Q44. Company P will report investment income on its income statement as:
If no public market If trading security If available-for-sale security
A) $4,000 $4,000 $4,000
B) $4,000 -$1,000 $4,000
C) $4,000 $4,000 -$1,000
Q45. The California Wines owns 40% of a joint venture, Western Vineyards. Vineyard's income statement for this
period is as follows:
Revenues | $10,000 |
Less: cost of goods sold (COGS) | 7,500 |
Gross profit | $2,500 |
Less: selling and administrative expenses | 500 |
Operating income | $2,000 |
Less: interest expense | 500 |
Earnings before taxes | $1,500 |
Less tax | 600 |
Net income | $900 |
California Wines purchases 30% of the output of Vineyard. The amount of revenues, COGS, and net income of Vineyard to be included in the California Wine's income statement under proportionate consolidation are, respectively:
A) $0; $0; $0.
B) $2,800; $1,800; $360.
C) $4,000; $3,000; $360.
Q46. Which of the following statements about proportionate consolidation and the equity method is FALSE?
A) The equity balance under a proportionate consolidation will differ from that of the equity method because the investor records his pro-rata share of the equity of the affiliate firm in a proportionate consolidation.
B) In a proportionate consolidation, the analyst adds the investor's pro-rata share of each of the affiliate's asset and liability accounts to the historical cost financial statements of the investor.
C) Total assets under proportionate consolidation will most likely exceed the total assets reported under the equity method.
Q47. Which of the following statements about proportionate consolidation is TRUE?
A) Minority interest is computed and shown on a proportionate consolidation balance sheet and income statement.
B) Under the proportionate consolidation method, all asset and liability accounts are added together using original historical costs.
C) The porportionate consolidation method is employed by analysts to better reflect the economic reality of the relationship between an investor and affiliate company which is currently accounted for under the equity method.
答案和详解如下：
Q44. Company P will report investment income on its income statement as:
If no public market If trading security If available-for-sale security
A) $4,000 $4,000 $4,000
B) $4,000 -$1,000 $4,000
C) $4,000 $4,000 -$1,000
Correct answer is B)
Only the dividends are reported on the income statement with either the cost or available-for-sale method. Unrealized losses are posted to the income statement under the trading classification. Hence, unrealized loss of $5,000 plus $4,000 in dividends = $1,000 loss.
Q45. The California Wines owns 40% of a joint venture, Western Vineyards. Vineyard's income statement for this
period is as follows:
Revenues | $10,000 |
Less: cost of goods sold (COGS) | 7,500 |
Gross profit | $2,500 |
Less: selling and administrative expenses | 500 |
Operating income | $2,000 |
Less: interest expense | 500 |
Earnings before taxes | $1,500 |
Less tax | 600 |
Net income | $900 |
California Wines purchases 30% of the output of Vineyard. The amount of revenues, COGS, and net income of Vineyard to be included in the California Wine's income statement under proportionate consolidation are, respectively:
A) $0; $0; $0.
B) $2,800; $1,800; $360.
C) $4,000; $3,000; $360.
Correct answer is B)
[(0.4)($10,000)] − [(0.4)(0.3)($10,000)] = $2,800; [(0.4)($7,500)] − [(0.4)(0.3)($10,000)] = $1,800; (0.4)($900) = $360. Q46. Which of the following statements about proportionate consolidation and the equity method is FALSE?
A) The equity balance under a proportionate consolidation will differ from that of the equity method because the investor records his pro-rata share of the equity of the affiliate firm in a proportionate consolidation.
B) In a proportionate consolidation, the analyst adds the investor's pro-rata share of each of the affiliate's asset and liability accounts to the historical cost financial statements of the investor.
C) Total assets under proportionate consolidation will most likely exceed the total assets reported under the equity method.
Correct answer is A)
The equity balance of the investor will remain unchanged irrespective of whether or not the equity method or proportionate consolidation is employed.
Q47. Which of the following statements about proportionate consolidation is TRUE?
A) Minority interest is computed and shown on a proportionate consolidation balance sheet and income statement.
B) Under the proportionate consolidation method, all asset and liability accounts are added together using original historical costs.
C) The porportionate consolidation method is employed by analysts to better reflect the economic reality of the relationship between an investor and affiliate company which is currently accounted for under the equity method.
Correct answer is C)
The proportionate consolidation method is most appropriate when two firms have entered into a joint venture relationship but the investor accounts for the investment under the equity method because it owns between 20 and 50% of the outstanding shares of the JV. The proportionate consolidation method is used by analysts to better reflect the true economic linkage between the JV and the investor firm. The equity method provides nothing more than a "one-line" consolidation.
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