1.

A parent company uses the partial equity method to account for an investment in common stock of
its subsidiary. A portion of the dividends received this year were in excess of the parent company’s
share of the subsidiary’s earnings subsequent to the date of the investment. The amount of dividend
income that should be reported in the parent company’s separate income statement should be
a. Zero
b. The total amount of dividends received this year
c. The portion of the dividends received this year that were in excess of the parent’s share
of subsidiary’s earnings subsequent to the date of investment
d. The portion of the dividends received this year that were NOT in excess of the parent’s share
of subsidiary’s earnings subsequent to the date of investment

2. Which one of the following describes a difference in how the equity method is applied under GAAP
than under IFRS?
a. The equity method is generally applied to limited partnerships under IFRS for investments of
more than 3 to 5%, whereas GAAP adopts a “significant influence” principle
b. IFRS requires uniform accounting policies, whereas GAAP does not
c. Significant influence is presumed if the investor has 20% or more of the voting rights in a
corporate investee under GAAP, whereas IFRS adopts a “facts and circumstances” approach
that looks beyond the voting rights percentage
d. GAAP requires consideration of potential voting rights on currently exercisable of
convertible instruments, whereas IFRS does not

3. When the implied value exceeds the aggregate fair values of identifiable net assets, the residual
difference is accounted for as
a. Excess of implied over fair value
b. A deferred credit
c. Difference between implied and fair value
d. Goodwill

4. Under which set of circumstances would it not be appropriate to assume the value the non-
controlling shares is the same as the controlling shares?
a. The acquisition is for less than 100% of the subsidiary
b. The fair value of the non-controlling shares can be inferred from the value implied by the
acquisition price
c. Active market prices for shares not obtained by the acquirer imply a different value
d. The amount of the “control premium” cannot be determined

5. When the value implied by the purchase price of a subsidiary is in excess of the fair value of
identifiable net assets, the workpaper entry to allocate the difference between implied and book value
includes a net assets, the workpaper entry to allocate the difference between implied and book value
includes a
1.Debit to difference between implied and book value
2.Credit to excess of implied over fair value
3.Credit to difference between implied and book value
a. 1
b. 2
c. 3
d. Both 1 and 2
6. If the fair value of the subsidiary’s identifiable net assets exceed both the book value and the value
implied by the purchase price, the workpaper entry to eliminate the investment account
a. Debits Excess of Fair Value over Implied Value
b. Debits Difference Between Implied and Fair Value
c. Debits Difference Between Implied and Book Value
d. Credits Difference Between Implied and Book Value

7. The entry to amortize the amount of difference between implied and book value allocated to an
unspecified intangible is recorded
1.On the subsidiary’s books
2.On the parent’s books
3.On the consolidated statements workpaper
a. 1
b. 2
c. 3
d. Both 2 and 3

8. The excess of fair value over implied value must be allocated to reduce proportionally the fair values
initially assigned to
a. Current assets
b. Noncurrent assets
c. Both current and noncurrent assets
d. None of the above

9. The SEC requires the use of push down accounting when the ownership change is greater than
a. 50%
b. 80%
c. 90%
d. 95%

10. A 70% owned subsidiary company declares and pay a cash dividend. What effect does the dividend
have on the retained earnings and non-controlling interest balances in the parent company’s
consolidated balance sheet?
a. No effect on either retained earnings or non-controlling interest
b. No effect on retained earnings and a decrease in non-controlling interest
c. Decreases in both retained earnings and non-controlling interest
d. A decrease in retained earnings and no effect on non-controlling interest