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Chapter 09 - Consolidation Ownership Issues

Chapter 09
Consolidation Ownership Issues

Multiple Choice Questions

1. Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock.


Elven, in turn, owns 15 percent of Windsor's outstanding common stock. What percent of the
dividends paid by Windsor is reported as dividends declared in the consolidated retained
earnings statement?
A. None
B. 100 percent
C. 85 percent
D. 75 percent

On January 1, 2009, Company A acquired 80 percent of the common stock and 60 percent of
the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of
acquisition, the fair value of the common shares of Company B held by the noncontrolling
interest was $100,000. Company B's balance sheet contained the following balances:

For the year ended December 31, 2009, Company B reported net income of $100,000 and
paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of
10 percent.

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Chapter 09 - Consolidation Ownership Issues

2. Based on the preceding information, what will be the equity method income reported by
Company A from its investment in Company B during 2009?
A. $32,000
B. $30,000
C. $72,000
D. $48,000

3. Based on the preceding information, the eliminating entry to assign income to


noncontrolling interest to prepare the consolidated financial statements for Company A as of
December 31, 2009, will include:
A. a debit to Income to Noncontrolling Interest for $24,000.
B. a credit to Dividends Declared Preferred Stock for $10,000.
C. a credit to Dividends Declared Common Stock for $8,000.
D. a credit to Noncontrolling Interest for $12,000.

4. Based on the preceding information, the entry to eliminate subsidiary preferred stock to
prepare the consolidated financial statements for Company A as of December 31, 2009, will
include:
A. a debit to Preferred Stock for $60,000.
B. a credit to Investment in Company B Preferred Stock for $40,000.
C. a debit to Retained Earnings for $40,000.
D. a credit to Noncontrolling Interest for $40,000.

9-2
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Chapter 09 - Consolidation Ownership Issues

Winner Corporation acquired 80 percent of the common shares and 70 percent of the
preferred shares of First Corporation at underlying book value on January 1, 2009. At that
date, the fair value of the noncontrolling interest in First's common stock was equal to 20
percent of the book value of its common stock. First's balance sheet at the time of acquisition
contained the following balances:

The preferred shares are cumulative and have a 10 percent annual dividend rate and are four
years in arrears on January 1, 2009. All of the $5 par value preferred shares are callable at $6
per share. During 2009, First reported net income of $100,000 and paid no dividends.

5. Based on the preceding information, what is First's contribution to consolidated net income
for 2009?
A. $80,000
B. $100,000
C. $90,000
D. $50,000

6. Based on the preceding information, what will be the amount of income to be assigned to
the noncontrolling interest in the 2009 consolidated income statement?
A. $21,000
B. $18,000
C. $23,000
D. $15,000

9-3
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Chapter 09 - Consolidation Ownership Issues

7. Based on the preceding information, the amount assigned to noncontrolling stockholders'


share of preferred stock interest in the preparation of a consolidated balance sheet on January
1, 2009, is:
A. $40,000
B. $42,000
C. $36,000
D. $48,000

8. Based on the preceding information, what is the portion of First's retained earnings
assignable to its preferred shareholders on January 1, 2009?
A. $40,000
B. $50,000
C. $60,000
D. $70,000

9. Based on the information provided, what is the book value of the common stock on January
1, 2009?
A. $410,000
B. $360,000
C. $390,000
D. $350,000

10. Based on the information provided, what amount will be reported as the noncontrolling
interest in the consolidated balance sheet on January 1, 2009?
A. $70,000
B. $130,000
C. $118,000
D. $142,000

9-4
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Chapter 09 - Consolidation Ownership Issues

On January 1, 2009, A Company acquired 85 percent of B Company's voting common stock


for $425,000. At that date, the fair value of the noncontrolling interest of B Company was
$75,000. Immediately after A Company acquired its ownership, B Company acquired 75
percent of C Company's stock for $150,000. The fair value of the noncontrolling interest of C
Company was $50,000 at that date. At January 1, 2009, the stockholders' equity sections of
the balance sheets of the companies were as follows:

During 2009, A Company reported operating income of $175,000 and paid dividends of
$50,000. B Company reported operating income of $125,000 and paid dividends of $40,000.
C Company reported net income of $100,000 and paid dividends of $25,000.

