Chapter_06_Cash_Flow_EPS_and_Taxation
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Chapter_06_Cash_Flow_EPS_and_Taxation

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

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Chapter_06_Cash_Flow_EPS_and_Taxation

 

Complete Chapter Questions With Answers

 

Sample Questions Are Posted Below

 

1. The cash purchase of a controlling interest in a firm requires disclosure on the consolidated statement of cash flows as a(n)

  a. ​financing activity only.
  b. ​financing activity and in the schedule of noncash financing and investing activity.
  c. ​investing activity only.
  d. ​investing activity and in the schedule of noncash financing and investing activity.

 

ANSWER:   d
RATIONALE:   The purchase of a controlling interest represents an investing activity. Since it is also necessary to explain the total increase in consolidated assets and the addition of the NCI to the consolidated balance sheet, it must also be disclosed in the schedule of noncash investing and financing activity.
DIFFICULTY:   E
LEARNING OBJECTIVES:   ADAC.FISC.6-1

 

2. Ponti Company purchased the net assets of the Sorri Company for $800,000. The book value of the net assets of Sorri Company were as follows on the acquisition date:

​

Cash $ 50,000
Inventory 150,000
Land 150,000
Building (net) 400,000
Liabilities (200,000)
       Net assets $550,000

​

The market values were as follows: Inventory, $160,000; Land, $170,000; Building, $450,000. The excess purchase price is allocated to goodwill. On the consolidated statement of cash flows, what is the amount that will appear as cash applied to investing as a result of this purchase?

  a. ​$800,000
  b. ​$720,000
  c. ​$750,000
  d. ​$670,000

 

ANSWER:   c
RATIONALE:   The following caption and amount would be included in the investing section of the consolidated statement of cash flows:

​

Payment for purchase of Sorri Company, net of cash acquired                       $750,000*

​

*Represents the $800,000 paid for Sorri Company, less the $50,000 cash purchased with the company.

​
DIFFICULTY:   M
LEARNING OBJECTIVES:   ADAC.FISC.6-1

 

3. Company P acquired 80% of the outstanding common stock of the Company S by issuing common stock with a market value of $550,000. The balance sheet of Company S was as follows on the acquisition date:

​

Assets ​ ​ Liabilities and Equity ​
Cash $ 50,000 ​ Liabilities $120,000
Inventory 120,000 ​ Common stock, $10 par 100,000
Land 100,000 ​ Other paid-in capital 150,000
Building (net) 350,000 ​ Retained earnings 250,000
       Total $620,000 ​        Total $620,000

​

The market values were as follows: Inventory, $130,000; Land, $120,000; Building, $400,000. What is the amount that will appear as Cash Provided (Used) by Investing Activities on the consolidated statement of cash flows, as a result of this purchase?

  a. ​$600,000
  b. ​$500,000
  c. ​$50,000
  d. ​$0

 

ANSWER:   c
RATIONALE:   Because the company was paid for with stock (a non-cash transaction not requiring cash outflows), the amount included in the investing activities in the consolidated statement of cash flows would be the $50,000 cash purchased with the company.
DIFFICULTY:   M
LEARNING OBJECTIVES:   ADAC.FISC.6-1

 

4. In a noncash purchase of a controlling interest in a firm, disclosure is required on the consolidated statement of cash flows as a(n)

  a. ​financing activity only.
  b. ​financing activity and in the schedule of noncash financing and investing activity.
  c. ​investing activity only.
  d. ​investing activity and in the schedule of noncash financing and investing activity.

 

ANSWER:   d
RATIONALE:   The purchase of a controlling interest represents an investing activity. Since it is also necessary to explain the total increase in consolidated assets and the addition of the NCI to the consolidated balance sheet and the increase in the securities issued, it must also be disclosed in the schedule of noncash investing and financing activity.
DIFFICULTY:   E
LEARNING OBJECTIVES:   ADAC.FISC.6-1

 

5. Company P acquired 75% of the outstanding common stock of the Company S by issuing common stock with a market value of $650,000 on January 1, 2016. The balance sheet of Company S was as follows on the acquisition date:

​

Assets ​ ​ Liabilities and Equity ​
Cash $100,000 ​ Liabilities $100,000
Inventory 90,000 ​ Common stock, $10 par 100,000
Land 150,000 ​ Other paid-in capital 200,000
Building (net) 500,000 ​ Retained earnings 440,000
       Total $840,000 ​         Total $840,000

​

The market values were as follows: Inventory, $180,000; Land, $150,000; Building, $600,000. What is the amount that will appear as Cash Provided (Used) by Financing Activities as a result of this purchase?

  a. ​$560,000
  b. $100,000​
  c. ​$75,000
  d. ​$0

 

ANSWER:   d
RATIONALE:   Because the company was paid for with stock (a non-cash transaction not resulting in cash inflows from the sale of stock), no amount would be included in the financing activities in the consolidated statement of cash flows.
DIFFICULTY:   D
LEARNING OBJECTIVES:   ADAC.FISC.6-1

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