ACCT 4000 Exam 2 (Ch. 8,4,5) Questions and Correct Answers

What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest? a) Consolidated financial statements should be produced only if both the parent and the subsidiary are in the same basic industry. b) A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership. c) Consolidated financial statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent company. d) Consolidated financial statements should be primarily for the benefit of the parent company's stockholders. b) A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership. Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated? a) $0 b) $100,000. c) $400,000. d) $300,000. c) $400,000. In consolidating the subsidiary's figures, all intra-entity balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it. On January 1, 2020, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2021, Neville reports revenues of $400,000 and expenses of $300,000 and Chamberlain reports revenues of $700,000 and expenses of $400,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to Chamberlain Corporation? a) $351,000. b) $385,000. c) $400,000. d) $366,000. a) $351,000