11. Based on the information provided, what amount of consolidated net income will A
Company report for 2009?
A. $175,000
B. $285,000
C. $356,250
D. $400,000

12. Based on the information provided, the equity-method income recorded by A Company
is:
A. $125,000
B. $200,000
C. $170,000
D. $181,250

9-5
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Chapter 09 - Consolidation Ownership Issues

13. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the consolidated income statement for 2009?
A. $55,000
B. $25,000
C. $30,000
D. $43,750

14. Based on the information provided, what amount of income will be assigned to the
controlling interest in the consolidated income statement for 2009?
A. $400,000
B. $345,000
C. $285,000
D. $175,000

X Corporation owns 80 percent of Y Corporation's common stock and 40 percent of Z


Corporation's common stock. Additionally, Y Corporation owns 35 percent of Z Corporation's
common stock. The acquisitions were made at book values. The following information is
available for 2008:

15. Based on the information provided, what amount of consolidated net income will X
Corporation report for 2008?
A. $148,750
B. $175,000
C. $150,000
D. $158,750

9-6
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Chapter 09 - Consolidation Ownership Issues

16. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the 2008 consolidated income statement?
A. $23,750
B. $25,000
C. $18,000
D. $33,750

17. Based on the information provided, what amount of income will be assigned to the
controlling interest in the 2008 consolidated income statement?
A. $130,750
B. $150,000
C. $141,250
D. $157,000

18. Based on the information provided, what amount will be reported as dividends declared in
X Corporation's 2008 consolidated retained earnings statement?
A. $30,000
B. $50,000
C. $60,000
D. $0

Janet Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at
book value. The fair value of the noncontrolling interest at the date of acquisition was equal to
25 percent of the book value of Slider Corporation. On December 31, 2008, Slider
Corporation acquired 25 percent of Janet Corporation's stock. Slider records dividends
received from Janet as nonoperating income. In 2009, Janet reported operating income of
$100,000 and paid dividends of $40,000. During the same year, Slider reported operating
income of $75,000 and paid $20,000 in dividends.

9-7
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Chapter 09 - Consolidation Ownership Issues

19. Based on the information provided, what amount will be reported as consolidated net
income for 2009 under the treasury stock method?
A. $150,000
B. $100,000
C. $75,000
D. $175,000

20. Based on the information provided, what amount will be reported as income assigned to
the controlling interest for 2009 under the treasury stock method?
A. $18,750
B. $156,250
C. $175,000
D. $100,000

Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007,
for $225,000. At that date, the fair value of the noncontrolling interest was $75,000. Meta's
balance sheet contained the following amounts at the time of the combination:

During each of the next three years, Meta reported net income of $30,000 and paid dividends
of $10,000. On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for
$60,000 in cash. Vision used the basic equity method in accounting for its ownership of Meta
Company.

9-8
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Chapter 09 - Consolidation Ownership Issues

21. Based on the preceding information, what was the balance in the investment account
reported by Vision on January 1, 2009, before its sale of shares?
A. $225,000
B. $285,000
C. $245,000
D. $255,000

22. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares:
A. Cash will be credited for $60,000.
B. Investment in Meta Stock will be credited for $51,000.
C. Investment in Meta Stock will be credited for $60,000.
D. Additional Paid-in Capital will be credited for $45,000.

23. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares, Additional Paid-in Capital will be credited for:
A. $0.
B. $15,000.
C. $9,000.
D. $45,000.

24. Based on the preceding information, in the elimination entries to complete a full
consolidation workpaper for 2009, Income to Noncontrolling Interest will be credited for:
A. $12,000.
B. $7,500.
C. $8,000.
D. $2,500.

25. Based on the preceding information, in the eliminating entries to complete a full
consolidation workpaper, Investment in Meta Stock at January 1, 2009, will be credited for:
A. $255,000.
B. $240,000.
C. $204,000.
D. $136,000.

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Chapter 09 - Consolidation Ownership Issues

Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008,
for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On
January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for
$32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:

Trevor paid dividends of $10,000 in each of the three years. Perfect uses the basic equity
method in accounting for its investment in Trevor and amortizes all differentials over 5 years
against the related investment income. All differentials are assigned to patents in the
consolidated financial statements.

26. Based on the preceding information, Trevor Company's net income for 2009 and 2010
are:
A. $10,000 and $20,000 respectively.
B. $25,000 and $35,000 respectively.
C. $35,000 and $45,000 respectively.
D. $25,000 and $45,000 respectively.

9-10
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Chapter 09 - Consolidation Ownership Issues

27. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2009?
A. $164,500
B. $157,500
C. $165,000
D. $168,000

28. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2010?
A. $211,500
B. $218,000
C. $173,000
D. $216,000

29. Based on the preceding information, in the eliminating entry to assign differential and
amortize patents for the year:
A. Differential will be credited for $10,000.
B. Amortization Expense will be credited for $2,000.
C. Amortization Expense will be debited for $1,000.
D. Patents will be debited for $10,000.

9-11
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Chapter 09 - Consolidation Ownership Issues

Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 2005,
at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest
was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on
January 1, 2008, contained the following balances:

On January 1, 2008, Movie acquired 5,000 of its own $2 par value common shares from
Nonaffiliated Corporation for $6 per share.

