Anchor Co. owns 40% of Main Co.

's common stock outstanding and 75% of Main's

noncumulative preferred stock outstanding. Anchor exercises significant influence over
Main's operations. During the current period, Main declared dividends of $200,000 on its
common stock and $100,000 on its noncumulative preferred stock. What amount of
dividend income should Anchor report on its income statement for the current period
related to its investment in Main?
a. $120,000
b. $75,000
c. $80,000
d. $225,000
b
Palmetto Inc. is currently using the equity method to account for its 30% investment in
Royal Company. In the acquisition last year of Royal Co. common stock, Palmetto
calculated $1,000,000 of goodwill. The correct accounting for this goodwill during the
current year is:
a. Amortization over the anticipated holding period of the Royal Company stock.
b. Amortization over 40 years.
c. Test for impairment at year-end.
d. No accounting necessary.
d
Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What
method for recording the investment should Louis use?
a. The cost method.
b. The equity method because significant influence must be assumed.
c. The equity method if no other investor has more than a 40% interest.
d. The equity method if it can acquire an additional 11% by year-end.
a
On January 1, Year 1, Pepper Company acquired 30% of the voting common stock of
Salt, Inc. for $60 per share. Pepper was able to exercise significant influence over the
affairs of Salt. Salt had 50,000 common shares outstanding on January 1, Year 1. On
July 1, Year 1, Pepper sold all but 500 shares of its investment in Salt, Inc. Pepper held
all 500 shares through year-end Year 1. Salt declared and paid a $1 per share common
stock dividend on March 31, Year 1, and a $1.50 per share dividend on September 30,
Year 1. Salt's net income was exactly $50,000 each quarter.
What amount of revenue should Pepper record for the Year 1 from this investment?
a. $30,750
b. $15,250
c. $15,750
d. $31,000
a
Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell, Inc., an
investment company. Sell owns 60% of the common stock of Vane, Inc., an insurance
company. In Penn's consolidated financial statements, should consolidation accounting
or equity method accounting be used for Sell and Vane?
a. Equity method used for Sell and consolidation used for Vane.
b. Equity method used for both Sell and Vane.
c. Consolidation used for both Sell and Vane.
d. Consolidation used for Sell and equity method used for Vane.
c
On September 29, Year 1, Wall Co. paid $860,000 for all the issued and outstanding
common stock of Hart Corp. On that date, the carrying amounts of Hart's recorded
assets and liabilities were $800,000 and $180,000, respectively. Hart's recorded assets
and liabilities had fair values of $840,000 and $140,000, respectively. In Wall's
September 30, Year 1, balance sheet, what amount should be reported as goodwill?
a. $20,000
b. $240,000
c. $160,000
d. $180,000
c
In a business combination accounted for as a purchase, the appraised values of the
identifiable assets acquired exceeded the acquisition price. How should the excess
appraised value be reported?
a. As a gain, after adjusting the balance sheet, including identifiable intangible assets, to
fair value.
b. As positive goodwill.
c. As negative goodwill.
d. As a reduction of the values assigned to noncurrent assets and an extraordinary gain
for any unallocated portion.
a
A business combination is accounted for properly as an acquisition. Direct costs of
combination, other than registration and issuance costs of equity securities, should be:
a. Included in the acquisition cost to be allocated to identifiable assets according to their
fair values.
b. Deducted in determining the net income of the combined corporation for the period in
which the costs were incurred.
c. Capitalized as a deferred charge and amortized.
d. Deducted directly from the retained earnings of the combined corporation.
b
PDX Corp. acquired 100% of the outstanding common stock of Sea Corp. in an
acquisition transaction. The cost of the acquisition exceeded the fair value of the
identifiable assets and assumed liabilities. The general guidelines for assigning
amounts to the inventories acquired provide for:
a. Work in process to be valued at the estimated selling prices of finished goods, less
both costs to complete and costs of disposal.
b. Raw materials to be valued at original cost.
c. Finished goods to be valued at estimated selling prices, less both costs of disposal
and a reasonable profit allowance.
d. Finished goods to be valued at replacement cost.
c
On January 1, Year 1, Dallas, Inc. acquired 80% of Style, Inc.'s outstanding common
stock for $120,000. On that date, the carrying amounts of Style's assets and liabilities
approximated their fair values. During Year 1, Style paid $5,000 cash dividends to its
stockholders. Summarized balance sheet information for the two companies follows:
Dallas Style
12/31/Year 1 12/31/Year 1 1/1/Year 1
Investment in Style (equity method) $132,000
Other assets 138,000 $115,000 $100,000
$270,000 $115,000 $100,000
Common stock $50,000 $20,000 $20,000
Additional paid-in capital 80,250 44,000 44,000
Retained earnings 139,750 51,000 36,000
$270,000 $115,000 $100,000
What amount should Dallas report as its share of the earnings from subsidiary, in its
Year 1 income statement?
a. $20,000
b. $12,000
c. $16,000
d. $15,000
c
On November 30, Year 1, Parlor, Inc. purchased for cash at $15 per share all 250,000
shares of the outstanding common stock of Shaw Co. At November 30, Year 1, Shaw's
balance sheet showed a carrying amount of net assets of $3,000,000. At that date, the
fair value of Shaw's property, plant and equipment exceeded its carrying amount by
$400,000. In its November 30, Year 1, consolidated balance sheet, what amount should
Parlor report as goodwill under U.S. GAAP?
a. $350,000
b. $0
c. $400,000
d. $750,000
a
On October 1, Year 1, Pepper Inc. acquired 100% of Salt Inc. for $275,000. On that
date, the carrying values of Salt Inc.'s assets and liabilities were $450,000 and
$200,000, respectively. The fair values of Salt's assets and liabilities were $550,000 and
$200,000, respectively. Additionally, Salt had identifiable intangible assets at the time of
acquisition with a fair value of $60,000. What is the gain to be reported on Pepper's
December 31, Year 1 consolidated income statement?
a. $135,000
b. $0
c. $25,000
d. $75,000
a