Question

For each question, select the single best answer.
1. Water Company owns 80 percent of Fire Company’s outstanding common stock. On December 31, 20X9, 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, 20X9, 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 percent of Fire’s recorded gain.
2. Company J acquired all of Company K’s outstanding common stock 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
3. Port Inc. owns 100 percent of Salem Inc. On January 1, 20X2, Port sold delivery equipment to Salem 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 20X2 will be decreased by
a. 20 percent of the gain on the sale.
b. 331/3 percent of the gain on the sale.
c. 50 percent of the gain on the sale.
d. 100 percent of the gain on the sale.
4. On January 1, 20X0, Poe Corporation sold a machine for $900,000 to Saxe Corporation, 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 using the straightline method over 20 years, a policy that Saxe continued. In Poe’s December 31, 20X0, consolidated balance sheet, this machine should be included in fixed-asset cost and accumulated depreciation as


5. Scroll Inc., a wholly owned subsidiary of Pirn Inc., began operations on January 1, 20X1. The following information is from the condensed 20X1 income statements of Pirn and Scroll:



Scroll purchased equipment from Pirn for $36,000 on January 1, 20X1, that is depreciated using the straight-line method over four years. What amount should be reported as depreciation expense in Pirn’s 20X1 consolidated income statement?
a. $50,000.
b. $47,000.
c. $44,000.
d.$41,000.


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  • CreatedMay 23, 2014
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