30. Based on the preceding information, what is the increase in the book value of the equity
attributable to the parent as a result of the repurchase of shares by Movie Corporation?
A. $19,375
B. $6,125
C. $2,625
D. $9,000

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Chapter 09 - Consolidation Ownership Issues

31. Based on the preceding information, what will be the journal entry to be recorded on
Cinema Company's books to recognize the change in the book value of the shares it holds?

A. Option A
B. Option B
C. Option C
D. Option D

32. Based on the preceding information, the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares will include:
A. a credit to Noncontrolling Interest for $19,375.
B. a credit to Additional Paid-In Capital for $75,000.
C. a debit to Treasury Shares for $30,000.
D. a credit to Investment in Movie stock for $6,125.

33. Based on the preceding information, in the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares, Investment in
Movie stock will be credited for:
A. $165,625.
B. $135,625.
C. $185,000.
D. $155,000.

9-13
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Chapter 09 - Consolidation Ownership Issues

Lemon Corporation acquired 80 percent of Bricks Corporation's common shares on January


1, 2007, at underlying book value. At that date, the fair value of the noncontrolling interest
was equal to 20 percent of the book value of Bricks Corporation. Bricks prepared the
following balance sheet as of December 31, 2008:

On January 1, 2009, Bricks declares a stock dividend of 9,000 shares on its $5 par value
common stock. The current market price per share of Bricks stock on January 1, 2009, is $20.

34. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Additional Paid-In Capital for:
A. $50,000.
B. $95,000.
C. $230,000.
D. $185,500.

35. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Retained Earnings for:
A. $200,000
B. $65,000
C. $155,000
D. $20,000

9-14
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Chapter 09 - Consolidation Ownership Issues

36. Assume instead that Bricks declared a stock dividend of 3,000 shares on its $5 par value
common stock. The investment elimination entry required to prepare a consolidated balance
sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In
Capital for:
A. $65,000.
B. $95,000.
C. $50,000.
D. $110,000.

37. Assume that Bricks declared a stock dividend of 3,000 shares on its $5 par value common
stock. The investment elimination entry required to prepare a consolidated balance sheet
immediately after the stock dividend is issued will include a debit to Retained Earnings for:
A. $185,000.
B. $65,000.
C. $155,000.
D. $140,000.

9-15
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Chapter 09 - Consolidation Ownership Issues

Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred
shares of Stanley Company, all acquired at underlying book value on January 1, 2008. At that
date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25
percent of the book value of its common stock. The balance sheets of Micron and Stanley
immediately after the acquisition contained these balances:

Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 2008, Stanley
reports net income of $40,000 and pays no dividends. Micron reports income from its separate
operations of $75,000 and pays dividends of $30,000 during 2008.

38. Based on the preceding information, what is the total noncontrolling interest reported in
the consolidated balance sheet as of January 1, 2008?
A. $80,000
B. $40,000
C. $50,000
D. $60,000

9-16
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Chapter 09 - Consolidation Ownership Issues

39. Based on the preceding information, what is the income assigned to the noncontrolling
interest in the 2008 consolidated income statement?
A. $10,000
B. $7,000
C. $11,800
D. $4,800

40. Based on the preceding information, what amount of income is attributable to the
controlling interest in the consolidated income statement for 2008?
A. $75,000
B. $105,000
C. $96,000
D. $103,200

41. Based on the preceding information, what is the total stockholders' equity reported in the
consolidated balance sheet as of January 1, 2008?
A. $450,000
B. $530,000
C. $490,000
D. $370,000

42. Based on the preceding information, what amount is reported as preferred stock
outstanding reported in the consolidated balance sheet as of January 1, 2008?
A. $0
B. $40,000
C. $50,000
D. $44,000

Essay Questions

9-17
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Chapter 09 - Consolidation Ownership Issues

43. Windsor Corporation acquired 90 percent of Agro Corporation's common shares on


January 1, 2006, at underlying book value. At that date, the fair value of the noncontrolling
interest was equal to 10 percent of the book value of Agro. Agro Corporation prepared the
following balance sheet as of January 1, 2009:

The company is considering a 3-for-1 stock split, a stock dividend of 7,000 shares, or a stock
dividend of 2,000 shares on its $5 par value common stock. The current market price per
share of Agro stock on January 1, 2009, is $15.
Required:
Give the investment elimination entry required to prepare a consolidated balance sheet at the
close of business on January 1, 2009, for each of the alternative transactions under
consideration by Agro Corporation.

