1. On April 1, 2006, Dart Co. paid $620,000 for all the issued and outstanding common stock of
Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, 2006, follow:
Cash $ 60,000
Property and equipment (net of accumulated depreciation of $220,000) 320,000
Net assets $ 540,000
On April 1, 2006, Wall’s inventory had a fair value of $150,000, and the property and equipment
(net) had a fair value of $380,000. What is the amount of goodwill resulting from the business
c. $ 50,000
d. $ 20,000
2. A business combination is accounted for as a purchase. Which of the following expenses related
to the business combination should be included, in total, in the determination of net income of
the combined corporation for the period in which the expenses are incurred?
Fees of finders and consultants Registration fees for equity securities issued
a. Yes Yes
b. Yes No
c. No Yes
d. No No
3. On August 31, 2006, Wood Corp. issued 100,000 shares of its $20 par value common stock for
the net assets of Pine, Inc., in a business combination accounted for by the purchase method.
The market value of Wood’s common stock on August 31 was $36 per share. Wood paid a fee of
$160,000 to the consultant who arranged this acquisition. Costs of registering and issuing the
equity securities amounted to $80,000. No goodwill was involved in the purchase. What amount
should Wood capitalize as the cost of acquiring Pine’s net assets?
Items 4 and 5 are based on the following:
On December 31, 2006, Saxe Corporation was merged into Poe Corporation. In the business
combination, Poe issued 200,000 shares of its $10 par common stock, with a market price of
$18 a share, for all of Saxe’s common stock. The stockholders’ equity section of each company’s
balance sheet immediately before the combination was
Common stock 3,000,000 $1,500,000
Additional paid-in capital 1,300,000 150,000
Retained earnings 2,500,000 850,000
4. In the December 31, 2006 consolidated balance sheet, additional paid-in capital should be
a. $ 950,000
5. In the December 31, 2006 consolidated balance sheet, common stock should be reported at
6. On January 1, 2007, Neal Co. issued 100,000 shares of its $10 par value common stock in
exchange for all of Frey Inc.’s outstanding stock. The fair value of Neal’s common stock on
December 31, 2006, was $19 per share. The carrying amounts and fair values of Frey’s assets
and liabilities on December 31, 2006, were as follows:
Carrying amount Fair value
Cash $ 240,000 $ 240,000
Receivables 270,000 270,000
Inventory 435,000 405,000
Property, plant, and equipment 1,305,000 1,440,000
Liabilities (525,000) (525,000)
Net assets $1,725,000 $1,830,000
What is the amount of goodwill resulting from the business combination?
c. $ 70,000
7. Consolidated financial statements are typically prepared when one company has a controlling
financial interest in another unless
a. The subsidiary is a finance company.
b. The fiscal year-ends of the two companies are more than three months apart.
c. Such control is likely to be temporary.
d. The two companies are in unrelated industries, such as manufacturing and real estate.
8. With respect to business combinations, SFAS 141 provides that
a. The pooling of interests method must be used for all combinations.
b. The pooling of interests method may be used only when specific requirements are met.
c. The purchase method must be used for all combinations.
d. The purchase method may be used only when specific requirements are met.
9. A business combination is accounted for appropriately as a purchase. Which of the following
should be deducted in determining the combined corporation’s net income for the current
Direct costs of acquisition General expenses related to acquisition
a. Yes No
b. Yes Yes
c. No Yes
d. No No
10. PDX Corp. acquired 100% of the outstanding common stock of Sea Corp. in a purchase
transaction. The cost of the acquisition exceeded the fair value of the identifiable assets and
assumed liabilities. The general guidelines for assigning amounts to the inventories acquired
a. Raw materials to be valued at original cost.
b. Work in process to be valued at the estimated selling prices of finished goods, less both
costs to complete and costs of disposal.
c. Finished goods to be valued at replacement cost.
d. Finished goods to be valued at estimated selling prices, less both costs of disposal and a
reasonable profit allowance.
11. In accounting for a business combination, which of the following intangibles should not be
recognized as an asset apart from goodwill?
b. Lease agreements.
c. Employee quality.
12. With respect to the allocation of the cost of a business acquisition, SFAS 141 requires
a. Cost to be allocated to the assets based on their carrying values.
b. Cost to be allocated based on fair values.
c. Cost to be allocated based on original costs.
d. None of the above.
