Fundamentals of Advanced Accounting 8Th Edition Hoyle Test Bank Full Chapter PDF

Fundamentals of Advanced Accounting
8th Edition Hoyle Test Bank

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File: Chapter 06 - Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows,
and Other Issues
Multiple Choice:
[QUESTION]
1. On January 1, 2018, Riley Corp. acquired some of the outstanding bonds of one of its
subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them.
How should you account for the difference between the carrying value and the purchase price in
the consolidated financial statements for 2018?
A) The difference is added to the carrying value of the debt.
B) The difference is deducted from the carrying value of the debt.
C) The difference is treated as a loss from the extinguishment of the debt.
D) The difference is treated as a gain from the extinguishment of the debt.
E) The difference does not influence the consolidated financial statements.
Answer: D
Learning Objective: 06-03
Topic: Intra-entity debt―Gain or loss for consolidation
Difficulty: 1 Easy
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
[QUESTION]
2. Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries,
paying more than the carrying value of the bonds. According to the most practical view of this
intra-entity transaction, to whom should the loss be attributed?
A) To Safire because the bonds were issued by Safire.
B) The loss should be allocated between Safire and Regency based on the purchase price and the
original face value of the debt.
C) The loss should be amortized over the life of the bonds and need not be attributed to either
party.
D) The loss should be deferred until it can be determined to whom the attribution can be made.
E) To Regency because Regency is the controlling party in the business combination.
Answer: E
Topic: Intra-entity debt transactions―General
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
3. Which one of the following characteristics of preferred stock would make the stock a dilutive
security for purposes of calculating earnings per share?
A) The preferred stock is callable.
B) The preferred stock is convertible.
C) The preferred stock is cumulative.
D) The preferred stock is noncumulative.
Copyright © 2018 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Page 6-1
E) The preferred stock is participating.
Answer: B
Topic: EPS―Consolidated diluted EPS
Topic: EPS―EPS of subsidiary by itself
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
4. Where do dividends paid to the noncontrolling interest of a subsidiary appear on a
consolidated statement of cash flows?
A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.
Answer: C
Topic: Consolidated statement of cash flows
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
5. Where do dividends paid by a subsidiary to the parent company appear in a consolidated
statement of cash flows?
A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.
Answer: E
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
6. Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows?
A) They do not appear in the consolidated statement of cash flows.
B) Supplemental schedule of noncash investing and financing activities.
C) Cash flows from operating activities.
D) Cash flows from investing activities.
Page 6-2
E) Cash flows from financing activities.
Answer: A
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
7. How do intra-entity transfers of inventory affect the preparation of a consolidated statement of
cash flows?
A) They must be added in calculating cash flows from investing activities.
B) They must be deducted in calculating cash flows from investing activities.
C) They must be added in calculating cash flows from operating activities.
D) Because the consolidated balance sheet and income statement are used in preparing the
consolidated statement of cash flows, no special elimination is required.
E) They must be deducted in calculating cash flows from operating activities.
Answer: D
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
8. How would consolidated earnings per share be calculated if the subsidiary has no convertible
securities or warrants?
A) Parent's earnings per share plus subsidiary's earnings per share.
B) Parent's net income divided by parent's number of shares outstanding.
C) Consolidated net income divided by parent's number of shares outstanding.
D) Average of parent's earnings per share and subsidiary's earnings per share.
E) Consolidated income divided by total number of shares outstanding for the parent and
subsidiary.
Answer: C
Topic: EPS―Consolidated basic EPS
Difficulty: 1 Easy
Blooms: Remember
REFERENCE: 06-01
On January 1, 2018, Riney Co. owned 80% of the common stock of Garvin Co. On that date,
Garvin's stockholders' equity accounts had the following balances:

Page 6-3
Common stock ($5 par value) $ 250,000
Additional paid-in capital 110,000
Retained earnings 330,000
Total stockholders’ equity $ 690,000
The balance in Riney's Investment in Garvin Co. account was $552,000, and the noncontrolling
interest was $138,000. On January 1, 2018, Garvin Co. sold 10,000 shares of previously unissued
common stock for $15 per share. Riney did not acquire any of these shares.
[QUESTION]
REFER TO: 06-01
9. What is the balance in Riney’s “Investment in Garvin Co. Account” following the sale of the
10,000 shares of common stock?
A) $552,000.
B) $560,000.
C) $460,000.
D) $404,000.
E) $672,000.
Answer: B
Topic: Subsidiary stock―New issue-Percentage change
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
Feedback: $250,000 / $5 = 50,000 shares × .80 = 40,000 shares owned by parent
Total Equity at Acquisition = $690,000 + Equity Added by Stock Offering (10,000 × $15)
$150,000 = Total Equity after Stock Offering $840,000 × 40,000 Parent / 60,000 Total =
$560,000 Parent’s Investment Account
[QUESTION]
REFER TO: 06-01
10. What amount should be attributed to the Noncontrolling Interest in Garvin Co. following the
sale of the 10,000 shares of common stock?
A) $288,000.
B) $101,000.
C) $280,000.
D) $230,000.
E) $168,000.
Answer: C
Blooms: Apply
Feedback: $250,000 / $5 = 50,000 shares × .80 = 40,000 shares owned by parent
Page 6-4
Total Equity at Acquisition = $690,000 + Equity Added by Stock Offering (10,000 × $15)
$150,000 = Total Equity after Stock Offering $840,000 × 20,000/60,000 = $280,000
Noncontrolling Interest
[QUESTION]
11. Rojas Co. owned 7,000 shares (70%) of the outstanding 10%, $100 par, preferred stock and
60% of the outstanding common stock of Brett Co. Assuming there are no excess amortizations
or intra-entity transactions, and Brett reports net income of $780,000, what is the noncontrolling
interest in the subsidiary's income?
A) $234,000.
B) $273,000.
C) $302,000.
D) $312,000.
E) $284,000.
Answer: C
Topic: Subsidiary preferred stock
Difficulty: 3 Hard
Blooms: Apply
Feedback: $780,000 Net Income – Preferred Dividends (10,000 × $10) = $680,000 × .40 =
$272,000 Noncontrolling Interest
$100,000 Preferred Dividends × .30 = $30,000 Noncontrolling Interest
$272,000 from Income + $30,000 Preferred Dividends = $302,000 Noncontrolling Interest in
Income
REFERENCE: 06-02
Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par
value common stock and 2,000 shares of preferred stock outstanding. Each preferred share
received an annual per share dividend of $2 and is convertible into four shares of common stock.
Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each
of which is convertible into ten shares of common stock. Stoop's annual after-tax interest
expense for the bonds was $2,000. Knight did not own any of Stoop's bonds. There are no
excess amortizations or intra-entity transactions associated with this consolidation. Stoop reported
net income of $300,000 for 2018. Knight has 100,000 shares of common stock outstanding and
reported net income of $400,000 for 2018.
[QUESTION]
REFER TO: 06-02
12. What would Knight Co. report as consolidated basic earnings per share (rounded)?
A) $6.37
B) $6.40
C) $7.00
D) $5.68
E) $6.00
Answer: A
Topic: EPS―Subsidiary earnings for consolidated EPS
Difficulty: 3 Hard
Page 6-5
Blooms: Apply
Feedback: Sub net income (300,000) – preferred divs(4,000) = $296,000 x 80% = 236,800
included in consolidated EPS. Parent net income (400,000)+ portion of sub net income =
(400,000 + 236,800) / 100,000 shares = $6.37
[QUESTION]
REFER TO: 06-02
13. What would Knight Co. report as consolidated diluted earnings per share (rounded)?
A) $4.00.
B) $. 4.71
C) $8.71.
D) $5.89.
E) $6.37.
Answer: D
Topic: EPS―EPS of subsidiary by itself
Difficulty: 3 Hard
Blooms: Apply
Feedback: Sub Net income $300,000 + Interest saved $2,000 (no preferred divs)=
$322,000. New ownership percentage = 40,000 / (50,000 + if-converted preferred shares
8,000 + if-converted bonds 6,000 shares) = 62.5%. Consolidated DEPS = 400,000 +
(62.5% x 302,000) = 588,750/100,000 = $5.89 Knight Co.’s Consolidated Diluted
Earnings per Share
[QUESTION]
14. Campbell Inc. owned all of Gordon Corp. For 2018, Campbell reported net income (without
consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000.
There are no excess amortizations associated with this consolidation. The subsidiary had bonds
payable outstanding on January 1, 2018, with a book value of $297,000. The parent acquired the
bonds on that date for $281,000. During 2018, Campbell reported interest income of $31,000
while Gordon reported interest expense of $29,000. What is consolidated net income for 2018?
A) $406,000.
B) $374,000.
C) $378,000.
D) $410,000.
E) $394,000.
Answer: A
Topic: Intra-entity debt―Effect on consolidated balances
Blooms: Apply

Page 6-6
Feedback: Income of the Parent $280,000 + Income of the Sub $112,000 – Difference in
Interest Income over Interest Expense on Intra-Entity Bonds ($31,000 - $29,000) $2,000
+ Gain on Bonds Purchase ($297,000 - $281,000) $16,000 = $406,000 Consolidated Net
Income
[QUESTION]
15. Vontkins Inc. owned all of Quasimota Co. The subsidiary had bonds payable outstanding on
January 1, 2017, with a book value of $265,000. The parent acquired the bonds on that date for
$288,000. Subsequently, Vontkins reported interest income of $25,000 in 2017 while Quasimota
reported interest expense of $29,000. Consolidated financial statements were prepared for 2018.
What adjustment would be required for the retained earnings balance as of January 1, 2018?
A) Reduction of $27,000.
B) Reduction of $4,000.
C) Reduction of $19,000.
D) Reduction of $30,000.
E) Reduction of $20,000.
Answer: C
Blooms: Apply
Feedback: Bond Acquisition Price $288,000 – Bonds carrying amount $265,000 = $23,000 R/E
Reduction.
Intra-Entity Interest $29,000 - $25,000 = $4,000 R/E Increase
$23,000 - $4,000 = $19,000 R/E Reduction
[QUESTION]
16. Tray Co. reported current earnings of $560,000 while paying $56,000 in cash dividends.
Sparrish Co. earned $140,000 in net income and distributed $14,000 in dividends. Tray held a
70% interest in Sparrish for several years, an investment that it originally acquired by transferring
consideration equal to the book value of the underlying net assets. Tray used the initial value
method to account for these shares.
On January 1, 2018, Sparrish acquired in the open market $70,000 of Tray's 8% bonds. The
bonds had originally been issued several years ago at a price that would yield a 10% effective
interest rate. On the date of the bond purchase, the book value of the bonds payable was $67,600.
Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds.
What is the noncontrolling interest's share of the subsidiary's net income?
A) $42,000.
B) $37,800.
C) $39,600.
D) $40,070.
E) $44,080.
Answer: A
Blooms: Apply

Page 6-7
Feedback: Sub’s income $140,000 × .30 = $42,000 NCI’s Portion of Income (gain or loss
is assigned to the parent only)
[QUESTION]
17. A company had common stock with a total par value of $18,000,000 and fair value of
$62,000,000; and 7% preferred stock with a total par value of $6,000,000 and a fair value of
$8,000,000. The book value of the company was $85,000,000. Assuming ninety percent (90%)
of the company’s total equity is acquired, what amount must be attributed to the noncontrolling
interest?
A) $8,500,000.
B) $7,000,000.
C) $6,200,000.
D) $2,400,000.
E) $6,929,400.
Answer: B
Difficulty: 1 Easy
Blooms: Apply
Feedback: FV Common Stock $62,000,000 + FV Preferred Stock $8,000,000 =
$70,000,000 × .10 = $7,000,000 Noncontrolling Interest
[QUESTION]
18. Cadion Co. owned a controlling interest in Knieval Inc. Cadion reported sales of $420,000
during 2018 while Knieval reported $280,000. Inventory costing $28,000 was transferred from
Knieval to Cadion (upstream) during the year for $56,000. Of this amount, twenty-five percent
was still in ending inventory at year's end. Total receivables on the consolidated balance sheet
were $112,000 at the first of the year and $154,000 at year-end. No intra-entity debt existed at
the beginning or ending of the year. Using the direct approach, what is the consolidated amount
of cash collected by the business from its customers?
A) $602,000.
B) $644,000.
C) $686,000.
D) $714,000.
E) $592,000.
Answer: A
Blooms: Apply