9-18
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Chapter 09 - Consolidation Ownership Issues

44. On January 1, 2007, Infinity Corporation acquired 90 percent of Trader Corporation's


common stock for $315,000. At the date of acquisition, the fair value of the noncontrolling
interest was $35,000, and Trader reported common stock outstanding of $150,000 and
retained earnings of $180,000. The differential is assigned to a patent with a remaining life of
eight years. Each year since acquisition, Trader has reported income from operations of
$50,000 and paid dividends of $30,000.

Trader acquired 75 percent ownership of Minnow Company on January 1, 2009, for


$187,500. At that date, the fair value of the noncontrolling interest was $62,500, and Minnow
reported common stock outstanding of $100,000 and retained earnings of $130,000. In 2009,
Minnow reported net income of $20,000 and paid dividends of $8,000. The differential is
assigned to buildings and equipment with an economic life of 10 years at the date of
acquisition.
Required:
1) Prepare the journal entries recorded by Trader for its investment in Minnow during 2009.
2) Prepare the journal entries recorded by Infinity for its investment in Trader during 2009.
3) Prepare the eliminating entries related to Trader's investment in Minnow and Infinity's
investment in Trader needed to prepare consolidated financial statements for Infinity and its
subsidiaries at December 31, 2009.

9-19
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Chapter 09 - Consolidation Ownership Issues

45. On January 1, 2008, Orion Company acquired 70 percent of Simplex Company's stock at
underlying book value. At that date, the fair value of the noncontrolling interest was equal to
30 percent of the book value of Simplex Company. On December 31, 2009, Simplex acquired
15 percent of Orion's stock. Balance sheets for the two companies on December 31, 2009, are
as follows:

Required:
Assuming that the treasury stock method is used in reporting Orion's shares held by Simplex,
prepare a consolidated balance sheet workpaper and consolidated balance sheet for December
31, 2009.

9-20
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Chapter 09 - Consolidation Ownership Issues

9-21
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Chapter 09 - Consolidation Ownership Issues

46. Portfolio Corporation acquired 70 percent ownership of Index Company on January 1,


2006, at underlying book value. At that date, the fair value of the noncontrolling interest was
equal to 30 percent of the book value of Index. On January 1, 2008, Portfolio sold 1,000
shares of Index Company for $20,000 to Adventure Corporation and recorded a $5,000 gain.
Trial balances for the companies on December 31, 2008, contain the following data:

Index Company's net income was earned evenly throughout the year. Both companies
declared and paid their dividends on December 31, 2008. Portfolio uses the basic equity
method in accounting for its investment in Index.
Required:
1) Prepare the elimination entries needed to complete a full consolidation workpaper for 2008.
2) Prepare a consolidation workpaper for 2008.

9-22
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Chapter 09 - Consolidation Ownership Issues

Chapter 09 Consolidation Ownership Issues Answer Key

Multiple Choice Questions

1. Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock.


Elven, in turn, owns 15 percent of Windsor's outstanding common stock. What percent of the
dividends paid by Windsor is reported as dividends declared in the consolidated retained
earnings statement?
A. None
B. 100 percent
C. 85 percent
D. 75 percent

AACSB: Reflective Thinking


AICPA: Reporting

9-23
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Chapter 09 - Consolidation Ownership Issues

On January 1, 2009, Company A acquired 80 percent of the common stock and 60 percent of
the preferred stock of Company B, for $400,000 and $60,000, respectively. At the time of
acquisition, the fair value of the common shares of Company B held by the noncontrolling
interest was $100,000. Company B's balance sheet contained the following balances:

For the year ended December 31, 2009, Company B reported net income of $100,000 and
paid dividends of $40,000. The preferred stock is cumulative and pays an annual dividend of
10 percent.

2. Based on the preceding information, what will be the equity method income reported by
Company A from its investment in Company B during 2009?
A. $32,000
B. $30,000
C. $72,000
D. $48,000

AACSB: Analytic
AICPA: Measurement

3. Based on the preceding information, the eliminating entry to assign income to


noncontrolling interest to prepare the consolidated financial statements for Company A as of
December 31, 2009, will include:
A. a debit to Income to Noncontrolling Interest for $24,000.
B. a credit to Dividends Declared Preferred Stock for $10,000.
C. a credit to Dividends Declared Common Stock for $8,000.
D. a credit to Noncontrolling Interest for $12,000.

AACSB: Analytic
AICPA: Measurement

9-24
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Chapter 09 - Consolidation Ownership Issues

4. Based on the preceding information, the entry to eliminate subsidiary preferred stock to
prepare the consolidated financial statements for Company A as of December 31, 2009, will
include:
A. a debit to Preferred Stock for $60,000.
B. a credit to Investment in Company B Preferred Stock for $40,000.
C. a debit to Retained Earnings for $40,000.
D. a credit to Noncontrolling Interest for $40,000.

