Question

In: Accounting

1. When preparing a consolidated balance​ sheet: A.neither investment in subsidiary nor the​ subsidiary's shareholders' equity...

1. When preparing a consolidated balance​ sheet:

A.neither investment in subsidiary nor the​ subsidiary's shareholders' equity will be presented

B.the​ shareholders' equity of the parent will be eliminated but investment in subsidiary will be presented

C.investment in subsidiary will be presented but the​ shareholders' equity of the subsidiary will be eliminated

D.both investment in subsidiary and the​ shareholders' equity of the parent will be eliminated

2.Goodwill is​ a(n) ________ on the​ ________.

A.longminus−term ​investment; consolidated balance sheet

B.current​ asset; subsidiary's balance sheet

C.intangible​ asset; consolidated balance sheet

D.intangible​ asset; subsidiary's balance sheet

3.Brighton Beach Limited owns​ 40% of Alberta Based Inc. Total cash dividends paid by Alberta Based Inc. for the year ending December​ 31, 2017, amount to​ $47,919. The journal entry prepared by Brighton Beach Limited on December​ 31, 2017, includes​ a:

A.credit to Dividend Revenue for​ $19,168

B.debit to Cash for​ $47,918

C.credit toLongminus−Term Investment for​ $19,168

D.debit toLongminus−TermInvestment for​ $19,168

4.Power Generation Corp. owns​ 38% of Electric Limited. Net income for Electric Limited for the year ending December​ 31, 2017, is​ $450,000. The journal entry prepared by Power Generation Corp. on December​ 31, 2017, includes​ a:

A.debit to Longminus−Term Investment for​ $450,000

B.debit to Longminus−Term Investment for​ $171,000

C.debit to Cash for​ $171,000

D.credit to Longminus−Term Investment for​ $171,000

Solutions

Expert Solution

1. A.neither investment in subsidiary nor the​ subsidiary's shareholders' equity will be presented is the correct answer.

Explanation:

Whenever the consolidated financial statements are prepared eliminations entries needed to be passed to eliminate the dual effect on the financial statements.

So elimination entry is recorded where investment in subsidiary and correspondingly subsidiary's shareholders' equity is eliminated which helps in showing the true financial position on the consolidated financials of the company.

2. C.intangible​ asset; consolidated balance sheet is the correct answer

Explanation:

Goodwill is an intangible asset i.e. an asset which can not be seen or touched or which does not have any physical presence and is recorded and presented in the consolidated financial statement of the company to show the effect of price paid over and above the fair value of the subsidiary company.

3. C.credit toLongminus−Term Investment for​ $19,168 is the correct answer

Explanation:

The equity method is used when the investor company holds more than 20 percent but less than 50 percent of another company's stock. If the investee pays a dividend, the investor receiving the dividend will record the cash amount but will also record a decrease in the value of the investment on its balance sheet.

So the company on receiving dividing they will record the Journal Entry as follows:

Hence, option c is the correct answer.

4. B.debit to Longminus−Term Investment for​ $171,000 is the correct answer.

Explanation:

The equity method is used when the investor company holds more than 20 percent but less than 50 percent of another company's stock. When an investee reports a certain income, the value of the investor's investment increases by an amount proportional to the percentage of ownership.

So the company will record the Journal Entry for net income of associate as follows:

Hence, option b is the correct answer.

ekkarill92 answered 1 year ago
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