1. P Corporation acquired 60 percent of K Corporation on March 31, year 5.Because P controls K; it uses the consolidation method for reporting its investment. P should use which of the following for recording its investment in K for internal record keeping?

1. The cost method must be used.
2. The equity method must be used
3. The cost or the equity method may be used.
4. The consolidation method must be used.

2. AG acquired 80 percent of the shares of its subsidiary LM on January 1, Year 5.On this date the fair value of the land of LM was greater than its carrying value. Which of the combinations of LM’s net book value (NBV) and fair value increments (FVI) would be included in its consolidated assets values for land on December 31, year 6?

1. 80 percent of NBV and 90 Percent of FVI.
2. 100 percent of NBV and 90 Percent of FVI.
3. 100 percent of NBV and 100 Percent of FVI
4. 80 percent of NBV and 80 Percent of FV

Use the following information for Questions 9 and 10

On January 1, Year 6, AB Inc. purchased 80 percent of the common shares of CD Corp. for

$ 1, 400,000. On the date of acquisition CD’s shareholders’ equity was as follows:

Common Shares                             $600,000

Retained Earnings                           608,000

Any acquisition differential was allocated to goodwill. During year 6, CD earned a net income of $400,000 and paid dividends of $300,000. On December 31, year 6, a goodwill impairment loss of $30,000 was recorded.

3. What will be the amount of non-controlling interest on the consolidated balance sheet as at December 31, year 6?

1. $241,600
2. $255,000
3. $261,900
4. $364,000

4. What is consolidated net income attributable to the non-controlling interest on the consolidated income statement for the year ended December31, year 6?

1. $20,000
2. $22,000
3. $74,000
4. $80,000

Answer rating: 100% (QA)

Quiz 1 The equity method must be used The equity method is the only method allowed under generally a... View the full answer