AACSB: Analytic
AICPA: Measurement

Winner Corporation acquired 80 percent of the common shares and 70 percent of the
preferred shares of First Corporation at underlying book value on January 1, 2009. At that
date, the fair value of the noncontrolling interest in First's common stock was equal to 20
percent of the book value of its common stock. First's balance sheet at the time of acquisition
contained the following balances:

The preferred shares are cumulative and have a 10 percent annual dividend rate and are four
years in arrears on January 1, 2009. All of the $5 par value preferred shares are callable at $6
per share. During 2009, First reported net income of $100,000 and paid no dividends.

9-25
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Chapter 09 - Consolidation Ownership Issues

5. Based on the preceding information, what is First's contribution to consolidated net income
for 2009?
A. $80,000
B. $100,000
C. $90,000
D. $50,000

AACSB: Analytic
AICPA: Measurement

6. Based on the preceding information, what will be the amount of income to be assigned to
the noncontrolling interest in the 2009 consolidated income statement?
A. $21,000
B. $18,000
C. $23,000
D. $15,000

AACSB: Analytic
AICPA: Measurement

7. Based on the preceding information, the amount assigned to noncontrolling stockholders'


share of preferred stock interest in the preparation of a consolidated balance sheet on January
1, 2009, is:
A. $40,000
B. $42,000
C. $36,000
D. $48,000

AACSB: Analytic
AICPA: Measurement

9-26
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Chapter 09 - Consolidation Ownership Issues

8. Based on the preceding information, what is the portion of First's retained earnings
assignable to its preferred shareholders on January 1, 2009?
A. $40,000
B. $50,000
C. $60,000
D. $70,000

AACSB: Analytic
AICPA: Measurement

9. Based on the information provided, what is the book value of the common stock on January
1, 2009?
A. $410,000
B. $360,000
C. $390,000
D. $350,000

AACSB: Analytic
AICPA: Measurement

10. Based on the information provided, what amount will be reported as the noncontrolling
interest in the consolidated balance sheet on January 1, 2009?
A. $70,000
B. $130,000
C. $118,000
D. $142,000

AACSB: Analytic
AICPA: Measurement

9-27
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Chapter 09 - Consolidation Ownership Issues

On January 1, 2009, A Company acquired 85 percent of B Company's voting common stock


for $425,000. At that date, the fair value of the noncontrolling interest of B Company was
$75,000. Immediately after A Company acquired its ownership, B Company acquired 75
percent of C Company's stock for $150,000. The fair value of the noncontrolling interest of C
Company was $50,000 at that date. At January 1, 2009, the stockholders' equity sections of
the balance sheets of the companies were as follows:

During 2009, A Company reported operating income of $175,000 and paid dividends of
$50,000. B Company reported operating income of $125,000 and paid dividends of $40,000.
C Company reported net income of $100,000 and paid dividends of $25,000.

11. Based on the information provided, what amount of consolidated net income will A
Company report for 2009?
A. $175,000
B. $285,000
C. $356,250
D. $400,000

AACSB: Analytic
AICPA: Measurement

9-28
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Chapter 09 - Consolidation Ownership Issues

12. Based on the information provided, the equity-method income recorded by A Company
is:
A. $125,000
B. $200,000
C. $170,000
D. $181,250

AACSB: Analytic
AICPA: Measurement

13. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the consolidated income statement for 2009?
A. $55,000
B. $25,000
C. $30,000
D. $43,750

AACSB: Analytic
AICPA: Measurement

14. Based on the information provided, what amount of income will be assigned to the
controlling interest in the consolidated income statement for 2009?
A. $400,000
B. $345,000
C. $285,000
D. $175,000

AACSB: Analytic
AICPA: Measurement

9-29
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Chapter 09 - Consolidation Ownership Issues

X Corporation owns 80 percent of Y Corporation's common stock and 40 percent of Z


Corporation's common stock. Additionally, Y Corporation owns 35 percent of Z Corporation's
common stock. The acquisitions were made at book values. The following information is
available for 2008:

15. Based on the information provided, what amount of consolidated net income will X
Corporation report for 2008?
A. $148,750
B. $175,000
C. $150,000
D. $158,750

AACSB: Analytic
AICPA: Measurement

16. Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the 2008 consolidated income statement?
A. $23,750
B. $25,000
C. $18,000
D. $33,750

AACSB: Analytic
AICPA: Measurement

9-30
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Chapter 09 - Consolidation Ownership Issues

17. Based on the information provided, what amount of income will be assigned to the
controlling interest in the 2008 consolidated income statement?
A. $130,750
B. $150,000
C. $141,250
D. $157,000

AACSB: Analytic
AICPA: Measurement

18. Based on the information provided, what amount will be reported as dividends declared in
X Corporation's 2008 consolidated retained earnings statement?
A. $30,000
B. $50,000
C. $60,000
D. $0

AACSB: Analytic
AICPA: Measurement

Janet Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at
book value. The fair value of the noncontrolling interest at the date of acquisition was equal to
25 percent of the book value of Slider Corporation. On December 31, 2008, Slider
Corporation acquired 25 percent of Janet Corporation's stock. Slider records dividends
received from Janet as nonoperating income. In 2009, Janet reported operating income of
$100,000 and paid dividends of $40,000. During the same year, Slider reported operating
income of $75,000 and paid $20,000 in dividends.