Page 6-8
Feedback: Parent’s Sales $420,000 + Sub’s Sales $280,000 – Intra-Entity Sales $56,000 –
increase in A/R $42,000 ($154,000 - $112,000) = $602,000 Consolidated Cash Collected
[QUESTION]
19. Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance
of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share.
On January 1, 2018, Odom issued 3,000 new shares to the public for $70 per share. How does
this transaction affect the Investment in Odom Inc. account?
A) It should be decreased by $210,000.
B) It should be increased by $210,000.
C) It should be increased by $168,000.
D) It should be decreased by $1,200.
E) It is not affected since the shares were sold to outside parties.
Answer: D
Blooms: Apply
Feedback:
Subsidiary’s unamortized fair value of prior to new share issue
(12,000 × $56) ....................................................... $834,000
Parent's ownership ................................................... 100%
Unamortized subsidiary fair value .......................... $834,000
Subsidiary unamortized fair value after issuing new

shares (above value plus 3,000 shares at $70 each) $1,044,000
Parent's ownership 12,000 ÷ 15,000 shares) ........... 80%
Unamortized subsidiary fair value after stock issue $835,200
Investment in Odom increases by $1,200 ($835,200 less $834,000).
REFERENCE: 06-03
These questions are based on the following information and should be viewed as independent
situations.
Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2016, when Cocker
had the following stockholders' equity accounts.
Common stock — 40,000 shares outstanding $140,000

Additional paid-in capital 105,000
Total stockholders’ equity $721,000
To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition
date fair value over book value being allocated to goodwill, which has been measured for

Page 6-9
impairment annually and has not been determined to be impaired as of January 1, 2019.
Popper did not pay any premium when it acquired its original interest in Cocker. On January 1,
2019, Cocker reported a net book value of $1,113,000 before the following transactions were
conducted. Popper uses the equity method to account for its investment in Cocker, thereby
reflecting the change in book value of Cocker.
[QUESTION]
REFER TO: 06-03
20. On January 1, 2019, Cocker issued 10,000 additional shares of common stock for $35 per
share. Popper acquired 8,000 of these shares. How would this transaction affect the additional
paid-in capital of the parent company?
A) Increase it by $28,700.
B) Increase it by $16,800.
C) $0.
D) Increase it by $280,000.
E) Increase it by $593,600.
Answer: C
Topic: Subsidiary stock―New issue-No percentage change
Difficulty: 1 Easy
Blooms: Apply
Feedback: No Adjustment is made to the APIC of the Parent as a Result of Sub’s Stock
Issue because the same Level of Ownership Interest is Maintained
[QUESTION]
REFER TO: 06-03
21. On January 1, 2019, Cocker issued 10,000 additional shares of common stock for $21 per
share. Popper did not acquire any of this newly issued stock. How would this transaction affect
the additional paid-in capital of the parent company?
A) $0.
B) Decrease it by $23,240.
C) Decrease it by $68,250.
D) Decrease it by $45,060.
E) Decrease it by $64,720.
Answer: E
Blooms: Apply
Feedback:
Consideration transferred ........................................................ $682,000
Noncontrolling interest acquisition-date fair value ............... 170,500
Increase in Sub book value (1,113,000-721,000) ..................... 392,000
Stock issue proceeds ................................................................ 210,000

Page 6-10
Subsidiary valuation basis ............................................................. 1,454,000
New parent ownership (32,000 shs. ÷ 50,000 shs.) ..................... 64%
Parent’s post-stock issue ownership balance.............................. $930,880
Parent's investment account ($682,000 + [80% × 392,000]) ........ 995,600
Required adjustment —decrease ............................................ $(64,720)
[QUESTION]
REFER TO: 06-03
22. On January 1, 2019, Cocker reacquired 8,000 of the outstanding shares of its own common
stock for $34 per share. None of these shares belonged to Popper. How would this transaction
have affected the additional paid-in capital of the parent company?
A) $0.
B) Decrease it by $32,900.
C) Decrease it by $45,700.
D) Decrease it by $23,100.
E) Decrease it by $50,500.
Answer: D
Topic: Subsidiary stock―Treasury stock acquired
Blooms: Apply
Feedback:
Adjusted acquisition-date fair value ($852,500 + $392,000) .................. $1,244,500
Less Stock repurchase ................................................................... $ ( 272,000)
Adjusted fair value after stock repurchase ................................... $972,500
New parent ownership (32,000 shs. ÷ 32,000 shs.) ..................... 100%
Fair value equivalency of parent's ownership ........................ $972,500
Parent's investment account ($682,000 + [80% × 392,000]) ........ 995,600
Required adjustment—decrease .............................................. $ (23,100)
[QUESTION]
23. If new bonds are issued from a parent to its subsidiary, which of the following statements is
false?
A) Any premium or discount on bonds payable is exactly offset by a premium or discount on
bond investment.
B) There will be $0 net gain or loss on the bond transaction.
C) Interest expense needs to be eliminated on the consolidated income statement.
D) Interest revenue needs to be eliminated on the consolidated income statement.
E) A net gain or loss on the bond transaction will be reported.
Answer: E
Blooms: Understand
Page 6-11
[QUESTION]
24. The accounting problems encountered in consolidated intra-entity debt transactions when the
debt is acquired by an affiliate from an outside party include all of the following except:
A) Both the investment and debt accounts have to be eliminated now and for each future
consolidated financial statement despite containing differing balances.
B) Subsequent interest revenue/expense must be removed although these balances fail to agree in
amount.
C) A gain or loss must be recognized by both parent and subsidiary companies.
D) Changes in the investment, debt, interest revenue, and interest expense accounts occur
constantly because of the amortization process.
E) The gain or loss on the retirement of the debt must be recognized by the business combination
in the year the debt is acquired, even though this balance does not appear on the financial records
of either company.
Answer: C
Blooms: Understand
[QUESTION]
25. Which of the following statements is true concerning the acquisition of existing debt of a
consolidated affiliate in the year of the debt acquisition?
A) Recognition of any gain or loss is deferred until the debt is extinguished for purposes of
reporting such debt on consolidated financial statements.
B) Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
C) Interest revenue generated from the debt of an affiliate is recognized on a consolidated income
statement.
D) Interest expense recognized from carrying debt instruments is recognized on a consolidated
income statement.
E) Consolidated retained earnings is adjusted to take into account the difference between the
purchase price and carrying value of the debt.
Answer: B
Blooms: Remember
[QUESTION]
26. Which of the following statements is false regarding the assignment of a gain or loss when an
affiliate’s debt instrument is acquired on the open market?
A) Subsidiary net income is not affected by a gain on the debt transaction.
B) Subsidiary net income is not affected by a loss on the debt transaction.
C) Parent Company net income is not affected by a gain on the debt transaction.
Page 6-12
D) Parent Company net income is not affected by a loss on the debt transaction.
E) Consolidated net income is not affected by a gain or loss on the debt transaction.
Answer: E
Blooms: Remember
[QUESTION]
27. What would differ between a statement of cash flows for a consolidated company and an
unconsolidated company using the indirect method?
A) Parent's dividends would be subtracted as a financing activity.
B) Gain on sale of land would be deducted from net income.
C) Noncontrolling interest in net income of subsidiary would be added to net income.
D) Proceeds from the sale of long-term investments would be added to investing activities.
E) Loss on sale of equipment would be added to net income.
Answer: C
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
28. Which of the following statements is true for a consolidated statement of cash flows?
A) Parent's dividends and subsidiary's dividends are deducted as a financing activity.
B) Only parent's dividends are deducted as a financing activity.
C) Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity.
D) All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as
a financing activity.
E) Neither parent's nor subsidiary's dividends are deducted as a financing activity.
Answer: D
Blooms: Remember
[QUESTION]
29. In reporting consolidated earnings per share when there is a wholly owned subsidiary, which
of the following statements is true?
A) Parent company earnings per share equals consolidated earnings per share when the equity
method is used.
B) Parent company earnings per share is equal to consolidated earnings per share when the initial
Page 6-13
value method is used.
C) Parent company earnings per share is equal to consolidated earnings per share when the partial
equity method is used and acquisition-date fair value exceeds book value.
D) Parent company earnings per share is equal to consolidated earnings per share when the partial
equity method is used and acquisition-date fair value is less than book value.
E) Preferred dividends are not deducted from net income for consolidated earnings per share.
Answer: A
Topic: EPS―Consolidated basic EPS
Blooms: Remember
[QUESTION]
30. A subsidiary issues new shares of common stock at an amount below book value. Outsiders
buy all of these shares. Which of the following statements is true?
A) The parent's additional paid-in capital will be increased.
B) The parent's investment in subsidiary will be increased.
C) The parent's retained earnings will be increased.
D) The parent's additional paid-in capital will be decreased.
E) The parent's retained earnings will be decreased.
Answer: D
Blooms: Analyze
AACSB: Analytical Thinking
[QUESTION]
31. A subsidiary issues new shares of common stock. If the parent acquires all of these shares at
an amount greater than book value, which of the following statements is true?
A) The investment in subsidiary will decrease.
B) Additional paid-in capital will decrease.
C) Retained earnings will increase.
D) The investment in subsidiary will increase.
E) No adjustment will be necessary.
Answer: D
Blooms: Analyze
[QUESTION]
32. If a subsidiary re-acquires its outstanding shares from outside ownership for more than the
Page 6-14
noncontrolling interest valuation basis at the date of buying such treasury stock, which of the
following statements is true?
A) Additional paid-in capital on the parent company’s books will decrease.
B) Investment in subsidiary will increase.
C) Treasury stock on the parent's books will increase.
D) Treasury stock on the parent's books will decrease.
E) No adjustment is necessary.
Answer: A
Topic: Subsidiary stock―Treasury stock acquired
Difficulty: 3 Hard
Blooms: Analyze
[QUESTION]
33. If a subsidiary issues a stock dividend, which of the following statements is true?
A) Investment in subsidiary on the parent's books will increase.
B) Investment in subsidiary on the parent's books will decrease.
C) Additional paid-in capital on the parent's books will increase.
D) Additional paid-in capital on the parent's books will decrease.
Answer: E
Topic: Subsidiary stock―Stock dividend issued
Blooms: Analyze
[QUESTION]
34. Stevens Company has had bonds payable of $10,000 outstanding for several years. On
January 1, 2018, when there was an unamortized discount of $2,000 and a remaining life of 5
years, its 80% owned subsidiary, Matthews Company, purchased the bonds in the open market
for $11,000. The bonds pay 6% interest annually on December 31. The companies use the
straight-line method to amortize interest revenue and expense. Compute the consolidated gain or
loss on a consolidated income statement for 2018.
A) $1,000 gain.
B) $1,000 loss.
C) $2,000 loss.
D) $3,000 loss.
E) $3,000 gain.
Answer: D
Difficulty: 1 Easy
Blooms: Apply
Page 6-15
Feedback: Bonds Purchase Price $11,000 – Bonds carrying amount ($10,000 - $2,000) =
$3,000 Loss to Consolidation Income
[QUESTION]
35. Keenan Company has had bonds payable of $20,000 outstanding for several years. On
January 1, 2018, there was an unamortized premium of $2,000 with a remaining life of 10 years,
Keenan's parent, Ross, Inc., purchased the bonds in the open market for $19,000. Keenan is a
90% owned subsidiary of Ross. The bonds pay 8% interest annually on December 31. The
companies use the straight-line method to amortize interest revenue and expense. Compute the
consolidated gain or loss on a consolidated income statement for 2018.
A) $3,000 gain.
B) $3,000 loss.
C) $1,000 gain.
D) $1,000 loss.
E) $2,000 gain.
Answer: A
Difficulty: 1 Easy
Blooms: Apply
Feedback: Bonds Purchase Price $19,000 – Bonds carrying amount ($20,000 + $2,000) =
$3,000 Gain to Consolidation Income
REFERENCE: 06-04
On January 1, 2018, Nichols Company acquired 80% of Smith Company's common stock and
40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was
$1,200,000 for the common and $124,000 for the preferred. There was no premium in the value
of consideration transferred. Any excess acquisition-date fair value over book value is considered
goodwill. The capital structure of Smith immediately prior to the acquisition is:
Common stock, $10 par value (50,000 shares outstanding) $500,000