Items 13 through 17 are based on the following:
On January 1, 2006, Polk Corp. and Strass Corp. had condensed balance sheets as follows:
Current assets $ 70,000 $20,000
Noncurrent assets 90,000 40,000
Total assets $160,000 $60,000
Current liabilities $ 30,000 $10,000
Long-term debt 50,000 --
Stockholders’ equity 80,000 50,000
Total liabilities and stockholders’ equity $160,000 $60,000
On January 2, 2006, Polk borrowed $60,000 and used the proceeds to purchase 90% of the
outstanding common shares of Strass. This debt is payable in ten equal annual principal
payments, plus interest, beginning December 30, 2006. The excess cost of the investment over
Strass’ book value of acquired net assets should be allocated 60% to inventory and 40% to
On Polk’s January 2, 2006 consolidated balance sheet,
13. Current assets should be
14. Noncurrent assets should be
15. Current liabilities should be
16. Noncurrent liabilities including minority interests should be
d. $ 55,000
17. Stockholders’ equity should be
a. $ 80,000
b. $ 85,000
c. $ 90,000
18. On November 30, 2006, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of
the outstanding common stock of Shaw Co. At November 30, 2006, Shaw’s balance sheet
showed a carrying amount of net assets of $3,000,000. At that date, the fair value of Shaw’s
property, plant and equipment exceeded its carrying amount by $400,000. In its November 30,
2006 consolidated balance sheet, what amount should Parlor report as goodwill?
19. A subsidiary, acquired for cash in a business combination, owned inventories with a market
value greater than the book value as of the date of combination. A consolidated balance sheet
prepared immediately after the acquisition would include this difference as part of
a. Deferred credits.
d. Retained earnings.
20. Company J acquired all of the outstanding common stock of Company K in exchange for cash.
The acquisition price exceeds the fair value of net assets acquired. How should Company J
determine the amounts to be reported for the plant and equipment and long-term debt acquired
from Company K?
Plant and equipment Long-term debt
a. K’s carrying amount K’s carrying amount
b. K’s carrying amount Fair value
c. Fair value K’s carrying amount
d. Fair value Fair value
21. In a business combination accounted for as a purchase, the appraised values of the identifiable
assets acquired exceeded the acquisition price. How should the excess appraised value be
a. As negative goodwill.
b. As additional paid-in capital.
c. As a reduction of the values assigned to certain assets and an extraordinary gain for any
d. As positive goodwill.
22. Wright Corp. has several subsidiaries that are included in its consolidated financial statements.
In its December 31, 2006 trial balance, Wright had the following intercompany balances before
Current receivable due from Main Co. $ 32,000
Noncurrent receivable from Main 114,000
Cash advance to Corn Corp. 6,000
Cash advance from King Co. $ 15,000
Intercompany payable to King 101,000
In its December 31, 2006 consolidated balance sheet, what amount should Wright report as
c. $ 36,000
23. Shep Co. has a receivable from its parent, Pep Co. Should this receivable be separately reported
in Shep’s balance sheet and in Pep’s consolidated balance sheet?
Shep’s balance sheet Pep’s consolidated balance sheet
a. Yes No
b. Yes Yes
c. No No
d. No Yes
Items 24 through 27 are based on the following:
Selected information from the separate and consolidated balance sheets and income statements
of Pard, Inc. and its subsidiary, Spin Co., as of December 31, 2006, and for the year then ended
is as follows:
Pard Spin Consolidated
Balance sheet accounts
Accounts receivable $ 26,000 $ 19,000 $ 39,000
Inventory 30,000 25,000 52,000
Investment in Spin 67,000 -- --
Goodwill -- -- 30,000
Minority interest -- -- 10,000
Stockholders’ equity 154,000 50,000 154,000
Income statement accounts
Revenues $200,000 $140,000 $308,000
Cost of goods sold 150,000 110,000 231,000
Gross profit 50,000 30,000 77,000
Equity in earnings of Spin 11,000 -- --
Net income 36,000 20,000 40,000
During 2006, Pard sold goods to Spin at the same markup on cost that Pard uses for all
sales. At December 31, 2006, Spin had not paid for all of these goods and still held
37.5% of them in inventory.
Pard acquired its interest in Spin on January 2, 2005.