19. Based on the information provided, what amount will be reported as consolidated net
income for 2009 under the treasury stock method?
A. $150,000
B. $100,000
C. $75,000
D. $175,000

AACSB: Analytic
AICPA: Measurement

9-31
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Chapter 09 - Consolidation Ownership Issues

20. Based on the information provided, what amount will be reported as income assigned to
the controlling interest for 2009 under the treasury stock method?
A. $18,750
B. $156,250
C. $175,000
D. $100,000

AACSB: Analytic
AICPA: Measurement

Vision Corporation acquired 75 percent of the stock of Meta Company on January 1, 2007,
for $225,000. At that date, the fair value of the noncontrolling interest was $75,000. Meta's
balance sheet contained the following amounts at the time of the combination:

During each of the next three years, Meta reported net income of $30,000 and paid dividends
of $10,000. On January 1, 2009, Vision sold 1,500 shares of Meta's $10 par value shares for
$60,000 in cash. Vision used the basic equity method in accounting for its ownership of Meta
Company.

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Chapter 09 - Consolidation Ownership Issues

21. Based on the preceding information, what was the balance in the investment account
reported by Vision on January 1, 2009, before its sale of shares?
A. $225,000
B. $285,000
C. $245,000
D. $255,000

AACSB: Analytic
AICPA: Measurement

22. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares:
A. Cash will be credited for $60,000.
B. Investment in Meta Stock will be credited for $51,000.
C. Investment in Meta Stock will be credited for $60,000.
D. Additional Paid-in Capital will be credited for $45,000.

AACSB: Analytic
AICPA: Measurement

23. Based on the preceding information, in the journal entry recorded by Vision for sale of
shares, Additional Paid-in Capital will be credited for:
A. $0.
B. $15,000.
C. $9,000.
D. $45,000.

AACSB: Analytic
AICPA: Measurement

9-33
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Chapter 09 - Consolidation Ownership Issues

24. Based on the preceding information, in the elimination entries to complete a full
consolidation workpaper for 2009, Income to Noncontrolling Interest will be credited for:
A. $12,000.
B. $7,500.
C. $8,000.
D. $2,500.

AACSB: Analytic
AICPA: Measurement

25. Based on the preceding information, in the eliminating entries to complete a full
consolidation workpaper, Investment in Meta Stock at January 1, 2009, will be credited for:
A. $255,000.
B. $240,000.
C. $204,000.
D. $136,000.

AACSB: Analytic
AICPA: Measurement

9-34
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Chapter 09 - Consolidation Ownership Issues

Perfect Corporation acquired 70 percent of Trevor Company's shares on December 31, 2008,
for $140,000. At that date, the fair value of the noncontrolling interest was $60,000. On
January 1, 2010, Perfect acquired an additional 10 percent of Trevor's common stock for
$32,500. Summarized balance sheets for Trevor on the dates indicated are as follows:

Trevor paid dividends of $10,000 in each of the three years. Perfect uses the basic equity
method in accounting for its investment in Trevor and amortizes all differentials over 5 years
against the related investment income. All differentials are assigned to patents in the
consolidated financial statements.

26. Based on the preceding information, Trevor Company's net income for 2009 and 2010
are:
A. $10,000 and $20,000 respectively.
B. $25,000 and $35,000 respectively.
C. $35,000 and $45,000 respectively.
D. $25,000 and $45,000 respectively.

AACSB: Analytic
AICPA: Measurement

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Chapter 09 - Consolidation Ownership Issues

27. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2009?
A. $164,500
B. $157,500
C. $165,000
D. $168,000

AACSB: Analytic
AICPA: Measurement

28. Based on the preceding information, what was the balance in Perfect's Investment in
Trevor Company Stock account on December 31, 2010?
A. $211,500
B. $218,000
C. $173,000
D. $216,000

AACSB: Analytic
AICPA: Measurement

29. Based on the preceding information, in the eliminating entry to assign differential and
amortize patents for the year:
A. Differential will be credited for $10,000.
B. Amortization Expense will be credited for $2,000.
C. Amortization Expense will be debited for $1,000.
D. Patents will be debited for $10,000.