Preferred stock, 6% cumulative, $100 par value,
3,000 shares outstanding 300,000
Additional paid in capital 200,000
Total stockholders’ equity $1,500,000
[QUESTION]
REFER TO: 06-04
36. With respect to Nichols’ investment in Smith, determine the amount to be recorded and
identify which account should be adjusted to reflect such amount.
A) $1,324,000 for Investment in Smith.
B) $1,200,000 for Investment in Smith.
C) $1,200,000 for Investment in Smith’s Common Stock and $124,000 for Investment in Smith’s
Page 6-16
Preferred Stock.
D) $1,200,000 for Investment in Smith’s Common Stock and $120,000 for Investment in Smith’s
Preferred Stock.
E) $1,448,000 for Investment in Smith’s Common Stock.
Answer: C
Blooms: Apply
Feedback: FV of Consideration Recorded for Each Class of Stock in the Investment
Account
[QUESTION]
REFER TO: 06-04
37. Compute the goodwill recognized in consolidation.
A) $ 800,000.
B) $ 310,000.
C) $ 124,000.
D) $ 0.
E) $(196,000.)
Answer: B
Blooms: Apply
Feedback: 100% acquisition-date fair value: 100% Common Stock ($1,200,000 / .80 =
$1,500,000) + 100% Preferred Stock ($124,000 / .40 = $310,000): Total acquisition-date
fair value $1,500,000 + $310,000 = FV $1,810,000 – BV $1,500,000 = $310,000
Goodwill
[QUESTION]
REFER TO: 06-04
38. Compute the noncontrolling interest in Smith at date of acquisition.
A) $486,000.
B) $480,000.
C) $300,000.
D) $150,000.
E) $120,000.
Answer: A
Blooms: Apply

Page 6-17
Feedback: Common Stock Noncontrolling Interest at Acquisition = $1,200,000 / .80 = $1,500,000
× .20 = $300,000
Preferred Stock Noncontrolling Interest at Acquisition = $124,000 / .40 = $310,000 × .60 =
$186,000
$300,000 + $186,000 = $486,000 Noncontrolling Interest at Acquisition Date
[QUESTION]
REFER TO: 06-04
39. The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in
capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in
capital $200,000, and debit Retained earnings $500,000.
Answer: C
Blooms: Apply
Feedback: BV is Debited in Consolidation Entry for Acquisition-Date Preparation of
Consolidated Balance Sheet
[QUESTION]
REFER TO: 06-04
40. If Smith’s net income is $100,000 in the year following the acquisition,
A) The portion allocated to the common stock (residual amount) is $92,800.
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common
stock in arriving at noncontrolling interest in consolidated income.
C) The noncontrolling interest in consolidated net income is $27,200.
D) The preferred stock dividend will be ignored in noncontrolling interest in consolidated net
income because Nichols owns the noncontrolling interest of preferred stock.
E) The noncontrolling interest in consolidated net income is $30,800.
Answer: C
Difficulty: 3 Hard
Blooms: Apply
Feedback: $100,000 – Preferred Dividends ($6 × 3,000) $18,000 = $82,000 × .20 = $16,400
Income to NCI
Preferred Dividends $18,000 × .60 = $10,800 to NCI
$16,400 Income + $10,800 Preferred Dividends = $27,200 Income to NCI
Page 6-18
REFERENCE: 06-05
The following information has been taken from the consolidation worksheet of Graham Company
and its 80% owned subsidiary, Stage Company.
(1.) Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham
$20,000.
(2.) Noncontrolling interest in Stage's net income was $30,000.
(3.) Graham paid dividends of $15,000.
(4.) Stage paid dividends of $10,000.
(5.) Excess acquisition-date fair value over book value amortization was $6,000.
(6.) Consolidated accounts receivable decreased by $8,000.
(7.) Consolidated accounts payable decreased by $7,000.
[QUESTION]
REFER TO: 06-05
41. How is the loss on sale of land reported on the consolidated statement of cash flows?
A) $20,000 added to net income as an operating activity.
B) $20,000 deducted from net income as an operating activity.
C) $15,000 deducted from net income as an operating activity.
D) $5,000 added to net income as an operating activity.
E) $5,000 deducted from net income as an operating activity.
Answer: D
Blooms: Analyze
Feedback: Land Sale of $5,000 Reduces Net Income as Operating Activity in Cash Flows
[QUESTION]
REFER TO: 06-05
42. Where does the noncontrolling interest in Stage's net income appear on a consolidated
A) $30,000 added to net income as an operating activity on the consolidated statement of cash
flows.
B) $30,000 deducted from net income as an operating activity on the consolidated statement of
cash flows.
C) $30,000 increase as an investing activity on the consolidated statement of cash flows.
D) $30,000 decrease as an investing activity on the consolidated statement of cash flows.
E) Noncontrolling interest in Stage's net income does not appear on a consolidated statement of
cash flows.
Answer: E
Blooms: Apply
Page 6-19
Feedback: NCI’s Income is NOT Reported on Consolidated Cash Flows
[QUESTION]
REFER TO: 06-05
43. How will dividends be reported in consolidated statement of cash flows?
A) $15,000 decrease as a financing activity.
B) $25,000 decrease as a financing activity.
C) $10,000 decrease as a financing activity.
D) $23,000 decrease as a financing activity.
E) $17,000 decrease as a financing activity.
Answer: E
Blooms: Analyze
Feedback: Parent’s Dividends $15,000 + NCI Dividends $2,000 = $17,000 Decrease in
Cash Flow for Financing
[QUESTION]
REFER TO: 06-05
44. How is the amount of excess acquisition-date fair value over book value recognized in a
consolidated statement of cash flows assuming the indirect method is used?
A) It is ignored.
B) $6,000 subtracted from net income.
C) $4,800 subtracted from net income.
D) $6,000 added to net income.
E) $4,800 added to net income.
Answer: D
Blooms: Analyze
Feedback: $6,000 Excess Amortization is not a Cash Item and therefore Added Back to
Net Income on the Cash Flow Statement
[QUESTION]
REFER TO: 06-05
45. Using the indirect method, where does the decrease in accounts receivable appear in a
A) $8,000 increase to net income as an operating activity.
B) $8,000 decrease to net income as an operating activity.
C) $6,400 increase to net income as an operating activity.
D) $6,400 decrease to net income as an operating activity.
E) $8,000 increase as an investing activity.

Page 6-20
Answer: A
Difficulty: 1 Easy
Blooms: Analyze
Feedback: The $8,000 Receivables Decrease is Added to Net Income and Classified as an
Operating Item
[QUESTION]
REFER TO: 06-05
46. Using the indirect method, where does the decrease in accounts payable appear in a
A) $7,000 increase to net income as an operating activity.
B) $7,000 decrease to net income as an operating activity.
C) $5,600 increase to net income as an operating activity.
D) $5,600 decrease to net income as an operating activity.
E) $7,000 increase as a financing activity.
Answer: B
Difficulty: 1 Easy
Blooms: Analyze
Feedback: The $7,000 Payables Decrease is Added to Net Income and Classified as an
Operating Item
REFERENCE: 06-06
Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones
was $1,000,000. There was no premium paid by Webb. Jones currently has 100,000 shares
outstanding and a book value of $1,200,000.
Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for
$10 per share.
[QUESTION]
REFER TO: 06-06
47. What is the adjusted book value of Jones after the sale of the shares?
A) $ 200,000.
B) $1,400,000.
C) $1,280,000.
D) $1,050,000.
E) $1,440,000.
Answer: B

Page 6-21
Difficulty: 1 Easy
Blooms: Apply
Feedback: Beginning carrying amount $1,200,000 + Add’l Shares Sold $200,000 ($10 ×
20,000) = $1,400,000 Current carrying amount
[QUESTION]
REFER TO: 06-06
48. What is the new percent ownership of Webb in Jones after the stock issuance?
A) 75%.
B) 90%.
C) 80%.
D) 64%.
E) 60%.
Answer: A
Blooms: Apply
Feedback: Shares Outstanding 100,000 × .90 = 90,000 Parent’s Shares
100,000 + 20,000 = 120,000 New Outstanding Shares
90,000 / 120,000 = 75% New Ownership Percentage
[QUESTION]
REFER TO: 06-06
49. What adjustment is needed for Webb's investment in Jones account?
A) $180,000 increase.
B) $180,000 decrease.
C) $ 45,000 decrease.
D) $ 45,000 increase.
Answer: D
Blooms: Apply
Feedback:
Adjusted acquisition-date sub. fair value

Page 6-22
Increase in Stamford book value .............................................. 200,000
New parent ownership (90,000 shs. ÷ 120,000 shs.) ................... 75%
Parent’s post-stock issue ownership balance.............................. $1,125,000
Parent's investment account ($990,000 + [90% × 200,000]) ........ 1,170,000
Required adjustment —increase ............................................. $45,000
REFERENCE: 06-07
Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones
was $1,000,000. There was no premium paid by Webb. Jones currently has 100,000 shares
outstanding and a book value of $1,200,000.
Assume Jones issues 20,000 new shares of its common stock for $15 per share.
[QUESTION]
REFER TO: 06-07
50. What is the adjusted book value of Jones after the stock issuance?
A) $1,500,000.
B) $1,200,000.
C) $1,350,000.
D) $1,080,000.
E) $1,335,000.
Answer: A
Difficulty: 1 Easy
Blooms: Apply
Feedback: Beginning BV $1,200,000 + Add’l Shares Sold $300,000 ($15 × 20,000) =
$1,500,000 Current BV
[QUESTION]
REFER TO: 06-07
51. After acquiring the additional shares, what adjustment is needed for Webb's investment in
Jones account?
C) $ 30,000 increase.
D) $ 30,000 decrease.
Answer: D
Topic: Subsidiary stock―New issue-No percentage change
Blooms: Apply
Page 6-23
Feedback:
New parent ownership (90,000 shs. ÷ 120,000 shs.) ................... 75%
Parent’s post-stock issue ownership balance.............................. $1,200,000
Parent's investment account ($990,000 + [90% × 200,000]) ........ 1,170,000
Required adjustment — increase ............................................ $30,000
REFERENCE: 06-08
Ryan Company purchased 80% of Chase Company for $270,000 when Chase’s book value was
$300,000. Ryan paid no premium. Chase has 50,000 shares outstanding and currently has a book
value of $400,000.
Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share.
[QUESTION]
REFER TO: 06-08
52. What is the new percent ownership Ryan owns in Chase?
A) 80.0%.
B) 87.5%.
C) 90.0%.
D) 75.0%.
E) 82.5%.
Answer: B
Topic: Subsidiary Stock Transactions
Blooms: Apply
Feedback: Shares Outstanding 50,000 × .80 = 40,000 Parent’s Shares
50,000 + 30,000 = 80,000 New Outstanding Shares
40,000 + 30,000 = 70,000 Parent’s Shares after New Issue
70,000 / 80,000 = 87.5% New Ownership Percentage
[QUESTION]
REFER TO: 06-08
53. What is the adjusted book value of Chase Company after the issuance of the shares?
A) $608,000.
B) $720,000.
C) $680,000.
D) $760,000.
E) $400,000.
Answer: D
Page 6-24
Difficulty: 1 Easy
Blooms: Apply
Feedback: Beginning carrying amount $400,000 + Additional Shares Sold $360,000 ($12
× 30,000) = $760,000 Current carrying amount
[QUESTION]
REFER TO: 06-08
54. After acquiring the additional shares, what adjustment is needed for Ryan's investment in
Chase account?
C) $12,188 decrease.
D) $12,188 increase.
Answer: D
Blooms: Apply
Feedback:
Subsidiary valuation basis ............................................................. 797,500
New parent ownership (90,000 shs. ÷ 120,000 shs.) ................... 87.5%
Parent’s post-stock issue ownership balance.............................. $697,813
Parent's investment account
($270,000 + [80% × 100,000]+360,000) .......................... 710,000
Required adjustment —increase ............................................. $12,188
REFERENCE: 06-09
Ryan Company purchased 80% of Chase Company for $270,000 when Chase’s book value was
$300,000. Ryan paid no premium. Chase has 50,000 shares outstanding and currently has a book
value of $400,000.
Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share.
[QUESTION]
REFER TO: 06-09
55. What should the adjusted book value of Chase be after the treasury shares were purchased?
A) $400,000.
B) $480,000.
Page 6-25
C) $320,000.
D) $336,000.
E) $464,000.
Answer: C
Difficulty: 1 Easy
Blooms: Apply
Feedback: Sub carrying amount before Stock Repurchase $400,000 – Stock Repurchase
$80,000 (8,000 × $10) = Sub carrying amount after Stock Repurchase $320,000
[QUESTION]
REFER TO: 06-09
56. What is Ryan's percent ownership in Chase after the acquisition of the treasury shares
(rounded)?
A) 80%.
B) 95%.
C) 64%.
D) 76%.
E) 69%.
Answer: B
Blooms: Apply
Feedback: Shares Outstanding 50,000 × .80 = 40,000 Parent’s Shares before Treasury Purchase
50,000 - 8,000 = 42,000 New Outstanding Shares after Treasury Purchase
40,000 / 42,000 = 95% New Ownership Percentage
[QUESTION]
REFER TO: 06-09
57. When Ryan’s new percent ownership is rounded to a whole number, what adjustment is
needed for Ryan's investment in Chase account?
A) $16,000 decrease.
C) $46,000 increase.
D) $46,000 decrease.
Answer: A
Blooms: Apply
Page 6-26
Feedback: Investment balance = 270,000 + (80% x 100,000 increase in book value) =
350,000. Adjusted sub value = (400,000 – 80,000) = 320,000. 320,000 x new ownership
percentage 95% = 304,000. 350,000 – 304,000 = 46,000 decrease in investment account
[QUESTION]
58. A variable interest entity can take all of the following forms except a(n):
A) Trust.
B) Partnership.
C) Joint venture.
D) Corporation.
E) Estate.
Answer: E
Topic: VIE―Characteristics
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
59. All of the following are examples of variable interests except:
A) Guarantees of debt.
B) Stock options.
C) Lease residual value guarantees.
D) Participation rights.
E) Asset purchase options.
Answer: B
Blooms: Remember
[QUESTION]
60. Which of the following is not a potential loss or return of a variable interest entity?
A) Entitles holder to residual profits.
B) Entitles holder to benefit from increases in asset fair value.
C) Entitles holder to receive shares of common stock.
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a
loss.
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.
Answer: C
Blooms: Understand

