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Chapter_02_Consolidated_Statements_Date_of_Acquisition
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Chapter_02_Consolidated_Statements_Date_of_Acquisition

Advanced Accounting 12e Paul M Fischer William J Taylor Rita H Cheng

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Chapter_02_Consolidated_Statements_Date_of_Acquisition

 

Complete Chapter Questions With Answers

 

Sample Questions Are Posted Below

 

1. An investor receives dividends from its investee and records those dividends as dividend income because:

  a. ​The investor has a controlling interest in its investee.
  b. ​The investor has a passive interest in its investee.
  c. ​The investor has an influential interest in its investee.
  d. ​The investor has an active interest in its investee.

 

ANSWER:   b
RATIONALE:   An investor having a passive interest in its investee (generally resulting from less than 20% ownership) records dividends as dividend income.
DIFFICULTY:   E
LEARNING OBJECTIVES:   ADAC.FISC.2-1

 

2. An investor prepares a single set of financial statements which encompasses the financial results for both it and its investee because:

  a. ​The investor has a controlling interest in its investee.
  b. ​The investor has a passive interest in its investee.
  c. ​The investor has an influential interest in its investee.
  d. ​The investor has an active interest in its investee.

 

ANSWER:   a
RATIONALE:   An investor having a controlling interest in its investee (generally resulting from more than 50% ownership) will prepare consolidated financial statements which encompass the financial results of both it and its investee.
DIFFICULTY:   E
LEARNING OBJECTIVES:   ADAC.FISC.2-1

 

3. An investor records its share of its investee’s income as a separate source of income because:

  a. ​The investor has a controlling interest in its investee.
  b. ​The investor has a passive interest in its investee.
  c. ​The investor has an influential interest in its investee.
  d. ​The investor has an active interest in its investee.

 

ANSWER:   c
RATIONALE:   An investor having an influential interest in its investee (generally resulting from 20% – 50% ownership) records its share of its investee’s net income as a separate source of income. This amount also increases the investor’s investment in the investee.
DIFFICULTY:   E
LEARNING OBJECTIVES:   ADAC.FISC.2-1

 

4. ​

Account Investor Investee
Sales $500,000 $300,000
Cost of Goods Sold 230,000 170,000
Gross Profit $270,000 $130,000
Selling & Admin. Expenses 120,000 100,000
Net Income $150,000 $ 30,000
​ ​ ​
Dividends paid 50,000 10,000

​

Assuming Investor owns 70% of Investee. What is the amount that will be recorded as Net Income for the Controlling Interest?

  a. ​$164,000
  b. ​$171,000
  c. ​$178,000
  d. ​$180,000

 

ANSWER:   b
RATIONALE:  
Investor net income ​ $150,000
Investor’s portion of Investee income ($30,000 x 70%) 21,000
​ ​ $171,000
DIFFICULTY:   D
LEARNING OBJECTIVES:   ADAC.FISC.2-1

 

5. Consolidated financial statements are designed to provide:

  a. ​informative information to all shareholders.
  b. ​the results of operations, cash flow, and the balance sheet in an understandable and informative manner for creditors.
  c. ​the results of operations, cash flow, and the balance sheet as if the parent and subsidiary were a single entity.
  d. ​subsidiary information for the subsidiary shareholders.

 

ANSWER:   c
RATIONALE:   Consolidated financial statements are designed to provide the results of operations, cash flow and the balance sheet as if the parent and subsidiary were a single entity. Generally, these are more informative for shareholders of the controlling company.
DIFFICULTY:   E
LEARNING OBJECTIVES:   ADAC.FISC.2-2

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