AACSB: Analytic
AICPA: Measurement

9-36
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Chapter 09 - Consolidation Ownership Issues

Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 2005,
at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest
was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on
January 1, 2008, contained the following balances:

On January 1, 2008, Movie acquired 5,000 of its own $2 par value common shares from
Nonaffiliated Corporation for $6 per share.

30. Based on the preceding information, what is the increase in the book value of the equity
attributable to the parent as a result of the repurchase of shares by Movie Corporation?
A. $19,375
B. $6,125
C. $2,625
D. $9,000

AACSB: Analytic
AICPA: Measurement

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Chapter 09 - Consolidation Ownership Issues

31. Based on the preceding information, what will be the journal entry to be recorded on
Cinema Company's books to recognize the change in the book value of the shares it holds?

A. Option A
B. Option B
C. Option C
D. Option D

AACSB: Analytic
AICPA: Measurement

32. Based on the preceding information, the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares will include:
A. a credit to Noncontrolling Interest for $19,375.
B. a credit to Additional Paid-In Capital for $75,000.
C. a debit to Treasury Shares for $30,000.
D. a credit to Investment in Movie stock for $6,125.

AACSB: Analytic
AICPA: Measurement

9-38
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Chapter 09 - Consolidation Ownership Issues

33. Based on the preceding information, in the eliminating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares, Investment in
Movie stock will be credited for:
A. $165,625.
B. $135,625.
C. $185,000.
D. $155,000.

AACSB: Analytic
AICPA: Measurement

Lemon Corporation acquired 80 percent of Bricks Corporation's common shares on January


1, 2007, at underlying book value. At that date, the fair value of the noncontrolling interest
was equal to 20 percent of the book value of Bricks Corporation. Bricks prepared the
following balance sheet as of December 31, 2008:

On January 1, 2009, Bricks declares a stock dividend of 9,000 shares on its $5 par value
common stock. The current market price per share of Bricks stock on January 1, 2009, is $20.

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Chapter 09 - Consolidation Ownership Issues

34. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Additional Paid-In Capital for:
A. $50,000.
B. $95,000.
C. $230,000.
D. $185,500.

AACSB: Analytic
AICPA: Measurement

35. Based on the preceding information, the investment elimination entry required to prepare
a consolidated balance sheet immediately after the stock dividend is issued will include a
debit to Retained Earnings for:
A. $200,000
B. $65,000
C. $155,000
D. $20,000

AACSB: Analytic
AICPA: Measurement

36. Assume instead that Bricks declared a stock dividend of 3,000 shares on its $5 par value
common stock. The investment elimination entry required to prepare a consolidated balance
sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In
Capital for:
A. $65,000.
B. $95,000.
C. $50,000.
D. $110,000.

AACSB: Analytic
AICPA: Measurement

9-40
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Chapter 09 - Consolidation Ownership Issues

37. Assume that Bricks declared a stock dividend of 3,000 shares on its $5 par value common
stock. The investment elimination entry required to prepare a consolidated balance sheet
immediately after the stock dividend is issued will include a debit to Retained Earnings for:
A. $185,000.
B. $65,000.
C. $155,000.
D. $140,000.

AACSB: Analytic
AICPA: Measurement

9-41
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Chapter 09 - Consolidation Ownership Issues

Micron Corporation owns 75 percent of the common shares and 60 percent of the preferred
shares of Stanley Company, all acquired at underlying book value on January 1, 2008. At that
date, the fair value of the noncontrolling interest in Stanley's common stock was equal to 25
percent of the book value of its common stock. The balance sheets of Micron and Stanley
immediately after the acquisition contained these balances:

Stanley's preferred stock pays a 12 percent dividend and is cumulative. For 2008, Stanley
reports net income of $40,000 and pays no dividends. Micron reports income from its separate
operations of $75,000 and pays dividends of $30,000 during 2008.

38. Based on the preceding information, what is the total noncontrolling interest reported in
the consolidated balance sheet as of January 1, 2008?
A. $80,000
B. $40,000
C. $50,000
D. $60,000

AACSB: Analytic
AICPA: Measurement

9-42
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Chapter 09 - Consolidation Ownership Issues

39. Based on the preceding information, what is the income assigned to the noncontrolling
interest in the 2008 consolidated income statement?
A. $10,000
B. $7,000
C. $11,800
D. $4,800

AACSB: Analytic
AICPA: Measurement

40. Based on the preceding information, what amount of income is attributable to the
controlling interest in the consolidated income statement for 2008?
A. $75,000
B. $105,000
C. $96,000
D. $103,200

AACSB: Analytic
AICPA: Measurement

41. Based on the preceding information, what is the total stockholders' equity reported in the
consolidated balance sheet as of January 1, 2008?
A. $450,000
B. $530,000
C. $490,000
D. $370,000

