1. A 75 percent-owned subsidiary should not be consolidated when:
a. Its operations are dissimilar from those of the parent company
b. Control of the subsidiary does not lie with the parent company
c. T here is a dominant noncontrolling interest in the subsidiary
d. M nagement feels that consolidation would not provide the most meaningful financial statements
2. An 80 percent owned subsidiary that cannot be consolidated must be accounted for:
a. Under the equity method
b. Under the cost method
c. Under the equity method if the parent exercises significant influence over the subsidiary
d. A t market value if the subsidiary is in bankruptcy
3. Consolidated statements for Por Corporation and its 60 percent-owned investee, Spy Company, will not be prepared under current GAAP if:
a. T he fiscal periods of Por and Spy are more than three months apart
b. P or is a major manufacturing company and Spy is an insurance company
c. S py is a foreign company
d. T his is a combination of companies formerly under common control
4. Par Industries owns 7,000,000 shares of Sub Corporation’s outstanding common stock (a 70 percent interest). The remaining 3,000,000 outstanding common shares of Sub are held by Ott Insurance Company. On Par Industries’ consolidated financial statements, Ott Insurance Company is considered:
a. A n investee
b. A n associated company
c. A n affiliated company
d. A noncontrolling interest
5. On January 1, Paxton Company purchased 75 percent of the outstanding shares of Salem Company at a cost exceeding the book value and fair value of Salem’s net assets. Using the following notations, describe the amount at which the plant assets will appear in a consolidated balance sheet of Paxton Company and Subsidiary prepared immediately after the acquisition:
Pbv = book value of Paxton's plant assets
Pfv = fair value of Paxton's plant assets
Sbv = book value of Salem's plant assets
Sfv = fair value of Salem's plant assets
a. P bv + Sbv + (Sfv – Sbv )
b. Pbv + 0.75(Sbv ) + 0.75(Sfv – Sbv )
c. Pbv + 0.75 (Sfv )
d. Pbv + Sbv + 0.75(Sfv-Sbv )