1. How is portion of consolidated earnings to be allocated to noncontrolling interest in consolidated financial statements determined?
a. Parent's net income is subtracted from subsidiary's net income to determine noncontrolling interest
b. Subsidiary's net income is extended to noncontrolling interest
c. Amount of subsidiary's earnings recognized for consolidation purposes is multiplied by noncontrolling interest's percentage of ownership
d. Amount of consolidated earnings on consolidated workpapers is multiplied by noncontrolling interest percentage on balance sheet date
2. On January 1, 20x5, Post Company bought 80 percent investment in Stake Company. Acquisition cost was equal to Post's equity in Stake's net assets at that date. On January 2, 20x5, Post and Stake had retained earnings of $500,000 and $100,000, respectively. In 20x5, Post had net income of $200,000, that included its equity in Stake's earnings, and declared dividends of $50,000; Stake had net income of $40,000 and declared dividends of $20,000; there were no other intercompany transactions between parent and subsidiary. On December 31, 20x5, what must the consolidated retained earnings be?
a. $650,000
b. $666,000
c. $766,000
d. $770,000
Items 8 and 9 are based on given information:
On January 1, 20x8, Ritt Corporation bought 80 percent of Shaw Corporation's $10 par common stock for $975,000. On this date, carrying amount of Shaw's net assets was $1,000,000. Fair value of Shaw's identifiable assets and liabilities were same as their carrying amounts except for plant assets (net), that were $100,000 in excess of carrying amount. For year ended December 31, 20x8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000.
3. In January 1, 20x8, consolidated balance sheet, goodwill must be reported at:
a. $0
b. $75,000
c. $95,000
d. $175,000
4. In December 31, 20x8 consolidated balance sheet, noncontrolling interest must be reported at:
a. $200,000
b. $213,000
c. $220,000
d. $233,000
5. Perez Inc. owns 80 percent of Senior Inc. During 20x2, Perez sold goods with 40 percent gross profit to Senior. Senior sold all of these goods in 20x2. For 20x2 consolidated financial statements, how must the summation of Perez and Senior income statement items be adjusted?
a. Sales and cost of goods sold must be reduced by the intercompany sales
b. Sales and cost of goods sold must be reduced by 80 percent of intercompany sales
c. Net income should be reduced by 80 percent of the gross profit on intercompany sales.
d. No adjustment is essential