If a company's preferred stock is cumulative with a call provision and has dividends in arrears, the amount of

total preferred stockholders' equity would be calculated as the number of shares outstanding times the:


a. sum of the par value per share plus any liquidation premium per share plus the sum of any preferred
dividends in arrears plus the current year's dividend requirement, but only if dividends have been
declared.

b. sum of the par value per share plus any liquidation premium per share, plus the sum of any preferred
dividends in arrears plus the current year's dividend requirement, regardless of whether dividends
have been declared.

c. call price plus the sum of any preferred dividends in arrears plus the current year's dividend
requirement, but only if dividends have been declared.

d. call price plus the sum of any preferred dividends in arrears plus the current year's dividend
requirement, regardless of whether dividends have been declared.
Question 2 5.26 points Save

The SEC requires push-down accounting for SEC filings of subsidiaries when the subsidiary has
no substantial publicly-held debt or preferred stock outstanding and:


a. the parent has substantial ownership (5% or greater).

b. the parent has substantial ownership (20% or greater).

c. the parent has substantial ownership (50% or greater).

d. the parent has substantial ownership (97% or greater).

Question 3 5.26 points Save

In a company with minority interest equity how is the preferred stock call premium addressed?


a. increase additional paid-in capital.

b. decreases additional paid-in capital.

c. increases retained earnings.

d. decreases retained earnings.

Question 4 5.26 points Save

Which of the following is correct? The direct sale of additional shares to the parent company
from a subsidiary


a. decreases the parent's interest and decreases the noncontrolling shareholders' interest

b. decreases the parent's interest and increases the noncontrolling shareholders' interest.

c. increases the parent's interest and increases the noncontrolling shareholders' interest

d. increases the parent's interest and decreases the noncontrolling shareholders' interest

Question 5 5.26 points Save

Note: This is the same introduction as in question # 8. The question is different, so do not
be confused.
Parminter Corporation owns a 80% interest in the common stock of Sanchez Corporation and
20% of Sanchez's preferred stock on December 31, 2005. Sanchez had 2005 net income of
$30,000.
Sanchez's equity was as follows:
10% preferred stock $50,000
Common stock $350,000
Question: What should be the noncontrolling interest expense in the consolidated financial
statements of Parminter?


a. $5,000

b. $20,000

c. $25,000

d. $30,000

Question 6 5.26 points Save

Heron Corporation acquired 40% of WatersEdge Inc.'s common stock for $400,000 book value
on January 1, 2006 when WatersEdge equity consisted of $500,000 capital stock and $500,000
retained earnings. On September 1, 2006 Heron bought an additional 30% interest in
WatersEdge for $210,000. In both cases, WaterEdge book value equaled the fair value.
WatersEdge had income of $120,000 earned evenly through 2006 and paid dividends quarterly of
$25,000.
The consolidated income statement of Peter Corporation and Subsidiary for the year 2006 should
show pre-acquisition income of:


$5,333

$8,000

$32,000

$56,000

Question 7 5.26 points Save

Note: Question #2 has the same introduction. This question is a different question with a
different situation.
On December 31, 2006, Giant-Petrel Corporation's Investment in Penguin Corporation account
had a balance of $525,000. The balance consisted of 80% of Penguin's $600,000 stockholders'
equity on that date and $45,000 of goodwill. On January 2, 2007, Penguin increased its
outstanding common stock from 15,000 to 18,000 shares.
Question: Assume instead that Penguin sold the additional 3,000 shares to outside interests for
$150,000 on January 2, 2007. Giant-Petrel's percentage ownership immediately after the sale of
stock would be:


a. 66-2/3%

b. 75%

c. 80%

d. 83-1/3%

Question 8 5.26 points Save

Button-quail Corporation owned a 70% interest in Savannah Corporation at December 31, 2006,
and Button-quail's Investment in Savannah account had a balance of $3,900,000. Savannah
stockholders' equity on this date was as follows:
Capital stock, $10 par value...............................................$3,000,000
Retained Earnings............................................................ 2,400,000
Total Stockholders' Equity..................................................$5,400,000
On January 1, 2007, Savannah issues 80,000 new shares of common stock to Button-quail for
$16 each.
Question: What is Button-quail's percentage ownership in Savannah after Savannah issues its
stock to Button-quail?


a. 76.32%

b. 80.43%

c. 82.57%

d. 83.43%

Question 9 5.26 points Save

A parent company acquired 100% of the outstanding common stock of another corporation. The
parent is going to use push-down accounting. The fair market value of each of the acquired
corporation's assets is lower than its respective book value. The fair market value of each of the
acquired corporation's liabilities is higher than its respective book value. The corporation has a
deficit in the Retained Earnings account. Which one of the following statements is correct?


a. The push-down capital account will have a credit balance after this transaction is
posted.

b. The push-down capital account will have a debit balance after this transaction is posted.

c. The push-down capital account will have either a debit or credit balance depending
upon whether the assets adjustments exceed the liability adjustments, or vice versa.

d. Subsidiary retained earnings will have a deficit balance after this transaction is posted.

