Multiple-Choice Questions on Consolidation Process
Select the most appropriate answer for each of the following questions.
1. If A Company acquires 80 percent of the stock of B Company on January 1, 20X2, immediately after the acquisition
a. Consolidated retained earnings will be equal to the combined retained earnings of the two companies.
b. Goodwill will always be reported in the consolidated balance sheet.
c. A Company’s additional paid-in capital may be reduced to permit the carry forward of B Company retained earnings.
d. Consolidated retained earnings and A Company retained earnings will be the same.
2. Which of the following is correct?
a. The noncontrolling shareholders’ claim on the subsidiary’s net assets is based on the book value of the subsidiary’s net assets.
b. Only the parent’s portion of the difference between book value and fair value of the subsidiary’s assets is assigned to those assets.
c. Goodwill represents the difference between the book value of the subsidiary’s net assets and the amount paid by the parent to buy ownership.
d. Total assets reported by the parent generally will be less than total assets reported on the consolidated balance sheet.
3. Which of the following statements is correct?
a. Foreign subsidiaries do not need to be consolidated if they are reported as a separate operating group under segment reporting.
b. Consolidated retained earnings do not include the noncontrolling interest’s claim on the subsidiary’s retained earnings.
c. The noncontrolling shareholders’ claim should be adjusted for changes in the fair value of the subsidiary assets but should not include goodwill.
d. Consolidation is expected any time the investor holds significant influence over the investee.
4. [AICPA Adapted] At December 31, 20X9, Grey Inc. owned 90 percent of Winn Corporation, a consolidated subsidiary, and 20 percent of Carr Corporation, an investee in which Grey cannot exercise significant influence. On the same date, Grey had receivables of $300,000 from Winn and $200,000 from Carr. In its December 31, 20X9, consolidated balance sheet, Grey should report accounts receivable from its affiliates of
a. $500,000.
b. $340,000.
c. $230,000.
d. $200,000.
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