1. A controlling interest in a company implies that the parent company A. owns all of the subsidiary's stock. B.

has influence over a majority of the subsidiary's assets. C. has paid cash for a majority of the subsidiary's stock. D. has transferred common stock for a majority of the subsidiary's outstanding bonds and debentures. 2. Goodwill represents the excess cost of an acquisition over the A. sum of the fair values assigned to intangible assets less liabilities assumed. B. sum of the fair values assigned to tangible and intangible assets acquired less liabilities assumed. C. sum of the fair values assigned to intangibles acquired less liabilities assumed. D. book value of an acquired company. 3. The SEC and FASB has recommended that a parent corporation should consolidate the financial statements of the subsidiary into its financial statements when it exercises control over the subsidiary, even without majority ownership. In which of the following situations would control NOT be evident? A. Access to subsidiary assets is available to all shareholders. B. Dividend policy is set by the parent. C. The subsidiary does not determine compensation for its main employees. D. Substantially all cash flows of the subsidiary flow to the controlling shareholders. 4. The investment in a subsidiary recorded as a purchase by the parent should be recorded on the parent's books at A. underlying book value of the subsidiary's net assets. B. the fair value of the subsidiary's net identifiable assets. C. the fair value of the consideration given. D. the fair value of the consideration given plus an estimated value for goodwill. 5. The SEC requires the use of push-down accounting in some specific situations. Push-down accounting results in: A. goodwill be recorded in the parent company separate accounts. B. eliminating subsidiary retained earnings and paid-in capital in excess of par. C. reflecting fair values on the subsidiary's separate accounts. D. changing the consolidation worksheet procedure because no adjustment is necessary to eliminate the investment in subsidiary account. 6. Which of the following statements applying to the use of the equity method versus

the cost method is true? A. The equity method is required when one firm owns 20% or more of the common stock of another firm. B. If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods. C. The method used has no significance to consolidated statements. D. An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated work sheet.

7. In consolidated financial statements it is expected that: A. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. B. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. C. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. D. Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest.

8. How is the portion of consolidated earnings to be assigned to noncontrolling interest in consolidated financial statements determined? A. The net income of the parent is subtracted from the subsidiary's net income to determine the noncontrolling interest. B. The subsidiary's net income is extended to the noncontrolling interest. C. The amount of the subsidiary's earnings recognized for consolidation purposes is multiplied by the noncontrolling's percentage ownership. D. The amount of consolidated earnings determined on the consolidated working papers is multiplied by the noncontrolling interest percentage at the balance-sheet date.

Pawnee Company Scenario Balance sheet information for Pawnee Company and its 90% owned subsidiary, Sioux Corporation, at December 31, 20X1 is summarized as follows: Pawnee Sioux Current assets-net.................. $ 200,000 $ 50,000

Property, plant, and equipment-net.. 1,000,000 600,000 Investment in Sioux................. 558,000 $1,758,000 $ 650,000 ========== ======== Current liabilities................. $ 100,000 $ 30,000 Capital stock....................... 800,000 400,000 Retained earnings................... 858,000 220,000 $ 1,758,000 $ 650,000 ========== ======== Pawnee acquired its interest in Sioux for cash at book value several years ago when Sioux's assets and liabilities were equal to their fair values. 9. Refer to the Pawnee Company Scenario. Consolidated total assets of Pawnee and Sioux at December 31, 20X1 will be _______. A. $1,785,000 B. $1,850,000 C. $2,343,000 D. $2,408,000 10. Refer to the Pawnee Company Scenario. The consolidated balance sheet of Pawnee and Sioux at December 31, 20X1 will show: A. Investment in Sioux, $558,000. B. Capital stock, $800,000. C. Retained earnings, $1,078,000. D. Noncontrolling interest, $65,000. 1. C 2. C 3. A 4. B 5. D 6. A 7. B 8. A 9. A 10. B