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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 purchased
Page 1
Chapter 05
Quiz
1.
Pedro purchased 100% of the common stock of the Sanburn Company on
January 1, 20X1, for $500,000. On that date, the stockholders' equity of
Sanburn Company was $380,000. On the purchase date, inventory of Sanburn
Company, which was sold during 20X1, was understated by $20,000. Any
remaining excess of cost over book value is attributable to patent with
a 20-year life. The reported income and dividends paid by Sanburn
Company were as follows:
20X1
20X2
Net income
..........................
$80,000
$90,000
Dividends paid
......................
10,000
10,000
Using the simple equity method, which of the following amounts are
correct?
Investment Income
Investment Account Balance
20X1
December
31,
20X1
a.
$80,000
$570,000
b.
$70,000
$570,000
c.
$70,000
$550,000
d.
$80,000
$550,000
ANS: A
DIF: M
OBJ: 1
2.
Pedro purchased 100% of the common stock of the Sanburn Company on
January 1, 20X1, for $500,000. On that date, the stockholders' equity of
Sanburn Company was $380,000. On the purchase date, inventory of Sanburn
Company, which was sold during 20X1, was understated by $20,000. Any
remaining excess of cost over book value is attributable to patent with
a 20-year life. The reported income and dividends paid by Sanburn
Company were as follows:
20X1
20X2
Net income
..........................
$80,000
$90,000
Dividends paid
......................
10,000
10,000
Using the sophisticated (full) equity method, which of the following
amounts are correct?
Investment Income
Investment Account Balance
20X1
December
31,
20X1
a.
$55,000
$555,000
b.
$55,000
$545,000
c.
$75,000
$565,000
d.
$80,000
$570,000
ANS: B
DIF: M
OBJ: 1
Page 2
Chapter 3
3-2
3.
Pedro purchased 100% of the common stock of the Sanburn Company on
January 1, 20X1, for $500,000. On that date, the stockholders' equity of
Sanburn Company was $380,000. On the purchase date, inventory of Sanburn
Company, which was sold during 20X1, was understated by $20,000. Any
remaining excess of cost over book value is attributable to patent with
a 20-year life. The reported income and dividends paid by Sanburn
Company were as follows:
20X1
20X2
Net income
..........................
$80,000
$90,000
Dividends paid
......................
10,000
10,000
Using the cost method, which of the following amounts are correct?
Investment Income
Investment Account Balance
20X1
December
31,
20X1
a.
$10,000
$500,000
b.
$10,000
$570,000
c.
$0
$570,000
d.
$80,000
$500,000
ANS: A
DIF: M
OBJ: 1
4.
What is the effect if an unconsolidated subsidiary is accounted for by
the equity method but consolidated statements are being prepared for the
parent company and
other
subsidiaries?
a.
All of the unconsolidated subsidiary's accounts will be included
individually in the consolidated statements.
b.
The consolidated retained earnings
will not
reflect the earnings
of the unconsolidated subsidiary.
c.
The consolidated retained earnings will be the same as if the
subsidiary had been included in the consolidation.
d.
Dividend revenue from the unconsolidated subsidiary will be
reflected in consolidated net income.
ANS: C
DIF: M
OBJ: 1, 2, 4
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