24. What was the amount of intercompany sales from Pard to Spin during 2006?
a. $ 3,000
b. $ 6,000
25. At December 31, 2006, what was the amount of Spin’s payable to Pard for intercompany sales?
a. $ 3,000
b. $ 6,000
26. In Pard’s consolidated balance sheet, what was the carrying amount of the inventory that Spin
purchased from Pard?
a. $ 3,000
b. $ 6,000
c. $ 9,000
27. What is the percent of minority interest ownership in Spin?
28. On January 1, 2006, Owen Corp. purchased all of Sharp Corp.’s common stock for $1,200,000.
On that date, the fair values of Sharp’s assets and liabilities equaled their carrying amounts of
$1,320,000 and $320,000, respectively. During 2006, Sharp paid cash dividends of $20,000.
Selected information from the separate balance sheets and income statements of Owen and
Sharp as of December 31, 2006, and for the year then ended follows:
Balance sheet accounts
Investment in subsidiary $1,320,000 --
Retained earnings 1,240,000 560,000
Total stockholders’ equity 2,620,000 1,120,000
Income statement accounts
Operating income 420,000 200,000
Equity in earnings of Sharp 140,000 --
Net income 400,000 140,000
In Owen’s December 31, 2006 consolidated balance sheet, what amount should be reported as
total retained earnings?
29. When a parent-subsidiary relationship exists, consolidated financial statements are prepared in
recognition of the accounting concept of
c. Legal entity.
d. Economic entity.
30. A subsidiary was acquired for cash in a business combination on January 1, 2006. The purchase
price exceeded the fair value of identifiable net assets. The acquired company owned equipment
with a market value in excess of the carrying amount as of the date of combination. A
consolidated balance sheet prepared on December 31, 2006, would
a. Report the unamortized portion of the excess of the market value over the carrying
amount of the equipment as part of goodwill.
b. Report the unamortized portion of the excess of the market value over the carrying
amount of the equipment as part of plant and equipment.
c. Report the excess of the market value over the carrying amount of the equipment as part
of plant and equipment.
d. Not report the excess of the market value over the carrying amount of the equipment
because it would be expensed as incurred.
31. Pride, Inc. owns 80% of Simba, Inc.’s outstanding common stock. Simba, in turn, owns 10% of
Pride’s outstanding common stock. What percentage of the common stock cash dividends
declared by the individual companies should be reported as dividends declared in the
consolidated financial statements?
Dividends declared by Pride Dividends declared by Simba
a. 90% 0%
b. 90% 20%
c. 100% 0%
d. 100% 20%
32. It is generally presumed that an entity is a variable interest entity subject to consolidation if its
a. Less than 50% of total assets.
b. Less than 25% of total assets.
c. Less than 10% of total assets.
d. Less than 10% of total liabilities.
33. Morton Inc., Gilman Co., and Willis Corporation established a special-purpose entity (SPE) to
perform leasing activities for the three corporations. If at the time of formation the SPE is
determined to be a variable interest entity subject to consolidation, which of the corporations
should consolidate the SPE?
a. The corporation with the largest interest in the entity.
b. The corporation that will absorb a majority of the expected losses if they occur.
c. The corporation that has the most voting equity interest.
d. Each corporation should consolidate one-third of the SPE.
34. The determination of whether an interest holder must consolidate a variable interest entity is
a. Each reporting period.
b. When the interest holder initially gets involved with the variable interest entity.
c. Every time the cash flows of the variable interest entity change.
d. Interests in variable interest entities are never consolidated.
35. Matt Co. included a foreign subsidiary in its 2006 consolidated financial statements. The
subsidiary was acquired in 2003 and was excluded from previous consolidations. The change
was caused by the elimination of foreign exchange controls. Including the subsidiary in the 2006
consolidated financial statements results in an accounting change that should be reported
a. By footnote disclosure only.
b. Currently and prospectively.
c. Currently with footnote disclosure of pro forma effects of retroactive application.
d. By restating the financial statements of all prior periods presented.