Page 6-27
[QUESTION]
61. Which of the following characteristics is not indicative of an enterprise qualifying as a
primary beneficiary with a controlling financial interest in a variable interest entity?
A) The power to direct the most significant economic performance activities.
B) The power through voting or similar rights to direct activities, which significantly impact
economic performance.
C) The obligation to absorb potentially significant losses of the entity.
D) No ability to make decisions about the entity's activities.
E) The right to receive potentially significant benefits of the entity.
Answer: D
Topic: VIE―Primary beneficiary
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
62. Which of the following statements is false concerning variable interest entities (VIEs)?
A) Sometimes VIEs do not have independent management.
B) Most VIEs are established for valid business purposes.
C) VIEs may be formed as a source of low-cost financing.
D) VIEs have little need for voting stock.
E) A VIE cannot take the legal form of a partnership or corporation.
Answer: E
Blooms: Remember
[QUESTION]
63. Which of the following statements is true concerning variable interest entities (VIEs)?
(1.) The role of the VIE equity investors can be fairly minor.
(2.) A VIE may be created specifically to benefit the business enterprise that established it with
low-cost financing.
(3.) VIE governing agreements often limit activities and decision-making.
(4.) VIEs usually have a well-defined and limited business activity.
A) 2 and 4.
B) 2, 3, and 4.
C) 1, 2, and 4.
D) 1, 2, and 3.
E) 1, 2, 3, and 4.
Page 6-28
Answer: E
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
64. Which of the following is not a factor that indicates a business enterprise that establishes a
variable interest entity (VIE) should consolidate such VIE with its own financial statements?
A) The business enterprise establishing a VIE has the obligation to absorb potentially significant
losses of the VIE.
B) The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion
to equity ownership.
C) The business enterprise establishing a VIE has the right to receive potentially significant
benefits of the VIE.
D) The business enterprise establishing a VIE has power through voting rights to direct the
entity's activities that significantly impact economic performance.
E) The business enterprise establishing a VIE is a primary beneficiary for the VIE.
Answer: B
Topic: VIE―When consolidation required
Blooms: Remember
[QUESTION]
65. A parent acquires all of a subsidiary’s common stock and 60 percent of its preferred stock.
The preferred stock has a cumulative dividend. No dividends are in arrears. How is the
noncontrolling interest in the subsidiary’s net income assigned?
A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value
of the preferred stock, based on an allocation between common stock and preferred stock.
B) There is no allocation to the noncontrolling interest because the parent owns 100% of the
common stock and net income belongs to the controlling interest.
C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the
preferred stock dividends.
D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the
subsidiary’s income before preferred stock dividends.
E) The noncontrolling interest in consolidated net income is assigned as 40 percent of the
subsidiary’s income after subtracting preferred stock dividends.
Answer: C
Blooms: Analyze
Page 6-29
[QUESTION]
66. A parent acquires 70% of a subsidiary’s common stock and 60 percent of its preferred stock.
The preferred stock is noncumulative. The current year’s dividend was paid. How is the
noncontrolling interest in the subsidiary’s net income assigned?
A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value
of the preferred stock, based on an allocation between common stock and preferred stock and
their relative par values.
B) There is no allocation to the noncontrolling interest because there are no dividends in arrears.
C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the
preferred stock dividends.
D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the
preferred stock dividends plus 30% of the subsidiary’s income after subtracting all preferred
stock dividends.
E) The noncontrolling interest in consolidated net income is assigned as 30 percent of the
subsidiary’s income after subtracting 60% of preferred stock dividends.
Answer: D
Blooms: Analyze
[QUESTION]
67. Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the
current year, Donald made $75,000 in sales to Wolff. How does this transfer affect the
A) Included as a decrease in the investing section.
B) Included as an increase in the operating section.
C) Included as a decrease in the operating section.
D) Included as an increase in the investing section.
E) Not reported in the consolidated statement of cash flows.
Answer: E
Difficulty: 1 Easy
Blooms: Analyze
[QUESTION]
68. MacDonald, Inc. owns 80 percent of the outstanding stock of Stahl Corporation. During the
current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the
A) Include 80 percent as a decrease in the investing section.
B) Include 100 percent as a decrease in the investing section.
C) Include 80 percent as a decrease in the operating section.
Page 6-30
D) Include 100 percent as an increase in the operating section.
E) Not reported in the consolidated statement of cash flows.
Answer: E
Difficulty: 1 Easy
Blooms: Analyze
[QUESTION]
69. Pursley, Inc. owns 70 percent of Harry Corp. The consolidated income statement for a year
reports $50,000 Noncontrolling Interest in Harry Corp.’s Net Income. Harry paid dividends in
the amount of $80,000 for the year. What are the effects of these transactions in the consolidated
statement of cash flows for the year?
Answer: D
Blooms: Analyze
[QUESTION]
70. Goehring, Inc. owns 70 percent of Harry Corp. The consolidated income statement for a year
reports $40,000 Noncontrolling Interest in Harry Corp.’s Net Income. Harry paid dividends in
the amount of $100,000 for the year. What are the effects of these transactions in the
consolidated statement of cash flows for the year?
A) Increase in the financing section of $70,000, and decrease in the operating section of $30,000.
B) Increase in the operating section of $70,000, and decrease in the financing section of $30,000.
C) Increase in the operating section of $70,000.
D) Decrease in the financing section of $30,000.
E) No effects.
Answer: D
Blooms: Analyze

Page 6-31
REFERENCE: 06-10
Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The consolidated
balance sheets of Anderson, Inc. and Arthur Corp. are presented below:
2018 2017
Cash $ 8,000 $ 26,000
Accounts Receivable (net) 75,000 54,000
Inventory 100,000 89,000
Plant & Equipment (net) 156,000 170,000
Copyright 16,000 18,000
$355,000 $357,000
Accounts payable $ 60,000 $ 51,000

Long-term Debt 0 35,000
Noncontrolling interest 27,000 25,000
Common stock, $1 par 100,000 100,000
Retained earnings 168,000 146,000
$355,000 $357,000
Additional information for 2018:

• The combination occurred using the acquisition method.
Consolidated net income was $50,000. The noncontrolling interest
share of consolidated net income of Arthur was $3,200.
• Arthur paid $4,000 in dividends.
• There were no purchases or disposals of plant & equipment or
copyright this year.
[QUESTION]
REFER TO: 06-10
71. Net cash flow from operating activities was:
A) $43,000.
B) $44,800.
C) $46,200.
D) $50,000.
E) $25,000.
Answer: A
Blooms: Apply
Feedback: $50,000 + Depreciation $14,000 ($170,000 - $156,000) + Amortization
$2,000 ($18,000 -$16,000) – A/R $21,000 ($75,000 - $54,000) – Inventory $11,000
($100,000 - $89,000) + A/P $9,000 ($60,000 - $51,000) = $43,000 Net Consolidated
Cash Flow from Operations

Page 6-32
[QUESTION]
REFER TO: 06-10
72. Net cash flow from financing activities was:
A) $(28,000).
B) $(35,000).
C) $(13,000).
D) $(63,000).
E) $(61,000).
Answer: E
Difficulty: 3 Hard
Blooms: Apply
Feedback: Parent dividend paid $24,800 (income attributed to controlling interest $46,800 less
increase in Retained Earnings $22,000) + Subsidiary dividends paid to NCI ($1,200) + repayment
of debt ($35,000)
REFERENCE: 06-11
The balance sheets of Butler, Inc. and its 70 percent-owned subsidiary, Cassie Corp., which
Butler has owned for several years are presented below:
2018 2017
Cash $ 16,000 $ 52,000
Accounts Receivable (net) 150,000 108,000
Inventory 220,000 178,000
Plant & Equipment (net) 315,000 340,000
Copyright 32,000 36,000
$733,000 $714,000
Accounts payable $120,000 $102,000

Long-term Debt 0 70,000
Noncontrolling interest 77,000 50,000
Common stock, $1 par 200,000 200,000
Retained earnings 336,000 292,000
$733,000 $714,000
Additional information for 2018:
• Butler & Cassie’s consolidated net income was $100,000.