Question 10 5.26 points Save

Note: This is the same description as in question #14. The circumstances are different,
do not get confused.
Pasfield Corporation acquired a 90% interest in Santini Corporation for $90,000 cash on
January 1, 2005. The following information is available for Santini at that time.
Book value Fair value Difference
$40,000 $50,000 $10,000
$60,000 $75,000 $15,000
<$50,000> < $50,000> -0-
$50,000 $75,000
Under the entity theory, a consolidated balance sheet prepared immediately after the business
combination will show minority interest of:


a. $5,000.

b. $7,500.

c. $9,000.

d. $10,000.

Question 11 5.26 points Save

Pasfield Corporation acquired a 90% interest in Santini Corporation for $90,000 cash on
January 1, 2005. The following information is available for Santini at that time.
Book Value Fair Value
Difference
40,000 50,000 10,000 Current Assets
60,000 75,000 15,000 Plant Assets
<50,000> <50,000> -0- Liabilities
$50,000 $75,000
Under the entity theory, a consolidated balance sheet prepared immediately after the business
combination will show goodwill of:



a. $15,000.

b. $22,500.

c. $25,000.

d. $32,500.

Question 12 5.26 points Save

Parminter Corporation owns a 80% interest in the common stock of Sanchez Corporation and
20% of Sanchez's preferred stock on December 31, 2005. Sanchez had 2005 net income of
$30,000.
Sanchez's equity was as follows:
10% preferred stock $50,000
Common Stock $350,000
Question: How much should the Parminter's Investment in Sanchez change during 2005?


a. $5,000

b. $20,000

c. $25,000

d. $30,000

Question 13 5.26 points Save

When a parent acquires subsidiary preferred stock, no subsequent working paper entry is
necessary to adjust additional paid-in capital under the:
I. constructive retirement method.
II. cost method. I


I only.

II only.

I and II.

I or II if no redemption is present.

Question 14 5.26 points Save

Note: Question #4 has the same introduction. This is a different question below with
different circumstances. Do not get confused.
Button-quail Corporation owned a 70% interest in Savannah Corporation at December 31, 2006,
and, Button-quail's Investment in Savannah account had a balance of $3,900,000. Savannah's
stockholders' equity on this date was as follows:
Capital stock, $10 par value...........................................................$3,000,000
Retained Earnings....................................................................... 2,400,000
Total Stockholders' Equity.............................................................$5,400,000
On January 1, 2007, Savannah issues 80,000 new shares of common stock to Button-quail for
$16 each.
Question: Assuming that Savannah has no fixed assets, what is the amount of goodwill
associated with the issuance of shares to Button-quail?



a. $38,176

b. $40,232

c. $41,302

d. $41,732

Question 15 5.26 points Save

If a parent company and outside investors purchase shares of a subsidiary in relation to existing
stock ownership (ratably)


a. there will be no adjustment to additional paid-in capital regards if the stock is sold
above or below book value

b. will requirement an investment account adjustment

c. will require the elimination of a gain depending upon whether it was conducted at
economic arm's length

d. will require the elimination of a loss depending upon whether it was conducted at
economic's arm length
Question 16 5.26 points Save

On December 31, 2006, Giant-Petrel Corporation's Investment in Penguin Corporation account
had a balance of $525,000. The balance consisted of 80% of Penguin's $600,000 stockholder's
equity on that date and $45,000 of goodwill. On January 2, 2007, Penguin increased its
outstanding common stock from 15,000 to 18,000 shares.
Question: Assume that Penguin sold the additional 3,000 shares directly to Giant-Petrel for
$150,000 on January 2, 2007. Giant-Petrel's percentage ownership in Penguin immediately
after the purchase of the additional stock is:


a. 66-2/3%

b. 80%

c. 83-2/3%

d. 86-2/3%

Question 17 5.26 points Save

Companies that use push-down accounting


a. must use the parent company theory approach.

b. must use the entity theory approach.

c. may use either the parent company or entity theory approach.

d. shall use neither the parent company nor entity theory approach.

Question 18 5.26 points Save

When a parent acquires the preferred stock of a subsidiary, there will be a constructive
retirement that eliminates the equity related to the preferred stock held by the parent and


a. any difference paid above the par value first reduces additional paid-in capital and then
retained earnings.

b. any difference paid above the par value first reduces retained earnings and then
additional paid-in capital.

c. any difference paid above the par value increases additional paid-in capital.

d. any difference paid above the par value increases retained earnings.

Question 19 5.26 points Save

In practice, push-down accounting


a. must use the cost method to report goodwill.

b. has the subsidiary assets revalued on a proportional basis.

c. requires neither a new basis of accounting nor a new reporting basis.

d. requires a deferred credit for goodwill.



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