36. On June 30, 2006, Purl Corp. issued 150,000 shares of its $20 par common stock for which it
received all of Scott Corp.’s common stock. The fair value of the common stock issued is equal
to the book value of Scott Corp.’s net assets. Both corporations continued to operate as separate
businesses, maintaining accounting records with years ending December 31. Net income from
separate company operations and dividends paid were
Six months ended 6/30/06 $750,000 $225,000
Six months ended 12/31/06 825,000 375,000
March 25, 2006 950,000 --
November 15, 2006 -- 300,000
On December 31, 2006, Scott held in its inventory merchandise acquired from Purl on December
1, 2006, for $150,000, which included a $45,000 markup. In the 2006 consolidated income
statement, net income should be reported at
37. On June 30, 2006, Pane Corp. exchanged 150,000 shares of its $20 par value common stock for
all of Sky Corp.’s common stock. At that date, the fair value of Pane’s common stock issued was
equal to the book value of Sky’s net assets. Both corporations continued to operate as separate
businesses, maintaining accounting records with years ending December 31. Information from
separate company operations follows:
Retained earnings—12/31/05 $3,200,000 $925,000
Net income—six months ended 6/30/06 800,000 275,000
Dividends paid—3/25/06 750,000 --
What amount of retained earnings would Pane report in its June 30, 2006 consolidated balance
Items 38 and 39 are based on the following:
Scroll, Inc., a wholly owned subsidiary of Pirn, Inc., began operations on January 1, 2006. The
following information is from the condensed 2006 income statements of Pirn and Scroll:
Sales to Scroll $100,000 $ --
Sales to others 400,000 300,000
Cost of goods sold:
Acquired from Pirn -- 80,000
Acquired from others 350,000 190,000
Gross profit 150,000 30,000
Depreciation 40,000 10,000
Other expenses 60,000 15,000
Income from operations 50,000 5,000
Gain on sale of equipment to Scroll 12,000 --
Income before income taxes $ 62,000 $ 5,000
Sales by Pirn to Scroll are made on the same terms as those made to third parties.
Equipment purchased by Scroll from Pirn for $36,000 on January 1, 2006, is depreciated
using the straight-line method over four years.
38. In Pirn’s December 31, 2006, consolidating worksheet, how much intercompany profit should be
eliminated from Scroll’s inventory?
d. $ 6,000
39. What amount should be reported as depreciation expense in Pirn’s 2006 consolidated income
40. Clark Co. had the following transactions with affiliated parties during 2006:
Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this
inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert
Purchases of raw materials totaling $240,000 from Kent Corp., a wholly owned
subsidiary. Kent’s gross profit on the sale was $48,000. Clark had $60,000 of this
inventory remaining on December 31, 2006.
Before eliminating entries, Clark had consolidated current assets of $320,000. What amount
should Clark report in its December 31, 2006 consolidated balance sheet for current assets?
41. Parker Corp. owns 80% of Smith Inc.’s common stock. During 2006, Parker sold Smith
$250,000 of inventory on the same terms as sales made to third parties. Smith sold all of the
inventory purchased from Parker in 2006. The following information pertains to Smith and
Parker’s sales for 2006:
Sales $1,000,000 $700,000
Cost of sales 400,000 350,000
$ 600,000 $350,000
What amount should Parker report as cost of sales in its 2006 consolidated income statement?
42. Selected information from the separate and consolidated balance sheets and income statements
of Pare, Inc. and its subsidiary, Shel Co., as of December 31, 2006, and for the year then ended
is as follows:
Pare Shel Consolidated
Balance sheet accounts
Accounts receivable $ 52,000 $ 38,000 $ 78,000
Inventory 60,000 50,000 104,000
Income statement accounts
Revenues $400,000 $280,000 $616,000
Cost of goods sold 300,000 220,000 462,000
Gross profit $100,000 $ 60,000 $154,000
During 2006, Pare sold goods to Shel at the same markup on cost that Pare uses for all sales.
In Pare’s consolidating worksheet, what amount of unrealized intercompany profit was
a. $ 6,000
43. During 2006, Pard Corp. sold goods to its 80%-owned subsidiary, Seed Corp. At December 31,
2006, one-half of these goods were included in Seed’s ending inventory. Reported 2006 selling
expenses were $1,100,000 and $400,000 for Pard and Seed, respectively. Pard’s selling
expenses included $50,000 in freight-out costs for goods sold to Seed. What amount of selling
expenses should be reported in Pard’s 2006 consolidated income statement?
44. On January 1, 2006, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly owned
subsidiary. Poe paid $1,100,000 for this machine, which had accumulated depreciation of
$250,000. Poe estimated a $100,000 salvage value and depreciated the machine on the
straight-line method over twenty years, a policy which Saxe continued. In Poe’s December 31,
2006 consolidated balance sheet, this machine should be included in cost and accumulated
Cost Accumulated depreciation
a. $1,100,000 $300,000
b. $1,100,000 $290,000
c. $ 900,000 $ 40,000
d. $ 850,000 $ 42,500
45. Wagner, a holder of a $1,000,000 Palmer, Inc. bond, collected the interest due on March 31,
2006, and then sold the bond to Seal, Inc. for $975,000. On that date, Palmer, a 75% owner of
Seal, had a $1,075,000 carrying amount for this bond. What was the effect of Seal’s purchase of
Palmer’s bond on the retained earnings and minority interest amounts reported in Palmer’s
March 31, 2006 consolidated balance sheet?
