet will always completely eliminate the Investment Income account

Answer 24

TRUE

Question 25

The consolidation worksheet will only eliminate all of the Investment in Subsidiary account when the parent owns 100 percent of the subsidiary’s stock.

Answer 25

FALSE

Question 26

Subsequent to the date of acquisition worksheet elimination number 1 will not completely remove the Investment in Subsidiary account from the consolidated balance sheet.

Answer 26

TRUE

Question 27

Worksheet elimination number 2 will completely remove the change in the Investment in Subsidiary account from the consolidated balance sheet only when the parent company has recorded three equity method journal entries with regard to the parent’s ownership interest in the subsidiary.

Answer 27

FALSE

Question 28

The parent company will always record three journal entries when accounting for its ownership in a subsidiary.

Answer 28

FALSE

Question 29

The worksheet eliminations remove the recognition of the investment in the subsidiary from the parent’s financial records

Answer 29

FALSE

Question 30

Assuming the parent acquired 100 percent of the subsidiary’s stock and there are no purchase differentials, the investment income recorded by the parent in the current period will equal the subsidiary’s current net income recognized subsequent to the acquisition date.

Answer 30

TRUE

Question 31

When the parent acquired 100 percent of the subsidiary’s stock for book value during the current period, consolidated net income is always the sum of the parent’s net income and the subsidiary’s net income for the entire reporting period.

Answer 31

FALSE

Question 32

Worksheet elimination 1 will include only the subsidiary’s stock (par value and additional paid-in capital), Retained Earnings, and the parent’s Investment in Subsidiary account when the parent has acquired 100 percent of the subsidiary’s stock at book value at the beginning of the period.

Answer 32

FALSE