• Cassie paid $10,000 in dividends.
• There were no purchases or disposals of plant & equipment or
copyright this year.
[QUESTION]
REFER TO: 06-11
73. Net cash flow from operating activities was:

Page 6-33
A) $92,000.
B) $27,000.
C) $63,000.
D) $29,000.
E) $34,000.
Answer: C
Blooms: Apply
Feedback: $100,000 + Depreciation $25,000 ($340,000 – $315,000) + Amortization
$4,000 ($36,000 – $32,000) – A/R $42,000 ($150,000 – $108,000) – Inventory $42,000
($220,000 – $178,000) + A/P $18,000 ($120,000 – $102,000) = $63,000 Net
Consolidated Cash Flow from Operations
[QUESTION]
REFER TO: 06-11
74. Net cash flow from financing activities was:
A) $(129,000).
B) $ (96,000).
C) $(300,000).
D) $ (80,000).
E) $(126,000).
Answer: A
Difficulty: 3 Hard
Blooms: Apply
Feedback: Parent dividend paid $56,000 (income to controlling interest $100,000 less increase in
Retained Earnings $44,000) + NCI in subsidiary dividend ($3,000) + repayment of debt
($70,000) = ($129,000)
[QUESTION]
75. How do outstanding subsidiary stock warrants affect the calculation of consolidated earnings
per share?
A) They will be included in both basic and diluted earnings per share if they are dilutive.
B) They will only be included in diluted earnings per share if they are dilutive.
C) They will only be included in basic earnings per share if they are dilutive.
D) Only the warrants owned by the parent company affect consolidated earnings per share.
E) Because the warrants are for subsidiary shares, there will be no effect on consolidated earnings
per share.
Answer: B

Page 6-34
Topic: EPS―Consolidated diluted EPS
Blooms: Remember
[QUESTION]
76. A parent company owns a controlling interest in a subsidiary and on the last day of the year,
the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds
control over the subsidiary. The adjusted subsidiary value at the date of the new stock issuance
was $27 per share. Which of the following statements is true?
A) Since the sale was made at the end of the year, the parent’s investment account is not affected.
B) Since the shares were sold for more than the adjusted subsidiary value per share, the parent’s
investment account must be increased.
C) Since the shares were sold for more than the adjusted subsidiary value per share, the parent’s
investment account must be decreased.
D) Since the shares were sold for more than the adjusted subsidiary value per share, but the
parent did not buy any of the shares, the parent’s investment account is not affected.
E) None of these answer choices are correct.
Answer: B
Blooms: Analyze
[QUESTION]
77. A parent company owns a controlling interest in a subsidiary whose stock has a valuation
basis of $27 per share. On the last day of the year, the subsidiary issues new shares entirely to
outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the
following statements is true?
B) Since the shares were sold for less than the adjusted subsidiary value per share, the parent’s
investment account must be increased.
C) Since the shares were sold for less than the adjusted subsidiary value per share, the parent’s
investment account must be decreased.
D) Since the shares were sold for less than the adjusted subsidiary value per share, but the parent
did not buy any of the shares, the parent’s investment account is not affected.
Answer: C
Blooms: Analyze
Page 6-35
[QUESTION]
78. A parent company owns a 70 percent interest in a subsidiary whose stock has a valuation
basis of $27 per share. On the last day of the year, the subsidiary issues new shares for $27 per
share, and the parent buys its 70 percent interest in the new shares. Which of the following
statements is true?
B) Since the shares were sold for the same per share amount as the the adjusted subsidiary value
per share, the parent’s investment account must be increased.
C) Since the shares were sold for the same per share amount as the the adjusted subsidiary value
per share, the parent’s investment account must be decreased.
D) Since the shares were sold for the same per share amount as the the adjusted subsidiary value
per share, and the parent bought 70 percent of the shares, the parent’s investment account is not
affected except for the total acquisition amount for the new shares.
Answer: D
Blooms: Analyze
[QUESTION]
79. Carlson, Inc. owns 80 percent of Madrid, Inc. Carlson reports net income for 2018 (without
consideration of its investment in Madrid, Inc.) of $1,500,000. For the same year, Madrid reports
net income of $705,000. Carlson had bonds payable outstanding on January 1, 2018 with a
carrying value of $1,200,000. Madrid acquired the bonds on the open market on January 3, 2018
for $1,090,000. For the year 2018, Carlson reported interest expense on the bonds in the amount
of $96,000, while Madrid reported interest income of $94,000 for the same bonds. Assuming
there are no excess amortizations or other intra-entity transactions, what is Carlson’s share of
consolidated net income?
A) $2,064,000.
B) $2,066,000.
C) $2,176,000.
D) $2,207,000.
E) $2,317,000.
Answer: C
Difficulty: 3 Hard
Blooms: Apply
Feedback: Parent’s Income $1,500,000 + Loss on Bond Sale $110,000 – Bond Interest
$94,000 + Bond Income $96,000 + Sub’s Income to Parent $564,000 ($705,000 × .80) =
$2,176,000 Consolidated Income

Page 6-36
REFERENCE: 06-12
On January 1, 2018, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc.
This price was based on paying $750,000 for 30 percent of Involved’s preferred stock, and
$1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition,
Involved’s stockholders’ equity accounts were as follows:
[QUESTION]
REFER TO: 06-12
80. What is the total acquisition-date fair value of Involved?
A) $2,600,000
B) $4,812,500
C) $3,062,500
D) $2,312,500
E) $3,250,000
Answer: B
Blooms: Apply
Preferred Stock Noncontrolling Interest at Acquisition = $750,000 / .30 = $2,500,000
$2,312,500 + $2,500,000 = $4,812,500 FV of Sub at Acquisition
$1,850,000 + $462,500 + $750,000 + $1,750,000 = $4,812,500
[QUESTION]
REFER TO: 06-12
81. Assuming Involved’s accounts are correctly valued within the company’s financial
statements, what amount of goodwill should be recognized for the Investment in Involved?
A) $(100,000.)
B) $ 0.
C) $ 200,000.
D) $ 812,500.
E) $2,112,500.
Answer: D
Blooms: Apply

Page 6-37
× .20 = $462,500
Preferred Stock Noncontrolling Interest at Acquisition = $750,000 / .30 = $2,500,000 × .70 =
$1,750,000
(CS Parent $1,850,000) + (CS NCI $462,500) + (PS Parent $750,000) + (PS NCI $1,750,000) =
$4,812,500 FV of Sub at Acquisition
FV $4,812,500 – carrying amount $4,000,000 = $812,500 Goodwill
[QUESTION]
82. Johnson, Inc. owns control over Kaspar, Inc. Johnson reports sales of $400,000 during 2018
while Kaspar reports $250,000. Kaspar transferred inventory during 2018 to Johnson at a price of
$50,000. On December 31, 2018, 30% of the transferred goods are still held in Johnson’s
inventory. Consolidated accounts receivable on January 1, 2018 was $120,000, and on December
31, 2018 is $130,000. Johnson uses the direct approach in preparing the statement of cash flows.
How much is cash collected from customers in the consolidated statement of cash flows?
A) $590,000.
B) $610,000.
C) $625,000.
D) $635,000.
E) $650,000.
Answer: A
Blooms: Apply
Feedback: Parent $400,000 + Sub $250,000 – Intra-Entity $50,000 – Increase in A/R
$10,000 ($120,000 - $130,000) = $590,000
[QUESTION]
83. Which of the following variable interests entitles a holder to residual profits, losses, and
dividends?
A) Participation rights
B) Lease residual value guarantees
C) Common stock
D) Asset purchase options
E) Subordinated debt instruments
Answer: C
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
84. Which of the following statements regarding consolidation of a VIE with its primary
beneficiary is true?
Page 6-38
A) The consolidation of a VIE with its primary beneficiary requires the business enterprise to
follow a separate process than the one required for consolidations based on voting interests.
B) All intra-entity transactions between the primary beneficiary and the VIE are included in the
consolidation.
C) Only intra-entity transactions between the primary beneficiary and the VIE resulting from
intra-entity transfers are eliminated in the consolidation.
D) VIEs with controlling interests must include one hundred percent of the primary beneficiary’s
net income in a consolidation.
E) The allocation of the VIE’s net income is based on an analysis of the underlying contractual
arrangements between the primary beneficiary and other holders of variable interests.
Answer: E
Topic: VIE―Process of consolidation
Difficulty: 1 Easy
Blooms: Remember
[REFERENCE 06-13]
On January 1, 2018, A. Hamilton, Inc. (“AHI”) provides a loan for $3,000,000 to Reynolds
Manufacturing Corp. (“RMC”). The terms of the loan require payment of the loan no later than
January 1, 2023. RMC was in terrible financial condition and would cease operations absent
securing a loan. Prior to requesting a loan from AHI, RMC exhausted all other possible avenues
for funding. The terms of the loan agreement include provisions that require RMC to provide AHI
with the following from January 1, 2018 through January 1, 2023: (i) 6 percent annual interest on
the principal amount of the loan, which reflects a market rate of interest; (ii) 100 percent
participation rights to RMC’s profits less $17,000 in a guaranteed annual dividend to RMC’s
common shareholders; and (iii) complete decision-making authority over RMC’s operations and
financing decisions..
At the end of the term of the loan, AHI is given the right to acquire RMC or, in its discretion,
extend the term of the original loan an additional 5 years. At the date the loan was extended to
RMC, RMC’s common stock had an estimated fair value of $136,000 and a book value of
$40,000. The $96,000 difference was attributed to an asset with a 3-year useful life remaining
(“Asset”). At January 1, 2018, the balance sheets for AHI and RMC are as follows:

Page 6-39
[QUESTION]
REFER TO: 06-13
85. With respect to the acquisition-date consolidation worksheet, which of the following is
accurate?
A) The value of the noncontrolling interest is $40,000.
B) The total of all adjustments and eliminations equal $3,136,000.
C) The consolidated total long-term debt equals $3,688,000.
D) The total consolidated assets equal $9,794,000.
E) The total liabilities and equity on a consolidated basis equals $5,614,000.
Answer: B
Blooms: Apply
[QUESTION]
REFER TO: 06-13
86. In preparing the consolidation worksheet as of December 31, 2018 for AHI and RMC, which
of the following worksheet entry descriptions reflects what AHI should do to consolidate the
financial statements?
A) Consolidation Entry A is recorded to allocate the excess fair value to the noncontrolling
interest and record a credit to the Asset in connection with a fair valuation on the date AHI
obtains control of RMC as follows:
Noncontrolling interest $96,000
Asset $96,000
Page 6-40
B) Consolidation Entry P is recorded to eliminate the long-term receivable and debt representing
AHI’s initial investment in RMC as follows:
Loan receivable from RMC $3,000,000
Long-term debt $3,000,000
C) Consolidation Entry S is recorded to eliminate the interest payment on the loan from RMC to
AHI as follows:
Interest expense $180,000
Interest income $180,000
D) Consolidation Entry E is recorded to amortize the excess fair value allocation to the Asset over
its remaining useful life as follows:
Other operating expenses $32,000
Asset $32,000
E) Consolidation Entry P is recorded to eliminate the beginning stockholders’ equity of the VIE
and recognize the 100% equity ownership of the noncontrolling interest as follows:
Retained earnings – RMC 1/1/18 $ 6,000
Common stock – RMC $34,000
Retained Earnings-AHI $40,000
Answer: D
Blooms: Analyze
Essay:
[QUESTION]
87. Parent Corporation loaned money to its subsidiary with a five-year note at the market interest
rate. How would the note be accounted for in the consolidation process?
Answer: The note would be eliminated in the consolidation process with an entry debiting Notes
Payable and crediting Notes Receivable.
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
88. What are the primary sources of information that are used for preparation of a consolidated
Answer: The main source of information would be the consolidated income statement and the
consolidated balance sheet.
Page 6-41
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
89. Parent Corporation acquired some of its subsidiary's bonds on the open bond market. The
remaining life of the bonds was eight years, and Parent expected to hold the bonds for the full
eight years. How would the acquisition of the bonds affect the consolidation process?
Answer: In the consolidation process, the bonds would be treated as if they had been retired. A
gain or loss would be recognized in the period in which they were acquired. Intra-entity interest
revenue and expense would be eliminated.
Difficulty: 1 Easy
Blooms: Remember
AACSB: Communication
[QUESTION]
90. Parent Corporation acquired some of its subsidiary's bonds on the open bond market, paying
a price $40,000 higher than the bonds' carrying value. How should the difference between the
purchase price and the carrying value be accounted for?
Answer: The $40,000 difference between the acquisition price and the carrying value would be
recognized as a loss on retirement of bonds.
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
91. How are intra-entity inventory transfers treated on the consolidation worksheet and how are
they reflected in a consolidated statement of cash flows?
Answer: Intra-entity inventory transfers are eliminated on the consolidation worksheet and,
therefore, do not appear in the consolidated statement of cash flows.
Blooms: Remember
Page 6-42
[QUESTION]
92. Danbers Co. owned seventy-five percent of the common stock of Renz Corp. How does the
issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process?
Answer: A stock dividend would not influence Danbers' ownership percentage and would not
alter the consolidation process.
Topic: Subsidiary stock―Stock dividend issued
Blooms: Understand
[QUESTION]
93. During 2018, Parent Corporation purchased at carrying value some of the outstanding bonds
of its subsidiary. How would this acquisition have been reflected in the consolidated statement of
cash flows?
Answer: The cash paid for the bonds on the open market would be shown under cash flows from
financing activities. If the bonds were acquired directly from the subsidiary, the cash received
and the cash paid has no effect on the consolidated entity. Therefore, in a direct intra-entity
transaction, there is no effect in the consolidated statement of cash flows.
Blooms: Remember
[QUESTION]
94. On January 1, 2018, Parent Corporation acquired a controlling interest in the voting common
stock of Foxboro Co. At the same time, Parent purchased sixty percent of Foxboro's outstanding
preferred stock. In preparing consolidated financial statements, how should the acquisition of the
preferred stock be accounted for?
Answer: The investment in preferred stock account and Foxboro’s preferred stock balance should
be eliminated in consolidation so that only the parent’s equity remains. No gain or loss should be
recognized.
Difficulty: 1 Easy
Blooms: Remember
Page 6-43
[QUESTION]
95. When a company has preferred stock in its capital structure, what amount should be used to
calculate noncontrolling interest in the preferred stock of the subsidiary when the company is
acquired as a subsidiary of another company?
Answer: The noncontrolling interest should be reflected at its acquisition-date fair value.
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
96. Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent
purchase the bonds, rather than the subsidiary buying its own bonds?
Answer: The purchase might have been made by Parent Corporation because it had more
available cash than the subsidiary and there was a desire to bring the bonds in from the market.
Also, in some cases, the contract signed when the bonds were issued might prevent the subsidiary
from purchasing its own bonds or it might require the payment of a price that would be higher
than the market value of the bonds.
Blooms: Understand
[QUESTION]
97. Parent Corporation had just purchased some of its subsidiary's outstanding bonds on the open
market. What items related to these bonds will have to be accounted for in the consolidation
process?
Answer: For each period that the parent owns the bonds, the bonds must be eliminated on the
consolidation worksheet. Eliminating the bonds on the consolidation worksheet requires the
elimination of: (i) the parent's investment account; (ii) the portion of the bonds payable that the
parent acquired; (iii) interest expense of the issuer; and (iv) interest income of the investor. In the
year in which the parent acquired the bonds, a gain or loss must have been recognized. Over the
life of the bonds, retained earnings must be debited or credited for the amount of the gain or loss,
as adjusted by the previous years’ difference between interest expense and interest income.
Difficulty: 3 Hard
Blooms: Remember
Page 6-44
[QUESTION]
98. Parent Corporation recently acquired some of its subsidiary's outstanding bonds at an amount
which required the recognition of a loss. In what ways could the loss be allocated? Which
allocation would you recommend? Why?
Answer: The loss could be assigned to the subsidiary since it originally issued the bonds. The
loss could be assigned to the parent since the parent acquired the bonds. A method could be
applied to divide the loss between the parent and subsidiary. Finally, the loss could be assigned
to the parent because the parent controls the combined entity. The loss should probably be
assigned to the parent, without regard to who issued and who purchased the bonds, since the
parent is responsible for decision-making for the combined entity.
Difficulty: 3 Hard
Blooms: Understand
[QUESTION]
99. How does the existence of a noncontrolling interest affect the preparation of a consolidated
Answer: The noncontrolling interest's share of the subsidiary's income would not appear in the
consolidated statement of cash flows. Dividends paid to the noncontrolling interest represent
cash outflows for the combined entity to outside parties, and should be shown as cash flows from
financing activities.
Blooms: Remember
Problems:
[QUESTION]
100. On January 1, 2018, Bast Co. had a net book value of $2,100,000 as follows:
Preferred stock, 2,000 shares $70 par value,

