Multiple Choice Questions
1. McKinley, Inc., owns 100 percent of Jackson Company’s 45,000 voting shares. On June 30, McKinley’s internal accounting records show a $192,000 equity method adjusted balance for its investment in Jackson. McKinley sells 15,000 of its Jackson shares on the open market for $80,000 on June 30. How should McKinley record the excess of the sale proceeds over its carrying amount for the shares?
a. Reduce goodwill by $64,000.
b. Recognize a gain on sale for $16,000.
c. Increase its additional paid-in capital by $16,000.
d. Recognize a revaluation gain on its remaining shares of $48,000.
Use the following information for Problems 2 through 3:
West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had a trademark (with a 10-year remaining life) that was undervalued in the financial records by $60,000. Also, patented technology (with a 5-year remaining life) was undervalued by $40,000. Two years later, the following figures are reported by these two companies (stockholders’ equity accounts have been omitted):

2. What is the consolidated net income before allocation to the controlling and noncontrolling interests?
a. $400,000 .
b. $486,000 .
c. $491,600 .
d. $500,000 .
3. What is the consolidated trademarks balance?
a. $508,000 .
b. $514,000 .
c. $520,000 .
d. $540,000 .
Use the following information for Problems 4 through 7:
On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

On January 2, Park borrowed $60,000 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand’s total fair value. The $60,000 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for each of the following?
4. Noncurrent assets:
a. $130,000 .
b. $134,000 .
c. $138,000 .
d. $140,000

5. Current liabilities:
a. $50,000.
b. $46,000.
c. $40,000.
d. $30,000.

6. Noncurrent liabilities:
a. $110,000.
b. $104,000.
c. $90,000.
d. $50,000

7. Stockholders’ equity:
a. $80,000 .
b. $90,000 .
c. $95,000 .
d. $130,000 .

  • CreatedJanuary 08, 2015
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