Retained earnings Minority interest
a. $100,000 increase $0
b. $ 75,000 increase $ 25,000 increase
c. $0 $ 25,000 increase
d. $0 $100,000 increase
46. Sun, Inc. is a wholly owned subsidiary of Patton, Inc. On June 1, 2006, Patton declared and paid
a $1 per share cash dividend to stockholders of record on May 15, 2006. On May 1, 2006, Sun
bought 10,000 shares of Patton’s common stock for $700,000 on the open market, when the
book value per share was $30. What amount of gain should Patton report from this transaction
in its consolidated income statement for the year ended December 31, 2006?
47. Perez, Inc. owns 80% of Senior, Inc. During 2006, Perez sold goods with a 40% gross profit to
Senior. Senior sold all of these goods in 2006. For 2006 consolidated financial statements, how
should the summation of Perez and Senior income statement items be adjusted?
a. Sales and cost of goods sold should be reduced by the intercompany sales.
b. Sales and cost of goods sold should be reduced by 80% of the intercompany sales.
c. Net income should be reduced by 80% of the gross profit on intercompany sales.
d. No adjustment is necessary.
48. Water Co. owns 80% of the outstanding common stock of Fire Co. On December 31, 2006, Fire
sold equipment to Water at a price in excess of Fire’s carrying amount, but less than its original
cost. On a consolidated balance sheet at December 31, 2006, the carrying amount of the
equipment should be reported at
a. Water’s original cost.
b. Fire’s original cost.
c. Water’s original cost less Fire’s recorded gain.
d. Water’s original cost less 80% of Fire’s recorded gain.
49. Port, Inc. owns 100% of Salem, Inc. On January 1, 2006, Port sold Salem delivery equipment at
a gain. Port had owned the equipment for two years and used a five-year straight-line
depreciation rate with no residual value. Salem is using a three-year straight-line depreciation
rate with no residual value for the equipment. In the consolidated income statement, Salem’s
recorded depreciation expense on the equipment for 2006 will be decreased by
a. 20% of the gain on sale.
b. 33 1/3% of the gain on sale.
c. 50% of the gain on sale.
d. 100% of the gain on sale.
50. P Co. purchased term bonds at a premium on the open market. These bonds represented 20%
of the outstanding class of bonds issued at a discount by S Co., P’s wholly owned subsidiary. P
intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between
the bond carrying amounts in the two companies would
a. Decrease retained earnings.
b. Increase retained earnings.
c. Be reported as a deferred debit to be amortized over the remaining life of the bonds.
d. Be reported as a deferred credit to be amortized over the remaining life of the bonds.
51. Eltro Company acquired a 70% interest in the Samson Company in 2005. For the years ended
December 31, 2006 and 2007, Samson reported net income of $80,000 and $90,000,
respectively. During 2006, Samson sold merchandise to Eltro for $10,000 at a profit of $2,000.
The merchandise was later resold by Eltro to outsiders for $15,000 during 2007. For
consolidation purposes what is the minority interest’s share of Samson’s net income for 2006
and 2007 respectively?
a. $23,400 and $27,600.
b. $24,000 and $27,000.
c. $24,600 and $26,400.
d. $26,000 and $25,000.
Items 52 and 53 are based on the following:
On January 1, 2006, Ritt Corp. purchased 80% of Shaw Corp.’s $10 par common stock for
$975,000. On this date, the carrying amount of Shaw’s net assets was $1,000,000. The fair
values of Shaw’s identifiable assets and liabilities were the same as their carrying amounts
except for plant assets (net) that were $100,000 in excess of the carrying amount. For the year
ended December 31, 2006, Shaw had net income of $190,000 and paid cash dividends totaling
52. In the January 1, 2006 consolidated balance sheet, goodwill should be reported at
b. $ 75,000
c. $ 95,000
53. In the December 31, 2006 consolidated balance sheet, minority interest should be reported at
Items 54 through 56 are based on the following:
On January 2, 2007, Pare Co. purchased 75% of Kidd Co.’s outstanding common stock. Selected
balance sheet data at December 31, 2007, is as follows:
Total assets $420,000 $180,000
Liabilities $120,000 $ 60,000
Common stock 100,000 50,000
Retained earnings 200,000 70,000
During 2007 Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their
shareholders. There were no other intercompany transactions.