cumulative, nonparticipating, nonvoting $ 140,000
Common stock, 22,400 shares $50 par value 1,120,000
Page 6-45
Another random document with
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was ready to go, however, she stopped on her way to the door, and
gave Mabin one long, curious look. It made the girl spring forward,
with a world of sympathy in her eyes.
“Oh, I’m so sorry for you!” she whispered. “So very, very sorry.
Much more than before I knew anything.”
Then Mrs. Dale gave way, and seeming for the first time to recover
her powers of thought and of speech, she sank down on the nearest
chair, and burst into tears, natural, healing tears, while she poured
into Mabin’s ears a broken, incoherent confession:
“It is quite true that I did it—did what she told you. But you know,
oh, Mabin, you do know how bitterly I have repented it! I would have
given my life to have been able to live those few minutes over again!
What did she tell you? Tell me, tell me! And how did she say it? Of
course she made the very worst of it; but it was bad enough without
that. Oh, Mabin, Mabin! Don’t you think she might forgive me now?”
While she talked in this wandering and excited way Mabin hardly
knew what to do; whether to try to divert her thoughts, or to let her
know in what a vixenish and hard manner the elder woman had
made the announcement of the terrible action which had cut short
one life and ruined another.
“Of course she ought to forgive you!” she said at last. “But you
must not give way to despair if she does not. She is a hard woman;
she will never treat you as tenderly as your own friends do.”
She paused, not liking to tell Mrs. Dale that the visitor was waiting
for her, and wondering whether her friend had forgotten the fact. As
she glanced toward the door, Mrs. Dale caught her eye, and
suddenly threw herself upon her knees, burying her head in the girl’s
lap.
“Oh, I daren’t, I daren’t go in—just yet!” she whispered almost
pleadingly. “I know I sent for her; I know I must see her; but now that
the moment has come, I feel as if I could not bear it. I know how she
will look—what she will say. And it is upon her, all upon her, that my
life, my very life depends!”
Mabin said nothing. She could not help thinking, from the wild
words and wilder manner of the wretched woman before her, that the
great strain of her crime and her repentance had ended by
weakening her mind. Unless——
The girl drew a long breath, frightened by the awful possibility,
which had just occurred to her, that the grim visitor in the drawing-
room had been threatening Mrs. Dale with the extreme penalty of her
crime. Mrs. Dale’s words—“My life depends upon her!” were explicit
enough. Instinctively Mabin’s arm closed more tightly round the
sobbing woman.
“Hush, hush, dear!” she whispered soothingly. “She will not dare,
she will not dare to be more cruel than she has been already! You
must try and be brave, and to bear her hard words; but she won’t do
anything more than scold you!”
In the midst of her grief Mrs. Dale looked up in the girl’s face with a
sad smile.
“Oh, she has dared so much more than that already!” she said
hopelessly. “I don’t want to excuse myself—nothing can excuse me
—but I want you to know the share she had in it all. For she had a
share. It would never have happened but for her.”
Mrs. Dale sprang to her feet, and walking up and down the room
with her little white hands clinched till the nails marked her flesh, she
began to pour into the young girl’s ears a story which kept her hearer
fascinated, spellbound.
“Listen, listen!” said Mrs. Dale in a low, breathless voice, without
glancing at the girl. “It is not a story for you; I would never have told
you a word of it if it had not been forced upon us both. But now, as
you have heard so much, told in one way, you must hear the rest,
told in another.”
Mabin said nothing.
In fact, it seemed to her that Mrs. Dale hardly cared whether she
listened or not. She went on with her story in the same hurried,
monotonous tone, as if it was merely the relief of putting it into words
that she wanted:
“I had always been spoiled, always had my own way, until I was
married. My father and mother both died when I was a little thing of
six, and I lived with my guardian and his family, and they let me do
just as I liked. I was supposed to be rich, almost an heiress; but
when my guardian died, it was found that the money had all gone; I
had nothing. I was not yet eighteen then. And Sir Geoffrey Mallyan
wanted to marry me. Every one said I must; that there was nothing
else for me to do. I didn’t care for him; but then I didn’t care for any
one else; so nobody thought it mattered. It was taken for granted,
don’t you see, that there was no question of my saying no.”
Mrs. Dale stopped short, and for the first time looked at Mabin:
“That’s what people always think, that it doesn’t matter whom a girl
marries, if she’s very young. But it does, oh, it does! And he had a
brother——”
Mabin started, and thought at once of Mr. Banks.
“A younger brother, who had been ordered home from India on
sick leave. No, I didn’t care for him,” she went on emphatically,
reading the expression of sympathy on the girl’s face. “But he was
livelier than his grave brother, my husband, and we were very good
friends. Nobody would have thought that there was any harm in that
if old Lady Mallyan hadn’t interfered. You can guess now, I suppose,
who Lady Mallyan is!”
Mabin nodded emphatically without speaking.
“She came posting to the place to find out the evil which was only
in her own mind. We had been getting on quite well together, my
husband and I. I was rather afraid of him, but I liked him, and he was
kind to me. I believe he was really fond of me; and that I should have
grown fond of him. I was fond of him in a way; but he was fifteen
years older than I, and very quiet and grave in his manners. But he
let me do what I liked, and took me to all the dances and races I
wanted, and was proud of me, and seemed pleased that I should
enjoy myself. But when his mother came, everything was changed.
She had great influence with him, and she told him that he was
spoiling me, and making me fit for nothing but amusement, and that
these constant gayeties were ruining my character. And so he told
me, very gently, very kindly, that I must settle down, and live a
quieter life.
“I was sorry, disappointed, and not too grateful to Lady Mallyan.
Would you have been? Would anybody have been? But I submitted.
There were some scenes first, of course. I had been spoiled; I am
bad-tempered, I know; and I was indignant with her for her
interference. What harm had I been doing, after all? I was not
unhappy, however, and it was easy to reconcile myself to everything
but to her. For she seemed to have settled down in my husband’s
house, and I did not dare to hint that I resented this. Then things
went on smoothly for a time. I had given up my balls, and nearly all
what my mother-in-law was pleased to call ‘dissipations.’ But now
that I was oftener at home, I naturally saw more of Willie, my
husband’s brother, than before, since he was not strong enough to
go out so much as Sir Geoffrey and I had done.
“We were all very anxious about him, as he seemed to be on the
verge of consumption. He was very bright and amusing, however,
even then, and I was certainly more at ease with him than I was with
my mother-in-law, or even with my own husband, who was a silent
and undemonstrative man. But it was shameful of Lady Mallyan to
suspect that I cared more for him than for my husband; it never
entered into his head or mine to suppose any one would think such a
wicked thing; and certainly Sir Geoffrey would never have thought of
such a thing except at the suggestion of his mother.
“I cannot tell you, child, of the wretchedness this miserable old
woman brought about, in her jealousy at Sir Geoffrey’s love for me,
and her anxiety to get back the influence over him which she thought
I had usurped. Of course if I had been an older woman, as old as I
am now, for example, I should have rebelled; I should have insisted
on her leaving the house where she had brought nothing but misery.
I should have known how to take my proper place as mistress of the
house in which she was only an interloper.
“But I did not know how to do it, although I knew what I ought to
do.
“So it went on, the misery of every one growing greater every day,
Willie and I feeling a restraint which made us afraid to exchange a
word under her eyes; my husband growing shorter in his manner,
more reserved in his speech, having had his mind poisoned against
his brother and against me.
“At last a crisis came. Willie told us that he was going away. I knew
he was in no fit state to travel, but I did not dare to tell him to stay, or
to tell the fears I felt for him. When he was ready to go, I spoke out to
him at last. We were in the drawing-room, standing by the fire, and I
told him it was his mother who had made us all miserable and afraid
to speak to one another, and I begged him to come with me to Sir
Geoffrey, and to back me up in telling him the truth, in insisting that
Lady Mallyan should leave the house.
“ ‘If you go away now, without speaking to Geoffrey,’ I said, ‘I shall
be left in the power of this hateful, wicked woman for the rest of my
life. For she will never leave of her own accord; and I dare not speak
to Geoffrey about her with no one to back me up.’
“And then I saw Lady Mallyan’s shadow outside the window on the
path. She had been listening, she was always listening; hoping to
find out something as we said good-by.
“I ran to the window, but she escaped me. When Willie was gone, I
went to look for my husband. He was in the gun-room, looking
harder than usual. His mother had just left him. I had never seen him
look so stern, and I was frightened. I began to see that I was
powerless against the mischievous woman who was spoiling our
lives.
“ ‘Geoffrey!’ I said. ‘What has your mother been saying to you? She
has been saying something unkind I know; something untrue,
probably. What is it?’
“Then he said something which made me feel as if I had been
turned into stone. Lady Mallyan had been with him, had
misrepresented my words to Willie, had put a hideous meaning into
all we had said. I forget Sir Geoffrey’s exact words; if I remembered
them I would not repeat them. But they were cold, full of suspicion.
They roused in me a mad feeling of hatred. I can remember that I
shook till my dress rustled; that I could not speak. Then—God
forgive me! I took up a little pistol—revolver—I don’t know what they
call it; but it was something so small it looked like a toy—and, hardly
knowing what I did, I pointed it at him, and—and—he cried out, and
fell down.
“I don’t know what happened then, whether I shrieked out, or what
happened. But they came in, a lot of them, and took me away. And—
and I never saw him again. She would not even let me see him when
he lay dead. Though I begged, how I begged!”
Suddenly Mrs. Dale stopped in her speech, and crossed quickly to
the door. Flinging it open suddenly, she revealed Lady Mallyan,
standing within a couple of feet of it, erect, very pale.
Mrs. Dale smiled.
“Come in, pray come in, your ladyship. You have not lost your old
habits, I see,” she said with cutting emphasis as she bowed to her
visitor.
CHAPTER XIV.
NO MERCY.
It was with a throbbing brain and a heavy heart that Mabin,