AACSB: Analytic
AICPA: Measurement

9-43
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Chapter 09 - Consolidation Ownership Issues

42. Based on the preceding information, what amount is reported as preferred stock
outstanding reported in the consolidated balance sheet as of January 1, 2008?
A. $0
B. $40,000
C. $50,000
D. $44,000

AACSB: Analytic
AICPA: Measurement

Essay Questions

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Chapter 09 - Consolidation Ownership Issues

43. Windsor Corporation acquired 90 percent of Agro Corporation's common shares on


January 1, 2006, at underlying book value. At that date, the fair value of the noncontrolling
interest was equal to 10 percent of the book value of Agro. Agro Corporation prepared the
following balance sheet as of January 1, 2009:

The company is considering a 3-for-1 stock split, a stock dividend of 7,000 shares, or a stock
dividend of 2,000 shares on its $5 par value common stock. The current market price per
share of Agro stock on January 1, 2009, is $15.
Required:
Give the investment elimination entry required to prepare a consolidated balance sheet at the
close of business on January 1, 2009, for each of the alternative transactions under
consideration by Agro Corporation.

9-45
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Chapter 09 - Consolidation Ownership Issues

AACSB: Analytic
AICPA: Measurement

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Chapter 09 - Consolidation Ownership Issues

44. On January 1, 2007, Infinity Corporation acquired 90 percent of Trader Corporation's


common stock for $315,000. At the date of acquisition, the fair value of the noncontrolling
interest was $35,000, and Trader reported common stock outstanding of $150,000 and
retained earnings of $180,000. The differential is assigned to a patent with a remaining life of
eight years. Each year since acquisition, Trader has reported income from operations of
$50,000 and paid dividends of $30,000.

Trader acquired 75 percent ownership of Minnow Company on January 1, 2009, for


$187,500. At that date, the fair value of the noncontrolling interest was $62,500, and Minnow
reported common stock outstanding of $100,000 and retained earnings of $130,000. In 2009,
Minnow reported net income of $20,000 and paid dividends of $8,000. The differential is
assigned to buildings and equipment with an economic life of 10 years at the date of
acquisition.
Required:
1) Prepare the journal entries recorded by Trader for its investment in Minnow during 2009.
2) Prepare the journal entries recorded by Infinity for its investment in Trader during 2009.
3) Prepare the eliminating entries related to Trader's investment in Minnow and Infinity's
investment in Trader needed to prepare consolidated financial statements for Infinity and its
subsidiaries at December 31, 2009.

9-47
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Chapter 09 - Consolidation Ownership Issues

1) Journal entries recorded by Trader Corporation on its investment in Minnow Company:

2) Journal entries recorded by Infinity Corporation on its investment in Trader Corporation:

3) Eliminating entries:

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Chapter 09 - Consolidation Ownership Issues

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Chapter 09 - Consolidation Ownership Issues

AACSB: Analytic
AICPA: Measurement

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Chapter 09 - Consolidation Ownership Issues

45. On January 1, 2008, Orion Company acquired 70 percent of Simplex Company's stock at
underlying book value. At that date, the fair value of the noncontrolling interest was equal to
30 percent of the book value of Simplex Company. On December 31, 2009, Simplex acquired
15 percent of Orion's stock. Balance sheets for the two companies on December 31, 2009, are
as follows:

Required:
Assuming that the treasury stock method is used in reporting Orion's shares held by Simplex,
prepare a consolidated balance sheet workpaper and consolidated balance sheet for December
31, 2009.

9-51
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Chapter 09 - Consolidation Ownership Issues

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Chapter 09 - Consolidation Ownership Issues

AACSB: Analytic
AICPA: Measurement

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Chapter 09 - Consolidation Ownership Issues

46. Portfolio Corporation acquired 70 percent ownership of Index Company on January 1,


2006, at underlying book value. At that date, the fair value of the noncontrolling interest was
equal to 30 percent of the book value of Index. On January 1, 2008, Portfolio sold 1,000
shares of Index Company for $20,000 to Adventure Corporation and recorded a $5,000 gain.
Trial balances for the companies on December 31, 2008, contain the following data:

Index Company's net income was earned evenly throughout the year. Both companies
declared and paid their dividends on December 31, 2008. Portfolio uses the basic equity
method in accounting for its investment in Index.
Required:
1) Prepare the elimination entries needed to complete a full consolidation workpaper for 2008.
2) Prepare a consolidation workpaper for 2008.

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Chapter 09 - Consolidation Ownership Issues

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Chapter 09 - Consolidation Ownership Issues

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Chapter 09 - Consolidation Ownership Issues

AACSB: Analytic
AICPA: Measurement

9-57