54. In its December 31, 2007 consolidated statement of retained earnings, what amount should Pare
report as dividends paid?
a. $ 5,000
55. In Pare’s December 31, 2007 consolidated balance sheet, what amount should be reported as
minority interest in net assets?
b. $ 30,000
c. $ 45,000
56. In its December 31, 2007 consolidated balance sheet, what amount should Pare report as
a. $ 50,000
57. On September 1, 2005, Phillips, Inc. issued common stock in exchange for 20% of Sago, Inc.’s
outstanding common stock. On July 1, 2006, Phillips issued common stock for an additional 75%
of Sago’s outstanding common stock. Sago continues in existence as Phillips’ subsidiary. How
much of Sago’s 2006 net income should be reported as accruing to Phillips?
a. 20% of Sago’s net income to June 30 and all of Sago’s net income from July 1 to
b. 20% of Sago’s net income to June 30 and 95% of Sago’s net income from July 1 to
c. 95% of Sago’s net income.
d. All of Sago’s net income.
58. Mr. & Mrs. Dart own a majority of the outstanding capital stock of Wall Corp., Black Co., and
West, Inc. During 2006, Wall advanced cash to Black and West in the amount of $50,000 and
$80,000, respectively. West advanced $70,000 in cash to Black. At December 31, 2006, none of
the advances was repaid. In the combined December 31, 2006 balance sheet of these
companies, what amount would be reported as receivables from affiliates?
c. $ 60,000
59. Selected data for two subsidiaries of Dunn Corp. taken from December 31, 2006 preclosing trial
balances are as follows:
Banks Co. debit Lamm Co. credit
Shipments to Banks $ -- $150,000
Shipments from Lamm 200,000 --
Intercompany inventory profit on total shipments -- 50,000
Additional data relating to the December 31, 2006 inventory are as follows:
Inventory acquired from outside parties $175,000 $250,000
Inventory acquired from Lamm 60,000 --
At December 31, 2006, the inventory reported on the combined balance sheet of the two
subsidiaries should be
60. Ahm Corp. owns 90% of Bee Corp.’s common stock and 80% of Cee Corp.’s common stock. The
remaining common shares of Bee and Cee are owned by their respective employees. Bee sells
exclusively to Cee, Cee buys exclusively from Bee, and Cee sells exclusively to unrelated
companies. Selected 2006 information for Bee and Cee follows:
Bee Corp. Cee Corp.
Sales $130,000 $91,000
Cost of sales 100,000 65,000
Beginning inventory None None
Ending inventory None 65,000
What amount should be reported as gross profit in Bee and Cee’s combined income statement
for the year ended December 31, 2006?
61. The following information pertains to shipments of merchandise from Home Office to Branch
Home Office’s cost of merchandise $160,000
Intracompany billing 200,000
Sales by Branch 250,000
Unsold merchandise at Branch on December 31, 2006 20,000
In the combined income statement of Home Office and Branch for the year ended December 31,
2006, what amount of the above transactions should be included in sales?
62. Mr. and Mrs. Gasson own 100% of the common stock of Able Corp. and 90% of the common
stock of Baker Corp. Able previously paid $4,000 for the remaining 10% interest in Baker. The
condensed December 31, 2006 balance sheets of Able and Baker are as follows:
Assets $600,000 $60,000
Liabilities $200,000 $30,000
Common stock 100,000 20,000
Retained earnings 300,000 10,000
In a combined balance sheet of the two corporations at December 31, 2006, what amount
should be reported as total stockholders’ equity?
63. Mr. Cord owns four corporations. Combined financial statements are being prepared for these
corporations, which have intercompany loans of $200,000 and intercompany profits of
$500,000. What amount of these intercompany loans and profits should be included in the
combined financial statements?
a. $200,000 $0
b. $200,000 $500,000
c. $0 $0
d. $0 $500,000
64. Combined statements may be used to present the results of operations of
Companies under common management Commonly controlled companies
a. No Yes
b. Yes No
c. No No
d. Yes Yes
65. Which of the following items should be treated in the same manner in both combined financial
statements and consolidated statements?
Income taxes Minority interest
a. No No
b. No Yes
c. Yes Yes
d. Yes No
66. Which of the following items should be treated in the same manner in both combined financial
statements and consolidated statements?
Different fiscal periods Foreign operations
a. No No
b. No Yes
c. Yes Yes
d. Yes No