6.Company X owns 40 percent of company S and currently accounts for the investment using the equity method.  Below are the 2002 balance sheets and income statements for companies X and S, in thousands of dollars.

Company X purchases 25 percent of the output of company S, and $4,000 of the receivables of company S are from company X.  If the investment is treated using the proportionate consolidation method, the accounts receivable for company X will be:

A)  $108,000.

B)  $120,000.

C)  $116,000.

D)  $106,400.

7.Company X owns 40 percent of company S and currently accounts for the investment using the equity method.  Below are the 2002 balance sheets and income statements for companies X and S, in thousands of dollars.

Company X purchases 25 percent of the output of company S, and $4,000 of the receivables of company S are from company X.  If the investment is treated using the proportionate consolidation method, the cost of goods sold for company X will be:

A)  $756,000.

B)  $736,000.

C)  $742,000.

D)  $840,000.

8.Company X owns 15 percent of company S and exerts significant control over the operations of the company. The book value of the investment on December 31, 2001, is $48,000. In 2002, company S earned $100,000 and paid dividends of $20,000. The impact of the investment on the income statement of company X is:

A)  $3,000.

B)  $12,000.

C)  $0.

D)  $15,000.

9.Which of the following statements is INCORRECT regarding the accounting for business combinations according to U.S. Generally Accepted Accounting Principles (GAAP)?

A)  Using the equity method of accounting for an investment in another company, the income to the parent company will consist of dividends, interest, and capital gains from its investment in the other company.

B)  Using the equity method, the parent's proportionate share of the affiliate's income is included in the income of the parent.

C) In the case of the consolidation of two companies, the revenues and expenses of both companies are added together, with any inter-company transfers removed and reported on the parent's income statement.

D)  The guidelines recommend using the consolidation method if one company owns more than 50% of another company.

答案和详解如下：

6.Company X owns 40 percent of company S and currently accounts for the investment using the equity method.  Below are the 2002 balance sheets and income statements for companies X and S, in thousands of dollars.

Company X purchases 25 percent of the output of company S, and $4,000 of the receivables of company S are from company X.  If the investment is treated using the proportionate consolidation method, the accounts receivable for company X will be:

A)  $108,000.

B)  $120,000.

C)  $116,000.

D)  $106,400.

The correct answer was D)

The receivables will be increased by the proportionate share of the receivables of company S that are not from company X, which means receivables will be 100,000 + 0.4 x (20,000 − 4,000) = 106,400.

7.Company X owns 40 percent of company S and currently accounts for the investment using the equity method.  Below are the 2002 balance sheets and income statements for companies X and S, in thousands of dollars.

Company X purchases 25 percent of the output of company S, and $4,000 of the receivables of company S are from company X.  If the investment is treated using the proportionate consolidation method, the cost of goods sold for company X will be:

A)  $756,000.

B)  $736,000.

C)  $742,000.

D)  $840,000.

The correct answer was B)

The cost of goods sold will be increased by the proportionate share of the cost of goods sold of company S, less the proportionate share of sales of S made to company X, which means cost of goods sold is equal to 700,000 + (0.4 x 140,000) − 0.4 x 0.25 x 200,000 = 736,000.

8.Company X owns 15 percent of company S and exerts significant control over the operations of the company. The book value of the investment on December 31, 2001, is $48,000. In 2002, company S earned $100,000 and paid dividends of $20,000. The impact of the investment on the income statement of company X is:

A)  $3,000.

B)  $12,000.

C)  $0.

D)  $15,000.

The correct answer was D)

Because company X exerts significant control over company S, the investment will be treated using the equity method, even though the ownership is less than the 20 percent guideline. The impact on the income statement is the proportionate income of company S, which is 0.15 × 100,000 = 15,000.

9.Which of the following statements is INCORRECT regarding the accounting for business combinations according to U.S. Generally Accepted Accounting Principles (GAAP)?

A)  Using the equity method of accounting for an investment in another company, the income to the parent company will consist of dividends, interest, and capital gains from its investment in the other company.

B)  Using the equity method, the parent's proportionate share of the affiliate's income is included in the income of the parent.

C) In the case of the consolidation of two companies, the revenues and expenses of both companies are added together, with any inter-company transfers removed and reported on the parent's income statement.

D)  The guidelines recommend using the consolidation method if one company owns more than 50% of another company.

The correct answer was A)

This is the description of the cost method.