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Chapter 05 Quiz.docx
Chapter_05_Quiz.docx
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Chapter 05 Quiz.docx-Chapter 05 Quiz 1. Pedro purc...
Chapter_05_Quiz.docx-Chapter 05 Quiz 1. Pedro purchased
Chapter 05 Quiz.docx-Chapter 05 Qui...
Chapter_05_Quiz.docx-Chapter 05 Quiz 1. Pedro purchased
Page 3
Chapter 3
3-3
5.
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for
$469,000. On that date the book value of the net assets of Set totaled
$500,000. Based on the appraisal done at the time of the purchase, all
assets and liabilities had book values equal to their fair values except
as follows:
Book
Value
Fair Value
Inventory
...........................
$100,000
$120,000
Land
...............................
75,000
85,000
Equipment (useful life 4 years)
.....
125,000
165,000
The $70,000 of excess of cost over book value was allocated to a patent
with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income
of $100,000.
What is consolidated net income if Promo includes in its net income,
income from Set using the sophisticated equity method?
a. $42,000
b. $70,000
c. $200,000
d. $270,000
ANS: C
DIF: M
OBJ: 1, 4, 6
6.
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for
$469,000. On that date the book value of the net assets of Set totaled
$500,000. Based on the appraisal done at the time of the purchase, all
assets and liabilities had book values equal to their fair values except
as follows:
Book
Value
Fair Value
Inventory
...........................
$100,000
$120,000
Land
...............................
75,000
85,000
Equipment (useful life 4 years)
.....
125,000
165,000
The $70,000 of excess of cost over book value was allocated to a patent
with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income
of $100,000.
What income from subsidiary did Promo include in its net income if Promo
uses the simple equity method?
a. $33,000
b. $42,000
c. $70,000
d. $100,000
ANS: C
DIF: D
OBJ: 1, 6
Page 4
Chapter 3
3-4
7.
On January 1, 20X1, Promo, Inc. purchased 70% of Set Corporation for
$469,000. On that date the book value of the net assets of Set totaled
$500,000. Based on the appraisal done at the time of the purchase, all
assets and liabilities had book values equal to their fair values except
as follows:
Book
Value
Fair Value
Inventory
...........................
$100,000
$120,000
Land
...............................
75,000
85,000
Equipment (useful life 4 years)
.....
125,000
165,000
The $70,000 of excess of cost over book value was allocated to a patent
with a 10-year useful life.
During 20X1 Promo reported net income of $200,000 and Set had net income
of $100,000.
What income from subsidiary did Promo include in its net income if Promo
uses the sophisticated equity method?
a. $33,000
b. $42,000
c. $70,000
d. $100,000
ANS: B
DIF: D
OBJ: 1, 6
8.
On January 1, 20X1, Rabb Corp. purchased 80% of Sunny Corp.'s $10 par
common stock for $975,000. On this date, the carrying amount of Sunny's
net assets was $1,000,000. The fair values of Sunny's identifiable
assets and liabilities were the same as their carrying amounts except
for plant assets (net), which were $100,000 in excess of the carrying
amount.
In the January 1, 20X1, consolidated balance sheet, goodwill should be
reported at
.
a. $0
b. $75,000
c. $95,000
d. $175,000
ANS: C
DIF: E
OBJ: 2, 3, 4
9.
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.
ANS: C
DIF: E
OBJ: 2, 3
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