[Topic 3] Chapter 3 QUIZ Flashcards
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.
FALSE.
Stock acquisition has nothing to do with the net assets of the subsidiary.
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
TRUE
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
TRUE
The method used has no significance to consolidated financial statements.
TRUE
Goodwill is generally smaller for small companies and increases in amount as the companies acquired increase in size.
TRUE
Push-down accounting provides better information for internal evaluation.
TRUE
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.
FALSE
The non-controlling shareholder’s claim of the subsidiary’s net assets is based on the book value of the subsidiary’s net assets.
FALSE.
Fair market value of subsidiary’s net assets
If an associate prepares the consolidated financial statements, the investment is accounted for using the cost method.
FALSE
The method used has no significance to consolidated financial statements.
TRUE
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.
TRUE
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.
CONSOLIDATED INCOME STATEMENTS
The criteria for investment to be classified as joint control
CONTRACTUAL ARRANGEMENT (20-50%)
The criteria for investment to be classified as an associate.
SIGNIFICANT INFLUENCE (20-50%)
The criteria for investment to be classified as a subsidiary.
CONTROL (51% OR MORE)
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.
SEPARATE FINANCIAL STATEMENTS
When the ____ is used, the investment in subsidiary account is retained at its original cost of acquisition balance.
COST METHOD
In a partial-goodwill approach, impairment loss is borne by the ____.
PARENT COMPANY
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 ______.
INVESTMENT IN SUBSIDIARY
The method normally is used to account for the ownership of a subsidiary on the parent’s financial records.
EITHER COST OR EQUITY METHOD
What is the required accounting treatment of a subsidiary in group accounts?
FULL CONSOLIDATION
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?
Consolidated dividends equal the parent’s dividends
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?
Cost of goods sold P20,000 debit; interest expense P500 debit
The consolidation worksheet will always completely eliminate the Investment Income account
TRUE
The consolidation worksheet will only eliminate all of the Investment in Subsidiary account when the parent owns 100 percent of the subsidiary’s stock.
FALSE
Subsequent to the date of acquisition worksheet elimination number 1 will not completely remove the Investment in Subsidiary account from the consolidated balance sheet.
TRUE
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.
FALSE
The parent company will always record three journal entries when accounting for its ownership in a subsidiary.
FALSE
The worksheet eliminations remove the recognition of the investment in the subsidiary from the parent’s financial records
FALSE
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.
TRUE
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.
FALSE
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.
FALSE
