Question 1. Penn Inc., a manufacturing company, owns 75 percent of the common stock of Sell Inc., an investment company. Sell owns 60 percent of the common stock of Vane Inc., an insurance company. In Penn's consolidated statements, should consolidation accounting or equity-method accounting be used for Sell and Vane?
a. Consolidation used for Sell and equity method used for Vane
b. Consolidation used for both Sell and Vane
c. Equity method used for Sell and consolidation used for Vane
d. Equity method used for both Sell and Vane.
Question 2. On January 1, 20X1, Prim Inc. acquired all of Scar Inc.'s outstanding common shares for cash equal to the stock's book value. The carrying amount of Scrap's assets and liabilities approximated their fair values, except that the carrying amount of its building was more than fair value. In preparing Prim's 20X2 consolidated income statement, which of the following adjustments would be made?
a. Decrease depreciation expense and recognize goodwill amortization
b. Increase depreciation expense and recognize goodwill amortization
c. Decrease depreciation expense and recognize no goodwill amortization
d. Increase depreciation expense and recognize no goodwill amortization