dismissed by Mrs. Dale with a warm pressure of the hand and a little
pathetic smile, went through the hall and out of the house.
What was the meaning of old Lady Mallyan’s coming? Why had
Mrs. Dale sent for her? Surely, the girl felt, there could be but one
answer to this question; and in that answer lay the key to the
mystery about “Mr. Banks.”
Mabin remembered the likeness she had seen in his face, in one
of his sterner moments, to the visitor whom she now knew as Lady
Mallyan. And she could have little doubt, on putting together the
facts of the story she had just heard and the details she knew
concerning her father’s tenant, that it was indeed Sir Geoffrey
Mallyan’s brother Willie, one of the causes, if not the sole cause, of
the tragedy which had wrecked Mrs. Dale’s life, who had settled
down, unknown to the lady herself, as her nearest neighbor.
A hot blush came into Mabin’s face, alone though she was, as this
conclusion forced itself upon her. For even she, young and innocent
as she was, could not help seeing that his behavior, since he had
lived at Stone House, was inconsistent with Mrs. Dale’s account of
the blameless relations which had existed between them.
Mrs. Dale had represented this “Willie” as a light-hearted young
fellow, who had felt only the comradeship of a younger brother
toward his brother’s beautiful wife. But “Mr. Banks” had behaved, not
only like a lover, but like a lover, once favored, whom despair had
driven to the verge of madness.
On the other hand, Mabin, in her loyalty toward her friend, was
ready to believe that, even if the feelings these two unhappy
creatures had had for each other had been less innocent than Mrs.
Dale had represented, they had been themselves less to blame than
either of the two other persons concerned in the terrible history.
Mrs. Dale, naturally enough constrained by her own remorse to
speak well of her dead husband, had yet been able to give no very
attractive picture of the man who had misunderstood his young wife,
frightened away her confidence, and allowed himself to be alienated
from her by the interference of his mother. And of that mother herself
Mabin had seen enough to be more than ready to give her her fair
share of the blame.
The young girl’s heart went out, more than it had ever done
before, to the little woman, whom nature had made so frivolous, and
circumstances so miserable, and around whom misfortune seemed
to be closing once more.
It was the one gleam of comfort she had to know how sincerely
Mrs. Dale was trying to do what was right in the matter. Instead of
attempting to see “Mr. Banks,” which would have been easy enough
for her to do, she had sent for his mother, repugnant though such a
course must always be to her; so that, whatever indiscretion she
might have shown in the past, it was clear that she meant to keep
herself free from all suspicion now.
And this was the more creditable on her part, so Mabin felt, since
the strange elation she had shown by fits and starts since the day
before, when she heard the voice of “Mr. Banks” for the first time,
proved clearly that she was not so indifferent, not so
unimpressionable, as she had professed to be.
And here Mabin felt her heart grow very tender; she pictured to
herself what she would feel, if circumstances were to put Rudolph
and herself in the same position toward each other, as were “Mr.
Banks” and “Mrs. Dale.”
If she were to have to live within a stone’s throw of him, not only
always loving, always longing, but conscious that the same feelings
which drew her heart toward him were forever drawing him toward
her.
Mabin began to cry softly. And then the application of the story to
her own case caused her thoughts to take another turn; and she
asked herself, with the generous Quixotism of her youth and her
loyal nature, whether she ought not to wish for, to encourage, the
process by which Rudolph’s love was being diverted from herself,
the uninteresting, awkward girl without any history, to the unhappy
lady around whom there clung the romance of a tragedy.
These questions, which had indeed risen in her mind before, but
which had now acquired a new force with her extended knowledge,
were entirely consistent with the bent of Mabin’s mind. Accustomed
from her childhood to consider others rather than herself, and
inclined by her own modesty to underrate her deserts as well as her
attractions, she found it easy, not indeed to stifle her own feelings,
but to control them. She told herself that she would show Rudolph no
more petulance, no more “childish” jealousy or curiosity; and if, as
seemed inevitable, he found that he had made a mistake in thinking
he cared for herself, she would be the first to wish him happiness
with a more attractive bride.
Perhaps it showed rather a touching sense of her own devotion to
her lover, that Mabin never once doubted his power to console Mrs.
Dale for all her troubles, nor that lady’s readiness to be comforted by
him.
And it was while these thoughts were fresh in her mind that Mabin,
turning the angle in the path toward the kitchen-garden, came face to
face with Rudolph.
Meeting him at such a moment, it was not surprising that she
stopped short, turned first red, then white, and presented to his view
a countenance so deeply impressed with a sort of shy alarm, that the
young man was rather puzzled as to the kind of greeting he might
expect.
Recovering herself quickly, Mabin wisely put off explanations by
dashing straight into an exciting subject:
“Oh, do you know,” she asked in a hurried, constrained voice, “that
I have had to leave poor Mrs. Dale to that dragon? Oh yes, I know
who she is now; I know who they both are. Mrs. Dale herself has told
me that, told me everything;” added Mabin, in answer to an
interrogative and puzzled look which she detected on his face.
Rudolph looked dubious.
“Everything?” he repeated doubtfully.
“And,” went on Mabin with calm triumph, “old Lady Mallyan has
told me something too. And as I had a long talk with Mr. Banks
yesterday, I think perhaps the tables are turned, and I know more
than you do now.”
Mabin seated herself, as she spoke, on the garden seat which was
placed, most charmingly as far as picturesque effect was concerned,
but most inconveniently, if one considered earwigs and green flies,
under a tall lime-tree and against a dark hedge of yew. Rudolph was
intensely relieved to find that her jealous and angry mood of the
evening before had passed away; and although he was puzzled by
her new manner, which was easy, friendly, but not affectionate, he
thought it better to fall in with her mood and not to risk the pleasure
of the moment, by asking for explanations just yet. Mabin, on her
side, felt a curiously pleasant sense of present enjoyment and
irresponsibility. It was happiness to be with Rudolph, without any
dispute to trouble their intercourse. And she found that by turning his
attention and her own away from themselves to the subject of Mrs.
Dale and her troubles, she got not only the full delight of Rudolph’s
attention, but the satisfaction that she was stifling, if not conquering,
her own weakness.
Rudolph was charmed by the new and undefinable change to
greater frankness, to less shyness, in her manner.
“Well,” said he, pulling down the bough of a guelder rose-tree and
beginning with great precision to strip off the leaves, “I couldn’t help
myself, could I? I couldn’t tell you somebody else’s secrets without
permission. And you see you haven’t had to wait very long to know
all about it.”
“Oh, I’m not thinking about that,” said Mabin superbly. “It was
annoying at the time not to know what you were all talking about; but
I soon got over that. What I am thinking about now is the best thing
to be done for Mrs. Dale. You know who this Mr. Banks is, I
suppose?”
Her assumption of a lofty standpoint of deep knowledge combined
with great indifference amused Rudolph.
“Do you?” retorted he.
“I suppose,” she answered almost in a whisper, and looking down
on the ground as she spoke, “that he is Lady Mallyan’s son Willie.”
Rudolph looked astonished.
“You do know something then!” said he at last. “Yes, I suppose he
is.”
“And Mrs. Dale knows it?—knew it yesterday, I suppose?—when
she heard his voice?”
“Yes, I think so, I suppose so. But I must tell you that she was so
much upset that I didn’t attempt to ask her any questions about it. I
only tried to quiet her, and offer, when she said she must see Lady
Mallyan, to send off the telegram.”
Mabin, too much excited to sit still, sprang to her feet on the gravel
path beside him.
“Isn’t it hard? Oh, isn’t it hard for her? She does exactly what is
right, what is best. She ought not to be persecuted by either of them,
by mother or son!”
But instead of answering her fervent outbreak in the same tone, or
at least with sympathy, she saw, to her indignation, that Rudolph had
difficulty in suppressing a smile.
“The persecution won’t last long,” said he. Then noting the
revulsion of feeling expressed in Mabin’s face, he added quickly:
“When Lady Mallyan and Mr. Banks meet, they will have to come to
an understanding; and I can answer for it that after that Mrs. Dale will
be left in peace.”
“That’s what Mr. Banks himself seems to think,” said Mabin
ingenuously. “But Lady Mallyan was shocked when she heard he
lived so near, and she doesn’t want to meet him.”
Rudolph was in an instant on fire with excitement.
“Oh, doesn’t she, though? Then I’ll take jolly good care that she
shall!” He took three or four rapid steps away from her and came
back again. His face was glowing with excitement. “Look here,
Mabin, I want you to mount guard over the house, and see that the
old lady doesn’t get away before I get back with Mr. Banks. Mind, it is
very important. You must do anything rather than let her go. It’s just
possible she may get an idea of something of the kind, and may try
to get away.”
“All right,” said Mabin very quietly, but none the less showing in the
firm set of her lips and the steadiness of her eyes that she would
prove a firm ally. “But don’t be long gone; for I am afraid of what may
be going on between that hard woman and poor little Mrs. Dale!”
“I’ll be as quick as I can. You may trust me.”
And then, taking her entirely by surprise, he flung his arms round
her, pressed upon her startled lips a long kiss, and ran off before she
had breath to utter a word.
She had just sense enough left to remember her promise, to
stagger round to the front of the house, and to take her place as
sentinel under the dining-room wall. There was no window on this
side, the space where one had originally been having been blocked
up and filled with a painted imitation of one. It was impossible
therefore for Mabin to tell, in this position, whether the interview
between the two ladies was over or not.
So she went into the hall, where it was now so dark that she felt
her way, stumbling, in the direction of the dining-room door. She was
close to it before she was assured, so low was the voice speaking
within the room, that the ladies were still there. But the piteous,
subdued tones of Mrs. Dale, which met her ear as she came near,
told her that the little lady in black was still pleading to her tyrant.
Withdrawing quickly, her heart throbbing in sympathy with the
unfortunate woman, Mabin returned to the garden, and waited near
the garden gate.
She now had leisure to dwell on that intoxicating kiss, which had
for the moment thrown her back into the world of happiness into
which Rudolph’s avowal of love had introduced her, and from which
more recent events had seemed to combine to thrust her out. Could
it be that he was still the same as ever, in spite of her jealous fears,
of her Quixotic imaginings? Mabin’s brain seemed to be set on fire at
the thought. She began to look out at the treeless fields which lay
between “The Towers” and the sea, with eyes which saw nothing.
Though mechanically from time to time she turned to glance at the
front door of the house, she had forgotten for whom she was
watching.
Suddenly she was startled by the sound of light footsteps on the
gravel behind her, and looking round, she saw the parlormaid
running toward the gate.
“The cab, miss, have you seen the cab? The lady wants to go
now, and of course the stupid man is out of sight.”
“It is at the corner of the road,” answered Mabin, waking up to the
realities of life with a start. “But don’t go for it yet. Mr. Bonnington
wants to speak to Lady Mallyan first.”
The girl was evidently startled and impressed by the discovery that
Mabin knew the visitor’s name. She hesitated.
“But she wants to catch a train, miss!” she protested at last.
As Mabin was about to answer, a figure in the road outside caught
her eye. The maid saw it too.
“Who—who was that?” Mabin asked quickly.
The maid, who looked rather scared, hesitated, stammered.
“Was it—Mrs. Dale?” pursued Mabin almost in a whisper.
And as she spoke, her heart sickened with a vague fear. Quickly
as the form had passed by, and disappeared from sight in the deep
shadows of the trees at the bend of the road below, there had been
something about its rapid and noiseless flight, in the very bend of the
head and flutter of the dress, which alarmed the young girl.
Besides if it was Mrs. Dale, what was she doing, at this late hour
of the evening, on the road which led down to the cliff, to the sea?
She must have gone out by the door at the back of the house, too;—
surely a strange thing to do!
But even as these thoughts crowded into her mind, there came
another and less disquieting one. The road she had taken passed
the front of “Stone House;” perhaps she had gone to seek herself an
interview with “Mr. Banks.”
Even as she made this suggestion to herself, and while the voice
of the maid still murmured that she must go and fetch the cab, Mabin
heard men’s voices in the road below.
Recognizing that of Rudolph, she stepped outside the gates, and
waited with anxiety for his appearance.
But he came slowly; perhaps, thought Mabin, he was talking to
Mrs. Dale. She listened more intently; but as the voices came
gradually nearer, she was able to assure herself that they were only
those of Rudolph and of “Mr. Banks.” Scarcely able to control her
anxiety, she stepped out through the gates into the road, at the very
moment that Lady Mallyan’s harsh voice sounded behind her,
speaking to the parlormaid:
“Where is my cab?”
Rudolph heard these words, and he hurried forward with his
companion. It was now almost dark. Mabin saw who the man was
beside him, but she could not distinguish his face.
“I beg your pardon, madam,” said Rudolph, raising his hat and
walking quickly after the old lady, who had passed through the gate
and was hurrying down the road: “Your son wishes to speak to you.
He cannot walk so fast as you, but he has sent me with this
message.”
She stopped short, appeared to hesitate, and then turned back
without a word.
It was close to where Mabin stood, stupidly, not knowing exactly
what was going to happen, or what she ought to do on behalf of Mrs.
Dale, that mother and son met.
Dark as it was out there, with only a line of pale yellow light left in
the horizon, shading off through sea-green into the blue above,
Mabin saw enough to know that the meeting was one of deep import.
Old Lady Mallyan seemed uneasy; the harshness which Mabin had
hitherto believed to be her most salient quality had almost
disappeared from her tones as she addressed her son:
“I am sorry,” she said, quite gently, as she put out her arms toward
him, “to find you here. It can do no good. It might have done great
harm. Why did you not let me know where you were? Why did you
deceive me?”
But “Mr. Banks” did not accept the offered caress of the
outstretched arms.
“I will tell you why, mother, presently. But now, where is Dorothy? I
want to see her. I must see her. Surely,” he went on as she did not at
first answer, “surely she will see me now you are here. Surely she
will not refuse!”
There was again a silence of a few seconds, during which Mabin,
who had only withdrawn a little way, and who was striving to attract
the attention of Rudolph, who stood with his back to her, uttered a
little cry of pain and distress.
Mr. Banks went on impatiently:
“Where is she? Is she in the house? I must go to her; I must see
her!”
Then Lady Mallyan spoke, in a voice which was greatly changed.
She seemed to be trying to control some real alarm.
“You cannot,” she said quickly. “She will not see you. She refuses
—absolutely. As a gentleman you cannot persist. She is as hard and
cold-hearted as ever. She will not see you again. She has gone
away.”
At these words, which Mabin heard, the young girl uttered a sharp
cry. But “Mr. Banks” did not heed her. He spoke again, in such
piteous tones that Mabin and Rudolph, young and susceptible both,
felt their hearts wrung.
“Mother, I must see her, I must. Once, once only, I won’t ask for
more. Go after her; go after her. Tell her I love her, I love her always.
She will not refuse to see me once—before—before I die!”
Mabin waited no longer. Rushing between the mother and son,
she panted out:
“I will go. I will fetch her! I will bring her back. And she will come!
Oh, she will come! She is not hard. Trust me, trust me, she will come
—she shall come.”
She gave him no time for more than a hoarse whisper of thanks,
and a murmured blessing. She was off, down the hill, as if on the
wings of the wind.
And as she drew into the black shadow of the trees on the hill, she
heard footsteps and a voice behind her:
“Mabin! Mabin! Don’t be frightened. Where has she gone, dear?
Where has she gone?”
Panting, breathless, not halting a moment as she ran, Mabin
whispered, in a low voice which thrilled him:
“Down the hill—this way. Oh, Rudolph! You don’t think she’s gone
to the sea, do you?”
“Don’t let us think about it, dear. If anything has happened to her, it
is the fault of that old woman’s bitter tongue.”
“Oh, don’t let us talk. Let us hurry on. We may be in time yet.”
“We may.”
There was little hope in his tone. At the bottom of the road he,
slightly in front, hesitated.
“To the left—to the high part of the cliff, by the sea-mark,” directed
Mabin briefly. “Don’t wait for me. I am getting lame again. Run on
alone.”
So Rudolph ran. And, behind the fir-plantation a little further on, he
disappeared from her sight.
Mabin, her lame foot paining her a little, limped on after him with a
sinking heart.
CHAPTER XV.
SOME EXPLANATIONS.
Mabin trudged along the chalky, dry road in the fast-gathering

darkness, oppressed by fears. What if Rudolph should not be in
time. Now it seemed clear to the girl that poor Mrs. Dale had started
on that solitary walk in a frenzy of despair, goaded to a mad act by
the taunts of Lady Mallyan.
And if he were in time, what would the end of it be? She could not
marry her husband’s brother, even if she had returned the love he
bore her. Yet, since he had asked so piteously for a few words with
her, it was impossible to refuse him.
Mabin’s warm heart was full of sympathy for them both; for the
woman who had erred so grievously, but who had gone through such
a bitter repentance: for the man who, whatever his weakness, his
indiscretion, had suffered and been constant.
In the mean time, Rudolph had reached the bare stretch of sandy
waste which extended along the cliffs beyond the last of the
straggling houses. The tide was coming in below, each little wave
breaking against the white wall of chalk with a dull roar, followed by a
hissing sound as the water retreated among the loose rocks.
Not a living creature was to be seen, although his seaman’s eyes
saw a long way in the dusk.
The fears which had haunted him as he ran grew stronger. He
looked over with a cold sensation of dread at the water beneath the
cliff. He listened, and at last he called:
“Mrs. Dale! Are you anywhere about, Mrs. Dale?”
He was conscious that his voice had not the ring of careless
heartiness which it was meant to have. And there was no answer.
He had come to a gap, by which carts and horses went down to
the shore to bring away sand and seaweed. A dark object, half
hidden in a cranny of the chalk, met his eye. He ran down, and as he
approached the thing sprang up and started away from him. But he
gave chase, came up with the flying figure as it reached the edge of
the water, and caught at the black draperies as he ran.
The long black veil gave way, and remained a limp rag in his hand.
But the flying figure stopped.
“Why do you come? Why can’t you leave me alone?” she asked
fiercely.
And as she turned upon him, he saw in her large, blue eyes, which
looked dark and unnaturally bright in the dusk, something of the
passionate temper which she had learned by sad experience to
control.
Rudolph hesitated. There was a doubt in his mind which made him
choose his words.
“He wants to see you, he says he must see you,” he said at last, in
a low voice. “He told Lady Mallyan so. You cannot, you will not
refuse to come.”
But a sudden change to terror came over her beautiful face. To
Rudolph’s great perplexity and distress, she burst into a violent fit of
crying.
“I can’t go, I can’t see him. After what she said! I can’t. I would
rather die!” Rudolph did not know what to say. His vague and
awkward attempts to comfort her were quite without effect, and at
last he contented himself by waiting in impatient silence, for the
arrival of Mabin. As he expected, the young girl found them out
quickly, guided by the piteous sobs of Mrs. Dale.
“Don’t cry so, dear, don’t cry. The old woman will never dare to
worry you again,” were the words which Mabin whispered into the
ears of the weeping woman, as she threw her arms round her, and at
once began to try to drag her up the slope toward home. “She’s
ashamed of herself already. And you will not have to meet her alone.
Remember that.”
Under the influence of her gentle words, and still more persuasive
caresses, Mrs. Dale speedily became calmer. And although she at
first resisted all her friend’s efforts to lead her back toward the house
she had left, she presently listened to and began to answer Mabin’s
words.
“I will come with you a little way,” she said in a tremulous voice.
“You are a sweet, dear girl, and I love you for your goodness. But
you must let me go to the station, and get away.”
Mabin paused before trying her final shot.
“You must come, dear,” she whispered, “because there is some
one who wants to see you; some one who is not strong enough to
come after you himself.”
At these words Mrs. Dale, who had begun to walk slowly up the
hill, leaning on Mabin’s arm, stopped short and began to tremble
violently.
“Who—is—that?” she asked hoarsely, with apparent effort,
keeping her eyes fixed on those of her companion with such
searching intentness that the young girl was alarmed.
“Mr. Banks,” whispered the girl. “And listen, dear. He only wants to
see you just once; he said so. And he is ill, you know, so I think you
ought. And since he has loved you all this time——”
Mabin stopped short. For as she uttered these words a cry
escaped from Mrs. Dale’s lips, a cry so full of poignant feeling, so
plaintive, so touching, that it was evident she was moved to the
inmost depths of her nature.
Clinging to Mabin with trembling fingers, gazing into her eyes with
her own full of tears, she said in a low, broken voice:
“He said that? He—really—said—that?”
“Why, yes, he did,” answered the girl, not knowing whether to be
glad or sorry that the admission had escaped her.
Not another word was uttered by either of them; but Mrs. Dale
began to walk so fast that Mabin, whose ankle had not yet recovered
all its own strength, found great difficulty in keeping up with her, and
Rudolph, who had been ahead of them, had now to drop behind.
It was not until they reached the hill on the top of which “The
Towers” stood, that Mrs. Dale’s steps slackened, and her face
become again overclouded with doubt and fear.
“Is—she with him? Was she with him when you came away?” she
asked in a meek and plaintive little voice.
Mabin had to confess that the dreaded “she” had been with him.
And Mrs. Dale faltered again, and had to be further helped and
further encouraged. At last, however, the top of the hill was reached,
and “The Towers” came in sight.
But the place seemed to be deserted. No one was at the gates;
there was no light at any of the windows. A sense of desolation crept
into the hearts of both the ladies as they made their way, with slower
steps, toward the house. Rudolph hastened forward to open the gate
for them. He went through into the garden, and came out again
quickly.
“Mabin,” he said then, putting his hand lightly on her arm, “let Mrs.
Dale go in. I want to speak to you.”
Mabin hesitated, for Mrs. Dale was clinging to her arm with an
almost convulsive pressure. And then the girl saw that within the
garden gates, looking deadly pale in the light of the newly risen
moon, “Mr. Banks” was standing. As Mabin disengaged herself from
her companion, he came forward, almost staggering, and held out
his arms.
“Dorothy! Dorothy!” he whispered hoarsely.
Mrs. Dale uttered a sound like a deep sigh. Then she made one
step toward him. But as he approached her, with a pathetic look of
love, of yearning in his eyes, she tottered, and would have fallen to
the ground if he had not caught her.
Then, reaching Mabin’s astonished ears quite distinctly, as she
stood, anxious, bewildered, at a little distance, came these words in
Mrs. Dale’s voice:
“Oh, have you forgiven me? Will you ever forgive me, Geoffrey!
Geoffrey!”
Mabin swung round on her feet and all but fell into Rudolph’s
arms.
“Then—Mr. Banks—is her husband!” she gasped, in such a whirl
of joyous excitement that she did not notice how unduly gracious to
Rudolph her excitement was making her.
“Yes. Didn’t you guess?”
“N-n-no. Did you?”
“Yes.”
“She didn’t tell you then?”
“No. She didn’t know herself, I am sure. But she began to wonder
and to suspect. And yet she didn’t dare, not knowing, I suppose,
poor little woman, how he felt toward her, to meet him. So she did
the worst thing possible, and sent for his mother. And no doubt the

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Mabin trudged along the chalky, dry road in the fast-gathering

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